Operations of Brookwood Companies Incorporated	9 Months Ended
Operations of Brookwood Companies Incorporated	Sep. 30, 2013
Text Block [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, excluding U.S. Government, may be assigned for collection to the factor, subject to a commission and the factor’s prior approval. Factored receivables were $15,490,000 and $15,199,000 at September 30, 2013 and December 31, 2012, which were net of a returned goods dilution allowance of $200,000 and $174,000, respectively. Brookwood monitors its factors and their ability to fulfill their obligations to Brookwood in a timely manner. As of November 14, 2013, all of Brookwood’s factors were complying with payment terms in accordance with factor agreements. Trade receivables were $2,951,000 and $3,980,000 at September 30, 2013 and December 31, 2012, which were net of an allowance for doubtful accounts of $56,000 and $134,000, respectively. Sales Concentration. Sales to one Brookwood customer, Tennier Industries, Inc. (“Tennier”), accounted for more than 10% of Brookwood’s sales during 2013 and 2012. Brookwood’s relationship with Tennier is ongoing. Sales to Tennier, which are included in military sales, were $5,884,000 and $20,732,000 in the 2013 third quarter and nine month periods, respectively, compared to $6,164,000 and $16,864,000 in the 2012 comparable periods. Sales to Tennier represented 19.4% and 22.7% of Brookwood’s net sales in the 2013 and 2012 third quarters, respectively, and 22.0% and 16.8% in the 2013 and 2012 nine month periods, respectively. Military sales accounted for $16,932,000 and $49,035,000 in the 2013 third quarter and nine month periods, compared to $12,924,000 and $54,155,000 in 2012, respectively. The military sales represented 55.9% and 47.6% of Brookwood’s net sales in the 2013 and 2012 third quarters, respectively, and 52.1% and 54.0% in the 2013 and 2012 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 an aggregate liquidation preference of $13,500,000 plus accrued but unpaid dividends. At September 30, 2013, cumulative dividends in arrears on the preferred stock totaled 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 (“2005 Plan”) to incentivize employees of Brookwood to increase the value of Brookwood and to continue their employment with Brookwood. The terms of the 2005 Plan provide for a total award amount to participants equal to 15% of the net fair market value of all consideration received by the Company or its stockholders in a change of control transaction (as defined in the 2005 Plan and further explained below), in excess of the sum of the liquidation preference plus accrued but unpaid dividends on Brookwood’s Series A Preferred Stock (the “Preferred Stock”) ($13,956,000 at September 30, 2013). The base amount will fluctuate in accordance with a formula that increases by the amount of the annual dividend on the preferred stock of $1,823,000, and decreases by the amount of the cash dividends actually paid. The 2005 Plan generally defines a change of control transaction as a transaction that (i) is approved by the Company’s board of directors or by the holders of at least 50% of the Company’s voting capital stock then-entitled to vote generally in the election of directors, (ii) is a transaction in which either the Company or its stockholders receive consideration, and (iii) results in: (x) a change in beneficial ownership of the Company or Brookwood of at least 50% of the combined voting power of the Company’s or Brookwood’s then-outstanding stock then-entitled to vote generally in the election of directors, (y) the sale of all or substantially all of the assets of Brookwood, or (z) any other transaction that, in the discretion of the Company’s board of directors has substantially the same effect as the transactions specified in clauses (x) and (y), above. Pursuant to the terms of the 2005 Plan, certain transfers, generally among existing stockholders and their related parties, do not fall within the meaning of “change in control” under the 2005 Plan. However, if the Company’s board of directors determines that certain specified Brookwood officers, or other persons performing similar functions do not have, in the aggregate and prior to the change of control transaction 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 certain members of Brookwood’s senior management do not have, in the aggregate and prior to a change of control transaction, 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. As of September 30, 2013, no amounts have been accrued or paid under the 2005 Plan. The Merger will not constitute a change of control transaction under the 2005 Plan.

Hallwood Group Inc 10-Q