11-K 1 l94938ae11vk.txt HAWK CORPORATION 11-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ___________ COMMISSION FILE NUMBER: 333-68583 A. Full title of the plans and the addresses of the plans, if different from that of the issuer named below: Friction Products Co. Profit Sharing Plan Hawk Corporation 401(k) Savings and Retirement Plan Helsel, Inc. Employees' Savings and Investment Plan Helsel, Inc. Employees' Retirement Plan S. K. Wellman Retirement Savings and Profit Sharing Plan Hawk Motors Employees' 401(k) Plan Quarter Master Industries, Inc. Profit Sharing Plan and Trust Sinterloy Corporation 401(k) Plan B. Name of issuer of the securities held pursuant to the plans and the address of its principal executive office: Hawk Corporation 200 Public Square, Suite 30-5000 Cleveland, Ohio 44114 SIGNATURES The Plans. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plans) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Friction Products Co. Profit Sharing Plan Hawk Corporation 401(k) Savings and Retirement Plan Helsel, Inc. Employees' Savings and Investment Plan Helsel, Inc. Employees' Retirement Plan S. K. Wellman Retirement Savings and Profit Sharing Plan Hawk Motors Employees' 401(k) Quarter Master Industries, Inc. Profit Sharing Plan and Trust Sinterloy Corporation 401(k) Plan Date: June 25, 2002 By: /s/ Thomas A. Gilbride ---------------------- Thomas A. Gilbride Plan Administrator AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Friction Products Co. Profit Sharing Plan December 31, 2001 and 2000 and Year Ended December 31, 2001 with Report of Independent Auditors Friction Products Co. Profit Sharing Plan Audited Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31, 2001 TABLE OF CONTENTS Report of Independent Auditors ......................................... 1 AUDITED FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits......................... 2 Statement of Changes in Net Assets Available for Benefits............... 3 Notes to Financial Statements........................................... 4 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year)........... 8 Report of Independent Auditors Plan Administrator Friction Products Co. Profit Sharing Plan We have audited the accompanying statements of net assets available for benefits of the Friction Products Co. Profit Sharing Plan as of December 31, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2001 and 2000, and the changes in its net assets available for benefits for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2001 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Ernst & Young LLP Cleveland, Ohio June 21, 2002 1 Friction Products Co. Profit Sharing Plan Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 ---------------------------------- ASSETS Investments, at fair value: Pooled separate accounts $ 2,900,297 $ 3,407,507 Hawk Corporation Stock Fund 15,159 13,952 Guaranteed Income Fund, at contract value 2,643,266 2,249,864 ---------------------------------- Total investments 5,558,722 5,671,323 Employer contributions receivable - 307,598 ---------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 5,558,722 $ 5,978,921 ================================== See notes to financial statements. 2 Friction Products Co. Profit Sharing Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2001 Additions: Interest $ 130,852 Contributions: Employee 402,893 Employee Rollovers 141,044 ----------- 543,937 ----------- Total additions 674,789 Deductions: Benefit payments 313,548 Fees and expenses 512 ----------- Total deductions 314,060 Net realized and unrealized (depreciation) in fair value of investments (980,221) Transfers from other plans 199,293 ----------- Net (decrease) (420,199) Net assets available for benefits at beginning of year 5,978,921 ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 5,558,722 =========== See notes to financial statements. 3 Friction Products Co. Profit Sharing Plan Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF THE PLAN The following description of the Friction Products Co. Profit Sharing Plan (the "Plan") provides only general information. Participants should refer to the summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan was established August 1, 1981 as a defined contribution plan covering all non-union employees of Friction Products Co. (the "Company" and "Plan Sponsor") who have completed thirty days of service. Friction Products Co. is a wholly owned subsidiary of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS Participants may elect to contribute not less than 1% nor more than 15% of their pretax compensation to the Plan subject to maximum limitations set by the Internal Revenue Code. The Plan allows for discretionary contributions by the Plan Sponsor from available business profits. Employer contributions are allocated based on the proportion a participant's compensation bears to the total compensation paid to all eligible participants. The Plan Sponsor did not make a discretionary profit sharing contribution for the 2001 Plan year. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. 4 Friction Products Co. Profit Sharing Plan Notes to Financial Statements--Continued A. DESCRIPTION OF THE PLAN--CONTINUED VESTING AND DISTRIBUTIONS The Plan provides for 100% immediate vesting of a participant's account balance, including employer profit sharing contributions. In the event of termination of the Plan, the assets of the Plan will be distributed to the participants based on the amounts in the respective participants' accounts. Withdrawals from a participant's account are limited to termination of employment, death, retirement or proven hardship. INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). A participant may direct employer and employee contributions in any of several investment options, including the Hawk Corporation Stock Fund. PAYMENT OF BENEFITS On the normal retirement date, a participant may elect to receive either a lump sum amount equal to the vested account balance or elect installment payments. Hardship withdrawals are available for withdrawal of the participant's voluntary contribution if certain specified conditions are met. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. 5 Friction Products Co. Profit Sharing Plan Notes to Financial Statements--Continued B. SUMMARY OF ACCOUNTING POLICIES--CONTINUED All other investments are stated at fair value as determined by the Trustee, on the last business day of the Plan year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold, as well as held, during the year) depreciated in fair value as follows: Net Realized and Unrealized Depreciation in Fair Value of Investments -------------------- Pooled separate accounts $ 971,137 Hawk Corporation Stock Fund 9,084 -------------------- $ 980,221 ==================== The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31 2001 2000 ----------------------- Guaranteed Income Fund $2,643,266 $2,249,864 Stock Market Index Fund 527,621 Fidelity Advisor Growth Opportunity Fund 367,738 Warburg Advisor Emerging Growth Fund 537,168 White Oak Growth Stock Fund 636,262 1,046,241 S&P 500 Index Fund 703,338 Janus Fund 352,281 Janus Worldwide Fund 299,562 Mid Cap Growth/Artisan Partners 371,635 6 Friction Products Co. Profit Sharing Plan Notes to Financial Statements--Continued D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination all participant accounts will be distributed based upon the value of the participant's account on the termination date. E. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service dated May 30, 1996, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "IRC") and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and therefore believes that the Plan, as amended, is qualified and the related trust is tax exempt. 7 Friction Products Co. Profit Sharing Plan Employer Identification Number: 34-1608009 Plan Number: 005 Schedule H, Line 4i--Schedule of Assets (Held At End of Year) December 31, 2001
