Kaman Corp (KAMN) 2012 Q3 法說會逐字稿

Good day to you, ladies and gentlemen, and welcome to the third-quarter 2012 Kaman Corporation earnings conference call. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Eric Remington, Vice President, Investor Relations. Please go ahead.

Good morning. Welcome to the Kaman Corporation third-quarter 2012 conference call to discuss our earnings results. Conducting the call today are Neal Keating, Chairman, President, and Chief Executive Officer, and Bill Denninger, Executive Vice President and Chief Financial Officer.

Before we begin this morning, please be advised that this call may contain certain forward-looking statements, such as projections of revenue, earnings, and other financial items, statements on the plans and objectives of the Company or its management, statements of future economic performance, and assumptions underlying these statements regarding the Company and its business. The Company's actual results could differ materially from any forward-looking statements made, due to several important factors described in the Company's latest filings with the Securities and Exchange Commission.

Additionally, I'll note that our discussion today will include references to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to our GAAP financial statements have been included in our earnings press release.

With that, I'll turn the call over to Neal Keating. Neal?

Thank you, Eric. Good morning and thank you for joining us today. During our third quarter, we delivered a solid overall performance with sales of $415 million, up 16.3% over the prior year, and adjusted diluted earnings per share of $0.59, a 20% increase from last year.

Sales in the Distribution segment were up 10.1% year-over-year. Organic sales were essentially flat year-over-year, and our revenue increase was attributable to our recent acquisitions, including Catching FluidPower, Florida Bearings, and a one-month contribution from Zeller.

The organic sales weakness we experienced was attributable to some of our traditionally less cyclical markets, for example, food and beverage. In addition, several of our OEM customer end-markets have been impacted by weakness in US exports, including semiconductors and solar power. Offsetting these declines was strength from paper manufacturing, fabricated metal manufactured products, and primarily metal manufacturing markets.

Our Parker transition is progressing well, as evidenced by our 19% year-over-year increase in Parker sales. We continue the significant process of converting our collection of legacy fluid power product lines to Parker. This transition is a substantial undertaking; however, nine months in, we are ahead of our initial projections.

During the quarter, we acquired Zeller, a value-added distributor of electrical and automation components and solutions. This expands our automation and motion control product portfolio to include electrical controls and power distribution.

Zeller is a Schneider Electric certified Automation and Control Excellence distributor. Schneider is a global leader in automation, and we look forward to continuing to expand this relationship.

We have considerably expanded our offering and distribution over the past couple of years to now include three [plarotic] platforms -- our legacy mechanical power transmission products, which is mostly MRO-focused; the OEM-focused electrical and automation control platform anchored by the Minarik and Zeller acquisitions; and the fluid power business consisting of Catching and our Parker national reseller agreement. These three platforms are complementary if they are all sold to our existing customer base, require technical expertise, and we represent the premier suppliers in the market. We see significant cross-selling opportunity across the three platforms, and we are working to take full advantage of those opportunities.

Moving on to Aerospace, sales were up 29% during the quarter, with the biggest impact resulting from the delivery of over 10,000 JPF fuzes, compared to just 1,200 last year, an outstanding improvement. We were able to achieve this level of delivery through consistent production and qualification test results, in addition to strong customer demand.

Through nine months we have already achieved our goal for the year of 20,000 JPF deliveries. As we mentioned on the second-quarter call, we felt we had upside in the JPF program, and we now believe that we can deliver between 25,000 and 27,000 fuzes for the year, which should allow us to partially offset delays of other programs within Aerospace.

Other factors contributing to the sales increase in Aerospace were the addition of sales from the acquisition of Vermont Composites and higher revenue from other programs, including bearings, helicopter aftermarket programs, and A-10, where we delivered 7 shipsets as compared to 1.5 last year.

