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Executives

Bob Bosworth – President and Chief Operating Officer

Zan Guerry – Chairman and Chief Executive Officer

Robert Long – Vice President and Chief Financial Officer

Analysts

Bill Chappell - Suntrust Robinson Humphrey

Doug Lane – Jefferies

Jason Gere – Wachovia Securities

Alice Longley – Buckingham Research

Jon Anderson – William Blair & Company

Reek Kim – Bank of America

Bill Leach – TIAA Craft

Mark Mandel – Pacific Growth Equities

Rika Bohobcuta – Barclays Capital

Chattem Inc. (CHTT) Q4 F08 Earnings Call January 29, 2009 8:30 AM ET

Good morning everyone and welcome to Chattem’s fourth quarter and fiscal 2008 earnings conference call. Today’s conference is being recorded. Prior to today's discussion, the company has asked for its forward-looking statement to be read.

Statements concerning the company's business outlook, anticipated profitability, sales or expenses and sales growth, together with other statements made in this presentation that are not historical facts, including management's beliefs and expectations are forward-looking statements as that term is defined under federal security laws.

It is possible that actual results might differ materially from the statements made in this presentation. All forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected, including those risk factors described in the company's filings with the Securities and Exchange Commission.

Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of these in light of new information or future events.

A reconciliation of the non-GAAP financial measures contained in this presentation to the most comparable GAAP financial measures is contained in our earnings release for the fourth quarter and fiscal 2008, which can be found on the Investor Relations section of the company's website at www.chattem.com.

Now I would like to turn the call over to Chattem's President and Chief Operating Officer, Bob Bosworth.

Bob Bosworth

Thank you very much, operator and good morning everyone. Welcome to our fiscal 2008 earnings conference call. As we always say, we appreciate your interest in Chattem and your participation in this call. I'm joined by Zan Guerry, our Chairman and Chief Executive Officer, and also Robert Long, our Vice President and Chief Financial Officer. Today we're going to review our strong results for the fourth quarter and for fiscal year ended November 30 of 2008, provide an update on our guidance for fiscal 2009, and then touch on certain key issues in our industry in the current environment.

But before we start, there are a few points regarding the call and the information to be provided. First, Zan will comment briefly on the performance of and the outlook for our brands and our business. At the end of Zan’s remarks, I’ll provide some very limited additional commentary on the results for the quarter and for 2008, and discuss guidance for 2009 supplementing these comments with our perspective on key issues concerning the company and the industry. We'll then conclude the presentation and open the floor for questions.

We will attempt to limit the call to one hour to the extent there is specific questions regarding detailed line items on the financial statements provided in the release or to the extent your questions have not been answered, I would ask that you refer them to Robert Long, whose number is listed on the press release.

A third point, in discussing earnings per share in this call, all EPS data will be before FAS 123 charges and debt extinguishment charges, both non-cash items, the litigation settlement, and the one-time charge related to the recall of Icy Hot Heat Therapy. We do believe this adjusted EPS information best reflects the operating performance of Chattem.

Fourth point, any reference that we make to retail sales, Nielsen plus POS refers to Nielsen data, measuring retail movement plus mass merchandiser POS excluding Heat Therapy and Pro Therapy. So anytime you hear that in the presentation or in the question and answer period, that is the reference point.

Finally, in reference to guidance, we will be providing earnings per share guidance for 2009 but as in the past, we’ll not be providing quarterly guidance or revenue guidance. With that, I will now turn it over to our Chairman. Zan?

Zan Guerry

Thank you and we appreciate your support as Bob indicated. In these times of financial crisis, Bob and I are very pleased to be able to report strong 2008 results as well as exciting prospects for 2009. Jim Cranger [ph 00:07:27] recently refers that as a breath of fresh air so hopefully we can live up to those high expectations for you today.

As you saw on the release 2008, earnings per share rose 27%, $4.25 and beat our initial guidance which was $3.90 to $4.10. As we indicated during each quarterly call this year, this performance was led by strong results from our six major brands. We’re also particularly proud of the continuity of our performance as earnings per shares have compounded at a 29% growth rate for the last five years. That’s about all I want to talk about in 2008. I’m always interested in the future moving forward so we’re going now talk about an exciting 2009.

I want to call this section spring fever because never in my time at Chattem have I felt so much excitement in our organization about the future particularly starting this spring. Monday and Tuesday we had our national account and region managers in here and we went over the final makings of the plans for 2009 reviewing our different accounts and how that was going and more importantly we looked at our new products shaping out for 2010 and 2011 and it was very enthusiastic two days from everybody.

Simply put, we have the best new products line, a high score in advertising and the biggest promotions kicking off in February through June in our history. Of course, all new products have uncertainty but in total, we have great confidence in our new products. Importantly, these products were coming on the top of a very solid growing business. Our Nielsens for the 4 weeks and 13 weeks ended December 27 plus our point of sale results through mid-January also show our total brands growing at about 8%.

With this background, I will comment briefly on each brand for the spring. Gold Bond has been our major growth brand for years and shows no signs of letting up. For the three months ended December, total Gold Bond sales were up 20% led by lotion sales which were up 35% at retail. In 2008, Gold Bond became Chattem’s first ever $100-million factory sale brand.

For 2009, we’re adding two new lotion products, Gold Bond Ultimate Soothing Lotion for which advertising is on currently, and Gold Bond Ultimate Protection Lotion, a lighter SPF formula focused around a more year round than particular summertime use.

Also, we have two other new products, one in the important foot area for foot pain and one in the extension of our anti-itch products. This entire line, the new products plus the entire Gold Bond line, will be backed by all-time record levels of advertising focused on this January through June period. We also plan to introduce two more new Gold Bond products for July shipment. Our clear goal is to keep extending the Gold Bond line particularly focusing on new categories. We think we’ve only begun to realize Gold Bond's potential.

Moving to ACT, ACT Total Care which began shipping next week is clearly our largest introduction this year. We see great potential for bringing the total concept, if you wish, into the mouthwash category. ACT Total Care will be backed not only by exceptional levels of advertising featuring Christie Brinkley, but also the biggest promotion in merchandising support ever. Our trade partners have responded in amazing fashion and we should have great promotion prices plus display support at all major accounts during the period of March through May. Just to give you a little perspective, we shipped about 25,000 displays last year in total for the ACT brand. In February, we anticipate shipping 30,000 displays in February alone all of course with the magnificent picture of Christie Brinkley on them.

ACT currently is increasing at about 16% for the last 4 weeks and 13 weeks so you can imagine we have some very high expectations for ACT in 2009. We plan on ACT being our next $100-million brand.

