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Jarden Corporation (NYSE:JAH)

Q1 2012 Earnings Call

April 25, 2012; 04:45 pm ET

Executives

Martin Franklin - Executive Chairman

Jim Lillie - Chief Executive Officer

Ian Ashken - Vice Chairman & Chief Financial Officer

Rachel Schacter - ICR

Analysts

Bill Chappell - Suntrust

Joe Altobello - Oppenheimer

Charles Strauzer - CJS Securities

Lauren Lieberman - Barclays

Greg Badishkanian Ashken - Citigroup

Jason Gere - RBC Capital Markets

Carla Casella - J P Morgan

Reza Vahabzadeh - Barclays

John Andersen - William Blair & Company

Operator

Good afternoon ladies and gentlemen and welcome to Jarden’s Corporation conference call. I want to note that today’s call is being recorded. This afternoon’s call will begin with management making some formal remarks. When they have concluded a question-and-answer period will follow. (Operator Instructions).

I will now turn the call over to Rachel Schacter of ICR. Please go ahead.

Rachel Schacter

Good afternoon and thank you for joining us for Jarden’s first quarter fiscal 2012 results conference call. In accordance with Regulation FD or Fair Disclosure, we are webcasting this conference call. Any redistribution, retransmission or rebroadcast of this call in any form, without the expressed written consent of Jarden is strictly prohibited.

Before we begin, please take note of our cautionary statement regarding forward-looking statements at the end of our earnings release issued today. While forward-looking statements made during this conference call are based on currently available information, our actual results could differ materially from those predicted. However, we undertake no obligation to update any such statements, whether as a result of new information, future events or otherwise.

For more information please also refer to the risk factors discussed in Jarden’s From 10-K. Please note that the company has listed supplemental financial data slides, as well as reconciliations of certain non-GAAP comparable to GAAP financial measures to its website. The presentation can be downloaded in the section “For Investors” on Jarden’s website under the “Presentations” heading.

And now, I’d like to turn the call over to Executive Chairman, Martin Franklin. Martin, please go ahead.

Martin Franklin

Thank you, Rachel. Good afternoon ladies and gentlemen. With me on the call today are Ian Ashken, our Vice Chairman and CFO; and Jim Lillie, our CEO. Hopefully, you’ve all had a chance to review the earnings release we issued earlier this afternoon.

We are pleased to report an encouraging start to the year, with strong positive momentum and while Q1 is our seasonally smallest quarter, we believe we are on track to achieve our principal, strategic and financial objectives for fiscal 2012.

As I have stated previously, at Jarden we rely on three primary drivers and our efforts to deliver consistent profitable growth for our shareholders. Optimizing the performance of our existing business, pursuing a disciplined acquisition strategy and effectively managing our capital structure.

Q1 included several noteworthy accomplishments in each of these areas. First as Jim will highlight further, our businesses continue to perform. Our commitment to investing in new product development remains fundamental to Jarden’s DNA and a key parts of our success.

Some of you may have seen a sample of our recent innovations on display during our Media Day for new products held in New York in February. During that event we displayed over 100 new products from across all of our business segments, including several Nook Infant and Toddler feeding products, incorporating the latest orthodontic technology, the next generation of Coleman Roadtrip Grills and smaller, more powerful, LED Flashlights and CPX series.

We also showcased a new line of pet care and grooming products under the Sunbeam brand. We consistently invested in our brands and in new technologies and expect to realize benefits in the current year and over the next several years.

Ongoing efforts to expand internationally include in the near term a focus on increasing the utilization of our existing distribution platforms globally to bring a broader product offering to under penetrated markets. We are also focusing on longer-term opportunities to establish more a meaningful presents, whether organically or through acquisitions, in markets that represent potential higher growth opportunities for Jarden, such as in Brazil, China and South East Asia.

Secondly, we continue to seek to optimize the use of our excess cash beyond amounts needed for investments in our existing businesses and after evaluating several alternatives, we determined that our own company represented the most attractive investment opportunity during the first quarter.

Following our announcement in January, the launch of our modified Dutch self-tender offer, in March we advanced our shareholder value creation goals through the successful completion of the $435 million buyback at $36 per share. As previously announced, 12.1 million shares representing approximately 13.2% of our shares issued and outstanding prior to the consummation of the tender offer were tendered. A the quarter end we had approximately $65 million remaining of the total $500 million approved by our Board of Directors, for use under our ongoing share repurchase program.

And third we proactively managed our capital structure by opportunistically accessing the debt capital markets. In February we successfully completed a $300 million add-on the our existing senior secured facility, to partially fund our tender offer with a view to maintaining a conservative long-term debt maturity profile, while maintain our target bank leverage ratio of 3:1 or less by year end.

