Good afternoon, and welcome to the Crown Crafts, Inc. Third Quarter Investor Conference call. [Operator Instructions] Please also note that today's event is being recorded. I would now like to turn the conference call over to Ms. Olivia Elliott, Vice President and Chief Financial Officer. Please go ahead.

Thank you, Jamie. Welcome to the Crown Crafts Investor Conference Call for the third quarter of fiscal year 2012. With me today is Randall Chestnut, the company's President and Chief Executive Officer. E. Chestnut: Hi, good afternoon.

A telephone replay of this call will be available one hour after the end of the call through 8:00 a.m. Central Standard Time on February 23, 2012. Also a replay of this call will be available for 90 days. You can access it by visiting our website at www.crowncrafts.com. Before we begin, I would like to remind everyone of the cautionary language regarding forward-looking statements contained in the press release. That same language applies to comments made in today's conference call. I will now turn the call over to Randall. E. Chestnut: Thank you, Olivia. Again, good afternoon, and welcome to our third quarter investor conference call. Before the market opened this morning, we released our third quarter earnings for FY 2012, which ended January 1 of 2012. Net sales for the third quarter in 2012 were $21.6 million as opposed to $21.9 million in the previous year, a slight decline of 1.3%. Net income for the third quarter is $1,548,000 as opposed to $775,000 in the previous quarter or an increase of almost 100%. Earnings per share increased from $0.08 to $0.16, a 100% increase. Year-to-date, our net sales are $60.5 million as opposed to $62.8 million in the previous year or a decline of 3.7%. Net income year-to-date is $3,145,000 as opposed to $2,715,000 or a 15.8% increase, 9 months year-over-year. Earnings per share year-to-date for the 9 months have increased from $0.28 to $0.32 per share. EBITDA as a percent of net sales for the quarter was 13.1% and the year-to-date is 10.4%. We're very pleased with the strong results for the quarter. Few comments about the quarter and then Olivia will embellish us some with the financials. As we reported last quarter, we continue to move through merchandise, which was purchased earlier in this year and late last fiscal year at higher cost. For some of the products, a portion of the higher cost was offset by price increases. But for other products we reengineered and redesigned the product, still with increasing prices. We felt that on most particular products increasing prices to consumers would have or could have negatively affected sales. Part of the improvement year-over-year is also related to a onetime cost that was in the previous year associated with corporate governance and shareholder issues. Those costs were approximately $209,000 lower in the current year quarter. As we reported in the past, we will walk away from programs where we cannot make a profit. During Q3, the quarter that just ended, we began to transition away from just such a program. As raw material prices increased it pushed the program deeper into unprofitability. Such actions do negatively affect the top line but improve the overall cash flow and profitability of the company. We're still seeing sell-through at certain retailers remain sluggish as many of our customers continue to struggle with unemployment rates and the soft economy. In addition, the decline in the U.S. birth rate of approximately 7% from 2007 to 2010 has also impacted our customer base. During Q3, we further increased our sales of company branded products, most notably NoJo and Neat Solutions. Combined sales of these lines during Q3 increased 39% year-over-year and 13% year over -- year-to-date fiscal 2012 versus the same 9 months of FY '11. We're proud of the fact that we finished Q3 100% debt-free, considering the fact that in 2001, we had $47.7 million of high-interest rate debt after we downsided the company -- after we downsized the company. Being debt-free feels pretty darn good. Today, we also announced that the Board of Directors had declared a quarterly cash dividend of $0.04 per share on the company's Series A common stock, which represents the ninth consecutive quarter that dividends have been paid since early 2010. This dividend will be paid on April 6 to shareholders of record on March 16, 2012. We're pleased that the Board can share some of the positive cash flow with its shareholders. Using yesterday's stock price closing of $3.90 per share, our dividend represents an annualized year rate of 4.1%. Again, I'll say, we're pleased with the results of the quarter, and we trust that our shareholders are also pleased. I'll turn it back over to Olivia to add additional comments to the financials.