Both IcyHot and Cortizone had strong years in 2008 increasing sales and growing market share. They grew at retail 8% and 10% respectively for the 13 weeks ended December 27. Both have two new products which have achieved very strong concept home use and commercial scores. In fact, one IcyHot commercial received the highest scores ever for one of our commercials as well as one of the highest scores ever in the history of our testing service. The major advertising for Cortizone and for IcyHot will be starting a little later than for Gold Bond and ACT. It will be focused more around April-May period.

Finally, Selsun Blue has a new product. Selsun Blue for dry itchy scalp which has scored very well and it will be backed by some aggressive advertising starting again next week. Hopefully, it is clear to you why I use the term Spring Fever with all the activity coming February to May. I’ll also mention that Bob and I had maintained a great deal of flexibility in the second half of the year. We have done that so that we can move funds to those brands that are responding most appropriately as well as to provide us flexibility so that we can respond to whatever economic climate we face.

Finally, in closing, with our salespeople last week or I‘m sorry, Monday and Tuesday, I used the word 'tipping point' from the book and I do believe that Chattem a few years ago reached a tipping point and moved to a new level and I think with what we’re seeing for 2009 and some of the new products that we unveiled to our sales force for 2010 and 2011, we are indeed at a tipping point on moving to a new level particularly with our major brands and we look forward to being able to share those results with you throughout the year.

And with that, I will turn it back to Bob for more details.

Bob Bosworth

Thanks Zan. And as Zan has indicated and as we say it in the press releases we’ve made earlier this morning, we are very pleased with the results for '08 and excited about the outlook for 2009. Second, while we are focused on 2009 at this point, I do think it's appropriate to make some very brief comments on 2008 partly to an explanation of the results for the quarter in the year, but also is the foundation for looking at 2009 outlook. So in that context, I would make these points.

First, it was a very good year for Chattem in 2008 in spite of a very difficult economic environment, and second, as we and you assess the results, I as always remind you to focus on annual results rather than on quarterly data particularly the fourth quarter data as annual true-ups of certain accounts take place. Given these overview statements, there are basically six points to be made.

First of all, as outlined in the release, total revenues reached record levels of about $455 million for the year and $105.5 million for the quarter representing significant increases over 2007. These increases are consistent with our stated goal of achieving mid to high single-digit growth organically over time particularly after excluding the Heat Therapy and Pro-Therapy results in 2007, both of which are no longer being marketed. This also ended a period in which revenues grew at the compound annual rate of 14%.

Second, adjusted earnings per share were $4.25 and most notably $4.25 for the year and $0.94 per share for the quarter representing very strong increases of 26% for the year and 16% for the quarter. As Zan mentioned, the five-year annual growth rate per EPS was 29%, roughly double the sales growth that we achieved during that period.

Similarly, EBITDA, excluding the one-time product recall expenses and litigation settlement, increased in both the annual and quarterly periods resulting in EBITDA margins of about 34% for the year and 31% for the quarter. It’s important to note that the fourth quarter margin was negatively impacted by excessive returns of Dexatrim products related to the Complex 7 launch.

The true-up with incentive compensation levels and one-time cost related to the relocation of our UK facility to more economical quarters. These excellent operating margins were achieved while continuing to support the brands strongly through increased advertising and promotion expenditures.

The income statement dynamics as related to gross margin, A&P, and SG&A for the year were consistent with our previous targets but do warrant a couple of comments regarding gross margin and SG&A in the quarter.

Specifically, gross margin of 71.1% for the year is consistent with our expectations for the business although gross margin for the quarter declined to 69.2% in the fourth quarter. This reflected raw material price increases late in the year. Importantly, the increase in inbound freight cost particularly related to ACT in the fourth quarter and arithmetically the impact of the excessive fourth quarter returns of Dexatrim products.

Adjusting for these latter two items, gross margin was in excess of 70% for the quarter, which provides a foundation for our expectations for 2009. In terms of SG&A expenses, they were hurt by the aforementioned one-time cost related to the relocation of the UK facility, the true-up of the incentive compensation cost combined with the fact that this is the lowest quarter in terms of sales for us.

The fifth point, the income tax rate is 33.7% in comparison with 34.5% last year principally reflects an increased level of terrible contributions in the year in general but the fourth quarter in particular and increased manufacturing tax credits this year.

As we look importantly at cash flow in this very difficult economic environment, we generated extremely good cash flow during the year. We used this cash to repurchase 418,000 shares of stock with a total cost of $26.3 million or an average price of about $62.94 per share. We repaid debt of $48 million during the year.

We increased our cash balances by $16.9 million. These three factors which aggregated $91.2 million resulted in net debt, defined as total funded debt less cash on hand to EBITDA ratio of 2.8 times which was slightly below our target for this year.

In terms of the cash flow for the year, there are other three factors to note. They were achieved while also funding the final settlement of the Dexatrim litigation and the expenses associated with Icy Hot heat therapy recall.

Second, early in 2009, we equitized a portion of the $20.7 million of the convertible debt securities that were outstanding as we previously announced. And while this will have a negative impact on EPS for 2009 of approximately $0.06 per share, it further strengthened an already strong balance sheet, thus providing us flexibility in moving forward.

And finally, this cash flow, as we have mentioned many times, is in part the result of the cash tax shield associated with the amortization of intangibles and the purchase call options related to the convertible debt for cash but not book purposes. This amounts to approximately $0.24 for the quarter or $0.95 per share for the year.

So that is the quick summary of 2008 and again a portion of that discussion is designed to provide the foundation for the discussion of 2009 results. But turning to 2009, as Zan said, we have spring fever here. We have a very exciting outlook for 2009 expecting to capitalize on the momentum of the existing business and a strong new product/line extension lined up to achieve the sales growth at the upper end of our goal of mid to high single-digit organic growth rate over time.

This will produce earnings per share in the previously announced range of $4.80 to $5 per share which would represent an increase of 13% to 18% over 2008. This range is being affirmed in spite of the negative EPS impact of the repurchase of the convertibles and a very difficult economic environment.

We feel very good about the opportunities we have this year. While some are fluidly manage the business, these data are predicated on income statement details of gross margins in the 70% to 72% range, A&P increasing in absolute dollars and coming in the range of 24% to 26% of sales. SG&A should be on the 13% to 14% range. We will have reduced interest expense as a result of the deleveraging and a tax rate of 36% to 36.5%.

In addition to the very positive sales and earnings growth, cash flow will remain both strong and the priority for it. Based on the guidance and on the cash tax shield, which generates about $19 million a year, we should be in a total debt EBITDA range of 1.8 times by the end of 2009 excluding obviously acquisitions of share repurchases.