Offsetting these increases is lower revenue from delivery of 30 BLACK HAWK cockpits versus 45 last year. The Unmanned K-MAX deployment program, as expected, also produced lower revenue with a year-over-year decline of more than $5 million.

However, overall, Aerospace programs are performing well. We continue to expect the demand for JPF to remain strong for the next several years, with program backlog at the end of the third quarter of $92 million. Negotiations on the next four-year sole-source contract are progressing, and we expect finalization in the coming months.

Foreign demand remains high, and we continue to pursue opportunities with other branches in the US military. The two Unmanned K-MAX aircraft in Afghanistan continue their outstanding performance and reliability. The demonstration has been formally extended through March of 2013 with an option for an additional six months.

We expect the option to be exercised, with the program extending through at least September of next year. Along with Lockheed, we continue to believe that establishing a Program of Record is still likely in the longer term.

We are negotiating the sale of the SH-2G(I) aircraft with New Zealand and other potential customers. We continue to make progress and move toward an agreement, which we hope to conclude in the coming months.

Finally, we continue to move toward the delivery under the AH-1Z program with Bell. There have been challenges for both companies, integrating several years of upgrades and modifications into the newly restarted production process.

While we have made significant progress, the initial deliveries have been delayed while we successfully complete this transition work. However, this work will ensure robust, successful, long-term production. Based on Marine Corps demand, this program has grown significantly in scope and could exceed 150 aircraft and approach $200 million in Kaman revenue, plus foreign sales such as the recent South Korean opportunity.

In the last few weeks we entered into an agreement to create a joint venture in India for the production of composite structures, and we expect to complete the process in the next few days. While we have had positive customer reaction to our original announcement, it will take several years for this effort to ramp up to be meaningful to our results.

I would like to close with a few comments on sequestration and the Defense budget. We do not have any macro insight into the issue beyond what is available to any of you.

However, we have prepared a bottoms-up program-by-program review to assess the likely impact of sequestration on Kaman. Our initial analysis indicates that we have about $25 million of 2013 Aerospace revenue at risk in a worst-case scenario. While significant, this is less than 2% of our anticipated consolidated revenue, and any decline is expected to be more than offset by production rate increases at Boeing and Airbus as well as increased revenues on both the AH-1Z and A-10 programs.

I would now like to turn the call over to Bill for some additional color on the numbers. Bill?

Thank you, Neal, and good morning. Neal discussed our overall results, which were affected by two nonrecurring items impacting earnings per share by $0.03 in total in the quarter. The first item was a charge for severance cost of $600,000 pretax recorded in corporate expense.

This expense is related to the realignment of certain functions within our Aerospace segment, which will result in a more cohesive approach to business development within the segment. We will maintain all of our programs and operational capabilities and also expect to realize savings through increased synergies within Aerospace.

The second item was a pretax charge of $600,000 related to the resolution of a nonrecurring Aerospace contract settlement. Overall, corporate expense was higher year-over-year due to the severance cost I just noted; higher incentive compensation expense due to additional LTIP participants and higher acquisition expenses, which were $1 million in the quarter and related primarily to the Zeller acquisition and the formation of our joint venture in India.

Another item impacting year-over-year results in the quarter was higher medical costs, which on a consolidated basis were up about $2 million. These higher costs were driven by higher claims experienced under our self-insured plan and higher insurance premiums under the insured portion of our program. In Distribution this accounted for a year-over-year increase of $1 million or approximately 40 basis points; and in Aerospace we saw an increase of $1.1 million or approximately 70 basis points.

The Zeller acquisition closed on August 13. We recorded sales in the quarter from Zeller of about $6 million and expect incremental sales for the full year of about $24 million.

The acquisition was slightly dilutive to the Distribution segment operating margin percent in Q3 as we began to amortize intangibles, expense the write-up of inventory, and incur integration costs. We do expect Zeller's profit profile to improve quickly and that it will be accretive to the operating margin percent for KIT in the fourth quarter.

