Oil-Dri Corporation of America (ODC) 2005 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Oil-Dri fourth-quarter and year-end results teleconference. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (Operator Instructions). I would now like to turn the conference over to Dan Jaffe, President and CEO. Please go ahead, sir.

Thank you, Meredith, and welcome, everyone, to our fiscal '05 year-end teleconference fourth-quarter and year-end teleconference. And as always, we will get started with Ronda Williams with our Safe Harbor.

Thank you. Our comments today will 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 trends and uncertainties that may affect our future performance. We urge you to review and consider those trends and uncertainties in evaluating the Company's comments and in evaluating any investment in Oil-Dri stock.

Thank you, Ronda. And joining me today is -- also with me and Ronda is Charlie Brissman, our Vice President and General Counsel, and Andy Peterson, our Vice President and Chief Financial Officer. So you will have a chance to ask them questions in the Q&A if that arises.

We will keep our usual format. I'm going to have some general comments but I'm going to try not to steal too much of Andy's financial thunder, and then he will go through really a more detailed look from a financial perspective at our year, and then we will come back to me and we will really dedicate our time to Q&A, as always, because we want to address those issues that are on your radar screen. And we will be here through 11:00 Central Time. So let's get started.

It was a very good year for Oil-Dri, and we recognize that these are very dynamic times and, obviously, our hearts and prayers go out to all the victims who have been impacted by Katrina and may or may not be by Rita. But at the same time we are very positive. These are good times for Oil-Dri, as you can tell from our year-end press release. A lot of the metrics are heading in the right direction and we've got a lot of future prospects to continue to be bullish on how things are going to play out over the years to come. And so we feel very fortunate to be in the industry we're in and have the team gathered together that we have. And I really don't want to get into too many of the details because I know that Andy's going to cover them, and so I'm going to turn it over to Andy to cover the financial details and then we will get into our Q&A.

Thanks, Dan. Starting with our income statement -- good news. Sales for fiscal 2005 of 187,868,000 were up 1% compared to sales of 185,511,000 in 2004. Net income for the fiscal year was 6,540,000, or $1.10 per share, a 30% increase over net income of 5,033,000, or $0.84 per share in 2004. The $1.10 earned in 2005 was at the high-end of our projected range of $1.00 to $1.10.

A good fiscal 2005 would have been a great one without the following unanticipated factors.

Unprecedented increase in the cost of energy, packing materials and delivery costs. This was a significant contributor of the 1.8 percentage points decline in our gross profit percentage to 21.5% compared with fiscal 2004.

Second, the impact in the Crop Production and Horticultural Products group of genetically-modified seed and customer inventory carryover from fiscal 2004. Operating income in this group was down 1.8 million.

Third, we also had 700,000 in outside expenses in fiscal 2005 for our Sarbanes-Oxley section 404 readiness efforts. Internally we spent countless hours getting ourselves ready to be 404-compliant. As a Small-Cap Company we were granted a one-year extension and are hopeful that further extensions will be forthcoming. Having said that, I do feel we will meet the 404 standards once we are required to do so.

Going on to looking at balance sheet and cash flow -- more good news. We continued our strong management of working capital components. Although sales were up 3% in the fourth quarter, our accounts receivable were down 2%. Inventories also increased less than the sales increase. The strong generation of cash in fiscal 2005 enabled the Company to buy back 8.2 million of stock, pay down 4.1 million in debt, pay 2.2 million in dividends, and still finish the year with 19.4 million in cash and equivalents.

Next, going to looking at our five-year results. The best news of all is the trend. Because we manage Oil-Dri for the long-term and not for the current quarter or year, we included our five-year results for some key metrics that we follow in the earnings release. They all show a very positive trend.

Return on average assets increased to 5.2% in fiscal 2005 from 0.7% in 2001. Return on average stockholders' equity increased to 9% from 1.3% in 2001. Debt less cash is down to 3.9 million at 7/31/05 from 30.7 million at 7/31/01. EPS in fiscal 2005 is $1.10, up from only $0.16 in 2001. Stock price at 7/31/05, $18.03 compared with $8 7/31/01. Because of these trends, Fortune Small Business magazine recently ranked Oil-Dri 81st in their list of the top 100 fastest-growing small public companies.

Back to you, Dan.

I'm excited. Good report. And that's why I wanted to let Andy go before I gave too many comments, because I -- he's got a lot of thunder to report there and I didn't want to steal any of it.