So those are the discussions of '08 and '09. There are lots of industry issues confronting us and the industry as a whole. I just want to make some quick comments on that. Well, our performance has been, as expected, to continue to be strong. There are certain factors that we need to address. To put these in perspective as they relate to Chattem, I’ll make four or five points.

First, while consumer confidence has eroded, our business has not been materially subject to recessionary pressures. Our key products are not generally discretionary purchases. The ailments our products address, itch, pain, dandruff, sleeplessness, do not tend to decline with the downturn in the economy.

Second, there has been a lot of talk about private label and private label products have crept up in market share in certain of our categories but have generally not impacted us significantly with our share actually increasing during this time in some key categories. Simply, the stronger the brand loyalty, the better and more unique the product, and the greater the degree of problem-solution orientation of the brand, the less likely the consumer is to switch.

Since we are focused very heavily and traditionally on product innovation, on product quality and building loyalty through advertising, consumers switching to private label which has not tended to be a significant issue to us.

Third, our key customers, Walmart, CVS, Walgreens, Target, Kroger, continue to perform well from our perspective as their APC section tends to hold up well during this period also. In particular, and this is important to note, our performance in Walmart, our largest customer with over one-third of our volume, has grown significantly more rapidly than the balance of our customers during this period. And finally, during the difficult economic period, we have seen increasing growth in some non-measured channels particularly in the dollar stores as they are serving is increased and their customer traffic increases during this time.

Fourth, input costs have risen as we spoke about a lot last year, particularly in situations in which petroleum is a significant factor. But with the slowing of the economy and the reduction in crude oil prices, certain prices have softened or will soften this year.

This combined with even greater attention to cost controls will benefit gross margin. As another perspective, we also took a small price increase of about 5% on 15% of the portfolio in mid-2008 and another increase of 7% and about 9% of the portfolio at the beginning of this year. Fairly nano-increases but would help to offset some of the price increases we have seen earlier.

Fifth point, there's a lot of stuff written about advertising cost these days declining in this economy. They have declined in some media forms. It should provide some flexibility in terms of one of two things, either obtaining more media presence for the same dollars or the plan level of media presence for fewer dollars.

While most of our attractive media forums have not experienced the publicized reductions in cost, we did hope that significantly more media dollars this year for the scattered market to take advantage of these opportunities.

Finally, from a capital perspective, we are very strong. We have an attractive debt EBITDA ratio as I’ve mentioned, interest coverage of about ten times and no debt maturities until late 2010, at which time our currently undrawn $100 million revolver will mature and the next maturity after that is not until 2013.

Probably we'll not address any specific acquisitions. We do continue to see opportunities as we are known to acquire of quality HBC products. In fact we're seeing a reasonably good flow of these opportunities are in a good position both in answering operationally to make an acquisition and really to find the one which meets our strict acquisition criteria.

In summary, 2008 was a very good year from our perspective though a very difficult one from an economic perspective. In 2009, we have an outstanding outlook, again in spite of the things going on around us.

So with that quick summary, I will open it up for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Bill Chappell of Suntrust Robinson Humphrey. Please proceed.

Bill Chappell - Suntrust Robinson Humphrey

Good morning.

Bob Bosworth

Hi, Bill.

Bill Chappell - Suntrust Robinson Humphrey

First, maybe you can help us on the commentary of the – I think it was 8% growth of the major brands for the 12 weeks ending December 26th. I mean that’s significantly faster than what we're seeing from IRI or Nielsen. Is that just Walmart is just doing that much better or are your – help us kind of reconcile those two numbers.

Zan Guerry

And this will end in March thankfully. We are quite tired of talking about as your are hearing about it but here's the close to between the 3% and the 4% drag on the numbers you see because of Heat Therapy, which of course never made any money for us and was recalled.

So when we had those numbers as Bob indicated upfront, if you see a 3% number then we add 3% to 4% because of adjusting for that and then also as Bob indicated, yes, Walmart in particular is growing significantly faster than the rest. It used to be slightly faster, but in the last three months that's picked up. So if you see a certain number but when we look at that number and add Walmart in and deduct for the Heat Therapy situation, we are giving you accurate numbers.

Bill Chappell - Suntrust Robinson Humphrey

Okay. And looking at the different line items for the November quarter, Selsun is one that kind of stands out as the weaker. Do you see new products that really turn that in 2009 or do you expect that to continue to be similar trends we saw in the November quarter?

Zan Guerry

I think we are more hopeful about, and again I'm going to – we do see some timing differences on factory but the Selsun thing that you're seeing is they're still being dragged down a little bit by the situation with Selsun Salon which did not work that well. That goes away pretty much in March. If you look at the Selsun Blue line by itself, it is basically up 1% for the last 13 weeks.

We are also, as I've mentioned, introducing Selsun Blue's Itchy Dry Scalp which goes into the Selsun Blue line and has some strong advertising. So we would anticipate that the combination of the new products plus not having the comparison with Selsun Salon that the combination will lead to – we would hope more than modest growth, but I think at least modest growth for 2009 on [inaudible 00:10:01].

Bill Chappell - Suntrust Robinson Humphrey

And then just a final question, I'll turn it over. Talking about freight rates in the quarter, it would seem that freight rates should have started to come down in September, October, November but as you said it bounced the other way for you. Can you kind of give us an idea of why that happened and then what you've seen happened to freight rates as we move to December, January, February?

Bob Bosworth

Yes. Again, remember we are November yearend. So we're dealing with the September, October, November period. Actually freight surcharge where it's reached the peak I think in late September in dire progress. So we realized some of that negative freight expense during that period.

The second is, as we look at the inbound freight which is a fairly key item of our shipping of all of our assets in Canada or Michigan to the China redistribution facility it had a significant impact during that quarter as well.

As you rightfully pointed out, fuel surcharges have declined. They began declining towards the end of our fiscal year and certainly in December. We see those effectively moderated and in some cases not fairly significantly for the first quarter of this year.

Bill Chappell - Suntrust Robinson Humphrey

Got it. One last. Any idea what the share count should be for fiscal '09 as with the retirement?

Bob Bosworth

The general range of share counts that we're looking at is about 19.8 million is the share count that we're looking at. Obviously that is subject to fluctuations and stock price as (inaudible).

Bill Chappell - Suntrust Robinson Humphrey

Great. Thanks so much.

Zan Guerry

Thank you.

Operator

And your next question comes from the line of Doug Lane of Jefferies. Please proceed.

Doug Lane – Jefferies

Yes. Hi. Good morning everybody.

Bob Bosworth

Hello.

Doug Lane – Jefferies

First, starting on a couple of brands you didn't talk about, Unisom, the Sleep-Aid which is part of the big six but also BullFrog which has been a good brand for you, and Dexatrim. Can you just give us an update on those three brands? What they did in '08? What are you looking for in '09 and also could you elaborate on the returns for Dexatrim? I'm not sure that we've talked about that before.