We accomplish this with no increase in pricing and continuing with no LIBO flow. In February 2009 we had adjusted our long-term bank leverage ratio to be 3:1 from what was previously a 3.5:1 ratio and we continue to be committed to maintain this lower ratio.

Our recent facility amendment increased the total combined principal amount available under our term loan and securitization facility by an aggregate of $400 million. These successful amendments speak to the strength of Jarden’s balance sheet and the high quality cash flow generative characteristics of the businesses within our well-balanced portfolio.

I’d now like to turn the call over to Ian to review our first quarter financials and full year guidance in more detail.

Ian Ashken

Thank you Martin. As a reminder, consistent with our quarterly practice, we have posted a more detailed financial presentation of our performance during Q1 on our website. We’ve also continued to disclose both as reported and as adjusted results separately in our press release.

For the first quarter 2012 sales grew 2.9% on an organic basis, adjusting for foreign exchange improvements and exited businesses. As you can see from our supplementary slides, we reported organic growth in each of our segments during the first quarter, with the strongest performance in our branded consumer segment with 6.2% organic growth.

Adjusted gross margins increased by 52 basis points for the first quarter compared to the first quarter last year. We continued to execute on our long-term goal of expanding gross margins by approximately 50 basis points per annum and expect to achieve this goal for the year.

In 2012, gross margin should continue to benefit from the introduction of new products, which command higher price points and from the various ongoing continuous improvement programs throughout the company, with the lien initiatives kaizen or six sigma. In addition our hedging strategies and sourcing versus manufacturing choices have been successful in helping offset product cost inflation, including the impact of commodities and distribution costs from China.

Adjusted EBITDA margins for the quarter increased 15 basis points compared to the prior year. The leveraging of our SG&A will be more visible as we progress through the year, with the first quarter historically being by far the smallest quarter in terms of sales and profitability.

As discussed on our fourth quarter earnings call, with a strong new product pipeline in place, we expect the continuation of gross margin improvements to result in EBITDA margin expansion in 2012 and beyond.

Cash used in operations in Q1 was $148 million compared to $167 million in the first quarter of 2011. Our lower use of cash compared to 2011 is primarily due to our focus on reducing and leveraging our working capital through various initiatives throughout Jarden.

The success of these programs is evidenced by the $84 million or approximately 6% decline in inventory balances in Q1 ’12 versus Q1 2011. We achieved this reduction, what is typically an inventory build period for Jarden without incurring risk to the continued growth of our businesses. We remain committed to our stated goal of reducing working capital by 5% to 10% for the year.

As previously mentioned, we expect cash flow from operations to be at least $430 million in 2012. As Martin noted, we announced the results of our modified Dutch auction self-tender on March 9. As a reminder, a total of 12.1 million shares of Jarden’s company stock was tendered with a final purchase price of $36 per share, with an aggregate cost of approximately $435 million, excluding fees and expenses related to the tender offer. For modeling purposes we expect our weighted average fully diluted share account to approximate $80 million for the full year of fiscal 2012.

Given the results of our tender offer, which was funded from a combination of existing cash on hand and new debt, our bank leverage ratio increased to 3.2 times at the end of Q1 from 2.6 times at the end of the fourth quarter. Our intention is to bring this ratio back to our target of 3:1 or less over the course of the year.

Interest expense was approximately flat in the quarter compared to the prior year period. Our weighted average interest rate for the quarter was 5.4% versus 5.5% in the prior year. Our current ratio of fixed to floating debt remains conservative at approximately two-thirds fixed to one-thirds floating.

As mentioned on our last conference call, we anticipate taking a charge of up to $25 million in 2012 to repatriate cash from Venezuela, not held for permanent reinvestment. A charge of less than $1 million was taken in the first quarter related to this repatriation, which we did not adjust for any as adjusted presentation given it’s small size.

As we stated also on our last quarterly call, we continue to expect that our reported 2012 net sales will be reduced by the year-over-year fluctuations in the euro and other currencies and based on current projected rates, we still anticipate we will experience a net reduction sales in the range of $80 million to $90 million in 2012 versus a benefit of $102 million in 2011.

We believe our average cost of buying will be fairly flat in 2012 at approximately 5.5% and that capital expenditures will continue to approximate depreciation at approximately 2% of sales. Lastly, we anticipate our effective tax rate to be 35% in 2012, compared to 35.5% last year and our business expands more in lower tax rate international markets.