I have other points and issues that I would like to get out during the call, but I'm assuming that they are going to come up through the Q&A. So I'm going to open it back up. So, Meredith, if you could please open it up. And as always, if you could please try and hold your question to one main question, and then if you're going to switch topics or anything go back to the end of the queue and let other people get their questions in so that those people that can't stay for the whole hour can at least have a chance to get a question in and then be on their way. So, Meredith, let's open it up to the Q&A section.

(Operator Instructions). Blaine Marder (ph).

A couple of things. You kept the commentary to a minimum. I have one strategic question and then I will hop back in the queue with some financial detailed questions. Last quarter you mentioned in the text that you were complaining about your EBITDA multiple was too low at about five times. You said similar companies trade at nine times. And then I guess there was a couple of quarters ago where you said that the market had put very little value on your reserves. You are in the market buying back your own stock. I just wanted to make some suggestions, and perhaps a question.

My suggestion is that instead of complaining on the conference calls that you actually do something to create real value. I think your share repurchase program while honorable is somewhat of a joke in that you are barely offsetting your options -- witness 2005. Your share count really didn't decline. You are trying to buy a thin stock that hardly trades. I think a couple of suggestions would be to do something real.

Number one, do a real share repurchase, meaning a Dutch tender, although that's probably not a great idea given the size of the float, or take the Company private. I mean I would take a 50% premium for my stock, and you guys would have to put up very little equity. You own a lot of the stock. You would have to put up a very little bit of equity. You run it as it's a private company. It's very insular. You talk to investors maybe once a quarter. Now you're not giving guidance. That's number one.

Number two, pay a special dividend.

Number three, sell the Company to the highest bidder or monetize your reserves. I mean, if you complain that the Company is not putting enough value in your reserves, you are getting a low EBITDA multiple, what you can do about that instead of talking about it on conference calls is sell the Company to the highest bidder. You have a very valuable asset, a very nice business, and you run it very well. I will tell you you would not expect to receive a nine times EBITDA multiple. I don't know how to run businesses, but I can tell you that's not going to happen because you are a regional firm, you are highly influenced by fuel prices and you are much lower margins. So I do not think you will achieve a nine times EBITDA multiple.

Lastly, you can go see your investors. You talk to investors once a quarter. You are hiding behind Regulation FD. Go to investor conferences, tell your story and let people know the story. Give some more visibility.

So my question is, is this a management and a board of directors that's willing to do those things?

I was looking for the question.

There it is.

I've got a real good answer for you. No. Let's move on to the next question.

So you're not going to address that at all? You are not willing to create value for shareholders? I don't understand what you are saying.

That was not the question, Blaine. If you look at any metric, you compare our stock performance against anything, you pick any index you want, we have blown it away. To tell me we're not creating shareholder value is absurd. So, no I'm not willing (multiple speakers) let me answer your question.

No, look. I'm not looking backwards. I'm looking forwards. You had a stock price in 1999 that was almost about where it is today. Granted, you guys have done a fantastic job. I don't think anyone would deny that. But what I'm saying it is to complain your EBITDA multiple is too low and to complain that the market puts little value in reserves; instead of complaining I'm saying why don't you do something about it? Your shareholder -- share repurchase program isn't real. It's just not even offsetting your options issuance.

Thank you, Blaine. You've made your point loud and clear. Everyone's heard you, and I have no response. So let's move to the next question.

Robert Smith.

I just want to first address this question of guidance. So, what's behind this? Because I understand you are managing the Company, the business from a long-term viewpoint. But I'd like some feel for fiscal '06, and I'm wondering what you can share with us.

Sure. I'd be happy to share with you what I see for fiscal '06, but it isn't going to be tied around an EPS number.

All right.

Okay, good. No, we're very -- that's why I was trying to temper my enthusiasm at the beginning, because I don't want to minimize all the suffering that's going on down south and what's the horrific impact of Katrina and Rita. But out of every -- something that dynamic, there are always lots of opportunities. And we, because we have such a long-term view of this category and this industry that we're competing in, and because by being the world's largest manufacturer of absorbent minerals, we can withstand a lot of the vicissitudes that our competitors can't.

I think when this whole thing shakes out it's going to be very good for the strongest dogs in every category that's so impacted by fuel. And there's nobody in our category that has any kind of a better balance sheet, that has any kind of better trend line going than Oil-Dri. So I think you will be -- when this whole thing shakes out, be happy.