Identity of Issue, Borrower, Current Lessor, or Similar Party/Description of Investment Value --------------------------------------------------------------------------------------------- * Connecticut General Life Insurance Company--Group Annuity Contract: Guaranteed Income Fund $ 2,643,266 CIGNA Lifetime 20 Fund 45,445 CIGNA Lifetime 30 Fund 75,449 CIGNA Lifetime 40 Fund 34,776 CIGNA Lifetime 50 Fund 3,801 CIGNA Lifetime 60 Fund 44,892 S&P 500 Index Fund 703,338 Janus Fund 352,281 Janus Worldwide Fund 299,562 White Oak Growth Stock Fund 636,262 Hawk Corporation Stock Fund 15,159 Large Cap Value/John A. Levin & Co. Fund 44,830 Mid Cap Value/Wellington Management 91,876 Mid Cap Growth/Artisan Partners 371,635 Small Cap Value/Berger Fund 106,254 Small Cap Growth/TimesSquare Fund 995 State Street Global Advisors Intermediate Bond Account 88,901 --------------------- $ 5,558,722 =====================
* Indicates a party-in-interest to the Plan. AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Hawk Corporation 401(k) Savings and Retirement Plan December 31, 2001 and 2000 and Year Ended December 31, 2001 with Report of Independent Auditors Hawk Corporation 401(k) Savings and Retirement Plan Audited Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31, 2001 TABLE OF CONTENTS Report of Independent Auditors.......................................... 1 FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits......................... 2 Statement of Changes in Net Assets Available for Benefits............... 3 Notes to Financial Statements........................................... 4 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year)........... 9 Report of Independent Auditors Plan Administrator Hawk Corporation 401(k) Savings and Retirement Plan We have audited the accompanying statements of net assets available for benefits of the Hawk Corporation 401(k) Savings and Retirement Plan as of December 31, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2001 and 2000, and the changes in its net assets available for benefits for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2001 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Ernst & Young LLP Cleveland, Ohio June 21, 2002 1 Hawk Corporation 401(k) Savings and Retirement Plan Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 -------------------------------- ASSETS Investments, at fair value: Pooled separate accounts $ 1,279,129 $ 1,274,102 Hawk Corporation Stock Fund 75,109 47,292 Guaranteed Income Fund, at contract value 221,591 101,017 Participant loans 95,431 73,357 -------------------------------- Total investments 1,671,260 1,495,768 Contributions receivable: Employer 3,844 159,437 Employee 14,417 2,573 -------------------------------- 18,261 162,010 -------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 1,689,521 $ 1,657,778 ================================ See notes to financial statements. 2 Hawk Corporation 401(k) Savings and Retirement Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2001 Additions: Investment income: Interest $ 14,619 Contributions: Employer 84,646 Employee 242,467 Employee rollovers 104,389 ----------- 431,502 ----------- Total additions 446,121 Deductions: Benefit payments 90,050 Fees and expenses 2,784 ----------- Total deductions 92,834 Net realized and unrealized (depreciation) in fair value of investments (321,544) ----------- Net increase 31,743 Net assets available for benefits at beginning of year 1,657,778 ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 1,689,521 =========== See notes to financial statements. 3 Hawk Corporation 401(k) Savings and Retirement Plan Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF THE PLAN The following description of the Hawk Corporation 401(k) Savings and Retirement Plan (the "Plan") provides only general information. Participants should refer to the summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan was established January 1, 1999 as a defined contribution plan. The participating employers of the Hawk Corporation 401(k) Savings and Retirement Plan are Clearfield Powdered Metals, Inc. ("Clearfield") and Allegheny Powder Metallurgy, Inc. ("Allegheny") (collectively the "Company" and "Plan Sponsor"). The Plan covers all non-union employees of the Company who have completed six months of service, as defined. Clearfield and Allegheny are wholly owned subsidiaries of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS Participants may elect to contribute not less than 1% nor more than 15% of their pretax compensation to the Plan subject to maximum limitations set by the Internal Revenue Code. The Company makes a matching contribution equal to 50% of the participant's contributions up to 4% of the participant's compensation, as defined. Prior to 2001, the Company also contributed to the Plan additional amounts equal to 2.5% of each eligible participants' compensation, as defined. During 2001, the Plan was amended to make the additional Company contribution discretionary. There were no discretionary Company contributions made in 2001. Forfeited balances of terminated participants' non-vested accounts are used to reduce future Company contributions. At December 31, 2001 and 2000, there were $4,328 and $1,644 in forfeitures available to reduce the Company's future contributions. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. 4 Hawk Corporation 401(k) Savings and Retirement Plan Notes to Financial Statements (continued) A. DESCRIPTION OF THE PLAN (CONTINUED) VESTING Participants are immediately vested in their contributions. Vesting of employer contributions is based upon years of continuous service. A participant is 100% vested after five years of credited service based on a graded vesting schedule. INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). A participant may direct employer and employee contributions in any of several investment options, including the Hawk Corporation Stock Fund. During 2001 the Plan expanded its investment options available to plan participants. PARTICIPANT LOANS Participants may borrow from their fund accounts up to the lesser of $50,000 or 50% of their vested balance attributable to employee pre-tax, employer matching and rollover contributions. Loan terms range from 1 to 5 years. The terms of such a loan are determined by the Company based on maturity dates quoted by commercial banks for a similar loan. The loans are secured by the balance in the participant's account and bear interest at a rate commensurate with local prevailing rates at the time of application. Principal and interest is paid through monthly payroll deductions. PAYMENT OF BENEFITS In the case of normal retirement, death, permanent disability or termination prior to retirement, a participant may elect to receive the payout of his or her vested account balance in the form of installments, an annuity or lump sum. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. 5 Hawk Corporation 401(k) Savings and Retirement Plan Notes to Financial Statements (continued) B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. All other investments are stated at fair value as determined by the Trustee, on the last business day of the Plan year. The participant loans are valued at their outstanding balance, which approximates fair value. