SecProbe.io

CORRESP
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corresp

December 23, 2005

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

    Re:

    The Hallwood Group
Incorporated

Form 10-K for Fiscal Year Ended December 31, 2004 Filed
March 31, 2005

Forms 10-Q for Fiscal Quarters Ended March 31, June 30, 2005
and September 30, 2005

File No. 1-8303

Ladies and Gentlemen:

     On behalf of The Hallwood Group Incorporated, a Delaware corporation (“Company” or “Hallwood
Group”), we are responding to inquiries in the letter from the staff of the Securities and Exchange
Commission (the “Commission”) to Mr. Melvin J. Melle, dated November 28, 2005, regarding the Form
10-K for the Fiscal Year Ended December 31, 2004, filed March 31, 2005 of the Company (the “Form
10-K”) and Forms 10-Q for Fiscal Quarters Ended March 31, June 30, and September 30, 2005 (the
“Form 10-Q”).

     For the convenience of the staff, we have repeated each comment prior to the response.

Management’s Discussion and Analysis of Financial Condition, page 17.

Critical Accounting Policies, page 18.

1.     We have read your response to prior comment 2. Please confirm that you will disclose in future
filings, if true, that bill and hold sales are not material for all periods presented and that you
will provide a context within which a reader will understand how you assessed materiality. If bill
and hold sales are material in future periods, we assume that your disclosures would reflect
appropriate discussion of that fact.

Securities and Exchange Commission

December 23, 2005

Page 2

     If true, the Company will disclose in future filings that bill and hold sales are not material
for all periods presented, including a context within which a reader should be able to understand
the materiality assessment. We confirm that if bill and hold sales are material in future periods,
our disclosures will include appropriate discussion of that fact.

Item 9A. Controls and Procedures, page 30.

We have read your responses to prior comments 5, 6 and 7. We believe that the requested revisions
are material, as your management has certified that it has (1) made conclusions on the
effectiveness of disclosure controls and procedures, as defined by Exchange Act Rules 13a-15(e) and
15d-15(e), and (2) disclosed any changes in internal controls that have occurred in the last fiscal
quarter. Therefore we are requesting that you amend your Form 10-K for these items, and we
re-issue the comments in their entirety.

     2.     You disclose that your controls, “by their nature, can provide only reasonable assurance
regarding management’s control objectives.” Therefore, revise your conclusion to state, if true,
that internal controls and procedures are effective at the “reasonable assurance” level. Please
refer to Part II.F.4 of the Final Rule Release 33-8238 for guidance.

     The Company will amend Item 9A of its Form 10-K for the fiscal year ended December 31, 2004 to
read as indicated in Attachment A.

     3.     You state that your management evaluated the effectiveness of your disclosure controls and
procedures, as defined in Exchange Rule 13a-15(e). However, your principal executive and financial
officers only concluded that your disclosure controls and procedures were effective in “timely
alerting them to the material information relating to the Company required to be included in its
periodic filings with the Securities and Exchange Commission.” Please also state, if true, whether
the same officers concluded the controls and procedures were effective in “ensuring that
information required to be disclosed by an issuer in the reports that it files or submits under the
Act is accumulated and communicated to the issuer’s management, including its principal executive
and principal financial officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.” See Exchange Act Rule 13a-15(e).

     The Company will amend Item 9A of its Form 10-K for the fiscal year ended December 31, 2004 to
read as indicated in Attachment A.

     4.     Please revise your disclosure regarding changes to internal controls and procedures over
financial reporting to identify any changes, not just “significant” changes that
have materially affected, or are reasonably likely to materially affect, your internal controls and
procedures over financial reporting. See Item 308(c) of Regulation S-K.

Securities and Exchange Commission

December 23, 2005

Page 3

     The Company will amend Item 9A of its Form 10-K for the fiscal year ended December 31, 2004 to
read as indicated in Attachment A.

Form 10-Q for Fiscal Quarter Ended September 30, 2005.

Item 4. Controls and Procedures, page 40.