With solid first quarter results and taking into account the tender, we now forecast that fiscal 2012 adjusted earnings per diluted share will be in the range of $4.04 to $4.14, compared to the forecast we provided in our last conference call of $3.65 to $3.78. Our longer-term goal of nearly doubling our 2009 EPS to $5 of adjusted earnings per share by the end of 2014 remains a key target for the management team.

And I’d like to pass the call over to Jim.

Jim Lillie

Thank you Ian. As both Martin and Ian mentioned, Jarden had a strong first quarter, which reflected growth across our business segments, our brands and geographies. During the quarter we advanced our annual growth objectives faster than originally anticipated, which positions us well to achieve our financial goals for 2012.

As I stated on the last call, our principal objectives for fiscal 2012, are to continue to deliver on our long-term top and bottom line goals. These include growing organic revenue on average by 3% to 5%, expand the gross margins by approximately 50 basis points, increasing adjusted earnings per share by at least 10%, and increasing cash flow from operation through continual improvements in working capital management, as well as the increases in our operating profits.

As evidenced by our first quarter results, Jarden is off to a healthy start to the year and we remain confident in our ability to deliver on our objectives. As you will recall, when we provided the annual guidance in February, we outlined some of the updated assumptions that should be used for 2012, including a $30 million to $50 million from the warm winter, split between Q1 and late Q3 into Q4 in 2012. It was not known at that time that the mild winter would continue and the extent to which the natural hedges of our diverse portfolio would drive early sales in our spring related businesses, such as fishing, apparel and fresh preserving.

Likewise, as the economy is showing more signs of improvement, retailers are more comfortable maintaining stock shelves and we see this through not only the improving size of orders, but also the velocity of those orders.

Q1 marked our 10th consecutive quarter of organic growth. For each quarter since Q3 2010, measured on a trailing 12-month basis, we’ve achieved organic growth within or above our long-term average target range of 3% to 5%. As mentioned earlier, each of our business segments reported organic growth for the first quarter just as they did for fiscal 2011. Our organic top line growth was led by Jarden brand of consumables, followed by Jarden consumer solutions and Jarden outdoor solutions, which grew by 6.2%, 1.6% and 1.6% again respectively.

Within our outdoor solutions segment, the negative impact of the mild winter was more than offset by better than expected performance in some of our warm weather categories. Our fishing business for example reported a noteworthy performance aided by retailers continued support of this increasingly popular and affordable outdoor sport in the early spring.

Healthy POS also signals continuing demand for our products and consumer validation of the investments that we have made in our brands and our product development efforts. As an example of one of the many initiatives to grow our fishing categories, we recently partnered with the Recreational Boating and Fishing Foundation, combining efforts with the department of national resources of each state to increase sales of fishing licenses and encourage participation in the sport.

On our last conference call, I referenced Jarden technical apparel. While, you may recall we implemented the three year plan in 2010 to double revenues, we once again delivered double digit revenue growth this quarter, fueled by the positive reception from retailers and consumers to our new spring line, including Marmot’s Super Mica Jacket made from Marmot’s proprietary waterproof and breathable fabric, which is both durable and very light.

In addition to fabric technology advances in corporate and into the Super Mica Jacket, it’s also an example of the progress that we’ve made to our goal of expanding the Marmot brand beyond the winter season. We will remain sharply focused on maintaining Marmot’s strong brand heritage as a leader in technical performance gear as we pursue our growth strategies.

As part of this objective, in March we opened a concept shop at Globetrotter in Cologne, Germany, a partnership store in Osaka, Japan and we are on track to open our London, Olympic store this quarter. These lifestyle stores allow us to showcase Marmot’s image and a full array of products in one environment, which makes a powerful statement for the brand, while maintaining our stringent ROI criteria.

Our branded consumable segment led the revenue growth for the quarter at 6.2% on an organic basis. Our First Alert business recorded double-digit growth supported by continuing momentum from the California carbon monoxide legislation and high sell-in for new products such as security cameras.

Going forward we anticipate that the updated New York City CO replacement law, expected to be effective shortly will add to this momentum. This law initially required installation of alarms in certain areas and now requires replacement before the manufacturer suggested the useful life expires.

Our first preserving business is off to an encouraging start. We recently launched our product, which we believe to be the world’s first fresh preserving kitchen appliance, designed in corporation with the sister segment Jarden Consumer Solution. This product was conceived to respond to the growing trend of home and local community garden, including in many urban locations throughout the United States and is designed to simplify the process of preserving fresh foods. Our home and family business formerly known as Mapa Spontex recorded steady growth across this platform in spite of the weak European economy.

Within our Consumer Solution Businesses, organic sales grew by 1.6%. This is driven primarily by continued expansion in our international business, contributions from new products in the pet category, which grew by over 10% and continued strength of slow cooking.