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United Sates requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold, as well as held, during the year) depreciated in fair value as follows: Net Realized And Unrealized Depreciation in Fair Value of Investments ------------------- Pooled separate accounts $ 284,171 Hawk Corporation Stock Fund 37,373 ------------------- $ 321,544 =================== 6 Hawk Corporation 401(k) Savings and Retirement Plan Notes to Financial Statements (continued) C. INVESTMENTS (CONTINUED) The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31, 2001 2000 ------------------------ Janus Fund $489,765 $ 93,963 S&P 500 Index 275,915 Guaranteed Income Fund 221,591 101,017 Janus Worldwide Fund 166,717 130,706 CIGNA Lifetime 40 Fund 92,857 93,773 White Oak Growth Stock Fund 84,378 89,811 American Century Ultra Fund 528,694 Fidelity Advisor Growth Opportunity Fund 163,749 Participant Loans 95,431 7 Hawk Corporation 401(k) Savings and Retirement Plan Notes to Financial Statements (continued) D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. E. INCOME TAX STATUS The Plan has not received a determination letter from the Internal Revenue Service stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "IRC"). However, the Plan Administrator believes that the Plan is qualified and therefore, the related trust is exempt from taxation. 8 Hawk Corporation 401(k) Savings and Retirement Plan Employer Identification Number: 34-1608156 Plan Number: 005 Schedule H, Line 4i--Schedule of Assets (Held at End of Year) December 31, 2001
Identity of Issue, Borrower, Lessor, or Current Similar Party/ Description of Investment Value ------------------------------------------------------------------------------------------------- * Connecticut General Life Insurance Company--Group Annuity Contract: Guaranteed Income Fund $ 221,591 State Street Global Advisors Intermediate Bond Account 442 Small Cap Growth/TimesSquare Fund 109 S&P 500 Index 275,915 Large Cap Value/John A. Levin Fund 4,686 Mid Cap Value/Wellington Management 4,973 Mid Cap Growth/Artisan Partners 13,417 Small Cap Value/Berger Fund 27,242 CIGNA Lifetime 20 Fund 41,142 CIGNA Lifetime 30 Fund 50,561 CIGNA Lifetime 40 Fund 92,857 CIGNA Lifetime 50 Fund 13,585 CIGNA Lifetime 60 Fund 13,340 Janus Worldwide Fund 166,717 Janus Fund 489,765 White Oak Growth Stock Fund 84,378 Hawk Corporation Stock Fund 75,109 * Participant Loans, (Interest rates from 7.00% to 10.50%) 95,431 --------------------- $ 1,671,260 =====================
* Indicates a party-in-interest to the Plan. 9 AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Helsel, Inc. Employees' Savings and Investment Plan December 31, 2001 and 2000 and Year Ended December 31, 2001 with Report of Independent Auditors Helsel, Inc. Employees' Savings and Investment Plan Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31, 2001 TABLE OF CONTENTS Report of Independent Auditors........................................... 1 FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits ......................... 2 Statement of Changes in Net Assets Available for Benefits ............... 3 Notes to Financial Statements............................................ 4 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year)............ 8 1 Report of Independent Auditors Plan Administrator Helsel, Inc. Employees' Savings and Investment Plan We have audited the accompanying statements of net assets available for benefits of the Helsel, Inc. Employees' Savings and Investment Plan as of December 31, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2001 and 2000, and the changes in its net assets available for benefits for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2001 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Ernst & Young LLP Cleveland, Ohio June 21, 2002 1 Helsel, Inc. Employees' Savings and Investment Plan Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 -------------------------- ASSETS Investments, at fair value: Pooled separate accounts $1,733,873 $2,044,840 Hawk Corporation Stock Fund 2,682 1,407 Guaranteed Income Fund, at contract value 481,160 185,003 Participant loans 91,478 112,674 -------------------------- Total investments 2,309,193 2,343,924 Contributions receivable: Employer 7,062 3,563 Employee - 12,871 -------------------------- Total receivables 7,062 16,434 -------------------------- NET ASSETS AVAILABLE FOR BENEFITS $2,316,255 $2,360,358 ========================== See notes to financial statements. 2 Helsel, Inc. Employees' Savings and Investment Plan Statement of changes in Net Assets Available for Benefits For the Year Ended December 31, 2001 Additions: Investment income: Interest $ 26,208 Contributions: Employer 103,761 Employee 283,020 Employee rollovers 118,869 ----------- 505,650 ----------- Total additions 531,858 Deductions: Benefit payments 414,915 Fees and expenses 1,190 ----------- Total deductions 416,105 Net realized and unrealized (depreciation) in fair value of investments (159,856) ----------- Net (decrease) (44,103) Net assets available for benefits at beginning of year 2,360,358 ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 2,316,255 =========== See notes to financial statements. 3 Helsel, Inc. Employees' Savings and Investment Plan Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF PLAN The following description of the Helsel, Inc. Employees' Savings and Investment Plan (the "Plan") provides only general information. Participants should refer to the summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan is a defined contribution plan with a cash or deferred arrangement provision established by Helsel, Inc. (the "Company" and "Plan Sponsor") effective as of January 1, 1985, covering all non-union employees of the Company who have completed sixty days of service. Helsel, Inc. is a wholly owned subsidiary of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS Eligible participants may make contributions in any amount up to 15% of their compensation for the Plan year. The Plan Sponsor makes a matching contribution equal to 50% of the participant's contribution up to 4% of the participant's compensation. Additional discretionary amounts may be contributed at the option of the Company's management. No additional discretionary amounts were contributed in 2001. Forfeited balances of terminated participants' nonvested accounts are used to reduce future Company contributions. Forfeitures available to reduce the Company's future contributions were $4,805 and $3,791 at December 31, 2001 and 2000, respectively. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. VESTING Participants are immediately vested in their contributions. Vesting of employer matching contributions is based upon years of continuous service. A participant is 100% vested after five years of credited service based on a graded vesting schedule. 4 Helsel, Inc. Employees' Savings and Investment Plan Notes to Financial Statements--Continued A. DESCRIPTION OF PLAN--CONTINUED INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). A participant may direct employer and employee contributions in any of several investment options including the Hawk Corporation Stock Fund. PARTICIPANT LOANS Participants may borrow from their fund accounts up to the lesser of $50,000 or 50% of their vested balance. Loan terms range from 1 to 5 years except for the purchase of a primary residence. The terms of such a loan are determined by the Company based on maturity dates quoted by commercial banks for a similar loan. The loans are secured by the balance in the participant's account and bear interest at a rate commensurate with local prevailing rates at the time of application. Principal and interest is paid through monthly payroll deductions. PAYMENT OF BENEFITS In the case of normal retirement, death, permanent disability or termination prior to retirement, a participant may elect to receive the payout of his or her vested account balance in the form of installments, an annuity or a lump sum. A participant may elect to defer payment of benefits until attainment of age 65. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. 