Regulation

SEC Gets Kaman to Break Out Its Aerospace Reporting

Company with range of business lines from helicopters to guitars makes change to follow FAS 131.
Stephen TaubJune 21, 2007

Kaman Corp., whose major businesses are in aerospace and musical instruments, said that comments by the Securities and Exchange Commission are leading the company to break up its aerospace segment into four pieces.

Kaman also said it will restate its financial reports for the past three years to reflect these changes. But the company stressed that the restatements cover only segment information, and don’t affect overall sales and earnings, its balance sheet, cash flow, or liquidity or financial condition.

Still, the company’s report was made under the SEC’s Item 4.02, “Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review,” Kaman said. And the company said that, as part of the restatement process, it is re-evaluating the effectiveness of the design and operation of its disclosure controls and procedures.

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The changes are being made under Financial Accounting Standards Board Statement No. 131, titled “Disclosures about Segments of an Enterprise and Related Information,” which defines how segment data is to be reported on the balance sheet.

Last month, we reported that FASB was proposing a significant change in how companies present the health of business-unit finances, asking internal accountants to paint a more detailed picture for investors than current segment reporting provides. The project is part of a much larger FASB initiative to rework all financial statement presentation.

FASB members plan to issue a “preliminary views” document on segment reporting by the end of the year. After that, it’s likely that investors, auditors, and corporate finance executives will have four to six months to comment on the broad proposal before FASB incorporates the comments into a more-specific rule draft.

Although details of the preliminary document still must be hammered out by FASB staffers, in general it would provide a window into the workings of a company’s business units by “disaggregating” results, giving investors and analysts another way to predict cash flows and perform financial analyses.

Kaman’s interest blend of business lines — which built up the business dealing with guitars and other instruments after the Cold War ended in the late 1980s — appears to make an interesting test for any drive to increase the availability of segment data. Kaman it will disaggregate its aerospace segment into four reporting segments: aerostructures, its fuzing business, helicopters, and specialty bearings. The company said this is consistent with the current Management and Discussion Analysis reporting format of the company’s quarterly and annual reports.

These segments will be in addition to the company’s Industrial Distribution and Music segments.