Does that mean that our earnings or our margins may not get hit in the quarter? I mean, it would be ridiculous to assume otherwise. Fuel is going bananas. We are hearing all sorts of crazy things going on. But like I said in any kind of dynamic market there's always opportunities, and the strong tend to take the most advantage of those opportunities and the weak tend to get hurt the most.

So, very bullish on the strategic things I think we can accomplish in '06. And I think we will continue to deliver real shareholder value to our shareholders, but I think what you will find as being a long-term holder like you are and like I am, that you will look back on '06 and say you know what that was a pivotal year. That then formed the linchpin for a lot of value that was then driven in '07 and beyond. So I hope that answers your question. But our family, obviously, being the controlling shareholders, we are looking forward to the challenges in '06.

So is a fair comment -- what would make '06 a pivotal year? That's a strong word really.

No, it is. I don't want to put words on that. I know what it would be. I think being a long-term investor I think you could probably come to your own conclusion and it probably wouldn't be too far from what I'm doing. But like anything in life -- using sports maybe is a bad analogy -- you don't want to tell the defense the play you are running before you run it. You tend to gain less yards.

Does it focus or center on new products?

You know what? I don't want to put words on it. You are going to -- you've been a long-term holder and I know you've got a lot of faith in me and the management team. And it's an exciting time.

Dan, you have a basic business, and I'm sure the basic business essentially can't be the pivotal elements. So we must be talking about something that's incremental to this. So the only thing that I could reasonably touch upon would be, on a fundamental basis, new products. I'm just sharing with you my thought process.

No, I appreciate that.

So let me ask you about this new building product that you have that you had the patent on. What's happening with that?

We've created a new division around it, so that should give you some insight as to what we think the legs are on it. We are in significant tests with some of the major potential customers. It's a very -- it's an interesting market. There are a couple of three -- there are three dominant players and there's a lot of fragmented mom-and-pop players. Because it's sort of similar to our business where freight is a big piece of their cost of goods, so a regional player can survive against the nationals because they could have a freight advantage. So we've got both dynamics going on very similar to our business. And we're in tests, multiple tests, (indiscernible) tests with numbers from both (indiscernible) of the market -- the independent players and the -- some of the big three.

And I was physically on a number of calls down in the plants and it's very promising. Our product does what it's supposed to. And they are just proving it out in trials because it's a very old and conservative industry, as well it should be. And I look at that as a positive again, because as long as they are to adopt, I'm assuming that's how long they would be to change it out if they ever adopt. And I believe they will. So, very positive on that opportunity.

Would this be -- would you say this could be a commercial product in '06?

Commercial in the sense that we sell it and invoice it? I mean, I think of commercial as -- I guess I'm getting (indiscernible) consumers. But yes, you're just saying are we going to commercialize it, are we going to monetize some of this product in '06, and the answer would be yes.

Jack Ripstein.

Curious -- and let's not call it guidance then -- but what -- this year was a 1% sales growth, and I think last quarter you had said Q1 was going to be better than Q3, and I think even better than Q4 if I'm looking at my notes correctly, that there was some uptick that you guys were expecting. And I don't know if that was on the cost control side or the revenue side. But generally speaking, if we got to the end of next year '06 and you were up 1 to 3%, 5 to 10%; just give me an idea of what would be a good year, what you would be happy about and what you would be unhappy about.

Good question, Jack. Are you new to these calls?

No. I've been on a whole bunch of them.

Okay, then this may be a little redundant for you, but it's some of the information that I wanted to share. As many of you know, we have been in a game of musical chairs where we've been shuffling off some of the lower-value business for some of the higher. So we have by design not been growing the top line as fast as it would have otherwise grown. Many -- again, many companies that cannot take the long-term perspective that we do probably would never ever enter into this strategy. But as we're selling a nonrenewable natural resource, we wanted to make sure that every (indiscernible) that left the plant had a commensurate amount of sales and profits tied with it.

So that played out probably as well as it could have played out, but you can only play that game for so long. So from an expectation standpoint, let me tell you -- let me just give you a little historical information. When we started this back in '02, our average selling price was $154 a ton and we did about 1 million tons. Well, four years later we're still doing about 1 million tons, but our average selling price went from 154 to 168 to 175 up to 185. So we increased the average selling price by $31 a ton on 1 million tons, which is obviously very material and significant to a company our size. So we feel good about that.