The ERP implementation project at Distribution is progressing on schedule and on budget. In fact, we went live this past Monday with the new system in our three acquired Target Electronics locations. We selected Target as our first go-live operation so that we are able to effectively manage and control the rollout risk.

Additional operations will go live over the coming months as we phase out our eight legacy systems. We remain enthusiastic about the long-term benefits our new system will provide.

Free cash flow generation during the quarter was excellent at $34 million, due primarily to receipts from JPF sales and collections from strong sales of bearing product lines in the second quarter.

In terms of our outlook, three quarters through the year we have a much clearer picture of the full-year results. We have reduced our sales expectations at Aerospace due to several program pushouts including SH-2G(I), the Unmanned K-MAX, bridged by several other programs that have moved into 2013.

Some of this revenue pushout is expected to be offset by higher 2012 JPF deliveries. None of these changes are expected to result in lost revenue, and the projected Aerospace operating margin percentage range remains unchanged.

We now expect organic sales at Distribution to be flat in the fourth quarter based on September and October trends. However, we have maintained the full-year sales outlook range due to the favorable impact of expected sales from the Zeller acquisition. The operating margin range is now slightly lower due to lower organic sales and the impact from recent acquisitions.

In response to the lower organic sales growth at Distribution, we have taken a number of cost management actions to preserve profitability. These include control of discretionary expenses and staffing levels. We have developed a plan for more aggressive actions if conditions warrant, and we are prepared to act quickly if necessary.

We expect acquisition expenses to be significantly lower in the fourth quarter. As a result of the higher Q3 expenses, though, we now expect full-year corporate expense to approximate $49 million.

Our tax rate in the quarter was 32.7%, lower than our normalized rate of 35%. This was primarily the result of the enactment of a UK tax rate reduction, and we do expect our full-year rate to be between 34.5% and 35%.

As a result of these changes to the outlook we now expect an earnings performance in Q4 more in line with Q3 than the 20% differential we expected at our previous update. We have revised our outlook for free cash flow for the year down slightly to $25 million to $30 million, as cash collections from certain Aerospace programs have moved into early 2013.

We continue to reinvest heavily in the business, and CapEx for the year should be within our previously discussed range of $30 million to $35 million. Thank you, and I would now like to turn the call back over to Neal. Neal?

Thanks, Bill. Building on a strong performance in Q2, we posted another solid quarter. We are prepared to deal with near-term challenges as we continue to drive growth and improve financial performance across our businesses. With that, I'll turn the call back over to Eric. Eric?

Thanks, Neal. Operator, may we have the first question, please?

(Operator Instructions) Arnie Ursaner.

Hi, my question relates to the continued pushout on some of the military programs. You have been talking about it now for several months. Maybe you could expand a little bit on what is causing it to continue to move further out and how you are reacting to that.

Arnie, it's Neal. Good morning. It actually goes across a number of different programs. Obviously we have talked about some pushouts of BLACK HAWKs, and that became apparent clearly in this quarter, where we were 15 cockpits lower on a year-to-year basis.

We have also had some pushouts on programs like V-22. Actually we are performing very well on V-22. They reduced the [conbon] levels so that, while positive, impacted us against our expectations for the year.

Some delays on P-8 have come through as well. And I think one of the big swings for us, Arnie, will be on the AH-1Z program, where we had anticipated that we would have shipped one of the first aircraft in the fourth quarter. And with that comes a rather large tooling billing as well, and we don't know if that will occur late in the fourth quarter or may move into the -- early in the first quarter of 2013.

Okay. And if I can ask a real quick follow-up. On Bill's comment regarding expenses related to acquisitions and other things, I think you mentioned that you would expect it to be less in Q4. Should we imply anything related to your acquisition pipeline or activity in the pipeline if you are going to have much less expense there?

I think it does imply, Arnie, lower activity level in the fourth quarter. That is not something that is deliberate; it is just a function of the pipeline and what is active and what isn't. It goes -- from quarter-to-quarter it is going to jump around a bit.