And now we're going to give financial highlights. For a more detailed analysis, please refer to the company's Form 10-Q filed with the Securities and Exchange Commission this morning. Third quarter sales decreased 1.3% or $289,000 to $21.6 million as compared to the third quarter of fiscal year 2011 due to a decrease in sales of beddings, blankets and accessories of $351,000 or 2.1%, which was offset by an increase in sales of bibs, bath and disposable products of $62,000 or 1.2%. Year-to-date sales decreased 3.7% or $2.3 million to $60.5 million as compared to the prior year due to a decrease in sales of beddings, blankets and accessories of $1.9 million or 4%, and a decrease in sales of bibs, bath and disposable products $486,000 or 3%. Gross profit increased in amount by $837,000 and, as a percentage of net sales, went from 20.1% in the third quarter of fiscal year 2011 to 24.2% for the current year third quarter, due to lower production costs resulting from lower raw material costs and the reengineering of certain of the company's products and the transitioning away from an unprofitable private label bedding program. As we mentioned during the second quarter, we refined our estimate of overhead allocation, which resulted in a nominal burden variance in the current-year third quarter as compared to the prior-year third quarter. Consistent with prior years, we do not expect a material burden variance by the end of fiscal year 2012. Year-to-date, the gross margin percentage remained flat at 22.8%. Marketing and administrative expenses decreased for both the quarter and year-to-date period due primarily to lower overall compensation costs and lower professional fees associated with corporate governance and shareholder issues which were $209,000 lower in the third quarter and $462,000 lower for the year. Net income for the third quarter of fiscal year 2012 was $1.5 million or $0.16 per diluted share compared to net income of $775,000 or $0.08 per diluted share in the third quarter of fiscal year 2011. For the first 9 months of fiscal year 2012, net income was $3.1 million or $0.32 per diluted share compared to net income of $2.7 million or $0.28 per diluted share for the same period in fiscal year 2011. I will now turn the call back to Randall. E. Chestnut: Olivia, thank you very much, and Jamie, if you'll come back and make the announcement, we'll open it up to any questions that anyone may have.

[Operator Instructions] And our first question comes from Liz Pierce from Roth Capital Partners.

So I think that obviously the gross margin even if you kind of exclude what was happening year-to-date on the unfavorable, favorable variance, still seems like a nice increase. I'm just curious how you feel about those trends particularly as you indicated you're working through these lower or the higher cost inventory. Is it as sustainable? And I think we have to go back a couple of years before we even -- I think, right , it's been almost 2 years since it was maybe above 24%, back in early '10? E. Chestnut: That's true. That's true. Liz, barring any unforeseen circumstances like we saw last year -- early last year and late in the year before of cotton going from where it is now to $2 a pound and other raw materials or labor rates going up, we do think it's relatively sustainable, yes, on an overall annualized basis. It can have swings quarter-to-quarter as we've seen that, no question about it. But we feel pretty good about the future.

Okay. All right. And then how should we be thinking about the top line in light of the fact that there still seems to be some macro issues? I've noticed in our channel checks that certain retailers look like they're a little bit more better in stock and then some of the usual suspects still seem to have a lot of empty shelf space. E. Chestnut: It's a mixed bag. I mean we have one retailer that we go into and they say they're stocked well, and we go in to the stores and the shelves don't have the merchandise on it. So it's a mixed bag. We -- there's still softness in the economy. There's still some overstocking inventory issues and understocking in other retailers. So it's a mixed bag. And when you look at the top line, one thing that you need to be aware of is, what we alluded to in the press release, is we are exiting, it's a sizable program that is a -- was a private labeled bedding program that after the cotton prices did arise as high as they did, it became very unprofitable. So we're exiting that. We have started exit -- the exit of that in the third quarter and it will continue into the fourth quarter. But we -- we're striving to replace that business at profitable levels.