At a showcase at our media day in February, we have a strong line up of new categories across the JCS categories, including the first Mr. Coffee, single cup brewing system with a reservoir, which eliminates the need for frequent water refills and multiple kitchen appliances under the Oster brand, which is particularly strong internationally. We believe these products will continue to support our growth objectives in the U.S. and internationally for JCS.

Across businesses and geographies we appropriately budgeted Europe conservatively and outperformed our objectives as our stable portfolio of consumer products continue to perform. Of course, the replenishment or staple nature of many of our products is a great advantage to have in a difficult economic environment.

Within Europe we are leveraging the infrastructure and the expertise we acquired to the Mapa Spontex acquisition, to start to distribute First Alert and Quickie products across the continent. We expect to realize additional synergies in Europe as we develop other brands in the region. We also see considerable opportunity to drive growth in Latin America, Africa and Asia, as we leverage the platforms created to develop new and existing businesses in all of these markets.

Finally on the commodity front, as expected we experienced minimal volatility in Q1 with no meaningful impact on our results. We continue to believe that commodities will not be a major headwind or tailwind this year. We are pleased to be off to a solid start for the first quarter.

For Q2 we continue to estimate that foreign exchange fluctuations will negatively impact our top line revenue growth by approximately 1% to 2%. Similarly we still anticipate realizing overall organic growth of over 3% in the second quarter based on the continued strength of our in-season businesses such as fishing, baseball, camping and fresh preserving.

And with that update, I’d now like to turn the call back over to Martin for some final comments. Martin.

Martin Franklin

Thank you Jim. In summary, we are very pleased with our results in Q1 and are confident in our ability to meet or stated financial goals for the full year 2012. While we continue to believe economic conditions in many parts of the world will remain challenged, we expect the strength of our products and latest innovations, our powerful brands and our targeted growth initiatives will position Jarden for another year of growth and accomplishments toward our long term objectives. We look forward to providing you with an update on our performance, on our Q2 conference call.

Operator, I’d now like to open the call to any questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we’ll go first to Bill Chappell with Suntrust.

Bill Chappell - Suntrust

Good afternoon and congratulations.

Martin Franklin

Thank you.

Bill Chappell – Suntrust

I guess, first just going to the gross margin, I think on the last call you had talked about gross margin improvement being the lowest in the first quarter and then improving throughout the year, but your already at kind of 50 basis points for the quarter. Is that still the case? Should it still get better?

Martin Franklin

Bill, your recollection is correct. Jim mentioned that some of our seasonal business just started early with the mild weather and in those in particular was the fishing and the home canning business, which are high margin businesses, so they obviously held in the quarter, but otherwise we do expect to see at least the 50 basis points for the full year.

Bill Chappell – Suntrust

Okay and then switching to the branded consumables side, I think that’s the fastest growth in a year plus and I can’t…

Martin Franklin

Yes, yes.

Bill Chappell – Suntrust

I can’t remember you shout out to the canning business in a long time, so I’m just trying to understand, I would have thought that the firelog business would have brought the growth down in the quarter. Maybe you can give us an update there?

Martin Franklin

Yes, I mean I think when we saw winter developing the way it was, when we set the budget, we really didn’t have much planned for the firelog business, but we thought that you would see growth in the home canning business, because on a year-over-year basis it struggled a little bit in the second quarter as you recall.

And then we’ve had some fixes in place within First Alert and certain other business, that they manage such as the Lehigh brand and Crawford brand will be brought out, an array of new products over the last 18 months and those are starting to see traction. And then the Mapa Spontex business in Europe continues to perform despite kind of the macro economic headwind in Europe and so kind of all of those events drive that 6.1%. It was a very well balanced across balanced consumables.

Bill Chappell – Suntrust

Last question, just on the outdoor side and I’ll turn it over. Can you give us an update on kind of what you think the ski business will do, now that kind of the seasons over. Is it as bad as you would have thought or will it get a little bit better as we looked at the second half kind of shipments?

Martin Franklin

I think if you look at the $25 million outlook that we had for winter sports products for 2012, I think Q1 performed exactly where we thought it was going to be and we still have that $25 million, $30 million view for late Q3 shipments into Q4, but split pretty well evenly between the first part of the year and the second part of the year. Everything is doing exactly what we thought it would do.

Bill Chappell – Suntrust

Okay great, thanks so much.

Martin Franklin

Thank you.

Operator

Next we’ll move on to Joe Altobello with Oppenheimer.

Martin Franklin

Hey Joe.

Joe Altobello - Oppenheimer

Hey guys, good afternoon. Just a couple of quick ones if I could. First, in terms of the commentary earlier regarding the improved retailer health, were there any particular channels or categories where you’re seeing retailers willing to hold more inventory or increasing the velocity of purchases.