But we now recognize we've played that out as well as it could; now it's time -- every ton that's really here is profitable and deserves to be shipped and billed and mined. And so now we are back in the growth mode. So if I were you I would anticipate that our top line would start to grow now commensurate with our unit volume and with the markets in which we compete. So are we going to grow by 20%? Well, no; not unless we made a major acquisition or something. There's nothing in our markets that's that kind of a growth play. We're much more of a value company.

But should you anticipate that rather than 1 or 2% it could be 4 to 6% or even higher if there was an acquisition layered in or whatever? Sure. That's sort of the expectational guidance I would give you on that one.

For a years kind of view?

Yes.

Okay. Then on the -- obviously, the fuel costs -- hopefully we've gotten to the top, but I don't like to hope. In terms of a bottom-line, are you saying kind of commensurate model layer on the similar type model you have today on that sort of growth?

You know, you're talking to me right in the middle of the storm. I mean we -- you have no idea. Nobody has any idea. We're hearing such craziness. You can't even imagine. Thank God we are forward bought for a significant piece of our needs, but still the exposed piece is outrageous. And now you are even hearing can you get the fuel and all that kind of stuff. So I'm -- anything I said in the past was pre-Katrina and pre-Rita. And what's going to happen in the next 30 days? God only knows. All I can tell you is long-term I am more bullish than ever about our prospects. And I'm not talking 10 years out; I'm talking within the investment lifetimes of, hopefully, all of our investors. So it's -- but the next 30 days, that's anyone's guess.

To put another just view of that, I understand where the first caller is coming from. Instead of saying no carte blanche, are there certain of those aspects that the Board is actually potentially considering?

You've got to separate the Board from the controlling family, because the Board considers all strategic options, as they are supposed to do. The problem is -- and Charlie can get into the securities law and all of this -- the Board does not have to go down a path that the controlling interest who controls 88% of the vote says I am not willing to entertain that. Then it's a waste of their time and so then they are not breaching their fiduciary responsibility by ignoring those kind of things. So he threw out a bunch of things, and the Company is not for sale. It has never been for sale. It won't be for sale. So there's no reason for the Board to start drumming up well let's go out and get the highest bidder and then have me and my father reject the offer. There's no point to it.

We have enough confidence in our strategic plan. We have delivered value historically in the last five years, and we believe we will deliver value going out five years. So we're -- the Board is well appraised of what our strategic vision is, they're on board with it, and it's all commensurate with growing shareholder value. So in their mind they believe and support that. But having said that, I don't know what more I need to say.

I was thinking in terms of a special dividend or even I guess the Dutch tender grant. The stock is thin, but it would save you guys a lot of time and headache in terms of trying to buy the stock in the open market, which can be difficult.

You know, Jack, I will just -- at the risk of repeating a couple of the things that Dan said, you -- this Board of Directors has fiduciary duties just like the directors of every other public company large and small that you may be familiar with. But Oil-Dri, as a New York Stock Exchange-listed controlled company and a Delaware corporation, is almost unique among public companies. And the rule that you -- or the factors that you may think are sort of universally relevant to all holding companies -- sure they are relevant to us. But when you have a controlling stockholder whose views are known and considered always at the board level, some of these things just are not in the cards and there's nothing about the Directors' fiduciary duty that requires that they pointlessly and futilely consider them.

The ideas of monetizing Oil-Dri's significant cash flow generation over the last five years are ideas that are routinely considered and analyzed here at Oil-Dri by the Board and by the management team, and that's not going to change. But to say that there's particular significance now to the consideration of a special dividend versus some of these other extraordinary transactions; that's not really how we think of those issues. But they are always on the to-do list. Andy?

And again, I think it was something I said in my comments that I'm sure Dan has said this many times -- our focus is on the long-term. And so things like special dividends, Dutch auctions, trying to do something to get the stock price to move one particular direction in a very short term, that is not our philosophy. And if that's what you're looking for you are going to be disappointed.

I'm not implying that that's even to get the stock going in one direction or another in the short run. It's just you've built up a nice cash hoard that you, clearly, are replenishing every year. And it just seems -- maybe there's something that you're planning to do with it that we don't know about; that's great. But it's been a year, and the cash has built up nicely and (indiscernible) are things you can do with it. And if you are buying back stock mechanically, this is an easier way to do it for all involved. That's all I'm saying. I'm not saying that this is a manipulation of the stock one way or the other to do these things. It's just trying to get a feel for what that asset on your balance sheet could be used for.

Again, I think your focus, and you said it well, is this is the cash that's built up this year. And we are -- the focus isn't on this year. The focus we're looking -- we shared on the earnings release the last five years. So the focus is we're looking out longer-term and we want to add value incrementally as we have done in the past five years.