That kind of was my next question is how -- I mean how many quarters do you think it takes and is there any seasonality, I wouldn't think with bedding there would be any seasonality, so how we think about the sales cadence over the next couple quarters? E. Chestnut: That program, Liz, should be flushed out by the end of the fourth quarter. We started the exit midway through the third -- or actually in the first third of the third. And it continued through December, and we should be out of that by the end of our fiscal year, which is March.

And I presume you don't want to tell us what retailer this was for, but it sounds like it was a sizable program? E. Chestnut: It was in the multimillion dollar program, and I really prefer not to publicly announce who it is for competitive reasons.

Okay. And even with that beginning in the third quarter, your sales were down 1.3%, so either you're getting traction with something else or you're already replacing it. So and I would think that, that in terms of the fourth quarter, maybe the pressure wouldn't be so terribly too much pressure. I would also think that retailers are starting to do some stocking -- restocking. E. Chestnut: Well they are. I mean every retailer, most have their year ends in January, and when their year ends they wake up and realize, geez, I need goods on the shelf. So we're seeing some positive responses to that. But it's still not the solid flow-through that we'd like to see. It's still a little bit jerky.

Okay. Can you just give us an update on the toddler bedding license that was supposed to expire or did expire, I presume, at the end of December? E. Chestnut: It did expire and it has been renewed. And...

It has been renewed? E. Chestnut: We don't disclose that in the Q. It will be disclosed in the K but it's been renewed for 2 years.

Yes. I didn't see it in the Q that's why I was wondering. Okay. All right. E. Chestnut: There's normally a 1-year event whenever we disclose that just in the K. But it has been renewed, Liz.

Our next question comes from James Fronda from Sidoti & Company.

I'll be filling in for Tina [ph] from now going forward. So summary to the story -- but I guess the one question I have was in terms of the private label products. I know the bedding might not have worked out the way you wanted to, but is this the direction you think you're going to go, go into going forward, I mean do they have higher price points and better margins? E. Chestnut: No, no. I mean that particular program was 100% cotton program and when cotton went from $0.80 to $2 a pound. It just became so unprofitable that you couldn't produce the product anymore. So don't read into it that is a whole change in strategy, it's not. It's just that one program, which happened to be a 100% cotton, became so unprofitable that it was not good to continue with.

Okay. And I guess in terms of the tax rate going forward, could I use 37%, 38%?

38% is reasonable.

Our next question comes from Nelson Obus from Wynnefield Capital.

Just a follow-up on the private label cotton, when you were talking about walking away, it implies a couple of things. Number one that there was no reset to the raw material costs. And two, that I assume that the think tank -- the contract came up for sale again, you weren't able to initiate any kind of pass-through or reset the contract to reflect higher cotton prices. Can you just give us a little more color on that? E. Chestnut: Nelson, I’d be happy to. We did increase the price on that particular product category early last year, and that would have been early in calendar 2011, at a double-digit rate, over 10%. And that passed through. As cotton continued to increase, we went back in the late summer to pass through another price increase. And we told them, at the time that because the price increase the second time was pretty -- was more substantial than the first, okay. And quite candidly, I said you can do us a favor and take it away. It's not like it came up for renewal. It's not a renewal contract, it's not a renewal program. We've had this product, except for about an 18-month period, we've had this product for many, many years. And it's just gradually as cotton got higher, became more and more unprofitable. So we asked them, we said price increase or take it away and candidly, I'd rather you take it away, and that was almost a direct quote, okay. It's better for us to be without it than with it, I promise you.

Even when cotton starts heading down, it's not something that averages out? E. Chestnut: Even with cotton going down -- even in the best of days, Nelson, it had brackets around it.

Is there anything we can read into this about the future of private label or was it just sort of a one-off? E. Chestnut: This one, I think, is more of a one-off, and I don't think you should read it into the future of private label at all. It's more of a one-off because it's -- I mean -- I don't want to go to -- it's a solids program. It has no design in it and it can be done by a multitude of people. It doesn't have to be done by us. It can be done by almost anybody and -- but it's a solids kind of program and it's a 100% cotton. So when you do solids, 100% cotton, there is no margin in it, okay. And then when cotton goes up the way it did, it becomes even less attractive. It's a huge program with a lot of SKUs, not huge as far as dollars, but a lot of SKUs, though it's terrible to manage. Just nothing about it is right.