     5.     We note that you have added new staff in an effort to address your auditors’ letters
regarding the need to improve the financial closing process at the Brookwood subsidiary. Please
describe for us the specific problems with controls that your auditors have identified and how you
plan to remediate each one.

     The communication from the Company’s independent registered public accounting firm identified
the following internal control issues at Brookwood Companies Incorporated (“Brookwood”), a
wholly-owned subsidiary of the Company. Each of the issues and management’s response to remediate
each one are discussed below.

     Issue - The closing process involves a number of manual procedures, as a result of an
accounting system that is not fully integrated. This resulted in various adjustments subsequent to
closing the books.

     Response — With the addition of more experienced staff, the timeliness and accuracy of the
closing process has improved. In addition, Brookwood is currently implementing a new order
processing and inventory control system and updating its general ledger system, which will
integrate various accounting processes. The new systems will further aid in accelerating and
automating the financial closing process.

     Issue — Certain internal controls within the information technology environment were
deficient. Brookwood had control issues related to applications development and systems
maintenance, such as the lack of documented application system change methodologies. In addition,
several issues related to information technology security controls were noted, such as a lack of
formalized backup procedures and insufficient physical control over access to computer facilities
and check stock.

     Response — Brookwood’s new order processing and inventory control system, fully supported and
updated by the software provider, will result in improved system controls, system change
methodologies, documentation and maintenance. Brookwood has implemented various
access controls over its computer facilities and check stock and has documented and is
following a formalized computer backup procedure.

     Issue - Recordkeeping related to Brookwood’s stock option plan was incomplete.

Securities and Exchange Commission

December 23, 2005

Page 4

     Response - Brookwood has updated its record-keeping and documentation relating to its stock
option plan and has implemented procedures for maintaining its accuracy.

     If any members of the Staff have any questions concerning the enclosed materials or desire
further information or clarification in connection therewith, he or she should contact the
undersigned at (214) 855-4361.

Sincerely,

/s/
W. Alan Kailer

W. Alan Kailer

WAK:ts

Enclosures

cc/encl.:

Melvin J. Melle

Attachment A

Item 9A.     Controls and Procedures

     Disclosure Controls and Procedures. It is the conclusion of the Company’s principal executive
officer and principal financial officer that the Company’s disclosure controls and procedures (as
defined in Exchange Act rules 13a-15(e) and 15d-15(e)), based on their evaluation of these controls
and procedures as of the end of the period covered by this Annual Report, are effective at the
reasonable assurance level in timely alerting the Company’s management, including its principal executive and financial officers, as appropriate, of material information relating to the
Company to allow timely decisions regarding required disclosure to be included in its periodic filings with the Securities and Exchange Commission
and ensuring that information required to be disclosed in the reports that the Company files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified by the Securities and Exchange Commission’s rules and forms. Management necessarily applied its judgment
in assessing the costs and benefits of such controls and procedures which, by their nature, can
provide only reasonable assurance regarding management’s control objectives. The design of any
system of controls and procedures is based in part upon certain assumptions about the likelihood of
future events. There can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote.

     In August 2003, the Company’s independent registered public accounting firm provided written
communications to management and the audit committee on the need to improve the financial closing
process at the Brookwood subsidiary. In April 2004, the Company received a further written
communications from the independent registered public accounting firm to management and the audit
committee on the continued need to improve the Brookwood financial closing process. With the
addition of new staff, Brookwood’s management believes it has made substantial progress both in the
timeliness and accuracy of the closing process. In March 2005, the Company received communication
from their independent registered public accounting firm that further improvements in the financial
systems and processes at its Brookwood subsidiary are still required. Brookwood is currently
implementing a new order processing and inventory control system and updating its general ledger
system, which will integrate various accounting processes. The new systems will further aid in
accelerating and automating the financial closing process. In addition, Brookwood has updated its
recordkeeping related to its subsidiary stock option plan.

     Internal Controls. Other than the improvements noted above, there were no changes in the
Company’s internal controls over financial reporting that occurred during the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, these controls.