I will jump back in queue. Thank you.

Matt Duncan.

Good morning, guys. Hope you guys made it through the storm okay.

Yes, we're okay, Matt. Thank you.

First question I've got for you is just looking at the margins that you are experiencing at KIT. The 5% margin I know is probably a little bit lower than what you guys had anticipated. Bill, can maybe you talk a little bit about how much of a drag Zeller was on margin in the quarter, in terms of how many basis points that hurt your margin?

It really was minimal. I would say medical expense was a much larger factor than Zeller was.

And just a lower organic sales growth rate does impact us. When you replace organic sales that you would expect to drop through at maybe 15% with acquired sales at initially 3%, 4%, or 5%, that does have an impact.

So then I guess maybe if we look out to your 2014 goals, based on the margins that you are going to have at KIT this year, you're going to need 80 to 100 basis points of operating margin expansion there each of the next two years to get to that 7% goal. Does that still feel achievable to you, Neal, or is that maybe a year further out now?

Matt, I think that we still feel it is achievable. Obviously we've had a little bit of a setback in this quarter, although I think that a quarter ago we would have said that we were actually a little bit ahead of our expectations.

So as we went out in late 2009 and talked about the goals for 2014, I don't think we would have characterized the economic recovery in the US as being as slow, or expected to be as slow, as it has been. However, we have been able to keep pace from both a sales and operating earnings perspective up until this quarter.

It is going to be a challenge. We need to have improved performance. But we are not backing away from those goals right now.

Okay. Then last thing from me is on the KIT business, the flattening organic sales there. I know this is probably a little bit difficult to parse out at this point, but is there any way for you guys to gauge, based on what you are hearing from the field, how much of this is the elections and the looming fiscal cliff versus maybe a topping in the economy?

And as you look out to '13, do you think the market will be there for you guys to accelerate organic growth back up, to get that operating leverage that you need there?

Matt, it is hard for us to tell. We have seen a slowdown, as a number of our competitors have as well as a number of our suppliers. It is difficult for us to identify which of those drivers it might be.

In fact, it's interesting because our regional sales vice presidents still have remained quite optimistic about the fourth quarter and the beginning of next year. It is just not coming through in the numbers. And yet they have consistently been pretty accurate over the course of the last couple years.

I think without question there is some slowdown in purchases because of the fiscal cliff and the uncertainty with the outcome of the elections. We are not going to -- those are things that we can't control. We are going to focus on increasing our levels of customer service, a renewed focus on getting our organic sales growth rates back up.

And quite frankly, right now with our strong position in the Northeast and the horrific impact of the storm this week, we are really focused day in and day out right now on positioning product and technical resources so that we can help our customers recover. And hopefully that will be good for our customers, good for our suppliers, and good for Kaman in the fourth quarter as well.

Okay. Thanks, guys.

Steve Levenson.

Thanks. Good morning, everybody. Just a general question that has to do with KIT and on the Aerospace side. Are you seeing purchase decisions by your customers being delayed or effort to destock, given concerns on Aerospace relating to sequestration on the military side and just general concerns about the economy on the other side? Or do you think this is specific to these certain businesses that you mentioned earlier?

Steve, I can't say that we can pinpoint on the Aerospace side some of the declines directly to sequestration. I think that may be just a bridge too far.

Any evidence would be solely anecdotal, so we can't count on that. I think the pushouts have occurred for a host of varying reasons.

We were pleased with our Aerospace performance. I think year-on-year the ability for us to demonstrate the kind of improvement in JPF production that we have was a real plus for us. Also, I think it highlights the diversity of our business, where we had very strong growth from year to year despite some of the program pushouts that we referred to.