Got it. This reference in the press release to the decline in birthrate, is this reflecting itself more in inventory management by your customers or actual sell-through? E. Chestnut: We think it's actual sell-through. There's 2 things, the birthrate is down a real 7% over the 3-year period. There's no question about that, and we sell to the first births, we sell to the birthrate. So with the birthrate being down 7%, it translates straight through to the consumer, because we have 7% less consumers that are buying the product. And also the unemployment rate, we think a lot of our customers fall into the unemployment category. And it's hard to start families when you don't have a job. So we think both of those play into the customer base.

It strikes me that other than making condoms illegal there's nothing much you can do, right? E. Chestnut: We think it's going to change if the economy rebounds, I do think that birthrate will change.

And one other question. I noticed in the Q there was a little legal flare-up, I realize there are limits as to what you can say, but can you give us any color? E. Chestnut: Yes. Not really, Nelson. I don't want to give a lot of color but what Nelson is alluding to is the comment we had in the Q that there was -- that there's been a lawsuit served or filed by a competitor claiming that we infringed -- or we're infringing on a new product that we introduced that is patent-pending for us and all I will say to that is that we think we're on the right side of that argument. We feel strongly that way and we can...

You'll have a marked man or something at some point and you straighten it out. Is it a big product? E. Chestnut: Yes, it's a sizable product because it's a new creation of a -- and again going into, and elaborate a little bit, there's been a lot of controversy over the safety of traditional crib bumpers. The padded bumpers that we have known and loved for so many years. They've been banned in one particular city. There's another state considering it, et cetera. So we went to work and from ground zero and engineered base up a product that we don't think infringes upon the other product, and it is used to protect the child in the crib not as a bumper. It's called a safety crib liner that goes around all 4 sides of the crib and keeps the baby's arms, legs and the limbs from getting -- extending through the slats at the side of the crib. So it can play into a separate sales issue as a crib liner. It can be incorporated into the set. And so yes, we think it is -- it's a good product and sizable product and we've invested a lot of time, energy, effort and money to design this product. We've applied for the patent and we will defend it.

I lied, last question. Can you just give us an update on the table top product for kids and your efforts to try and get it into other restaurants and so on and so forth? E. Chestnut: The table topper product, the Neat Solutions table topper product for kids is doing well. We're expecting an increase in that product category for next year and it is selling well at retail. We designed some new products that incorporate games into the table topper. And those products are actually on sale now at Babies"R"Us and at Wal-Mart. And so we've gained some traction with that. We have still been struggling and trying to achieve expanded placements into the casual dining change. We have one major customer there now that we're doing an excess of $1 million a year with, and -- but we have not -- with the economy being the way it is, it's been very difficult to secure many more casual dining chains. We do have one West Coast chain that's small -- we have another one that is in test right now. So we have some going, but we don't have anything major to report. We don't have another home run.

[Operator Instructions] Our next question comes from Bobby Melnick from Terrier Partners.

I want to spend a second, if we could, a little bit away from product and a little bit about finance. Olivia, could you just -- the revolver is now completely undrawn and you have no debt on the company at the end of the quarter, that's -- is that correct?

That's correct.

What are the terms of the revolver, in other words, if you were to borrow today what rates would you be paying?

We're at LIBOR plus 3, which is about 3 1/4 right now, I believe.