Martin Franklin

Well, I think the Fortune 500 companies that are our customers have taken their foot off the breaks, especially in some of these seasonal categories and then also the small more regional players in the sporting goods businesses coupled with the mom and pop’s also have taken their foot off the breaks a little bit. So that combined effort we see just, higher receptivity for taking more inventory and then as the POS has performed, the velocity of the reorders have also come in at a healthy rate.

Joe Altobello - Oppenheimer

So it sounds like it was pretty much across the board then.

Martin Franklin

Yes.

Joe Altobello - Oppenheimer

Okay and then secondly in terms of the margin, it looks like the Outdoor Solutions business margins were a little bit stronger than we thought, while Consumer Solutions were a little bit weaker than we thought. Could you kind of talk about the dynamics in both of those two segments.

Jim Lillie

Joe, this is Ian. Again, the fishing was really the driver of outdoor solutions. The Technical Apparel’s growth, which is a higher margin, gross margin level helps less so on the bottom line. And then in consumer solutions they did struggle actually in Q1 on a mix, particularly in our international business which grew and I think that you will see that corrected itself over the rest of the year.

Joe Altobello - Oppenheimer

Excellent, thank you.

Operator

And now we’ll move on to Charles Strauzer with CJS Securities.

Charles Strauzer - CJS Securities

Hi, good evening.

Martin Franklin

Hi Charlie.

Charles Strauzer - CJS Securities

A quick question if you can on the SG&A side. There was only a modest growth year-over-year. What are your expectations there for advertising spend, the marketing spend, kind of throughout the year.

Martin Franklin

Yes, I think as Ian I think mentioned in his comments, we helped to see EBITDA improvement and so as the gross margin improves we expect to see SG&A relatively flat across the businesses and then hopefully you will see the lift in the EBITDA margin as we progress through the year.

But that being said, last year we spent about 5% percent of revenue on new product development and marketing. Again, we expect to see in that same level of spend. So you will see an absolute dollar increases as the revenue moves a little bit, but it still should be about that 5% level.

Charles Strauzer - CJS Securities

Got it and then Ian, picking up on that topic on new products, with the receptivity for those at retail and the POA, kind of the initial sell-in, what’s happening with the new product rollout.

Martin Franklin

I think the new product is being received well, but as we said about winter, I think you have to have a conservative outlook for winter products until we actually see what the weather is. But as you know we make a lot of the winter products to order, so we don’t expect to see much up side if the weather cooperates with us as you get into the fourth quarter.

So I think the winter numbers will be what they will be, but I think the receptivity to the other new products that are being launched and being developed with some partners, there is a high level of interest and we expect to see a corresponding amount of demand.

Ian Ashken

Charlie, this is Ian. I would comment that the new products is so much part of Jarden’s DNA as Martin commented that that’s a competitive advantage for us, to our customers and some ways not expected to relay on the fact now that we will come to them with something new and creative for a category. So it’s not really them saying, oh yes or no I’d like to take it. What do you have for me this quarter or this year or this season?

Charles Strauzer - CJS Securities

Great, thank you very much.

Operator

And from Barclays we’ll move on to Lauren Lieberman.

Lauren Lieberman - Barclays

Thanks. Hi guys, first thing was just on the early spring and fishing kind of starting early. So just to make sure we all don’t get ahead ourselves, we had build in a pretty health recovery for fishing happening in 2Q because of how weak it was last year. So it sounds like some of that – there’s a lot to be seen, right, weather can continue and the momentum in the business is good. But does some of that recovery, do we think about that having been pulled forward a bit into Q1.

Martin Franklin

This is Martin. I don’t think it’s a pull forward. I think it’s simply, because if its pulled forward it will be because retailers were taking it and putting it into inventory. The reality is that we’ve seen strong sell through at POS, and I think a lot of it is because if the weather is good to go out fishing, people go fishing and I don’t think that’s going to detract at least the view internally as it is going to detract from our go forward revenue. I think its just widened opportunity.

Again, it’s a very typical example of how the diverse portfolio works. We have a benefit on that front and then the negative part of that equation is that retailers are being more cautious with inventors on winter goods given the winter that we have just been through. So it balances out, but what we focused on, is that going to get to out macro goals and it seems to be doing that.

Jim Lillie

Yes, I would just add Lauren that, I think you’re looking back to last year when we said some of the key Q4 revenue pulled into Q3 because of the shipping of ski’s, that’s not what you’re seeing in Q1 of this year.

