RC2 Corporation Reports 2007 Fourth Quarter and Full Year Results; Remains Focused on Sustainable Growth Opportunities

Business Wire, Feb 14, 2008

OAK BROOK, Ill. -- RC2 Corporation (NASDAQ:RCRC) today announced its results for the fourth quarter and year ended December 31, 2007. Income from continuing operations was $0.4 million or $0.02 per diluted share in the 2007 fourth quarter. Income from continuing operations was $9.4 million or $0.44 per diluted share in the year ago fourth quarter. Income from continuing operations for the year ended December 31, 2007 was $21.6 million or $1.04 per diluted share as compared with $43.8 million or $2.04 per diluted share for the year ended December 31, 2006. Results for the fourth quarter of 2007 include $12.6 million in recall-related costs, $7.6 million net of tax, which negatively impacted diluted earnings per share by $0.40. In addition, results for the fourth quarter of 2007 include approximately $1.3 million in additional tax primarily due to an increase in rate, which negatively impacted diluted earnings per share by $0.07. Results for full year 2007 include $28.3 million in recall-related costs, $17.6 million net of tax, which negatively impacted diluted earnings per share by $0.84. Results for the fourth quarter and full year of 2006 include non-cash restructuring charges of approximately $9.1 million, net of estimated income tax benefits, or $0.42 and $0.43 per diluted share, respectively, related to discontinued automotive collectible product lines. (Consolidated statements of earnings for 2006 and 2007 as adjusted for restructuring charges and recall-related costs, respectively, are provided in the attached tables.)

Commentary

Curt Stoelting, CEO of RC2 commented, "Our fourth quarter results were negatively impacted by lower domestic consumer spending which caused many retailers to limit reorders of our products. Spending on new product launches, though higher than normal in the fourth quarter, did not produce expected sales levels and had a negative impact on profits."

"For the full 2007 year, we are disappointed with the 2% comparative sales decline and with lower than normal profits. It was a challenging year as we experienced soft sales in our preschool products category, product cost pressures, product recalls and an 8% comparative decline in our North American sales. However, there were a few positive results. Our comparative international sales grew by 30% in 2007 due to increased market penetration in both Europe and Asia Pacific. Additionally, our management and team members have responded to product recalls by implementing, in the second half of 2007, our comprehensive Multi-Check Safety System which now covers all of our product lines."

"Many challenges remain in 2008. We expect product cost increases to be material beginning in the first quarter of 2008. These increases are driven by higher labor, benefits, tax and currency costs which our China contract manufacturers are passing along to us. Accordingly, we are working to mitigate these increases with sourcing and supply chain initiatives and price increases. Overall economic conditions, especially for consumers in the U.S., also remain a concern for us and our retail partners."

"We are planning 2008 as a transition year, with a focus on growing sustainable sales and improving our profits. New 2008 product launches are weighted toward product line extensions with fewer new product line introductions than in 2007. At the same time, we are incubating and developing an extensive pipeline of new product lines for introduction in 2009 and 2010 and working to improve the effectiveness of our sourcing and manufacturing options."

Stoelting concluded, "Following our strategic plan, we continue to leverage consumer insights and digital marketing investments to guide our new product development and drive sales increases. We also remain committed to completing acquisitions that build long-term shareholder value. We are excited about the opportunities to improve our business and to build momentum for future growth."

Stock Repurchase Program, Cash and Debt

During the first quarter of 2007, the Company announced a program to repurchase up to $75 million of the Company's common stock over a one year period. Additionally, during the fourth quarter of 2007, the Company's Board of Directors authorized a $75 million increase to the stock repurchase program and extended the timing of this program through December 31, 2008. Through December 31, 2007, the Company had repurchased approximately 2.9 million shares for $87.9 million. These repurchases were funded via borrowings on the Company's revolving line of credit. The Company's outstanding debt at December 31, 2007 was $95 million, with cash balances exceeding $57 million. During the fourth quarter, the Company increased the size of its revolving line of credit to $175 million and at December 31, 2007 had approximately $80 million of remaining borrowing capacity. Shares of the Company's common stock may be repurchased from time to time in open market transactions or privately negotiated transactions at the Company's discretion, subject to market conditions and other factors. Shares repurchased by the Company are held as treasury shares. This program may be extended beyond the currently authorized period or may be suspended at any time.