Zan Guerry

Yes. George started with the three brands. Just because I didn't mention it unlike some companies, actually, most of the news is relatively good on that. I was focused more on brands that have big new products. Unisom taking on that 13% for the 13 weeks' end in December 27, we've got some good advertising, and (inaudible) just working pretty well. So that is in time shape up. Dexatrim, I guess the good news is you just can't get any worse than we did for a while and so actually for the 13 weeks ended December 27, Dexotrim was up 4% and Complex 7 is working okay. I can predict the Unisom should have a good solid year in 2009. I'm not going to make any predictions about diet products but certainly, we now have one, two, three, four four-week periods in a row where Dexotrim has grown slightly.

And then BullFrog for the year was relatively flat. Any recent numbers don’t make any sense. And what we do have some distribution for next year and a couple accounts. That’s really an account-driven thing and we see another solid year for BullFrog. So we don’t have any, to our knowledge, what we would call major problem brand that are going to drag things down as we look at total. And that showed even in the latest period where when I’ve said that the gap between all of our brands and the Big Six is getting better because we're dropping off some of the disappointments on Dexatrim and others. So we’re going in with a pretty good portfolio across the board as we ended the year.

Bob Bosworth

Do you want to follow up with Zan on that one, Doug?

Doug Lane – Jefferies

No. I was just going to get back to the Dexatrim returns.

Bob Bosworth

Yes. You are indeed correct that the Dexatrim returns were a surprise to us in the fourth quarter. As we launched Complex 7 in the fourth quarter the trade took the opportunity to return a significant amount of all Dexatrim products ranging from Dex Max to other products that were out there. By our estimate we received about $1.2 million in returns in excess of what we would have normally expected. The number is related in part, I’m sure with the inventory control of the retailer do swapping out some products as we put Complex 7 into the account and SKU rationalization as well. Again, I'd point out the Complex 7 is performing well. Dexatrim has actually been up over the last three or four periods. And from the retail perspective, while it’s not at the level of launch (inaudible) certainly stabilized and is growing now.

Doug Lane – Jefferies

Are you advertising behind Complex 7?

Zan Guerry

Yes, we have a pretty good advertising campaign going on Dexatrim which goes through May. We have some pretty high hopes. We changed some things on this Complex 7, got a little more aggressive after weight loss. If you’ve seen the commercial, that’s about big pants and losing weight and this cast is our best casting commercial so we are cautiously optimistic and then – so between now and May we have four very strong months of advertising on.

Doug Lane – Jefferies

Okay. And finally, can you give us what the one-time cost was to close the UK facility and move it and what you think the annual savings will be?

Zan Guerry

It is about $450,000 – was the one-time cost and that was breaking a lease that involved the facility that was much bigger than what we needed. The annual savings will be in the $100,000, maybe a little bit more per year.

Doug Lane – Jefferies

Okay. Thank you.

Zan Guerry

(Inaudible) avoided some –

Bob Bosworth

Dilapidation cost.

Zan Guerry

Some dilapidation cost over there by moving.

Doug Lane – Jefferies

Okay. Thank you.

Zan Guerry

You’re welcome.

Operator

And your next question comes from the line of Jason Gere of Wachovia Securities.

Jason Gere – Wachovia Securities

Thanks. Good morning.

Zan Guerry

Hello!

Jason Gere – Wachovia Securities

Thanks for all the financial guidance Bob. I'm very appreciative. Just a couple of questions. One, I was just wondering if you could talk more from a retail perspective. Obviously, retailers are getting much tighter with shelf space. I think you’ve said in the past that the new products you’re launching should kind of be net incremental. I was just wondering what you’re seeing out there in the marketplace? I think with some categories private labels gaining a little bit. Where are you seeing maybe some SKUs that might be reduced? What are you seeing of the competition? And then I have a kind of followup question on that.

Bob Bosworth

You know that is a challenge you’ve heard on – the bad news you heard on occasion when you have a Dexatrim that we knew that we didn’t anticipate that much but we knew in order to get Complex 7 on the shelf. We had to do some kind of swap-out and that occasionally occurs. The stronger the brand, the less likely that is because then that means you have forming SKUs. I would say the news on our new products this year was outstanding and even beyond our expectations. For example, Cortizone has something like eight of the top ten SKUs in drugs, but launching two new Cortizone SKUs, there is always that risk that they may swap out something but the reason they swap out things is that if you're not performing. So in the case of Cortizone, we added two new SKUs with no swap-outs at all, and so that was outstanding. We lost almost no swap outs on that. Total care and increased phasing, generally three, in some cases four phasings on the ACT brand in total. So that was good. We got minimal on Icy Hot again. The Icy Hot brand is growing and strong so the two new Icy Hot items went in very well. Gold Bond lotion, the two items, went in, and because restoring, softening and healing were performing well, the marginal brands we did at some account – a taxation here in Aspercream, some of the smaller brands. You heard Dexatrim. There was a little bit of swapping out, but with our big six we talked about moving towards 87% of sales. The distribution was very largely incremental and exceeded our expectations.

Jason Gere – Wachovia Securities

And the timing of the new products and I think it’s usually like January, February is the majority of it, is that what you’re seeing right now? Is that what gives you the confidence to kind of reiterate that near, high single-digit organic sales that you’ve kind of alluded to in the past?

Unidentified Company Representative

Well, as I said, we are growing at 8% right now, so obviously we could give you higher numbers if we choose too, because if you put all those new products on top of 8% growth, you know you might get a little more than 8%. So any way, the combination of all of our great brands growing plus all of the new products, you know gives us confidence. We are already seeing you know the case of Gold Bond the soothing is out there, so we got early results on that.

I think every product we introduce has a lot of testing behind, we have such a track record with Icy Hot, in particular, and cortisone, you know it is hard to imagine those not being, you know the question is how much incremental will they be? In particular, one of the Icy Hot items could be very, very incremental so we’ve got a lot of room for error, to meet those numbers.

Jason Gere – Wachovia Securities

And then the second part of the question, I guess, you know with the pricing that you just took, I guess some of that was a catch up to what your peers had done earlier, you know is that sticking and what are you seen from some of the bigger HPC players in your categories? Like you know I mean, Listerine looks like it is getting more aggressive and Head and Shoulders, and what’s your outlook in terms of any type of incremental promotional spending that might be needed, inside the store to keep driving volume demands?