Lauren Lieberman - Barclays

Okay, so when I think about modeling out 2Q, the fact that fishing is a very easy comparison because of the flooding etcetera, that’s still just as relevant, same thing with home canning and the whatever was hot and dry, wrong seasonal weather, all that still kind of holds.

Jim Lillie

Yes, we have still 60 days left in the quarter. Who knows what the weather will be.

Lauren Lieberman - Barclays

Right, we can have a flood next week.

Jim Lillie

If you have a look at your model and look at FX, in the 1% to 2% impact to revenue that we talked about in my comments.

Lauren Lieberman - Barclays

Okay and then on consumer solutions, I think it was Ian who just mentioned. A comment more around margins that mix was hurt a little bit, international was growing faster than developed markets, that should correct. So what is it you’re seeing if anything that is making it hopefully that U.S. picks up to believe that business have been pretty flat. So is it overall consumer demand, POS, retailer comfort or is it new product calendar.

Jim Lillie

Well I think if you look at the order patter, we have a six-month kind of order window on a lot of products. It’s a second half business. The orders are where we would expect them to be and I think as we expand into our growing geographies, particularly in Latin America, we are seeing traction with both new products as well as geographical expansion, which will blend with the confidence to the output for the full year.

Lauren Lieberman - Barclays

Okay, so that comment on margins and consumers which had move to do with beneficial new product mix.

Jim Lillie

It was a mix issue in the month of March based on when certain products ship versus when we thought other products will shift and as Ian said, as you look out to Q2, Q3 and Q4 we see that correcting itself fairly quickly.

Lauren Lieberman - Barclays

Okay, and so the U.S. business for consumers solutions, can you talk a little bit about that? You did mention that the majority of both came from international. So is that business still flattish? Is there any pickup from a retail standpoint, like you’ve seen with consumer confidence helping in outdoor?

Ian Ashken

Lauren this is Ian, as Jim mentioned the domestic business is really a second half business. So I anticipate it can be pretty flat domestically for the first half, and the second half, we are starting to get – I think retailers, what you are seeing in some of the seasonal businesses today with that being as Jim mentioned the inventory, they are willing to take more of a risk on inventory and they are seeing the good results from that at POS. That will drive growth into the JCS category in the second half of the year, but although, I mean the growth in this business in going to be driven primarily internationally given the market shares that we have domestically.

Lauren Lieberman - Barclays

Okay great and then just last quick housekeeping thing on interest expense, I assume it should go up from here because the incremental debt came on in March, so do you model interest up for the rest of the year.

Ian Ashken

I think you could just take the, we could go though that off line, but obviously we’ve given the 5.5% as the effective rate and whatever your assumption is on the debt, you can just apply to the overall, because that’s an average rate.

Lauren Lieberman - Barclays

Okay great. Thank you.

Ian Ashken

All right.

Operator

Next we’ll hear from Greg Badishkanian with Citi Group.

Ian Ashken

Hey Greg

Greg Badishkanian - Citigroup

Hey guys. Really nice quarter and just wondering in terms of POS, can you compare that to kind of fourth quarter and may be how that compares with your organic shipment growth, I think about around 3% for the quarter.

Ian Ashken

Well the POS has decided to be different in the fourth quarter in the array of product that ship and are picked up by consumers. So I think the POS performance I think as Martin said.

Fishing is a lot like golf and that it has no seasons. If the weather is nice, people go and fish and so we are seeing the primary lift in the outdoor business on POS on the fishing side, whereas baseball is just now kind of taking off as we kick-off and it’s a little earlier around the country for people to be camping, but we are seeing good POS performance on a year-over-year basis across those three primary spring categories.

I think if you look at the fourth quarter, it was really Technical Apparel that had a strong performance within JOS and the ski businesses really didn’t do too terrible, because we placed those – we shipped those orders early in Q3 and people were buying the ski’s because of subsequent or prior year’s that were very good winters and replacing equipment and they bought it before anybody really figured out that winter was a terrible thing. So the fourth quarter wasn’t a disaster, you know POS wise and ski.

Greg Badishkanian - Citigroup

Right, and as you talked to your big retail customers, do you get a sense that you’ve been picking up shelf space and market share, at least over the last few months or so.

Ian Ashken

Yes look, I think it’s a very small quarter, but I think the outlook at Ian talked about for our products with our innovation, its expect that we continue to innovate categories. But I think the receptivity for our products, and remember about a third of our revenue comes from new products that were developed over the last three years. Its still trending in that direction and that has just become an expectation amongst retailers that we are going to have new and interesting products that drive store traffic.

Greg Badishkanian - Citigroup

Great, thanks guys.

Martin Franklin

Thanks Greg.

Ian Ashken

Thanks Greg.