Okay. So -- and this time my question is for Randall, which is could you talk a little bit about the dividend payout ratio and what the company's strategy is therein. And the reason I say this is because you and I have spoken both online and off-line about things that this company can do to surface shareholder value and to produce shareholder value. And it strikes me that a company that in a pretty difficult climate that produced almost $8 million in free cash flow in the first 3 quarters, I'm going to go out on a limb and assume that you're not going to have negative cash flow $4 million or $5 million in the fourth quarter, in fact you'd probably be positive cash flow, could probably sustain a dividend of higher than $1.5 million a year, which is what it currently is. And while we don't know the outcome in the future, there are proposals that would raise the tax rate on dividends. I guess my question is, would it make sense for this company either to be paying a higher percentage of its net income or free cash flow as dividends? Or in addition, perhaps lever up and pay a special dividend if your covenants would permit that? In other words, borrow $5 million or $7 million or $8 million or $10 million and pay $0.75 one-time dividend or $9 million one-time dividend. And I'd like to hear your thoughts on that because it strikes me that given this company's growth prospects, which are largely acquisition oriented not just by some organic growth in new products. But it sounds like this is not a company that's going to be consuming a tremendous amount of its capital going forward. And that, to me, is a prescription for a company that could pay a higher dividend than a 30% or 25% payout ratio. I know you guys don't make forward-looking comments about earnings, but we've earned 30-odd cents in 3 quarters, forecasts are sort of $0.45, $0.50. We've earned higher in the past and we're paying 1/3 of that in earnings -- or in all of our earnings and dividends. Randall, thoughts? E. Chestnut: Yes, Bobby, it's a good point. I mean first of all, let me go back and address, we are totally debt-free as of now. That's not to say that we won't bounce back into it if we have big royalty payments or something, but we're pretty much debt-free and should stay close to that level going forward unless something does happen like we do an acquisition or something. The Board, Bobby, we started paying dividends at $0.02 per share in early 2010. We paid that, I think, for 3 quarters, then we raised it to -- maybe 4 quarters, and then we raised that to $0.03 and now we've been -- this is the second time around at $0.04. The Board did look at it. They did entertain it. There are -- I'm trying to remember everything you said. There are some covenants within the loan agreement that restrict how much we can pay on dividends, but we're not close to it at this particular point, okay? So we do have some wiggle room. The Board has considered it, they will consider it in the future and it is a topic that will be on the Board agenda to discuss at future meetings, because it is a way to reward the shareholders and give money back. And you are right, we should be cash positive going forward bar any major unforeseen circumstances. So your comments are well noted, I promise you.

Okay, [indiscernible]. E. Chestnut: I mean, that's all I can say at this point.

Well you have -- you're one board member and you're one representative. You're not -- it's not your company. What would you have -- do you have a position that this company should be paying 1/3 of its earnings and dividends or it should be more? Or would you personally, or professionally, would you Randall prefer to harvest that money and find acquisitions? I'm asking you. E. Chestnut: Right now, Bobby, at the $0.04 per share, I'm an advocate -- I was an advocate this quarter of holding it where it was, okay. Because until we see where the economy's going to shake out, where we see the raw materials are going to shake out. And to see if there was some acquisition opportunities. But that was only for the quarter. I can -- it can change next quarter.

And our next question comes from Ralph Marash from First Manhattan Company.

I think I just have one question, which is about inventories. Year-over-year, they appear to be down substantially about $4 million, was just curious about your comments. E. Chestnut: Ralph, the easy answer to that is they were higher last year than they should have been, and we alluded to that in one of our phone calls about a year ago that we weren't happy with the inventory. We manage inventory pretty darn well. And so they're more in line now with where they should be. If you got to look, they were more out of line last year.

And at this time, I'm showing no additional questions. I'd like to turn the conference back over to management for any closing remarks. E. Chestnut: Okay. Jamie, thank you very much. And I'd like to say to all the shareholders on the call, thank you for your time, your attention and your participation. And if you have questions in the meantime, please don't hesitate to call us. And we'll be back again in a few months to report our year end, which will be the year that ends the end of March, which will be our FY 2012. With that, we'll sign off. Thank you very much. Have a good day. Goodbye.

And that concludes today's conference call. We do thank you for attending. You may now disconnect your telephone lines.