OAK BROOK, Ill. -- April 21, 2009 -- RC2 Corporation (NASDAQ:RCRC), today announced its results for the first quarter ended March 31, 2009. The Company reported net income for the first quarter 2009 of $1.8 million, or $0.10 per diluted share, compared with $2.0 million, or $0.11 per diluted share for the first quarter 2008. Excluding recall-related items, net income per diluted share for the first quarter 2009 was $0.11 compared with the first quarter 2008 of $0.16.

Net sales for the first quarter 2009 decreased by 7.5% to $86.3 million compared with net sales of $93.3 million for the first quarter a year ago. Unfavorable fluctuations in foreign currency exchange rates reduced 2009 first quarter consolidated net sales by approximately 6%. For the first quarter 2009, net sales of the mother, infant and toddler products category increased 2.4% as compared with the first quarter 2008 and net sales of the preschool, youth and adult products category decreased by 17.3% as compared with the first quarter 2008, which included $1.2 million of sales from discontinued product lines in 2008.

The 2009 first quarter gross margin decreased to 40.2% as compared with 45.6% in the prior year first quarter primarily due to less favorable product mix, unfavorable foreign exchange rates, and higher product costs which more than offset cost improvement initiatives and price increases. On a sequential basis, first quarter 2009 gross margin was similar to the fourth quarter 2008 gross margin of 38.4%, which was negatively impacted by 230 basis points due to non-recurring items.

Selling, general and administrative expenses decreased to $29.7 million, or 34.5% of net sales, in the first quarter 2009 as compared with $37.9 million, or 40.6% of net sales, in the first quarter 2008, primarily due to the impact of the Company's operating cost reduction plan implemented in the fourth quarter of 2008, lower costs that vary with sales and foreign currency, and lower recall-related items.

Operating income increased to $4.8 million in the first quarter 2009 from $4.4 million in the first quarter 2008. Other expense, net decreased to $0.7 million during the first quarter 2009, from other (income), net of $(0.4) million in the year ago period primarily as a result of unfavorable currency transaction losses.

As of March 31, 2009 the Company's cash balances were $27.8 million and outstanding debt was $76.3 million, down from $95.1 million at December 31, 2008.

Commentary

Curt Stoelting, CEO of RC2 commented, "First quarter sales continued to be negatively impacted by conservative retailer ordering and unfavorable foreign currency exchange translation. For the quarter, our international sales increased 19% in local currencies but, due to unfavorable foreign currency exchange rates, declined by 9% when stated in U.S. dollars. During the first quarter 2009, retail sell-through exceeded shipments in many product lines.

"Net sales in our mother, infant and toddler products category increased by over 2% in the first quarter, which is a good result considering the current economic conditions. In this category, sales increases were generated in infant and toddler gear and feeding and care products marketed under our The First Years® brand, which were partially offset by sales declines in our infant toy product lines. We continue to believe that in 2009 our mother, infant and toddler products category will continue to perform well relative to other consumer product categories.

"Excluding discontinued product lines, comparable net sales in our preschool, youth and adult category declined 15% in the first quarter with softness across almost all product lines. On the positive side, sales of our Thomas & Friends Wooden Railway product line increased when compared with the prior year.

"We are seeing benefits from our focus on cost reduction and cash preservation. In the first quarter we generated positive cash flow from operations, reduced inventory by approximately $7 million and paid down our outstanding debt by approximately $19 million. The impact from our cost reduction plan helped to lower our first quarter operating expenses, which declined by over $8 million compared to prior year. As expected, unfavorable foreign currency rates, higher product costs and sales mix had a negative impact on first quarter gross margins. We expect product cost and currency trends to improve in the second half of 2009.

"Consistent with our strategic plan, we continue to invest in innovative new products that make parenting easier and more fun for the entire family. We are on track with the planned second half launch of our all new Super WHY! product line. Even in these difficult economic times we are planning to expand our Caring Corners® product line and extend our highly successful American Red Cross, Lamaze, John Deere and The First Years product lines. In 2010, we anticipate improved economic conditions and have exciting new product launches planned for Chuggington®, Thomas & Friends Wooden Railway and Dinosaur Train, an all new preschool licensed property, which will soon be broadcast on PBS Kids. We also expect growth in 2010 in our mother, infant and toddler products category."

Stoelting concluded, "We continue to anticipate a difficult 2009, but remain focused on our long-term strategic plan, cost reduction, cash preservation and debt reduction. We are confident that our experienced, proven management team will navigate these tough times while building toward sustainable growth in the future."

2009 Financial Outlook

Sales and profits are dependent on a number of factors including the on-going success and expansion of our product lines, successful introductions of new products and product lines and retention of key licenses. Other key factors include the impact of foreign currency, seasonality, overall economic conditions including consumer retail spending and shifts in the timing of that spending and the timing and level of retailer orders. The Company continues to expect that full year 2009 diluted earnings per share will be approximately $1.35. Additionally, the Company continues to expect that sales and diluted earnings per share estimates in the second quarter of 2009 may fall below prior year adjusted amounts. The Company will provide an updated 2009 outlook when it reports its 2009 second quarter and six month results in July.

Company Description

RC2 Corporation (www.rc2.com) is a leading designer, producer and marketer of innovative, high-quality toys, collectibles, and infant and toddler products. RC2's infant, toddler and preschool products are marketed under its Learning Curve® (www.learningcurve.com) family of brands which includes The First Years® and Lamaze brands as well as popular and classic licensed properties such as Thomas & Friends, Bob the Builder, Winnie the Pooh, John Deere and Sesame Street. RC2 markets its youth and adult products under the Johnny Lightning® (www.johnnylightning.com) and Ertl® (www.ertl.com) brands. RC2 reaches its target consumers through multiple channels of distribution supporting more than 25,000 retail outlets throughout North America, Europe, Australia, and Asia Pacific.