I still just don't understand. I mean, that's a lot of cash. Even if you spent -- CapEx was 3 million of maintenance, and then some other of that is growth CapEx, according to the last call. Wow. That's a lot that you could -- I don't know; there's just a lot of cash there.

And we're happy it's there and we believe we've got really good uses for it over the long-term. Can't say it's all going to get used next quarter. But is it going to get used as the years unfold? I sure hope so. And that gets back to my bullishness on the long-term strategic advantages that Oil-Dri has.

And you know, once again pretty much every year at the October board meeting is when the Board looks at the dividend and whether or not to raise it. And they've raised it, what, the last two. And they will take a look at it again this year. And that would be a more likely expectation, would be to see them either maintain or increase that dividend at the October board meeting.

Meredith, other questions?

Ethan Starr (ph).

Congratulations on a very nice year, and I'd like to urge the Board of Directors to increase the dividend again this year and also increase the buyback authorization. My question is to what degree has the higher level of CapEx spending in 2005 resulted in cost savings? And also, what is the CapEx budget for 2006?

Good questions. Do we disclose our CapEx budget? I don't know that I can get at that one, but I can give you probably directional stuff. We initiated a couple of big capital projects that are going to pay fruit. Maybe they did a little bit in '05, but they are really, again, more towards positioning us as a high-volume low-cost supplier of, in this instance, scoopable cat litter. We put in high-speed manufacturing lines -- real cool stuff -- robots, automated; it's really neat. And the key now is to get that stuff running 24/7. But it's state-of-the-art. I mean it -- I was just down there watching it and it's exciting. And it's going to give us opportunities in '06 and beyond to dramatically increase our presence in that end of the category.

And let me address your CapEx. I think directionally we will continue to underspend our depreciation and amortization. We did buy a teeny bit this year. I would guess that that gap will probably widen a little bit in '06. We'll spend less than our depreciation and amortization in '06.

Also, fiscal 2005 operating expenses dropped an impressive 2.5 million, or 7.5%. I'm just wondering how did you do that and what role did CapEx play in doing that, and what are the prospects for further reductions in operating expenses?

In terms of the reduction in operating expenses, the two biggest components were a reduction in bonus versus the previous year. And the second one was a reduction in advertising promotional kind of expenses, particularly in the division -- our consumer division.

We had rolled out a bunch of new items at the end of '04, and so then we didn't have to repeat those expenses in '05. And again, the investors maybe (indiscernible). But our bonuses, our annual bonuses are tied to very specific performance hurdles. And while this was a good year, it was not nearly as good in relation to '04 as '04 was to '03. And so our bonuses were down significantly. So we have a real incentive -- money -- to keep the business on the growth curve that it is on.

Anne Morrisey (ph).

I've got a couple of questions. You mentioned earlier that average selling prices increased from 154 per ton to 185. Is that due to your product mix or is that due to the commodity has gone up?

It's due to product mix and to pure price increases. A combination of both.

Also, have you made any attempt to increase prices or put on a fuel surcharge or recapture the increased fuel prices?

Absolutely. We even, I think, put out a news release not too long ago to that effect. And that was even before Katrina and Rita. Absolutely. I mean, everyone in the whole category is dealing with these issues. No matter how far out your forward bought, there is diesel fuel for your mining equipment or for your hauling. As we said, freight is always a big piece of the delivered cost of goods. There's petroleum-based products that are like resins that are in our jugs (ph) and in all sorts of packaging materials. So absolutely. To answer your question, 100% yes.

And they are sticking?

I mean the whole category is going up. So, yes.

You mentioned there was a big inventory carryover last year. What do you attribute that to?

The ag condition.

In the ag market. It just seems like their sort of cyclical missing of their own forecasts. They get where they are behind and then all of a sudden they are ordering from us like crazy, and then they get where they send us these forecasts and then wake up and realize they have all sorts of products both stuck in inventory from the prior season and they start cutting back on us. So we're at the back-end of that whipsaw and we get flipped around from year-to-year. Again, that's the kind of thing where a small company like we are, it impacts our annual results. But over the long haul that ag business has been very valuable to Oil-Dri.

