Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Oil-Dri Corporation of America earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Dan Jaffee, President and CEO.

Okay, thank you. Welcome everybody to our fiscal yearend and fourth quarter investor teleconference. As usual with me here in the Chicago conference room are Andy Peterson, our CFO; and Charlie Brissman, our VP and General Counsel; and Ronda Williams, who runs all of our Investor Relations activities. And, Ronda, if you could cover the Safe Harbor?

Welcome everyone. On today's call, comments may contain forward-looking statements regarding the company's performance in future periods. Actual results in those periods may materially differ. In our press release and our SEC filings, we highlight a number of important risk factors, trends and uncertainties that may affect our future performance. We ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment in Oil-Dri stock. Thank you for joining us.

Thank you. And, Andy, will you cover the highlights?

We had sales of $54.7 million in the quarter, down 2% compared with last year's fourth quarter of $55.9 million. For the fiscal year, we had sales of $219 million, down 7% from last year's $236 million. We had a gross profit margin in the quarter of 21.1%, about the same as last year's fourth quarter of 21.2%. For the fiscal year, we had a gross profit margin of 22.7%, up from last year's 20.9%. Operating expenses in the quarter were 15.8% of sales, up from 14.5% in last year's fourth quarter. For the fiscal year, operating expenses were 16.5% of sales, up from last year's 14.7%. Our effective tax rate in the quarter was 14.4% of pre-tax income, down significantly from the 29.8% in last year's fourth quarter. The company utilized previously earned alternative minimum tax credits for the fiscal year. For the fiscal year, the effective tax rate was 26.2%, down from last year's 28%. Net income in the quarter was 4.4% of sales, down from 4.6% in last year's fourth quarter. For the fiscal year, net income as a percentage of sales was 4.3%, up from last year's 4.1%. EPS in the quarter was $0.33, down 6% compared with $0.35 in last year's fourth quarter. For the fiscal year, we had EPS of $1.30, down 2% from last year's $1.33. Looking at balance sheet cash flow, cash provided from operations in fiscal 2010 of $26.2 million was up $10.4 million from last year. This positive was primarily due to positive changes in working capital component. Capital expenditures of $10.4 million were down $4.8 million compared with last year. Debt payments of $3.2 million were down $2.4 million compared with last year. Purchases of treasury stock of $6.0 million were up $5.3 million compared with last year. Dividends paid of $4 million were up $300,000 or 8.4% compared with last year. Cash and investments at July 31, 2010, was $24.6 million, up $4.8 million compared to last year. At yearend, we had $6.3 million more in cash and investments than we had in debt.

Thank you, Andy. Reflecting a little bit before I open it up to Q&A, fiscal 2010 was the 15th year of me being President here at Oil-Dri, which is amazing. And in many ways, it was our most gratifying year. You think about it against what could have been or what might have been when we were together a year ago and having to communicate the news of our largest customer are going in a different strategic direction and we were faced with all sort of strategic options, and the two that I'm most proud of have played out extremely well. Number one, which again I would say almost no companies would have done, was we didn't lay off anybody. No full-time employee lost their job due to that short-term decision by a big account. We agreed to take no increases, and so it helped mitigate the pain. But we banded together and kept the team together. You can imagine what that did for morale and how everybody redoubled their efforts to try and overcome the financial hit that was going to be taken by that short-sighted decision. Secondly, on the consumer front, we dubbed the year project comeback where we could have done two things. We could have retrenched, cut back on spending, cut back on our advertising, cut back on new product and unique points of difference emphasis. Or we could have done more. And we decided to do more. So in the year, we actually spent an extra $1.5 million on trade spending. We took dollars that would have been spent in one channel and moved it to another channel. And again, very gratifying, both in terms of what happened outside of Bentonville and then what happened inside Bentonville during the year. So outside Bentonville, these are…

(Operator Instructions) Your first question comes from the line of Ethan Starr, a private investor.

Yes, congratulations on the impressive cash flow. How many points of distribution are you at with Wal-Mart currently and how is sell-through in your reinstated stores compared to prior distribution changes?