5 Helsel, Inc. Employees' Savings and Investment Plan Notes to Financial Statements--Continued B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. Participant loans are valued at their outstanding balance, which approximates fair value. All other investments are stated at fair value as determined by the Trustee on the last business day of the Plan year. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold as well as held during the year) depreciated in fair value as follows: Net Realized and Unrealized Depreciation in Fair Value of Investments ------------------- Pooled separate accounts $ 158,395 Hawk Corporation Stock Fund 1,461 ---------- $ 159,856 ========== 6 Helsel, Inc. Employees' Savings and Investment Plan Notes to Financial Statements--Continued C. INVESTMENTS--CONTINUED The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31 2001 2000 ---------------------------------------- Guaranteed Income Fund $ 481,160 $ 185,003 CIGNA Lifetime 30 Fund 128,970 147,390 CIGNA Lifetime 40 Fund 381,754 554,565 CIGNA Lifetime 50 Fund 765,749 955,480 Janus Fund 142,713 D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. E. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service, dated January 11, 1996, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "IRC") and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes that the Plan, as amended, is qualified and the related trust is tax exempt. 7 Helsel, Inc. Employees' Savings and Investment Plan EIN--35-1957561 Plan--002 Schedule H, Line 4i--Schedule of Assets (Held at End of Year) December 31, 2001
Identity of Issue, Borrower, Current Lessor, or Similar Party/Description of Investment Value ------------------------------------------------------------------------------------------- * Connecticut General Life Insurance Company--Group Annuity Contract: Guaranteed Income Fund $ 481,160 CIGNA Lifetime 20 Fund 11,678 CIGNA Lifetime 30 Fund 128,970 CIGNA Lifetime 40 Fund 381,754 CIGNA Lifetime 50 Fund 765,750 CIGNA Lifetime 60 Fund 95,114 State Street Global Adv Interim Bond 10,305 S&P 500 Index 58,609 Large Cap Value/John A. Levin 41,857 Mid Cap Value/Wellington Management 27,707 Mid Cap Growth/Artisan Partners 20,424 Small Cap Value/Berger Fund 32,040 Small Cap Growth/TimesSquare Fund 562 Janus Fund 85,974 Janus Worldwide Fund 66,264 White Oak Growth Stock Fund 6,865 Hawk Corporation Stock Fund 2,682 * Participant Loans (Interest rates of 8.75% to 10.50%) 91,478 -------------------- $ 2,309,193 ====================
* Represents a party-in-interest to the Plan. 8 AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Helsel, Inc. Employees' Retirement Plan December 31, 2001 and 2000 and Year Ended December 31, 2001 with Report of Independent Auditors Helsel, Inc. Employees' Retirement Plan Audited Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31, 2001 TABLE OF CONTENTS Report of Independent Auditors.......................................... 1 AUDITED FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits......................... 2 Statement of Changes in Net Assets Available for Benefits............... 3 Notes to Financial Statements........................................... 4 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year)........... 8 Report of Independent Auditors Plan Administrator Helsel, Inc. Employees' Retirement Plan We have audited the accompanying statements of net assets available for benefits of the Helsel, Inc. Employees' Retirement Plan as of December 31, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2001 and 2000, and the changes in its net assets available for benefits for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2001, is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Ernst & Young LLP Cleveland, Ohio June 21, 2002 1 Helsel, Inc. Employees' Retirement Plan Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 -------------------------- ASSETS Investments, at fair value: Pooled separate accounts $3,364,507 $4,305,596 Hawk Corporation Stock Fund 1,558 324 Guaranteed Income Fund, at contract value 1,078,842 229,605 -------------------------- Total investments 4,444,907 4,535,525 Employer contribution receivable - 470,153 -------------------------- NET ASSETS AVAILABLE FOR BENEFITS $4,444,907 $5,005,678 ========================== See notes to financial statements. 2 Helsel, Inc. Employees' Retirement Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2001 Additions: Interest $ 25,338 Employer contributions 283,970 ----------- Total additions 309,308 Deductions: Benefit payments 621,340 Fees and expenses 450 ----------- Total deductions 621,790 Net realized and unrealized (depreciation) in fair value of investments (248,289) ----------- Net (decrease) (560,771) Net assets available for benefits at beginning of year 5,005,678 ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 4,444,907 =========== See notes to financial statements. 3 Helsel, Inc. Employees' Retirement Plan Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF PLAN The following description of the Helsel, Inc. Employees' Retirement Plan (the "Plan") provides only general information. Participants should refer to the summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan is a money-purchase pension plan established by Helsel, Inc. (the "Company" and "Plan Sponsor") effective as of July 1, 1978, covering all non-union employees of the Company who have completed one year of service. Helsel, Inc. is a wholly owned subsidiary of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS For the period January 1, 2001 to October 31, 2001, the Company contributed to the Plan an amount equal to 7% of each eligible participant's compensation, as defined. Effective November 1, 2001 the Plan was amended to eliminate Company contributions. Forfeited balances of terminated participants' non-vested accounts are used to reduce future Company contributions. To the extent any forfeitured balances remain, the excess would be reallocated to participant accounts. Forfeitures available to reduce the Company's future contributions were $0 and $62,541 at December 31, 2001 and 2000, respectively. PARTICIPANT ACCOUNTS Each participant's account is credited with allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. VESTING Vesting of participant accounts is based upon years of service. A participant is 100% vested after five years of credited service based on a graded vesting schedule. 4 Helsel, Inc. Employees' Retirement Plan Notes to Financial Statements--Continued A. DESCRIPTION OF PLAN--CONTINUED INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). A participant may direct contributions in any of several investment options, including the Hawk Corporation Stock Fund. PAYMENT OF BENEFITS In the case of normal retirement, death, permanent disability or termination prior to retirement, a participant may elect to receive the payout of his or her vested account balance in the form of installments, an annuity or a lump sum. A participant may elect to defer payment of benefits until attainment of age 65. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. All other investments are stated at fair value as determined by the Trustee, on the last business day of the Plan year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 5 Helsel, Inc. Employees' Retirement Plan Notes to Financial Statements--Continued C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold, as well as held, during the year) depreciated in fair value as follows: Net Realized and Unrealized Depreciation in Fair Value of Investments ------------------ Pooled separate accounts $ 248,031 Hawk Corporation Stock Fund 258 ------------------ $ 248,289 ================== The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31 2001 2000 ------------------------------ CIGNA Lifetime 40 Fund $ 397,138 $ 594,733 CIGNA Lifetime 50 Fund 2,164,253 2,817,288 CIGNA Lifetime 60 Fund 289,561 442,125 Guaranteed Income Fund 1,078,842 D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. 6 Helsel, Inc. Employees' Retirement Plan Notes to Financial Statements--Continued E. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service dated January 12, 1996, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "IRC") and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes that the Plan, as amended is qualified and the related trust is tax exempt. 7 Helsel, Inc. Employees' Retirement Plan EIN--35-1957561 Plan--001 Schedule H, Line 4i--Schedule of Assets (Held At End of Year) December 31, 2001