Generally, just because strategically -- GMO, genetically modified organisms, (indiscernible) are definitely impacting the corn rootworm application mostly of our ag carrier business. And that trend is not likely to go away or reverse itself. So we are going to see a continued decline in the overall demand, but we actually believe that '06 will be better than '05 because you have not only that strategic trend, you have this sort of unique trend of the inventory hit that we took because of their inventory. So we think '06 will be better than '05, but in general the trend line is bouncing around, but it's bouncing down, it's not bouncing back up. Fortunately for us some of these new products that we're coming out with like the one that Bob Smith referred to use the exact same minerals, exact same plants, exact same production line. And they will start, hopefully, filling in the capacity voids that are being created by GMO. So it's serendipity. But, sometimes better to be lucky than good.

Robert Smith.

Coming back to you on the product, so to speak. Does it have a name?

It's got a technical name. We call it BA 1000. It's not a consumer product, so it's purely business-to-business and it's something that they would stack into their formulation.

But actually in the commercial aspect of it, would it have a name besides a number?

BA 1000. That's all it's ever going to be.

Okay. You did say that you're building a new division around it. Right? So that's the Precision Products group?

Yes.

Well, that I find very interesting. So this is the -- this, so to speak, is the foundation of that. So you guys really must think that you have something of real substance, I mean, if you say that's going to be more or less the core product.

Well, you said that, but (multiple speakers)

Well, I mean, no; wait a minute. You said that. You said that you were building -- you were building the Precision Products group around this product. That's what I heard.

No, (indiscernible) the cornerstone. That was your word, not mine. But no, you are right in general. We've got a number of products that we feel that have not been getting the time and attention they deserve because they are -- they neither fit in a division currently nor were they getting the time and attention they deserved, because R&D and new product development; these aren't -- they don't need salespeople. They can't go running around trying to make calls. And so when a year hits (ph), the ag people are going to focus on the ag products and the fluids purification guys are going to focus on the fluids purification products. And you have to actually find an extra day in the week to go do something. Maybe they'd call on some of these new products, but they've got to go where their bonus is taking them and where they are making their money.

So we've carved out a new division called Precision Products. We've put all these types of products in there. And they are exciting. The person who has taken this over was the gentleman who reenergized our new product development effort out in Vernon Hills, Illinois. And he has -- obviously, is the one closest to being able to recognize the value and potential behind these products. And yes, you should take it as a pretty strong signal that his willingness to jump out of that and now grab these babies and run with them is a pretty strong signal that we believe they are going to be significant contributors to the future of Oil-Dri.

Excuse me for asking in a way, but is BA 1000 -- is this usable in levee construction?

Yes. I mean, I don't know whether you want (multiple speakers)

Bob, you know, as we're learning, there are so many ways that levees are constructed, either out of concrete, other construction aggregates or natural earth, it's hard to answer other than to say our product can go into different types of building materials. Our focus has been in the brick industry, as we've described. It can go elsewhere. I can't tell you that we've been analyzing how it could fit into the infrastructure issues that are arising as a result of the two hurricanes, though.

Right. No, no. In F '06 it's all going to be centered around brick.

I'd like to just touch base quickly on (indiscernible). Is anything new there?

Nothing new. We will make sure we do our annual -- have Rutherford, who is the VP of that division, come out here. But, no; nothing new. Not giving up on it, but not any -- nothing on my radar screen in terms of my source of bullishness. That would be complete (multiple speakers)

And again, this is completely written off? Right?

Yes. It's on the books at zero.

I'll get back in the queue. By the way, I dissent from much of what's been suggested to you as far as maximizing shareholder value. While it would be nice to have a 50% increase in the stock price tomorrow, I'm not in this for 50%. I think the Company has a lot more intrinsic value than that. And I'd like to see it, you know, materialize, so to speak. I do hope that you guys increase the dividend in October.

Thank you, Bob. I appreciate your comments. I think that's the best thing we can do with these teleconferences is investors can then decide is this the kind of company they want to invest in. But, obviously, short-term, any kind of pump and dump or flip it and turn -- we're the wrong stock. It's the tortoise and the hare. But as I always say, we are the tortoise and I don't apologize for that. The tortoise won the race. Every time I read that story he always crosses the finish line ahead of the hare. So I don't want to be the hare. I don't apologize for not being the hare. And quite frankly, I'm proud of being the tortoise.

I'd love to see '06 as a pivotal year, as you suggest.

I think it's -- I think it's -- we're going to look back on this year and say wow. That's my thought.

Ethan Starr.

Besides BA 1000, do you expect to introduce any new business-to-business products in 2006?