I am going to use a little bit different metric than I used last conference call, because what I am drilling in now is the Cat's Pride brand. We had point of distribution with Johnny Cat and we still have that, and that's all good. But Cat's Pride really was the brand that was impacted the most by their strategic decisions. I'll give you some new relative points of comparison prior to the August '09 modular that's where they determined what's going to be on their shelves. We had 6,900 points of distribution that was spread across our brands of Cat's Pride Scoopable, Complete, Natural and then of course Cat's Pride Premium. That dropped to 987 or under 1,000, so a pretty big drop. By March of '10, it was back up to around 2,300. And this August, it went up again to roughly 2,800. And we're giving best stores back. So our velocity in those stores is better than average which is good. And we expect to continue to gain stores pretty much every six months. So in large, our expectation is to gain more stores.

What's with Amlin and Verge, how are sales of those products?

I am sure other people ask the same questions. I will cover that. Let's go back in the queue. And if nobody asks, next time you get in, I'll answer those.

Your next question comes from the line of Robert Smith from the Center for Performance Investing.

So I guess I wanted to point out about newer products also, but I guess more importantly maybe you could just give me some brief color as to kind of the search for the Holy Grail in these industrial products with higher margin? We kind of developed the products. And when we have sort of ambitious targets, we seem to get some traction. So can you just give any some idea as to what happens in that respect? I mean why the promise really isn't fulfilled?

I guess it depends on which products you're talking about. But I am not sure I would agree with you. We had a record year in bleaching, and that's been a combination of a 20-year commitment. Early on back in the early 90's, that spluttered around, but that's been an unqualified success for the company. The new products around scoopable cat litters that we again outside Bentonville had a record year in 2010 for the Cat's Pride Scoopable brand outside Bentonville. And again, those were all internally developed. Those are unique to the world. They are utilized (inaudible) a lot of the technology we worked down at the IC. So, Bob, I would just challenge you it depends on your perspective. If it's real short term, you want talk Verge or you want to talk Amlin, but we don't invest on that timeline, and we don't really expect things to take off like that. We're not really inventing the iPad. So it's never going to be really that hot, that fast. Ultimately, they were put in the ground millions of years ago. I bet it's going to take millions of years to monetize. But as we pointed out, you wait five, 10 years, the seeds we planted five to 10 years ago are paying huge dividends today. And the seeds we're planting today, you're right, maybe they didn't give you a huge dividend in 2010, but we're confident they will in 2015 and beyond.

I hope you continue the dividend increases. I think that's a sort of hallmark of the business in the last decade or so. What you have to say about the newer products like Verge and Amlin.

I'm sure everyone is seeing this stuff, but it's worth repeating. If you look at the cash that was generated during the year, and not every year is going to be this way, but just to remind you, in fiscal '08, net cash provided by operations $11 million, in '09 nearly $16 million. Now we then knew we were going have to swallow a bitter pill in the consumer area in fiscal '10. $26 million in cash provided by operations, this is really an amazing performance.

The financial metrics are really fine. You have a lot to be proud of.

Good, excellent, thank you. But it takes time. And I know you're patient. You're the ultimate patient investor. So I appreciate it, Bob.

And I hope that in discussing these (technical difficulty)

Absolutely. I mean as soon as it's in everyone's best interest to know about things, we do it. We're working on a lot of things that we don't talk about, absolutely, because we just don't want to tip the competition off to the place we're running before we run up. But we're continuing to find a lot of value in our clays.

I like the idea of a clay iPad.

Yes, well, that would be really cool. But don't bet on it anytime soon.

So am I weighing here the numbers?

What about the numbers?

Well, you said that you think that you would begin to explore the numbers.

Okay, yes. Let's go back in the queue and see if there is anyone other than and Ethan. And if not, we'll get to Ethan's second question.

(Operator Instructions) You have a follow-up question from the line of Ethan Starr.

Okay. Hope you can address my second question now.

We'll take the Amlin first, because it's farther along on the commercialization curve. The fourth quarter was frankly disappointing. I sat down with Ron Cravens today. He is our General Manager and VP who runs that business for us. Let me just give you the relative numbers. So we did $1.2 million in sales in the third quarter. We only did $730,000-ish in the fourth quarter on these items. So the ramp-up rate obviously reversed. And his belly button was telling him that inventories are high, demand was slow, but that it was happening as we do have some of the exciting growth opportunities in geographic parts of the world that are just taking longer to play out. We're signing some agreements. We're gaining new distribution, new distributorships throughout the world. Well, we're disappointed, but we're not at all retrenching out the core products, which is Calibrin-A and C which go after aflatoxins around on. However, the real Calibrin coming across as a hill is going to be in our new products that we've been working on. And we are working on, and we're going to be working on getting registration for these items in the back half of this fiscal year to be launched in the beginning of next fiscal year. And these are all in that same animal health arena. But they do other things, broad spectrum binder that would go after more than just one, a particular mycotoxin to go after three or maybe even four at a time as a general prophylactic additive to animal feed. So still very confident, still very excited about the opportunities, but to Bob's point, in the short run, definitely a sputtering on the Amlin side.