Identity of Issue, Borrower, Current Lessor, or Similar Party/Description of Investment Value -------------------------------------------------------------------------------------------------- * Connecticut General Life Insurance Company--Group Annuity Contract: Guaranteed Income Fund $1,078,842 CIGNA Lifetime 20 Fund 6,706 CIGNA Lifetime 30 Fund 208,018 CIGNA Lifetime 40 Fund 397,138 CIGNA Lifetime 50 Fund 2,164,253 CIGNA Lifetime 60 Fund 289,561 Janus Worldwide Fund 17,434 Janus Fund 70,284 White Oak Growth Stock Fund 10,490 Small Cap Value/Berger Fund 87,648 Small Cap Growth/TimesSquare Fund 154 State Street Global Advisors Intermediate Bond Account 13,831 S&P 500 Index 72,208 Large Cap Value/John A. Levin 26,782 Hawk Corporation Stock Fund 1,558 ----------------- $4,444,907 =================
* Indicates a party-in-interest to the Plan. 8 AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE S. K. Wellman Retirement Savings and Profit Sharing Plan December 31, 2001 and 2000 and Year Ended December 31, 2001 with Report of Independent Auditors S. K. Wellman Retirement Savings and Profit Sharing Plan Audited Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31,2001 TABLE OF CONTENTS Report of Independent Auditors ........................................ 1 AUDITED FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits........................ 2 Statement of Changes in Net Assets Available for Benefits.............. 3 Notes to Financial Statements.......................................... 4 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year).......... 8 Report of Independent Auditors Plan Administrator S. K. Wellman Retirement Savings and Profit Sharing Plan We have audited the accompanying statements of net assets available for benefits of the S.K. Wellman Retirement Savings and Profit Sharing Plan as of December 31, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2001 and 2000, and the changes in its net assets available for benefits for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2001 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Ernst & Young LLP Cleveland, Ohio June 21, 2002 1 S. K. Wellman Retirement Savings and Profit Sharing Plan Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 -------------------------- ASSETS Investments, at fair value: Pooled separate accounts $4,696,779 $5,963,327 Hawk Corporation Stock Fund 23,353 34,113 Guaranteed Income Fund, at contract value 1,637,495 1,685,952 -------------------------- Total investments 6,357,627 7,683,392 Employer contribution receivable - 187,371 -------------------------- NET ASSETS AVAILABLE FOR BENEFITS $6,357,627 $7,870,763 ========================== See notes to financial statements. 2 S. K. Wellman Retirement Savings and Profit Sharing Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2001 Additions: Interest $ 89,026 Contributions: Employer 17,973 Employee 288,166 ----------- 306,139 ----------- Total additions 395,165 Deductions: Benefit payments 436,896 Fees and expenses 789 ----------- Total deductions 437,685 Net realized and unrealized (depreciation) in fair value of investments (1,273,356) Transfers to other plans (197,260) ----------- Net (decrease) (1,513,136) Net assets available for benefits at beginning of year 7,870,763 ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 6,357,627 =========== See notes to financial statements. 3 S. K. Wellman Retirement Savings and Profit Sharing Plan Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF THE PLAN The following description of the S. K. Wellman Retirement Savings and Profit Sharing Plan (the "Plan") provides only general information. Participants should refer to the summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan is a defined contribution plan covering all non-union employees of the S. K. Wellman Corporation (the "Company" and "Plan Sponsor") who have at least 30 days of service. S. K. Wellman Corporation is a wholly owned subsidiary of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Security Act of 1974 (ERISA). CONTRIBUTIONS Participants may contribute not less than 1% nor more than 15% of their pretax compensation subject to maximum limitations set by the Internal Revenue Code. The Plan Sponsor matches participant contributions at the rate of 10% of the first 6% of the employee's contribution. The Plan Sponsor may also contribute a profit sharing contribution at its discretion. The Plan Sponsor did not make a discretionary profit sharing contribution for the 2001 Plan year. Forfeitures are used to reduce the amount of matching or profit sharing contributions by the Plan Sponsor. The balance of forfeited nonvested accounts was $4,797 and $808 as of December 31, 2001 and 2000, respectively. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. Forfeited balances of terminated participants' nonvested accounts are used to reduce future Plan Sponsor contributions. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. 4 S. K. Wellman Retirement Savings and Profit Sharing Plan Notes to Financial Statements--Continued A. DESCRIPTION OF THE PLAN--CONTINUED VESTING Participants are immediately vested in their contributions and in the Plan Sponsor's matching contributions. Participants become vested in their allocated share of any profit sharing contributions at the rate of 33-1/3% after two years of service and 33-1/3% per year thereafter, reaching 100% at the completion of four years of service. If the Plan were to terminate at some future time, each participant will become fully vested in his or her entire account balance. INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). A participant may direct employer and employee contributions in any of several investment options, including the Hawk Corporation Stock Fund. PAYMENT OF BENEFITS On the normal retirement date, a participant may elect to receive either a lump sum amount equal to the vested account balance or elect installment payments. Hardship withdrawals are available for withdrawal of the participant's voluntary contribution if certain specified conditions are met. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. 5 S. K. Wellman Retirement Savings and Profit Sharing Plan Notes to Financial Statements--Continued B. SUMMARY OF ACCOUNTING POLICIES--CONTINUED All other investments are stated at fair value as determined by the Trustee, on the last business day of the Plan year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold, as well as held, during the year) depreciated in fair value as follows: Net Realized and Unrealized Depreciation in Fair Value of Investments ---------------------- Pooled separate accounts $ 1,261,549 Hawk Corporation Stock Fund 11,807 ---------------------- $ 1,273,356 ====================== The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31 2001 2000 --------------------------- Guaranteed Income Fund $1,637,495 $1,685,952 CIGNA Lifetime 40 Fund 719,913 1,070,114 Janus Fund 673,416 854,218 Fidelity Advisor Growth Opportunity Fund 1,702,909 S&P 500 Index Fund 1,314,686 Janus Worldwide Fund 582,911 871,247 White Oak Growth Stock Fund 782,183 715,268 6 S. K. Wellman Retirement Savings and Profit Sharing Plan Notes to Financial Statements--Continued D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. E. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service dated January 24, 1994, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "IRC") and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes that the Plan, as amended is qualified and the related trust is tax exempt. 7 S. K. Wellman Retirement Savings and Profit Sharing Plan Employer Identification Number 34-1804995 Plan Number 003 Schedule H, Line 4i--Schedule of Assets (Held At End of Year) December 31, 2001
