Operations of Brookwood Companies Incorporated	9 Months Ended
Sep. 30, 2012
Operations of Companies [Abstract]
Operations of Brookwood Companies Incorporated	Note 4—Operations of Brookwood Companies Incorporated Receivables. Brookwood maintains factoring agreements with several factors, which provide that receivables resulting from credit sales to customers may be sold to the factor, subject to a commission and the factor’s prior approval. Factored receivables were $16,532,000 and $17,487,000 at September 30, 2012 and December 31, 2011, which were net of a returned goods dilution allowance of $109,000 and $63,000, respectively. Brookwood monitors its factors and their ability to fulfill their obligations to Brookwood in a timely manner. As of November 13, 2012, all of Brookwood’s factors were complying with payment terms in accordance with factor agreements. Trade receivables were $2,973,000 and $8,031,000 at September 30, 2012 and December 31, 2011, which were net of an allowance for doubtful accounts of $180,000 and $118,000, respectively. The trade receivable balance at December 31, 2011 included approximately $1,643,000, which was the balance remaining related to fabric sold in two products to a Brookwood customer in the period from September 2008 to April 2009 that supplies the U.S. military for which payment had been delayed due to a compliance issue (see also Note 13). Brookwood received payment at full value of $1,643,000 in January 2012. Sales Concentration. Brookwood has one customer who accounted for more than 10% of Brookwood’s sales. Sales to that Brookwood customer, Tennier Industries, Inc. (“Tennier”), accounted for more than 10% of Brookwood’s sales during 2012 and 2011. Brookwood’s relationship with Tennier is ongoing. Sales to Tennier, which are included in military sales, were $6,164,000 and $16,864,000 in the 2012 third quarter and nine month periods, respectively, compared to $5,061,000 and $11,456,000 in the 2011 comparable periods. Sales to Tennier represented 22.7% and 13.4% of Brookwood’s net sales in the 2012 and 2011 third quarters, respectively, and 16.8% and 11.3% in the 2012 and 2011 nine month periods, respectively. Military sales accounted for $12,924,000 and $54,155,000 in the 2012 third quarter and nine month periods, compared to $21,802,000 and $52,212,000 in 2011, respectively. The military sales represented 47.6% and 57.9% of Brookwood’s net sales in the 2012 and 2011 third quarters, respectively, and 54.0% and 51.6% in the 2012 and 2011 nine month periods, respectively. Generally, military sales represent sales of a product to a customer (prime and sub-prime contractors) that will be incorporated into an end product that will be used to fulfill a U.S. or international military contract. Stockholders’ Equity. The Company is the holder of all of Brookwood’s outstanding $13,500,000 Series A, $13.50 annual dividend per share, redeemable preferred stock and all of its 10,000,000 outstanding shares of common stock. The preferred stock has a liquidation preference of $13,500,000 plus accrued but unpaid dividends. At September 30, 2012, cumulative dividends in arrears on the preferred stock amounted to approximately $456,000. 2005 Long-Term Incentive Plan for Brookwood. In December 2005, the Company adopted The Hallwood Group Incorporated 2005 Long-Term Incentive Plan for Brookwood Companies Incorporated (the “2005 Long-Term Incentive Plan for Brookwood”) to encourage employees of Brookwood to increase the value of Brookwood and to be employed by Brookwood. The terms of the incentive plan provide for a total award amount to participants equal to 15% of the fair market value of consideration received by the Company in a change of control transaction, as defined, in excess of the sum of the liquidation preference plus accrued unpaid dividends on the Brookwood preferred stock (approximately $13,956,000 at September 30, 2012). The base amount will fluctuate in accordance with a formula that increases by the amount of the annual dividend on the preferred stock, currently $1,823,000, and decreases by the amount of the actual preferred dividends paid by Brookwood to the Company. The plan generally defines a change of control transaction as a transaction approved by the Company’s board of directors or by the holders of at least 50% of the voting capital stock of the Company that results in: (i) a change in beneficial ownership of the Company or Brookwood of 50% or more of the combined voting power, (ii) the sale of all or substantially all of the assets of Brookwood, or (iii) any other transaction that, in the Company’s board of directors discretion, has substantially the same effect of item (i) or (ii). Certain transfers, generally among existing stockholders and their related parties, are exempted from the definition. However, if the Company’s board of directors determines that certain specified Brookwood officers, or other persons performing similar functions do not have, prior to the change of control transaction, in the aggregate an equity or debt interest of at least two percent in the entity with whom the change of control transaction is completed, then the minimum amount to be awarded under the plan shall be $2,000,000. In addition, the Company agreed that, if members of Brookwood’s senior management do not have, prior to a change of control transaction in the aggregate an equity or debt interest of at least two percent in the entity with whom the change of control transaction is completed (exclusive of any such interest any such individual receives with respect to his or her employment following the change of control transaction), then the Company will be obligated to pay an additional $2,600,000. No amounts have been accrued under this plan.