And Verge?

Verge, the good news is we are in commercialization, we are out shipping and producing and billing, albeit on a very slow basis. This is new to the world process, and so the plant is still working on being able to make the product at the quantity that we need. They can hit the quality, but they have to really ratchet back on the production rate in order to do it. So we have a great team down there. They're focused on it. I was just down there a week-and-a-half ago, and there's no doubt they're going to figure it out. We keep hitting bottlenecks, and they solving them and then you hit a new bottleneck. And that's the nature of sort of new-to-the-world processes. But again, still very confident. Our goal is to get the core process ironed out, so then we can go and put in the capital to put in phase 2 which will double the capacity again, and then a lot of the sales guys to put on even more customers. So we've sort of pulled back on the selling effort until the manufacturing guys catch up.

Has (cattle) been improved in China yet?

No. It's still frustrating. Every time we clear one hurdle, they throw out a new regulatory hurdle in front of us. And then we clear that one and they do another one. Supposedly we're over one of the last ones and we're keeping our fingers crossed for three months from now. But we've been saying that every three months. So it's frustrating, and from our vantage point looks more like just anti-trade and then it does reality but that may not be, maybe giving the benefit of the doubt.

Your next question comes from the line of Robert Smith.

So can you just give me a heads up on the competitive landscape? And Amcoal has products in this area. Are you losing market share to them? What's going on there?

They are not one of the two big ones. They do have product in this area, but Alltech and Biomin are the big, big, big players in these arena. Clearly, with the market growing, it's not like the consumer area where you can get scanner data and get real good numbers. But our best guess then is, it may be growing 10% to 15% a year. We were up way more than that in fiscal '10 from fiscal '09. So clearly, we are gaining share, but I wouldn't bet that it's coming out of Amcoal. The market's growing, but we're growing it more than the market rate. So, so far our share is actually growing.

That wasn't true in the last fiscal quarter though, sort of speaking as a (shortfall).

Right. Not during the last three months, that is correct.

So within that brief period of time I mean, what happened in the marketplace?

I have no idea absolutely Bob.

So with the build-up with the financial reserves which is quite apparent, are you looking to make an acquisition, or what are you looking for?

We are always looking at strategic acquisitions. We have so many opportunities in our creating value from sorbent minerals mission, that yes, we're always looking for acquisitions in that that's driven that mission statement.

Has that become any more active recently?

Nothing that I can talk about.

Now that wasn't the question there. Well really, has your strategy become more active recently?

Bob, there's nothing that I can talk about. I will tell you a quote that I learnt from my father. He was flying once with Alan Greenspan. They happened to be sitting next to each other, back when Alan was the Chairman of the Fed. And my dad said, Mr. Chairman, would it be prudent of me to ask you which way interest rates are going? And he said, yes, it would; it just wouldn't be prudent of me to answer it. But I will tell you, good question by you, but a good, evasive non-answer by me.

And your next question is a follow up question from the line of Ethan Starr.

Yes, last quarter you mentioned a new product in the works. Are you able to tell us anything more about it at this point?

No, but we're working hard on it and we're excited about it and we've conceptually shown it to customers and they are very interested. They have two concerns, which is, can you get it to me faster? And the answer is no. And you ought to price it higher. So when you are pushed back from your customers is we want it sooner and we want to pay more for it. That's pretty good and that's as much as I am going to say on that one.

And sir, you have no questions on the line at this moment.

Okay, well I think we've covered all of our range of topics. And you can tell from the tenor that we're very enthusiastic again about the long term but even the near term prospects for Oil-Dri. So we appreciate your patience; we appreciate your loyal support. And we will talk to you again soon, actually at the end of the quarter, but its only about six weeks due to the delayed timing of the fourth quarter and then the regular timing of the first quarter release. So six weeks, we will talk to you again. Thanks a lot. Bye-bye.

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