Operator

Next we’ll hear from Jason Gere with RBC Capital Markets.

Jason Gere - RBC Capital Markets

Okay thanks. I’m glad so no one asked the question about the pull forward of sales. So one question I did want to follow-up on was on SG&A and I think you were saying it should flattish. I though that was as a percentage of sales and I guess I was just wondering about as you expand into some of the markets that are not – you don’t have a much as scale with the map if you think about Latin America or Asia. I mean is there over the next couple of years kind of a expectation for building selling capabilities out there. I was just wondering if you could put some context around that.

Martin Franklin

Look, I would tell you, the numbers involved in building platforms internationally, relative to the base are climbing. You won’t really see any meaningful move in SG&A. You’ve got to remember, as we grow organically, other than our marketing budget, a lot of the costs don’t go up. If you like the overheard structure of the company, on the fixed portion, it gets move leverage as we grow our organic base and you are seeing some of that in the margin, at the EBITDA line.

So we don’t think it’s much of lift. What we are not doing is pulling back at all on our marking standard. We are keeping that our brand investment at around 5% of sales and we think that’s really where we want to be. We’ve been building up towards that level and we think that that’s sort of the right place for us to be.

Jim Lillie

To give you Jason a real life example, we’ve been investing in Technical Apparel and now the sales are generating its own level of EBITDA, and we can shift that investment focus to another part of the business. So we’ve got the ability to prioritize across what we call our targeted growth initiatives, where we are looking to accelerate growth in geographic with certain product lines, which is kind of built into the overall SG&A across the platform.

Martin Franklin

I mean just to give you another example, at South Africa, we opened a subsidiary in South Africa. It started off from the perspective of the fishing business. That creates a platform for us from which we are working on launching a number of products from a number of other parts of company, but it doesn’t mean we need another warehouse and it doesn’t mean we don’t need a another distribution office or sales office there. So we are leveraging capabilities across the group, which is why you have these platforms that can talk to each other.

Jason Gere - RBC Capital Markets

Okay great, and then the other question, just I guess on the commodity side thinking about resin, I guess I think with the ski business you guys use, do you use Nylon-12, is that.

Ian Ashken

Nylon-12 is one of the products that we purchase, yes.

Jason Gere - RBC Capital Markets

Okay and I know that there was just some news about a shortage of that, there was a planned exposure. I’m just wondering, obviously you’ve talked about commodities not being that material, but I was just wondering if that affects your ski business at all.

Martin Franklin

Given that we actually manufacture nylon in our plastics business, any increase that will be more than offset by the margin we’ll get from our process solutions businesses.

Jason Gere - RBC Capital Markets

Okay, great. Thanks a lot guys.

Martin Franklin

Your welcome. Thanks.

Operator

And from J P Morgan, Carla Casella has our next question.

Carla Casella - J P Morgan

Hi, my question relates on baseball. I am wondering if the new bat rules, if you can give us any trends you are seeing n California, which institute are the rules earlier than the other 49 states. So if I could get any sense of how we should we trend on the baseball this year.

Ian Ashken

Yes, I think that’s a very good question. There is a BBCOR bat and for those that don’t know, the rules changed at the high school and the collegiate level to slow the velocity of the ball coming of the bat. And so a dampening system was installed inside bats, but it really created force obsolesce in baseball bats for high schools and collages that are determined to be compliant and I think as you get into the more unit leagues, you’re probably going to have a run out over the next two or three years as they replace their bats probable on a slower basis. But it has created force obsolescence, which increased bat sales fairly significantly last year and this year.

Carla Casella - J P Morgan

So in California, where that was a year before, are you seeing a slow down this year because of the replenishment or the post obsolescence last year.

Ian Ashken

No, we are not in California. Its not slowing off of our plan, but obviously what happens with a lot of these schools is they buy through a network of team dealers and they place their orders and those orders typically are delivered for high school sports three months before the beginning of the season and so some of those orders were in last year, some of those orders fell into January of this year, but they are inline with out plan. But the velocity of California per say is exactly what we would expect, coming off slightly from the initial change in the law.

Carlos Castello - J P Morgan

Okay and then so for the other 49 states that have gone though that this year, what is the timing typically of your bat sales. Is it going to all be in – is it already most done in the year already.

Ian Ashken

The orders are in and the shipping is occurring.

Carlos Castello - J P Morgan

Okay, so that’s a first and second quarter, both impact. Okay, great thanks.

Ian Ashken

Okay, you’re welcome.

Operator

And from Barclays, Reza Vahabzadeh has the next question.

Reza Vahabzadeh - Barclays

Good afternoon. I had a housekeeping question for you Ian. The $21.5 million of non-cash items in the cash flow statement this year which is add back, what is that?