Identity of Issue, Borrower, Current Lessor, or Similar Party/Description of Investment Value --------------------------------------------------------------------------------------------- * Connecticut General Life Insurance Company: Guaranteed Income Fund $ 1,637,495 CIGNA Lifetime 20 Fund 27,468 CIGNA Lifetime 30 Fund 76,252 CIGNA Lifetime 40 Fund 719,913 CIGNA Lifetime 50 Fund 94,972 CIGNA Lifetime 60 Fund 144,595 S&P 500 Index Fund 1,314,686 Janus Fund 673,416 Janus Worldwide Fund 582,911 White Oak Growth Stock Fund 782,183 Hawk Corporation Stock Fund 23,353 Large Cap Value/John A. Levin & Co. Fund 30,878 Mid Cap Value/Wellington Management 19,600 Mid Cap Growth/Artisan Partners 59,139 Small Cap Value/Berger Fund 49,639 Small Cap Growth/TimesSquare Fund 24,791 State Street Global Advisors Intermediate Bond Account 96,336 -------------------- $ 6,357,627 ====================
* Indicates party-in-interest to the Plan. 8 FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE (UNAUDITED) Hawk Motors Employees' 401(k) Plan December 31, 2001 and 2000 and Year Ended December 31, 2001 Hawk Motors Employees' 401(k) Plan Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31, 2001 (UNAUDITED) TABLE OF CONTENTS FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits........................... 1 Statement of Changes in Net Assets Available for Benefits................. 2 Notes to Financial Statements............................................. 3 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year).............. 7 Hawk Motors Employees' 401(k) Plan Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 -------------------------- ASSETS Investments, at fair value: Pooled separate accounts $1,871,780 $2,569,550 Hawk Corporation Stock Fund 6,735 30 Guaranteed Income Fund, at contract fund 550,170 463,689 -------------------------- Total investments 2,428,685 3,033,269 Employer contribution receivable: 8,031 5,000 -------------------------- NET ASSETS AVAILABLE FOR BENEFITS $2,436,716 $3,038,269 ========================== See notes to financial statements. 1 Hawk Motors Employees' 401(k) Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2001 Additions: Interest and dividends $ 27,618 Contributions: Employer 7,449 Employee 123,050 ----------- 105,500 ----------- Total additions 158,117 Deductions: Benefit payments 105,500 Fees and expenses 451 ----------- Total deductions 105,951 Net realized and unrealized (depreciation) in fair value of investments (653,719) Net decrease 601,553 Net assets available for benefits at beginning of year 3,038,269 ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 2,436,716 =========== See notes to financial statements. 2 Hawk Motors Employees' 401(k) Plan Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF THE PLAN The following description of the Hawk Motors, Inc. Employees' 401(k) plan (the "Plan") provides only general information. Participants should refer to summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan was established January 1, 1993 as a defined contribution plan covering all full-time employees of Hawk Motors, Inc (the "Company" and "Plan Sponsor") who have completed three months of service, as defined. Hawk Motors, Inc is a wholly owned subsidiary of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS Participants may elect to contribute not less than 1% nor more than 15% of their pretax compensation to the Plan subject to maximum limitations set by the Internal Revenue Code. The Plan allows for discretionary contributions by the Plan Sponsor from available business profits. Employer contributions are allocated based on the proportion a participant's compensation bears to the total compensation paid to all eligible participants. During the first quarter of 2001, the Plan Sponsor made a discretionary profit sharing contribution of $5,000 for the 2000 Plan year. Effective June 9, 2001, the Company contribution was amended to equal $0.15 per hour worked, for those employees who elect to contribute through the payroll withholding election. Forfeited balances of terminated participants' non-vested accounts are used to reduce future Company contributions. At December 31, 2001, there was $742 in forfeitures available to reduce the Company's future contributions. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. 3 Hawk Motors Employees' 401(k) Plan Notes to Financial Statements (continued) A. DESCRIPTION OF THE PLAN - CONTINUED VESTING AND DISTRIBUTIONS Participants are immediately vested in their contributions. Vesting of employer discretionary contributions is based upon years of continuous service. A participant is 100% vested after six years of credited service based on a graded vesting schedule. INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). A participant may direct employer and employee contributions in any of several investment options, including the Hawk Corporation Stock Fund. PAYMENT OF BENEFITS In the case of normal retirement, death, permanent disability or termination prior to retirement, a participant may elect to receive the payout of his or her vested account balance in the form of installments, an annuity or a lump sum. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. All other investments are stated at fair value as determined by the Trustee, on the last business day of the Plan year. 4 Hawk Motors Employees' 401(k) Plan Notes to Financial Statements (continued) B. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold, as well as held, during the year) depreciated in fair value as follows: NET REALIZED AND UNREALIZED DEPRECIATION IN FAIR VALUE OF INVESTMENTS ---------------- Pooled separate accounts $ 651,028 Hawk Corporation Stock Fund 2,691 ---------------- $ 653,719 ================ The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31 2001 2000 ------------------------- Guaranteed Long-Term Fund $ 550,170 $ 463,689 Fidelity Advisor Growth Opportunity Fund 151,985 Janus Fund 1,268,017 545,312 American Century Ultra Fund 1,348,682 White Oak Growth Stock Fund 300,997 S&P 500 Index Fund 128,328 5 Hawk Motors Employees' 401(k) Plan Notes to Financial Statements (continued) D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. E. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service dated September 23, 1994, stating that the Plan qualifies under Section 401(a) of the Internal Revenue Code (the "IRC") and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and therefore believes that the Plan is qualified and the related trust is tax exempt. 6 Hawk Motors Employees' 401(k) Plan Employer Identification Number: 34-1608009 Plan Number: 005 Schedule H, Line 4i--Schedule of Assets (Held at End of Year) December 31, 2001
Identity of Issue, Borrower, Lessor or Current Similar Party/Description of Investment Value -------------------------------------------------------------------------------------------------- * Connecticut General Life Insurance Company--Group Annuity Contract: Guaranteed Income Fund $ 550,170 CIGNA Lifetime 20 Fund 3,231 CIGNA Lifetime 30 Fund 12,358 CIGNA Lifetime 40 Fund 73,158 CIGNA Lifetime 50 Fund 806 S&P 500 Index Fund 128,328 Janus Fund 1,268,017 Janus Worldwide Fund 111,453 White Oak Growth Stock Fund 91,950 Hawk Corporation Stock Fund 6,735 Mid Cap Value/Wellington Management 74,624 Mid Cap Growth/Artisan Partners 33,312 Small Cap Value/Berger Fund 71,215 Small Cap Growth/TimesSquare Fund 3,328 --------------------- $ 2,428,685 =====================