Operations of Brookwood Companies Incorporated

9 Months Ended

Sep. 30, 2012

Operations of Brookwood Companies Incorporated

Note 4—Operations of Brookwood Companies Incorporated

Receivables. Brookwood maintains factoring agreements with several factors, which provide that receivables resulting from credit sales to customers may be sold to the factor, subject to a commission and the factor’s prior approval. Factored receivables were $16,532,000 and $17,487,000 at September 30, 2012 and December 31, 2011, which were net of a returned goods dilution allowance of $109,000 and $63,000, respectively.

Brookwood monitors its factors and their ability to fulfill their obligations to Brookwood in a timely manner. As of November 13, 2012, all of Brookwood’s factors were complying with payment terms in accordance with factor agreements.

Trade receivables were $2,973,000 and $8,031,000 at September 30, 2012 and December 31, 2011, which were net of an allowance for doubtful accounts of $180,000 and $118,000, respectively. The trade receivable balance at December 31, 2011 included approximately $1,643,000, which was the balance remaining related to fabric sold in two products to a Brookwood customer in the period from September 2008 to April 2009 that supplies the U.S. military for which payment had been delayed due to a compliance issue (see also Note 13). Brookwood received payment at full value of $1,643,000 in January 2012.

Sales Concentration. Brookwood has one customer who accounted for more than 10% of Brookwood’s sales. Sales to that Brookwood customer, Tennier Industries, Inc. (“Tennier”), accounted for more than 10% of Brookwood’s sales during 2012 and 2011. Brookwood’s relationship with Tennier is ongoing. Sales to Tennier, which are included in military sales, were $6,164,000 and $16,864,000 in the 2012 third quarter and nine month periods, respectively, compared to $5,061,000 and $11,456,000 in the 2011 comparable periods. Sales to Tennier represented 22.7% and 13.4% of Brookwood’s net sales in the 2012 and 2011 third quarters, respectively, and 16.8% and 11.3% in the 2012 and 2011 nine month periods, respectively.

Military sales accounted for $12,924,000 and $54,155,000 in the 2012 third quarter and nine month periods, compared to $21,802,000 and $52,212,000 in 2011, respectively. The military sales represented 47.6% and 57.9% of Brookwood’s net sales in the 2012 and 2011 third quarters, respectively, and 54.0% and 51.6% in the 2012 and 2011 nine month periods, respectively. Generally, military sales represent sales of a product to a customer (prime and sub-prime contractors) that will be incorporated into an end product that will be used to fulfill a U.S. or international military contract.

Stockholders’ Equity. The Company is the holder of all of Brookwood’s outstanding $13,500,000 Series A, $13.50 annual dividend per share, redeemable preferred stock and all of its 10,000,000 outstanding shares of common stock. The preferred stock has a liquidation preference of $13,500,000 plus accrued but unpaid dividends. At September 30, 2012, cumulative dividends in arrears on the preferred stock amounted to approximately $456,000.

2005 Long-Term Incentive Plan for Brookwood. In December 2005, the Company adopted The Hallwood Group Incorporated 2005 Long-Term Incentive Plan for Brookwood Companies Incorporated (the “2005 Long-Term Incentive Plan for Brookwood”) to encourage employees of Brookwood to increase the value of Brookwood and to be employed by Brookwood. The terms of the incentive plan provide for a total award amount to participants equal to 15% of the fair market value of consideration received by the Company in a change of control transaction, as defined, in excess of the sum of the liquidation preference plus accrued unpaid dividends on the Brookwood preferred stock (approximately $13,956,000 at September 30, 2012). The base amount will fluctuate in accordance with a formula that increases by the amount of the annual dividend on the preferred stock, currently $1,823,000, and decreases by the amount of the actual preferred dividends paid by Brookwood to the Company. The plan generally defines a change of control transaction as a transaction approved by the Company’s board of directors or by the holders of at least 50% of the voting capital stock of the Company that results in: (i) a change in beneficial ownership of the Company or Brookwood of 50% or more of the combined voting power, (ii) the sale of all or substantially all of the assets of Brookwood, or (iii) any other transaction that, in the Company’s board of directors discretion, has substantially the same effect of item (i) or (ii). Certain transfers, generally among existing stockholders and their related parties, are exempted from the definition.

However, if the Company’s board of directors determines that certain specified Brookwood officers, or other persons performing similar functions do not have, prior to the change of control transaction, in the aggregate an equity or debt interest of at least two percent in the entity with whom the change of control transaction is completed, then the minimum amount to be awarded under the plan shall be $2,000,000. In addition, the Company agreed that, if members of Brookwood’s senior management do not have, prior to a change of control transaction in the aggregate an equity or debt interest of at least two percent in the entity with whom the change of control transaction is completed (exclusive of any such interest any such individual receives with respect to his or her employment following the change of control transaction), then the Company will be obligated to pay an additional $2,600,000. No amounts have been accrued under this plan.