Ian Ashken

Most of it is related to differed taxes.

Reza Vahabzadeh - Barclays

Okay, so that’s an inflow or just a…

Ian Ashken

Its really it’s a balance sheet, it’s a balance sheet change that we have and we can go through that separately, but that’s, the bulk of it relates to Texas.

Reza Vahabzadeh - Barclays

Got it, okay and then can you give us a flavor as for how your non-U.S. business performed ex-currency. You mentioned Mapa did well in Europe despite the economy. Any other flavor would be appreciated.

Martin Franklin

Well I think, if you look at how the budget was built this year, we were very conservative about Europe, but that being said you know Pullman burners that make great coffee, the sales continue to occur despite the macro economy. The Latin American businesses are performing up to exception.

Spain we are seeing the same general slow down that other people have. We see the Easter European countries being off in winter sports, but generally speaking and Latin America is expanding. We see opportunities for growth n Brazil, so not terribly different in the headlines.

Reza Vahabzadeh - Barclays

Got it. Can you update us on your posture regarding acquisitions opportunities?

Martin Franklin

Yes, I would say, I’d make a couple of comments. First of all, we continue to be very disciplined as we have been really for the last 10 years on how we look at an acquisition.

We tend to focus on tuck-ins more than anything else. The fact we’ve done a large buy back doesn’t change from our opportunistic stand point continuing to look at other possibilities and alternatives available for the company to create value.

What I will say and I’ll give you a sort of trend, the pile of books that stack up on my desk of different companies, its kind of amusing that all of the companies as a trend look from sort of 2008, 2009, 2010, 2011, you see these sort of nice positive earnings momentums and they tend to sell a company off of a forecast for ‘12 and ‘13.

And of course what you are really seeing is the right hand side of a U shaped curve, where a lot of these companies really are performing at a pretty high level until 2006 and then fell off the rails with the economy in 2007 and 2008 and now we are seeing that recovery and people are trying to get growth multiples off of that recovery. We see a bit through that as I am sure a lot of other people do, but at the end of the day it’s really just a U shaped.

So we tend to look back further when we look a business nowadays than not just the short-term trends and continue to be very disciplined about eye on value. I would say there is a lot of merchandise out there, but not the sort of merchandise we probably – not a lot of merchandise that we would want to buy.

Reza Vahabzadeh - Barclays

Fair enough, thanks.

Martin Franklin

Your welcome.

Operator

Ladies and gentlemen, we have time for one last question what will come from John Andersen with William Blair.

John Andersen - William Blair & Company

Hi guys, congratulations.

Martin Franklin

Thanks John.

John Andersen - William Blair & Company

Just following up on that last question. Now that you’ve kind of successfully completed the Dutch tender, which was highly accretive to earnings per share. I am wondering how you are thinking about use of free cash flow going forward and what the priorities are there.

Martin Franklin

Well, I think as Ian said earlier, our priority is still to end up 2012 with the leverage ratio of three times that debt to EBITDA or below. So I would say, that we are – because as you know we generate the bulk of our cash in the second half of the year, the vast majority of our cash in the second half of the year, we would take a conservative view on how we ought to pay cash until we generate those cash flows into the company. We still think we are on track to produce the cash flows that we forecasted already, which are as you know pretty substantial. So we will look at alternatives as to what to do.

My view is very simply, and it’s no different from how it’s been. We look at different windows in time to decide how best to create value for our shareholders. If we think that the shares don’t reflect their appropriate value and we have a company that based on the guidance we’ve given is still trading at less than 10 times earnings, we will when we have cash still see buying our stock as the best and most useful alternative for the company, because we don’t see many things you can buy that have the quality of Jarden at less than 10 times earnings, its that simply. So as long as that continues to be the case, you know what our strategy will be.

John Andersen - William Blair & Company

Terrific, just one quick follow-up. I think I missed this earlier and Ian you may have mentioned it. How much is reaming on the buyback play at this point?

Martin Franklin

$65 million

John Andersen - William Blair & Company

Terrific, thanks a lot guys.

Martin Franklin

I didn’t mean to take Ian’s thunder. Ian, would you like to say it?

Ian Ashken

$65 million.

John Andersen - William Blair & Company

Thanks again.

Jim Lillie

John, I just like to reiterate their answer.

Martin Franklin

All right. I think that’s the last question. So thank you very much everybody who’s still listening for your patience and we look forward to reporting to you on our progress in Q2, thanks. Bye-bye.

Operator

Ladies and gentlemen, this does conclude our conference call for today. You may all disconnect. Thank you for participating.

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