* Indicates a party-in-interest to the Plan. 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE (UNAUDITED) Quarter Master Industries, Inc. Profit Sharing Plan and Trust December 31, 2001 and 2000 and Year Ended December 31, 2001 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31, 2001 (UNAUDITED) TABLE OF CONTENTS FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits.......................... 1 Statement of Changes in Net Assets Available for Benefits................ 2 Notes to Financial Statements............................................ 3 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year)............ 7 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 -------------------------- ASSETS Investments, at fair value: Pooled separate accounts $1,532,581 $1,667,751 Separate contract accounts 7,405 7,571 Hawk Corporation Stock Fund 617 5 Guaranteed Income Fund, at contract fund 30,374 2,611 -------------------------- Total investments 1,570,977 1,677,938 Contribution receivable: Employer 444 103,224 Employee 1,108 6,709 -------------------------- NET ASSETS AVAILABLE FOR BENEFITS $1,572,529 $1,787,871 ========================== See notes to financial statements. 1 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2001 Additions: Interest and dividends $ 1,296 Contributions: Employer 9,786 Employee 30,926 ----------- 40,712 ----------- Total additions 42,008 Deductions: Benefit payments 2,880 Fees and expenses 65 ----------- Total deductions 2,945 Net realized and unrealized (depreciation) in fair value of investments (254,405) Net decrease (215,342) Net assets available for benefits at beginning of year 1,787,871 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 1,572,529 =========== See notes to financial statements. 2 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF THE PLAN The following description of the Quarter Master Industries, Inc. Profit Sharing Plan and Trust (the "Plan") provides only general information. Participants should refer to summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan was established January 1, 1985 as a profit sharing plan covering all full time employees of Quarter Master Industries, Inc. (the "Company" and "Plan Sponsor") who have completed one year of service, as defined. Effective November 1, 2000, the Plan was amended to include a 401(k) provision covering all full-time employees who have completed three months of service, as defined. Effective November 1, 2000, substantially all the Plan assets were transferred from Penn Mutual to Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). Quarter Master Industries, Inc. is a wholly owned subsidiary of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS Participants may elect to contribute not less than 1% nor more than 15% of their pretax compensation to the Plan subject to maximum limitations set by the Internal Revenue Code. The Plan Sponsor makes a matching contribution equal to 50% of the participant's contribution up to 4% of the participant's compensation. Additional discretionary amounts may be contributed at the option of the Company's management. The Plan Sponsor did not make a discretionary profit sharing contribution for the 2001 Plan year. Forfeited balances of terminated participants' non-vested employer matching contributions are used to reduce future Company contributions. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. 3 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Notes to Financial Statements (continued) A. DESCRIPTION OF THE PLAN - CONTINUED VESTING AND DISTRIBUTIONS Participants are immediately vested in their contributions and discretionary profit sharing contributions. Vesting of employer matching contributions is based upon years of continuous service. A participant is 100% vested after six years of credited service based on a graded vesting schedule. INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by Connecticut General Life Insurance Company ("CIGNA" or the "Trustee"). A participant may direct employer and employee contributions in any of several investment options. Effective November 2000, the Plan was amended to allow participants to invest in the Hawk Corporation Stock Fund. PAYMENT OF BENEFITS In the case of normal retirement, death, permanent disability or termination prior to retirement, a participant may elect to receive the payout of his or her vested account balance in the form of installments, an annuity or a lump sum. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. All other investments are stated at fair value as determined by the Trustee, on the last business day of the Plan year. 4 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Notes to Financial Statements (continued) B. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold, as well as held, during the year) appreciated (depreciated) in fair value as follows: NET REALIZED AND UNREALIZED DEPRECIATION IN FAIR VALUE OF INVESTMENTS ---------------------- Pooled separate accounts $ 253,937 Separate contract accounts 136 Hawk Corporation Stock Fund 332 ---------------------- $ 254,405 ====================== The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31 2001 2000 ------------------------ Mid Cap Growth/Artisan Partners $204,717 CIGNA Lifetime 50 Fund 377,277 $378,771 Janus Worldwide Fund 158,777 224,634 S&P 500 Index Fund 580,618 Stock Market Index Fund 750,993 Warburg Pincus Emerging Growth Fund 268,895 5 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Notes to Financial Statements December 31, 2001 D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. E. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service stating that the Plan qualifies under Section 401(a) of the Internal Revenue Code (the "IRC") and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and therefore believes that the Plan is qualified and the related trust is tax exempt. 6 Quarter Master Industries, Inc. Profit Sharing Plan and Trust Employer Identification Number: 34-1608009 Plan Number: 005 Schedule H, Line 4i--Schedule of Assets (Held at End of Year) December 31, 2001
Identity of Issue, Borrower, Lessor or Current Similar Party/Description of Investment Value -------------------------------------------------------------------------------------------------- * Penn Mutual Separate contract accounts $ 7,405 * Connecticut General Life Insurance Company--Group Annuity Contract: Guaranteed Income Fund 30,374 State Street Global Advisors Intermediate Bond 22,754 CIGNA Lifetime 20 Fund 18,790 CIGNA Lifetime 30 Fund 12,150 CIGNA Lifetime 40 Fund 24,063 CIGNA Lifetime 50 Fund 377,277 Janus Worldwide Fund 158,777 Janus Fund 1,940 S&P 500 Index Fund 580,618 Large Cap Value/John A. Levin & Co. Fund 47,462 Mid Cap Value/Wellington Management 11,301 Mid Cap Growth/Artisan Partners 204,717 Small Cap Value/Berger Fund 22,407 Small Cap Growth/TimesSquare Fund 22,580 White Oak Growth Stock Fund 27,745 Hawk Corporation Stock Fund 617 --------------------- $ 1,570,977 =====================