Unidentified Company Representative

Let me answer the pricing question and then let Dan answer a couple of the other ones. First of all, what we took 7% or 9% of the portfolio December 1st, and it went in very well. Just as a reminder, about a third of that was related to (inaudible) which you can’t think of purely as price increase, since you essentially re-launch products every year, in the seasonal category.

There are also just three other items the cortisone ointment, Selsun Naturals and the Gold Bold Extra Strength Lotion, not the ultimate lotion. Three items that strategically it made sense to increase cost, so it wasn’t in response to (inaudible) increase that we took those increases, it strategically made sense. But they have stuck and they have made sense.

Unidentified Company Representative

Do you want to talk about some…?

Unidentified Company Representative

We feel we are in good shape, obviously you know, the good news about us is that we can respond very quickly to things we see. Obviously right now we are gaining share in all the categories. I don’t like to speak about our competitors since they all have more zeros then we do, to retaliate.

But in general we’re, if you saw the Nielsen’s and you looked at the number of major brands, major brands that are down, it is really stunning and it is a tribute to us that our brands, which is what we focus on, are doing so well, you know.

Will they change strategy? Will they do something? We’re not sharing, the biggest threat is major new products, you know where somebody comes up with something, you know unheard of with major, you know we are not seeing that. So we feel, pretty good right now about the competitive environment.

Jason Gere – Wachovia Securities

So you think it is pretty rationale right now?

Unidentified Company Representative

We think so.

Jason Gere – Wachovia Securities

Okay, and then just one last question and then I’ll hop off. I know in the quarter the sales were up 4.9%, but then I think it said, excluding all the one-time items it was 3.9%. Did that have to do with the $4 million in returns? I guess the Icy Hot brands in fourth quarter in last year. Can you just kind of reconcile that for us?

Unidentified Company Representative

Yes, let me, I would like to answer that question directly and then come back to one of the questions you asked earlier, just to give some clarification. The answer to your question is yes, because we had returns of Icy Hot Pro-Therapy in the fourth quarter of last year, so if you factor those returns out which would eventually increase fourth quarter ’07 sales it brings you back down to 4% , so you were exactly right about that comment.

Two things, just about the timing of launches, the reality is that you are right, that the preponderance of our factory sales where the new products are selling, will take place in the first quarter. You will not see the retail movement begin until the second quarter as it is measured by Nielsen. I just want to make sure that you got that expectation clear.

The second thing is you’re comment about promotions, are we increasing promotional expense? With the launch of major new products, you can see, we are promoting some products early on as we launch them into the market place. So you can see some impact there, going forward, but it was all in the (inaudible)

Unidentified Company Representative

Bob makes a good point, in terms of our expectations, I think throughout January, February, March, April, May, I think Gold Bold Nielsen’s we have high expectations. I think at Nielsen’s we have high expectations for every month, but particularly April would probably be a very big month, maybe March depending on how things break.

But you know we don’t get the whole month of March in the next Nielsen’s but we would begin March, April would be very big, we anticipate for ACT and then May is probably the where you would begin to see again, Nielsen’s ends mid-May, but that’s where we begin to see the Icy Hot and potentially Cortisone impact.

So it will be spread throughout the spring and then by June, all of them will be up and running and so that is just the timing of the launch of these new products.

Jason Gere – Wachovia Securities

Great, thank you very much guys.

Unidentified Company Representative

You’re welcome.

Operator

Your next question comes from the line of Alice Longley of Buckingham Research, please proceed.

Alice Longley – Buckingham Research

Hi. Good Morning.

Unidentified Company Representative

Hello.

Alice Longley – Buckingham Research

Hi. My questions are on SG&A, if we take out the UK charges, it still looks like that ratio was up slightly versus a year ago and part of your story, is that that ratio goes down, and that you are expecting it to be down next year too. So, why wasn’t it down in the fourth quarter and why should be expect it to be improved next year?

Unidentified Company Representative

Let me take this opportunity to reiterate the comments I make about looking at annual numbers as being more representative then quarterly numbers, particularly in the fourth quarter. There were 2 things going on, or 2 or 3 things going on there.

First of all, if you look at the charge of roughly $450,000 for the UK relocation, there is also, we have a true up in the fourth quarter of our incentive compensation plan which goes to about 40 to 50 people internally and that charge that went into SG & A was about a $1 million in the fourth quarter above what you would have expected on an annualized basis.

Alice Longley – Buckingham Research

What was it last year?

Unidentified Company Representative

Pardon?

Alice Longley – Buckingham Research

What was that number last year?

Unidentified Company Representative

It was not, there was not a number last year. We didn’t have the true up in the fourth quarter it came earlier because we were exceeding goals significantly during the third quarter. So the right way to look at it is, if you take those two numbers out and it comes out to slightly under 14%.

So we are right where we expect to be. We do expect that number to come down in 2009 as freight costs abate, assuming that they stay down, fuel surcharges come down, and so that again is the way that I would look at it.

Alice Longley – Buckingham Research

Okay, thank you. What was the stock, the bottom line quantification of stock option exactly in the fourth quarter?

Unidentified Company Representative

A class 123 charges in the fourth quarter, and it is going to be about $0.05.

Unidentified Company Representative

Between $0.05 and $0.06, Alice this is Robert.

Alice Longley – Buckingham Research

Five cents to $0.06?

Unidentified Company Representative

Yes.

Alice Longley – Buckingham Research

Okay, and you have been talking about the first quarter benefiting from shipments of these new products, it also benefits from charges for the Heat Therapy recall, does it not?

Unidentified Company Representative

Yes, first all, two things going on there as it relates to Heat Therapy in the first quarter. First of all it will – we are comparing against last year when we had the one time recall charges, on the other hand you know from a revenue perspective we'll still have the revenues from the first quarter of 2008 related to Heat Therapy in those 2008 numbers. So there will be, that will be the last period in which we are comparing factor sales in detail.

Alice Longley –Buckingham Research

The charge was bigger than the revenues right?

Unidentified Company Representative

Right, but we have excluded from our guidance the charges, you are right there are the one-time charge last year of $6 million …

Unidentified Company Representative

Yes, we exclude consideration of the charge in EPS in ’08, and you would think that would be an apples-to-apples comparison, if you compare ’08 to ’09.

Alice Longley – Buckingham Research

Okay. Can you just give us an update on interest expense for next year is it likely to be 19 to 20 million?

Unidentified Company Representative

If you wonder through the calculation of, actually this is a good time to make a point in addition to answering your question. To answer your question directly, if you add up the interest cost which is (inaudible) times the outstanding balances which are (inaudible 00:33.4) and make reseasonable (inaudible) about the cash flow. You end up in that $19 to $20 million kind of range.