I think in the Industrial side, the uncertainty that we have all talked way too much and read too much about in recent months has certainly impacted some of the capital purchasing decisions. And when you compound that, Steve, with our now much broader exposure to the OEM markets that have been impacted by the slowdown both in Asia and Europe, for our US OEM export markets, I think those are the elements that have really contributed to some of the slowdown that we have seen.

Okay, thanks. That's good. Now looking forward a little bit, about the joint venture, I know you said it will be a while still before it begins to really have an impact. Is that because you have to wait for new design specs for planes that are being -- new planes that are being built or revised -- for example, the 777X -- before you can make parts?

Is there upgrade potential? And are you planning to do work on engine components?

I will try to address that in probably three parts. First of all, we do expect that it will take several years to contribute, simply because anytime you start up any new venture that is the kind of time frame that historically we have experienced. So I think there are just certain laws of physics there that we have to get through.

The second is that one of the key drivers for us will be to support US OEMs in their efforts to sell military equipment to India and fulfill their requirements for 30% offset. So while that will happen more quickly than a new design, it does require that they go through the procurement process, that we go through certification processes for the facility, and then start up production.

Then finally, we will be working across a range of composite products there. And while it may include some top covers etc. for nacelles, we will not be doing any metal work for any engine components there.

Okay, that's great. No, I was referring to some of the fans and fan cases and shrouds, new parts that are being used a little bit more. But that's good. Thanks very much.

Brett Linzey.

Hi, good morning, guys. You referenced the $200 million opportunity in the AH-1Z program. Could you just talk about the cadence, the current scope today? And then, I mean, what really needs to happen to achieve that level of activity as we move into '13 and beyond?

Well, we are -- we anticipate ramping up to rate production, probably hitting a rate production more in the 2014 time frame as the newbuild Zs are introduced to the Marines through Bell. So I think if you look out into 2014 is where we would be likely at a more -- a higher production rate for that. But now the number of newbuilds has increased for Bell from the Marine Corps, and that is really what is driving our revenue increases there.

And also they have begun to get very good traction in some international sales opportunities. The one that was made public recently was their opportunity with South Korea. So that is really what is driving the overall program increase for us.

I mean, how do you feel about your current capacity? Is there an ability to flex that up to meet some of the increased demand from some of these customers?

I think that there is. In fact, I was in Jacksonville in the last few weeks and I will be there again next week with Greg Steiner, who runs our Aerospace segment. We were actually lasering in the second set of tooling for the AH-1Z when I was there several weeks ago. So we feel good about it.

The other thing is that all of the work that is being done between Bell and Kaman today to assure that we have everything in place for consistent, robust, repeatable production will enable us to do exactly that, be able to ramp up production and feed the line in Amarillo.

Okay. If I could just sneak one more in here, Bill, you mentioned some cost-saving efforts and realignment actions within Aerospace. Are you able to quantify the cost savings going forward into '13? And then are there additional levers or opportunities to right-size that cost structure, which would be an increased benefit?

The result of the actions we have taken so far is roughly $1.5 million, maybe $2 million starting in the fourth quarter. As we said we have developed contingency plans that will be put in place if we are required to do so, and we will do that quickly. I am not going to quantify those at this point in time.

Okay.

(multiple speakers) implement them.

The $1 million to $2 million, would that be an annualized amount?

Yes.

Okay. Okay, great. Thanks, guys.

Peter Skibitski.

Good morning, guys. A lot of questions. I guess one I have, if we could -- I was wondering if you could add more color on the Aerospace sales guidance reduction. Was Vermont the majority of that guidance reduction?

It was a significant portion of it, yes.

Okay. Then, it didn't seem like BLACK HAWK would have contributed much because it looks like you only took down your cabin guidance by -- I think by two cabins for the full year.

So, was AH-1Z, was that a pretty big portion as well? I don't know if you can quantify that for us or not.

It goes back to the cockpits. We originally had planned for 138. We are now looking and the outlook assumes 128. So there is a difference of 10 there.