* Indicates a party-in-interest to the Plan. 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE (UNAUDITED) Sinterloy Corporation 401(k) Plan December 31, 2001 and 2000 and Year Ended December 31, 2001 Sinterloy Corporation 401(k) Plan Financial Statements and Supplemental Schedule December 31, 2001 and 2000 and Year Ended December 31, 2001 (UNAUDITED) TABLE OF CONTENTS FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits......................... 1 Statement of Changes in Net Assets Available for Benefits............... 2 Notes to Financial Statements........................................... 3 SUPPLEMENTAL SCHEDULE Schedule H, Line 4i--Schedule of Assets (Held at End of Year)........... 7 Sinterloy Corporation 401(k) Plan Statements of Net Assets Available for Benefits DECEMBER 31 2001 2000 ----------------------- ASSETS Investments, at fair value: Pooled separate accounts $297,521 $287,856 Hawk Corporation Stock Fund 27,828 29,146 Guaranteed Income Fund, at contract value 453,560 447,306 Participant loans 87,891 90,857 ----------------------- Total investments 866,800 855,165 Employer contribution receivable 20,000 NET ASSETS AVAILABLE FOR BENEFITS $866,800 $875,165 ======================= See notes to financial statements. 1 Sinterloy Corporation 401(k) Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2001 Additions: Interest and dividends 32,835 Contributions: Employer 29,052 Employee 58,100 --------- 87,152 --------- Total additions 119,987 Deductions: Benefit payments 61,039 Fees and expenses 7,403 --------- Total deductions 68,442 Net realized and unrealized (depreciation) in fair value of investments (59,910) Net decrease 8,365 Net assets available for benefits at beginning of year 875,165 --------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 866,800 ========= See notes to financial statements. 2 Sinterloy Corporation 401(k) Plan Notes to Financial Statements December 31, 2001 and 2000 and Year Ended December 31, 2001 A. DESCRIPTION OF THE PLAN The following description of the Sinterloy Corporation 401(k) Plan (the "Plan") provides only general information. Participants should refer to the summary plan description for a more complete description of the Plan's provisions. GENERAL The Plan was established January 1, 1995 as a defined contribution plan covering all non-union employees of Sinterloy Corporation (the "Company" and "Plan Sponsor") who have completed one year of service, as defined. Sinterloy Corporation is a wholly owned subsidiary of Hawk Corporation. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS Participants may elect to contribute not less than 1% nor more than 10% of their pretax compensation to the Plan subject to maximum limitations set by the Internal Revenue Code. The Plan Sponsor matches participant contributions at the rate of 50%. The Plan Sponsor may also make a discretionary profit sharing contribution. Employer discretionary contributions are allocated based on the proportion a participant's compensation bears to the total compensation paid to all eligible participants. The Plan Sponsor did not make a discretionary profit sharing contribution for the 2001 Plan year. Forfeited balances of terminated participants' non-vested accounts are allocated to participants under the same manner as the employer discretionary contribution. At December 31, 2001, there were no forfeitures available to allocate to participants. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the Plan Sponsor's contributions and (b) Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. 3 Sinterloy Corporation 401(k) Plan Notes to Financial Statements--Continued A. DESCRIPTION OF THE PLAN - CONTINUED VESTING AND DISTRIBUTIONS Participants are immediately vested in their contributions. Prior to January 1, 1999, participants were 100% vested in employer matching contributions. Beginning January 1, 1999, vesting of employer discretionary and matching contributions is based upon years of continuous service. A participant is 100% vested after six years of credited service based on a graded vesting schedule. INVESTMENT OPTIONS The Plan's funds are primarily held in a group annuity contract issued by CIGNA. A participant may direct employer and employee contributions in any of several investment options including the Hawk Corporation Stock Fund. PARTICIPANT LOANS Participants may borrow from their fund accounts up to the lesser of $50,000 or 50% of their vested balance. Loan terms range from 1 to 5 years. The terms of such a loan are determined by the Company based on maturity dates quoted by commercial banks for a similar loan. The loans are secured by the balance in the participant's account and bear interest at a rate commensurate with local prevailing rates at the time of application. Principal and interest is paid through monthly payroll deductions. PAYMENT OF BENEFITS In the case of normal retirement, death, permanent disability or termination prior to retirement, a participant may elect to receive the payout of his or her vested account balance in the form of installments, an annuity or lump sum. EXPENSES The Plan Sponsor pays substantially all costs of Plan administration. 4 Sinterloy Corporation 401(k) Plan Notes to Financial Statements--Continued B. SUMMARY OF ACCOUNTING POLICIES INVESTMENT VALUATION Investments in the Guaranteed Income Fund are stated at contract value as determined by CIGNA, which approximates fair value. CIGNA has the right to defer certain disbursements (excluding retirement, termination, and death or disability disbursements) or transfers from the Guaranteed Income Fund when total amounts disbursed from the pool in a given calendar year exceed 10% of the total assets in that pool on January 1 of that year. All other investments are stated at fair value as determined by the Trustee, on the last business day of the Plan year. The participant loans are valued at the outstanding balance, which approximates fair value. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C. INVESTMENTS During 2001, the Plan's investments (including investments purchased, sold, as well as held, during the year) depreciated in fair value as follows: Net Realized and Unrealized Depreciation in Fair Value of Investments ------------------- Pooled separate accounts $ 46,248 Hawk Corporation Stock Fund 13,662 ------------------- $ 59,910 =================== 5 Sinterloy Corporation 401(k) Plan Notes to Financial Statements--Continued The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: DECEMBER 31 2001 2000 ------------------------- Guaranteed Income Fund $453,560 $447,306 White Oak Growth Stock Fund 60,340 Stock Market Index Fund 59,266 S&P 500 Index Fund 63,206 CIGNA Lifetime 30 61,394 Participant Loans 87,891 90,857 D. PLAN TERMINATION Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. E. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service dated March 28, 1995, stating that the Plan qualifies under Section 401(a) of the Internal Revenue Code (the "IRC") and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Sponsor believes the Plan is being operated in compliance with the applicable requirements of the IRC and therefore believes that the Plan is qualified and the related trust is tax exempt. 6 Sinterloy Corporation 401(k) Plan Employer Identification Number: 31-1549254 Plan Number: 005 Schedule H, Line 4i--Schedule of Assets (Held at End of Year) December 31, 2001
Identity of Issue, Borrower, Lessor, or Current Similar Party/Description of Investment Value ----------------------------------------------------------------------------------------------------- * Connecticut General Life Insurance Company--Group Annuity Contract: Guaranteed Income Fund $ 453,560 CIGNA Lifetime 20 Fund 6,368 CIGNA Lifetime 30 Fund 61,394 CIGNA Lifetime 40 Fund 17,261 CIGNA Lifetime 50 Fund 4,479 S&P 500 Index Fund 63,206 Janus Fund 16,885 Janus Worldwide Fund 21,191 White Oak Growth Stock Fund 27,673 Hawk Corporation Stock Fund 27,828 Large Cap Value/John A. Levin & Co. Fund 3,237 Mid Cap Value/Wellington Management 16,005 Mid Cap Growth/Artisan Partners 22,060 Small Cap Value/Berger Fund 36,421 Small Cap Growth/TimesSquare Fund 1,341 * Participant loans (Interest rates from 8.75% to 10.50%) 87,891 ------------------------ TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $ 866,800 ========================
* Indicates a party-in-interest to the Plan. 7