One of the, the point I would make is that we will be generating a lot of cash during this time and how we use that cash will be something that we evaluate as we go through the year. We can use it to pay down the term B note, but in fact, we have issues related to the swap there and it is very, very attractively priced, so in one sense we are reluctant to pay that down.

We could look at repurchasing high yield debt which has been trading below par, but how we use our cash will have some impact on that $19 to $20 million. But, 19 to 20 is the number that you get, so if you made the calculation yourself.

Alice Longley – Buckingham Research

But your point is if you use cash to reduce debt, it could be lower then that.

Unidentified Company Representative

Let, it’s possible, yes.

Alice Longley – Buckingham Research

Okay, I think that is it. Thank you.

Operator

Your next question comes from the line of Reed Kim of Bank of America, please proceed.

Reed Kim – Bank of America

Thanks, good morning, Bob to followup on that last question. I guess as of the end of the last quarter, what are your current debt agreements allow you to repurchase in terms of the high yield debt if you did choose that course?

Unidentified Company Representative

It, it is actually not the high yield debt that, well are you asking share repurchase?

Unidentified Company Representative

No.

Reed Kim – Bank of America

No, the 7% that is under, for example your credit agreements, what would they expect you to do in terms of repurchasing 7%?

Unidentified Company Representative

The 20 million per (inaudible).

Reed Kim – Bank of America

Okay. Then going back earlier to the comments you made about channels of distribution, I was wondering if you good maybe pose this just on what, that broke down as of for the year? Like you mentioned Walmart that will probably be in the cave, but was that 30% and maybe Dollar Stores and chain drug?

Unidentified Company Representative

If you look at, at Walmart, it is roughly a third of the business and it was, again you got some of the Pro-Therapy, Heat Therapy comparisons coming in there, because Walmart was really the last entity selling Pro-Therapy. It was up about 8 or 9% last year.

Unidentified Company Representative

About a third of our business and as Dan mentioned, it is growing significantly more rapidly then the balance of the accounts particularly as we moved into the fourth quarter and as we look forward.

Unidentified Company Representative

The second thing is that another non-measured channel that has grown rapidly, though it is not a huge portion of our sales, is Dollar Stores. We can look at, for example Dollar General was up over 100% last year and Family Dollar is growing as well. So we see that (inaudible) channels growing also.

Our performance in Walgreens and CVS which you know in the ‘50s, 20% of our sales in the aggregate are growing nicely. The places where we are seeing weakness are in sales that we make to wholesalers which is generally going to the Mom and Pop independent pharmacies or a portion are going to the Ma and Pop independent pharmacies and then some of the food chains are apparently, we heard this from our competitors as well and I’m sure you have. Some of the food chains are losing ground to Walmart as well and we aer seeing some impact of that in our business also.

Reed Kim – Bank of America

Okay, and this last one, I was wondering if you could tell us what your bad debt accrual was for ’08 and while you are thinking about that in ’09 and whether you have done anything to modify any trade terms in light of environment and how you just generally feel about your receivables book, thanks.

Unidentified Company Representative

Two things there, first of our receivables have not been a problem it is the broad answer to your question. Our receivables were are year-end 99.16% current and we have collected every penny of those receivables that were due. So we do not see an issue here. You know you look at probably Rite-Aid is the weakest of major accounts we have seen no indication of money problems.

There are things that you historically see, slow pay, increase short pay, increase in claims and allowances, request for increase terms. We haven’t seen any that from them, so in that light we have not taken any particular action to vary our terms or collection procedures other then staying on top of them.

Reed Kim – Bank of America

Great, thanks a lot.

Operator

Your next question comes from the line of Bill Leach of TIAA Craft, please proceed.

Bill Leach – TIAA Craft

Good morning everyone.

Unidentified Company Representative

Good morning, Bill.

Bill Leach – TIAA Craft

I just wanted to get back to the margin question again, you gave us some ranges for your various ratios, but basically when you look at your operating margin for 2009, do you feel pretty confident that you can hold or improve your margin in contrast to the fourth quarter?

Unidentified Company Representative

Yes.

Unidentified Company Representative

Sorry, Bill. Yes, is the answer to that. I mean if you look at your gross margin, I will go down, 69.2 was lower then it has been over the first three quarters of the year, when you just for a couple of items, that are fairly definable it gets up slightly over 70% and it, it reflects the impact of rising cost in the second half of the year.

We have seen those costs softening. We have seen freight in cost softening. So we are very confident about our range of cost of goods for the year. In terms of 24 to 26% for advertising and promotion, again remember that does reflect a decrease in the amount we are putting behind the brands. In fact, we are moderating media costs, we are able to support our brands even more than we might have otherwise, so we feel very comfortable with that.

SG & A costs again, freight field sir charges have moderated, we won’t have a repeat of the relocation of the UK facility and so we feel good with that 13 to 14% range and it should head toward the low end of that range. So that is our confidence factor.

Unidentified Company Representative

Just globally if you look at Chattem over the last 18 years, when we have strong sales growth we don’t have any problems. The only time, you know it’s about the sales, with a margin business like ours, if our sales are growing 8% and we have a lot of new products and if we even half way live our expectations we have no problems on anything.

The times we have problems is when sales are going down or flat, you know then you have challenges but you know we’ve turned, we at least double whatever sales growth we get usually and many times more. So at this stage, the simple answer is we have do reason not to be confident in our brands for 2009.

That doesn’t mean some new event can’t change it, but I don’t think we have ever entered a year where we have more confidence where we are now plus what we are adding and if those sales numbers come in all the margins take care of themselves.

Bill Leach – TIAA Craft

Thanks. The tax rates, should we just use 35% this year?

Unidentified Company Representative

We were, this year 2009?

Bill Leach – TIAA Craft

Yes.

Unidentified Company Representative

It will probably be a little higher (inaudible) until it is 36%.

Unidentified Company Representative

Yes.

Unidentified Company Representative

There are a variety of factors that go into that calculation, but I have been looking at 36, even 36.5 %.

Bill Leach – TIAA Craft

So that will be a negative variable?

Unidentified Company Representative

Yes.

Bill Leach – TIAA Craft

Okay, thanks a lot.

Unidentified Company Representative

You’re welcome.

Operator

Your next question comes from the line of Jon Anderson of William Blair, please proceed.

Jon Anderson – William Blair

Morning.

Unidentified Company Representative

Hi Jon.

Jon Anderson – William Blair

Just a couple of quick questions, I’ll keep it short. Did I hear right earlier that the bulk of the new product shipments will occur in the fiscal first quarter?

Unidentified Company Representative

The significant portion of them will occur in the first quarter. There are a couple products that I think the roll ships in the second quarter, so there are some that will ship in the second quarter. The biggest launch is the Act.