Okay, okay. Then AH-1Z, can you quantify how much of that impacted the guidance reduction?

Roughly $10 million, and that includes some of the engineering charges that go with the first aircraft.

Okay. So that was a big part of it then, just the slide-out of AH-1Z. Okay.

Then I guess I want to just ask as well, on Zeller. Can you -- I guess this is for Bill. If you can quantify the intangibles amortization that Zeller is adding for you, maybe for Q4, and maybe annualized on fiscal '13.

I just don't have that number in front of me, but Eric will get back to you with that number.

Okay, got it. I'll get back into queue. Thanks, guys.

Michael Callahan.

Hey, good morning, guys. I guess the first question here, just on the sequestration details. You gave $25 million as a worst-case scenario for '13. Can you walk us through some of the details?

Would that take place in the back half? Or are you assuming a lot of secured orders? Or just I guess walk us through some of those numbers.

And then particularly does that indicate that '14 could have more than a $25 million impact? Or is that just, I guess, just '13 guidance?

I think that '14 would be similar to '13. We think it would happen more toward the back half of the year. It will take some time for our government to sort it all out and do whatever they are going to do.

So it's really a second-half sort of phenomenon. It's $25 million in the year, so I guess it could be a little more in '14, full-year effect.

Okay. Have you given any, I guess, consideration to, assuming they just kick the deadline out a couple of months, just how order flow might come through? Obviously if, I guess, each program manager was concerned they were going to lose a lot of their funding by the end of the year they might hold stuff back at the beginning.

Is that something you are considering? Or just really have no visibility?

The visibility is limited. What we have been told is that they are not -- if there is appropriated funds that those will continue. So as Bill said, that is why we believe any impact would be a second-half impact.

And again, while the law is written that it's going to be a 10% reduction at the program element level, now we are being told that that may not be how they do it. So unfortunately there is a tremendous amount of uncertainty -- whether or not it will happen, if it does happen, how it will be implemented.

I think what is most important as we look at our business is we have had certainly some benefits from new programs -- service life extension programs such as the A-10, such as the AH-1Z -- that are important new revenue growth opportunities for us. In addition, we have had very consistent and we expect to have consistent demand for JPF, now our largest program.

And also the efforts under way in the Aerospace group to increase their share in the commercial market is beginning to pay some dividends. And certainly the increased production rates that both Boeing and Airbus are implementing have helped us both on the structure side and certainly on the bearings side.

So I think that is why we focus on the fact that, while we look at $25 million as a worst-case scenario, we do see other programs both on the military side and commercial side more than offsetting that for us next year.

Okay, thanks. Then if I could just get one more in there, I guess, on the K-MAX program. Can you just give any updates what you guys have there for the quarter?

And then I guess lastly, too on that program, as it relates to sequestration, do you see that, I guess that impacting the probability of future orders on that program either?

On a year-to-year basis for the quarter, the revenues were down about $5 million, so it was significant to us. We do expect that that program will likely go -- be extended through September of next year, so we feel good about that.

The program was put in place under what is called an Urgent Operational Need, so I doubt that we would expect any impact at all from sequestration on the deployment currently. In fact, we believe that as you look at -- whether it is sequestration or the reality of declining Department of Defense budgets in the future, the demand is going to be for innovative, reliable, lower-cost systems.

And certainly our Unmanned K-MAX together with Kaman and Lockheed Martin have demonstrated exactly that in-theater in some of the worst operating conditions anyone has ever been subject to. It's clearly low-cost, innovative, and extremely reliable. So that is why we feel good about the opportunity for us to continue to drive this forward to a Program of Record.

Okay. Has there been any, I guess, qualitative feedback from the military this quarter that is incremental to what you have told us so far?

The feedback continues to be very positive. They are add -- they continue to add capability to it today so that it can operate over wider ranges. So I think that both the metrics that are used to gauge the performance of the aircraft as well as the qualitative input that we get from the Marines are very positive.