We're certainly going to continue commercializing ones that have sort of, maybe within our mind we already think as being introduced. They are all coming out of this Precision Products. I know that there is one -- another big sort of far-flung opportunity, but that will not show any commercial viability in '06. That will be for '07 and beyond. But that also has Steve Azzarello, who is running this Precision Products group, excited about his group, that this product would also fall into his area. So I would say from a real new product standpoint, the big story would be the continued success in the trials of BA 1000. That would be the deal.

Okay. So is Steve Azzarello still overseeing the Nick Jaffee Center for Innovation?

Well, only in a transitional phase. We are in interview processes and fortunately we have many very qualified internal candidates, so this will be filled from the inside. And we are down to the finalists and they have had multiple interviews. So my hope is that sometime next week we will be announcing who is taking over that center.

Okay. The besides the water rights you just sold, does Oil-Dri have other water or mineral rights in the west that could be sold?

Nothing of any significance, Ethan. We still have some owned property in Reno, Nevada that we view now as nonstrategic. It would have no -- not only no material impact, but barely an impact if we were to sell it in current market conditions. We do have other mineral rights in Western Nevada, but we consider those to be strategic still and are not for sale.

Okay. How are Odor Eaters litter and the new (indiscernible) litter doing?

Too soon on Odor Eaters. And so, you know, I was very excited about it to be with the president of that company over the weekend. And it's a key initiative for them and a key initiative for us. And they are giving us their full support in rolling that out. We've got major retailers in the pet specialty segment behind it. You will see big launches in the back half of the year, our fiscal year, which means after January 1st, the beginning of the new calendar year. And so I would say nothing material in the first half, but hopefully we'll have something significant to talk about in the second half.

In terms of the new co-pack opportunity, I was with them as well recently and they continue to be behind it. They don't think it's going to double or triple anytime soon, but they think it's going to continue to grow and prosper. And it's valuable for us. So it's a good product.

Can you tell us who it is now?

No, still can't tell you, because I don't want to have to kill you.

That's very nice of you. How is Poultry Guard doing?

Poultry Guard -- I had a feeling that was coming up (indiscernible) Poultry Guard. We had a good year. But again, just sort of now it seems to be settling into incremental growth of along with the market rather than sort of the exponential growth that was showing at the beginning. So we are still confident that it's going to be a viable product. It is a viable product. It's profitable now. It is also being moved into this Precision Products group because we do feel that it, too, has suffered from not really being in any division where the general manager wakes up every morning thinking how can I meet or exceed my Poultry Guard budget for the year. It's always been around in here (ph) to somebody else's division. So we're -- I wouldn't expect it to change the landscape of the Company, but if it can kick in some incremental pennies a share every year that's a good thing.

Great. Good luck for a good year. I'd just like to add that I'm very happy with the direction of the Company and have no interest in seeing it sold.

Thank you. I appreciate that.

Robert Smith.

Would you guys care to go over the prospects for '06 by your divisions? Can you do that?

I'd care to. That's putting it -- I don't want to do it because, again, I'd rather tell you about the successes after they occur then tip anyone else where they think we think we can do well and then just create defense that we wouldn't otherwise have. I just think suffice it to say we are bullish on our existing product lines. We have a number of new products that at a company our size being so small could very easily have a material impact on our results. And we do perceive that there will be opportunities for us to make some strategic moves in '06 that probably wouldn't have come around if it hadn't been for all the turmoil that's going on in the fuel market. So I would rather leave it at that.

How do you suggest '06 will unfold on an interim basis? The first quarter would actually probably have much more of a fuel impact on a comparable basis to your first quarter of fiscal '05. Is it fair to say that you would -- you see an up year but with uneven quarterly results?

I'm not going to go there, but here's what I will say. I think what you will start seeing is sales momentum building and you'll see margins lagging, and that hopefully by the end of the fiscal year we will either have determined that a lot of this stuff we're seeing is just market hysteria and things return to a more recent normal -- meaning it's still not normal on a historical basis. I mean, we were buying gas at 2.50 an MMbtu, and feel fortunate that we're locked in at like 8 this year. And currently we're getting close to 21. So god only knows where gas is going.

Margins are going to be all over the place and very unpredictable, but we're going to continue to put on new strategic pieces of business. So you should see sales momentum building, and that's without an acquisition. And if we were fortunate enough to make an acquisition, then you're going to see a lot more growth than that because we'll be well poised to take advantage from all of these territorial gains, let's call it, as we expand our business as things either settle out to prove that it's a trend and we -- all the prices then go meet that trend, or it was a blip, and so then the margins come back to where they were.