Unidentified Company Representative

The bulk of that will be in February and Gold Bond and that as you said the Icy Hot will be the one that will be a little later.

Jon Anderson – William Blair

Okay

.

Unidentified Company Representative

There are some cases where for example, one major account is taking displays in the first quarter, but the plan-o-gramming is a constant challenge for us and that you know we ship obviously it made since to ship in January/February, some accounts don’t reset their plan-o-grams until April, so we will ge some major accounts ordering some displays from us, but as far as them filling their retail plan-o-grams, that order will come in the second quarter. So we will have some instances of that for sure.

Jon Anderson – William Blair

Were there early resets, did you benefit at all in the fourth quarter from any the products?

Unidentified Company Representative

Only maybe Soothing a little bit, but the answer is no.

Unidentified Company Representative

The only one, as we mentioned Dexatrim Complex 7 shipped in the fourth quarter, but that wasn’t really a 2009 new product (inaudible).

Jon Anderson – William Blair

Okay, I know you talked about the impact of some of the returns and some of the true ups on gross margin in the quarter. Was there anything, are you seeing, is it a more promotional environment at present? Are you having to do more discounting or implement price reductions at the point of sale in a way that impacted gross margin or is it really a case in the fourth quarter of the returns and the one time things?

Unidentified Company Representative

We don’t do much of that as a rule. We are not promotion driven, we have unique products, strong advertising and fortunately because of that we are not as promotion driven, so I don’t think there is any big factor.

You will see in our promotion line, which actually (inaudible) sales but you will see some significant promotion on Act to get started, not because we think it is a, trying to play a price game, but you know that is what you do when you introduce major, major new products is you know you want to get as many people trying as possible.

So we got without telling you what they are, we had each retailer a different type of promotion to kind of get things kicked off and those promotions hit primarily mid-February until mid-April, depending on the account. But those are to launch a new product, they’re not responding to price competition.

Jon Anderson – William Blair

Ok, thank you. Did the gross margin range, thank you for providing a range 70-72% of ’09. Is, should we expect, I am just trying to get kind of the progression that if margins would rebound immediately in Q1 or is there some improve as you benefit from presumable lower input costs in the course of the yea?

Unidentified Company Representative

I think, the way to look about that, the way to look at that is that they should improve sequentially through the year, there are two realities taking place. One it takes time to get the prices and interest costs back down. We are making a lot of progress there, but as our vendors work through their inventory levels that they build during the difficult time that will take a little time to get through.

Second, is the average actual cost thing. There is a little bit of lag, so what I would expect to see is improving gross margins sequentially during the year.

Jon Anderson – William Blair

The last question, thanks. I thought I was interesting your comment on maintaining additional flexibility this year versus prior years and I think you were referring to probably advertising spending and more use of the scatter markets. Can you just talk about the, is it the number of new products that you have for 2009 and wanting to have the ability to feed the winners if you will or and I guess maybe the macro environment has played a role as well.

Unidentified Company Representative

I think the first one is true, this is probably been our most challenging resource allocation. How much do we spend behind Gold Bond versus Act versus Icy Hot versus you know we used to say, feed the winners starve the losers, we are running out of losers. So we then have to decide how much to give all the winners, so on those particular four and also I was commenting on Dexatrim an Selsun Blue, you know, we have very strong plans in place true June and then we have plans in place temporary for the half back, but obviously we will move funds to which of those items seems to be responding the strongest.

So a lot of it is flexibility and I think you know the economic environment although we haven’t seen much impact, now you can’t be in America today and not feel you know discouraged about the way, where our economy is, how people in Washington are handling the situation, and so Bob and I are at the negative end of confidence about the overall economy. So we don’t think we are going to see much of that with our brands, but you don’t know, we are in uncharted water, so we have some of that just in case, things don’t play out as we think.

So those would be the two primary purposes.

Jon Anderson – William Blair

Thank you and good luck.

Unidentified Company Representative

You’re welcome, thank you.

Operator

Your next question comes from the line of Andrew Wolf of BB&T Capital Markets, please proceed.

Andrew Wolf – BB&T Capital Markets

Good morning Dan and congratulations on the year.

Unidentified Company Representative

Thanks Bob.

Andrew Wolf – BB&T Capital Markets

To follow up on what you were just talking about, I mean most of the companies I follow, whether they are well capitalized strong or whatever position they are in, you know, hunkering down and preserving capital and the kind of things you were just talking about. How do you, let’s say you know the right acquisition you know availed itself, you know, is there anything you are adjusting in your thinking there in terms of what you might pay or you know you felt it was a very good brand, but the sales weren’t that good, or that kind of thing. Is there any new way of looking at acquisitions giving you know what you just described is going on with the economy?

Unidentified Company Representative

I think conservatism has always reigned at Chattem, we probably have taken conservatism to a new level, so we make great acquisitions a little harder and say this really has to be good. I think in the confines of our capital structure you know acquisitions that are more, we will call them small to medium fit very easily and with our cash flow and really are non event.

We are not looking to massive leveraging up and big acquisitions, so a $400 to $500 million we are not seeing those right now and that is probably something that we are would do in anything.

We are trying you know with share holders, to deliver the kind of performance that gets rewarded and people say your stock has held up pretty good and I’ll say well yes, compared to other stocks, their earnings are down 100% and our earnings are up 50% so relatively speaking I’m not all that excited.

We recognize as we say in the case of the acquisitions, having your stock as a currency to use in case of something bigger comes along is important to us. So we are, when I say give you numbers that we say we are going to make we plan on making those numbers come hell or high water and we have done that for a period so we don’t want to lose confidence.

So we are managing flexibility to make sure we do what we say and at the same time growing, so you know those are things that we are doing, but we’re you know fortunately for us, we have so much going on with our existing product line this year and every bit as much going on for next year, that the need for acquisitions is not that great, but we are in the acquisition business and we will make good brand acquisitions if we see them.

Unidentified Company Representative

Let me just expand on that, one other point on the capital side. We have the internal focus on conservatism which is important. Secondarily in the capital markets, the area that is most open right now is the Pro-rata bank market and the question there isn’t so much as cost as it is availability it would be difficult to go in a straight debt field beyond the $300 million acquisition in the pro-rata market just because of availability not because of debt (inaudible) ratios or interest coverage ratios.

But that is the one market that appears to be open now and then as Dan mentioned you got the potential if you have a good enough stock (inaudible).

Andrew Wolf – BB&T Capital Markets

Dan, that’s great, thanks. I just wanted one followup to the adjusted Nielsen’s with Walmart that is running you know 8%, could you speak, do you have a sense of your particular price to volume ratio, it sounds like the price is not that big of component given you haven’t taken that many increases?

Unidentified Company Representative

No, it’s a minor component.