Okay, great. Thank you, guys.

(Operator Instructions) Scott Graham.

Hey, good morning. In the Industrial business, you are splitting this out into a couple of different platforms. I was just wondering go-to-market strategies. Does this give you new opportunities to make acquisitions under each platform? Maybe just lay out what the plans are there.

I think, Scott, what do we have been able to demonstrate over the last year is exactly that. As you look at our customer base, whether it is an OEM or whether it is an industrial facility, they have a collection of products and systems in there.

They will have mechanical power transmission, motion control products. They will have fluid power products, and they will increasingly have electrical motion and automation products. What we have been able to do now is to fill out these three product platforms that enable us to have the full portfolio of products that our customers use.

So we expect that it will help us with our MRO customers by expanding the share of wallet, if you will, with customers. And also as they look to consolidate suppliers, that we are better positioned to be the supplier that they select. And certainly in the OEM market, we have a much broader and much higher technology offering for our OEM customer base today.

So I think that when you look at the acquisitions of Minarik and Zeller, ATI and Target, it really has enabled us to grow our electrical and automation and motion group. Certainly the Catching FluidPower acquisition and with that the national reseller agreement with Parker has put us in a unique competitive position in the fluid power market.

And we continue to invest in growing our traditional mechanical power transmission and motion control business, I think as evidenced by the recent acquisition of Florida Bearing.

Thanks very much.

Brett Linzey.

Hi, I just had one follow-up on specialty bearings. Could you guys give us any color on how orders held in during the quarter? And then did you see any bifurcation between the OEM and aftermarket during the period?

I will let Bill look at the order flow, but we did actually have a little bit of change. Our historical mix has been about 60% forward fit, 40% aftermarket. We actually saw that shift so far this year, where it is now about 65% forward fit and about 35% aftermarket, again driven by the production rate increases at Boeing and Airbus as well as the higher content that we have on the newer platforms.

In terms of the order rate in Q3, actually down a couple percentage points compared to Q2 -- I'm sorry, compared to Q3 a year ago, which was quite strong. Year-to-date, orders are up about 8% in total for bearings.

Okay, great. Thanks, guys.

Peter Skibitski.

Yes, guys, I might have missed this, but can you let us know what Vermont revenue was in the quarter and then what you're expecting from the full year for Vermont?

Vermont revenue was around $6 million. Full year should be around $26 million.

Okay, got it. Then Aerospace bearings, just to follow up on that but focus more on sales. Can you tell us how much bearings sales were up year-over-year? Do you still expect to be up in the midteens year-over-year for the full year?

For the quarter, sales were up 9.2%. Year-to-date up 13.9%. So they will be up double digits for the full year.

Okay, got it. I guess the next one I wanted to ask about was Zeller. We have some initial integration costs here, it sounds like.

But as we look into 2013/2014, I thought Zeller margins were actually above legacy KIT margins. So I am just wondering, do you expect Zeller to be incremental to KIT's margin rate for '13 and '14?

Absolutely. And as I said earlier, we expect it to be accretive or higher in the fourth quarter.

Okay, okay. Last one, I just wanted to ask about corporate expenses. If you look year-over-year they are up really significantly, at a $50 million run rate at this point. What is your guys' thought process?

Maybe, Neal, going forward, are there opportunities to take down corporate expense going forward? Or is this the new run rate for you guys?

Well, I think that we are going to have some variation in corporate run rate, simply as we look at things like acquisition expense. That impacts it.

I don't think we will get back down into the 43% or 44% range, simply because of a more active acquisition program as well as a larger company than we had before.

Okay, okay, okay. Thank you.

(Operator Instructions)

Okay. Well, thanks for joining us for today's conference call. We look forward to speaking to you again when we report our fourth-quarter and full-year results in February. Have a good day.

Ladies and gentlemen, that concludes your call for today. Thank you for joining. You may now disconnect.