What are you looking for in an acquisition?

The same as always. I mean, that's a fair question. Right in line with our business. I don't think this is -- can I tell him our mission statement? Is that allowed? Okay, fine. We, at our strategic planning sessions, we always do. And I once heard an article that said the shorter your mission statement the better the company does, because I guess in general people can embrace it and understand it. Can I tell him my tongue-in-cheek mission statement? Charlie is going to have to cover us here, because I said given that then the best mission statement I could come up with for Oil-Dri is we suck. Because if you think about it, everything we sell absorbs. That's the point; it's tongue in cheek. Well, that is not our mission statement. You don't have to worry that on our business cards it's going to say Oil-Dri we suck.

But it will say creating value from sorbent minerals. I mean, it's that simple. That's what Oil-Dri is all about. We are waking up every day focusing on ways to create value from sorbent minerals. So every acquisition would have to fit into that stream, every new product launch would have to fit into that stream, and frankly, every capital caller that we spend would have to fit into that stream. The best part about it was I've talked to a lot of people that have been through a lot of strategic planning. Most (indiscernible) strength, weakness, opportunity, threats (ph) and mission vision values and all these exercises are multiple-day, a lot of contentious discussion; you've got people throwing stuff all over each other and it really can be a divisive thing.

It took us less than two hours as a team to come up with our mission, vision and values than to come up with that mission statement, because everybody is on the same boat. We are focused. We understand where we make our money. You're not going to hear pet treats. You're not going to hear some of the other wacky stuff that we have done in the past. We're just not going to do it.

Our feeling is if you are the kind of investor that thinks there's value in sorbent minerals, then you ought to buy Oil-Dri stock. If you don't, you shouldn't. But I can't imagine people saying, oh, I think there is energy between sorbent minerals and dog food. So Oil-Dri, start making some dog food acquisitions or something. It just isn't going to happen. We're a pure sorbent mineral play. It's a nonrenewable resource. There have been no new plants opened in the United States in the past, I'll say, go back 20 years. There have been multiple closures and there have been a few acquisitions, and I think every single acquisition has been by us in our segment of the category. So the consolidation that's all occurred has been to our benefit. And I would hope that the next 10 years will play out exactly like that, that you will see no new plants because it's just -- it's a low return, high capital business, but it's who we are. And the environmental regulations are -- the barriers just get higher and higher every day. I mean, as you know, we spent three years and $3 million trying to build a new plant and we couldn't get it done and we are in the industry. So it's -- those are both the curses but also the opportunities of being who we are. So, does that answer your question?

Just as an aside, I mean, with the work that you've done in alliances with (indiscernible), I might suggest that there is serious work being done with clays in nanotechnology. And I don't know if you guys are on top of that, but it might be something to look into more carefully and explore.

It's certainly on the fringe of our radar screen, but it's not in the center.

I understand that, but just being aware of it.

Yes.

Good luck to you.

At this time there are no further questions.

Thank you. I always enjoy a spirited discussion. I think -- I have looked and I appreciate Blaine's perspective, but I also appreciate the support and loyalty of Ethan and Bob and Jack and Anne. So I think that the more we talk about these things, the more people can say Oil-Dri is the kind of company I want to invest in or Oil-Dri isn't the kind of company I want to invest in. And you've got to make those decisions the best you can. So our job is to tell you how we're running the business, what is in the cards, what isn't in the cards, and then you guys are in the ultimate state of control of saying I'm going to buy those shares, I'm going to hold those shares or I'm going to sell those shares. And that's what makes the market.

So we appreciate your support. We appreciate your interest in our company. We will be back at you in three months. And literally the biggest thing that we can all do is continue to send our thoughts and prayers down south. We are also sending money. We are sending products for the cleanup effort. We have been contacted by the governments. We have donated a lot of products to help the cleanup effort down in New Orleans. I think on a pro rata basis we have given away more money and product than Wal-Mart has. And I'm not minimizing what they have done. They've done an incredible job. They've given away, I think, $25 million in all this. We're not that big. But as a percentage of our sales or earnings, we're giving away every bit as much as they are and trying to help those people that have been impacted by these hurricanes. So, you know, that's really what has got our attention is helping them and then growing our business and trying to take advantage of these tumultuous times. So thanks very much. We will see you in three months. Meredith, thank you for moderating the call.

Thank you. This concludes today's Oil-Dri fourth-quarter and year-end results teleconference. You may now disconnect.