Andrew Wolf – BB&T Capital Markets

Is it 2% or 1% or?

Unidentified Company Representative

If you look at factories and it’s hard to sort through the Nielsen’s because there are so many variables in fact there is less than 1% for fiscal 2009. It’s probably 5/8 of a percent.

Andrew Wolf – BB&T Capital Markets

Okay. And the other thing I’d want to ask you about that is just looking at the numbers and you know assuming Dollar Stores are also lets say doing as well or similar to Wal-Mart it looks like the sales growth there is about three times the sales growth at all the other channels combined. As my sort of back of the envelope numbers work with what you guys say?

Unidentified Company Representative

Per dollar shores (inaudible)?

Andrew Wolf – BB&T Capital Markets

Well, No. If you add the dollar shores to Wal-Mart and say that’s you know 35 to 40% of your business and the rest is there for 60 to --

Unidentified Company Representative

(Inaudible)

Andrew Wolf – BB&T Capital Markets

Yes, looks like they’re growing you know low teens and everyone else is growing sort of mid single to low single digit just sort of back of the envelope math.

And lastly I wanted to ask you, you mentioned some private label. Well you mentioned two things. You said your sales growth is in the fourth quarter in particular really accelerated like this gap accelerated at Wal-Mart you want to actually confirm that – that I heard that accurately.

Unidentified Company Representative

Yes. Starting in September, October, November, December we began – we tracked you know because we get the – just like other people get we get our data first without the mass merchandisers and then we get the mass merchandisers and it used to be we could get that – when we got the data we knew that Wal-Mart would be a you know little bit ahead.

Now starting in September we started seeing it being a lot ahead and so that the rate it changed factored in – we’re seeing action so yes we did see that.

How is plays out –we’re now getting some strong performances out of our drug change in particular so if I look at the data through January 20th some of our brands are doing exceptionally well in drug stores so what that gap will look like you know for February, March and April we don’t know but Wal-Mart will undoubtedly be ahead.

Andrew Wolf – BB&T Capital Markets

Well, thank you very much. I appreciate the granularity.

Unidentified Company Representative

Sure thing.

Operator

And your next question comes on line from Mark Mandel of Pacific Growth Equities. Please proceed.

Mark Mandel – Pacific Growth Equities

Good morning.

Unidentified Company Representative

Hello.

Mark Mandel – Pacific Growth Equities

Just a couple of quick follow ups. First on the tax rate is there any possibility or potential that we’ll see a repeat of the manufacturing credit that you saw this fourth quarter as we look ahead?

Unidentified Company Representative

In a – the – the manufacturing tax credit will continue to exist in the next year. Actually in 2010 that credit goes up over 2011 goes up above a little bit. So that will be there. We factored in – there are a lot of things related to our international tax planning strategy.

The absence of the level of donations that we had this year put the - it will affect the tax rate overall but the fact is that that tax debt will remain but we still think that at 36% (inaudible) place to be thinking about next year.

Mark Mandel – Pacific Growth Equities

Even assuming some credit you’re going with a 36% guidance on the tax rate line.

Mark Mandel – Pacific Growth Equities

Yes.

Mark Mandel – Pacific Growth Equities

Okay. And then secondly if you look at the gross margin I don’t know if you can give us a little further color or quantification in terms of the impact of Wal-Mart’s growth on the downward pressure in gross margin.

Unidentified Company Representative

We also should mention although it’s not a big factor but every single brand has a different growth margin. And so when we give you an (inaudible) gross margin you know if one particular brand goes up tremendously and one goes down obviously we hope that the brand that has the higher growth margin goes up and the lower one goes down but that can be a – a factor in there I mean dexatrim going down is – icy hot cream going up is very favorable so there you know all they SKU’s with slightly different gross margin cause a very big mix issue.

Mark Mandel – Pacific Growth Equities

And- and – and so you do have mix issues that you need to factor in. I think it’s like a trade channels. As trade channels shift our growth margin

Mark Mandel – Pacific Growth Equities

No.

Unidentified Company Representative

Going to change.

Mark Mandel – Pacific Growth Equities

No. Okay. Great. Thank you very much.

Unidentified Company Representative

You’re welcome.

Operator

And your next question comes on line of Rika Bohobcuta of Barclays Capital. Please proceed.

Rika Bohobcuta – Barclays Capital

Good morning.

Unidentified Company Representative

Hello

Rika Bohobcuta – Barclays Capital

Bob, on the – on the sharing purchase front for ’09 what kind of a range are you thinking about just from a you know (inaudible) stand point something along the lines of ’08 or something different?

Unidentified Company Representative

You know in reality when you look at capital transactions that we would undertake whether it relates to high yield funds or share repurchase, we look at individual circumstances as it relates to about the performance of the company, the stock price, desire for maintenance flexibility you know, acquisition opportunities.

So we don’t actually think in the context of planning for a certain rate for share repurchase level. It is really an opportunistic view as to when we go spend those out.

Rika Bohobcuta – Barclays Capital

Okay and then practically speaking so any of your bank or bond covenant set a maximum limit on the amount of share repurchases in the next 12 months?

Unidentified Company Representative

Yes. The tightest of the – we have the term be bank agreement. We have high yield agreement. We have high yield agreement. We have board permission. The ties to those is that the term be flash revolver which has about $43 million for the (inaudible). Had $43 million of share repurchase capabilities (inaudible).

Rika Bohobcuta – Barclays Capital

That was four - three? Sorry.

Unidentified Company Representative

Four – three, yes.

Rika Bohobcuta – Barclays Capital

Yes. Okay and then as far as opportunities to acquire attractive brand I mean how would you characterize that opportunity in the next six to 18 months then?

Unidentified Company Representative

We think it’s good. You know, it’s hard to categorize an environment because we’re such selective buyers but you know there are a lot of suggestions that - particularly some of the smaller companies. They’re going to be strug – there are companies out there struggling that we’re aware of. We think the – in some ways the longer they struggle you know the better for us.

You know they’re obviously big companies are rationalizing their portfolio. They ought to just sell them to big purchase (inaudible) or so.

We feel that it’s going to be a reasonable opportunity over that period.

Rika Bohobcuta – Barclays Capital

Got it. Thank you much.

Unidentified Company Representative

You’re welcome

Operator

And I’m showing that you have no other questions at this time. I would now like to turn the call back over to Bob Bosworth for closing remarks.

Robert E. Bosworth

Once again we thank everybody for their participation in the call. We’re looking forward to a great 2009 and it won’t be that long before we’re reporting on first quarter results. So, thanks again.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Chattem Inc., Q4 F08 (Qtr End 11/30/08) Earnings Call Transcript

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