SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 
 (Mark One)[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2004OR[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _______ to _________ 
 Commission file number: 0-22635
 
 RC2  Corporation(Exact Name of Registrant as Specified in Its Charter)
 
 
 Delaware
36-4088307(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)1111 West 22ndStreet, Suite 320, Oak Brook, Illinois 60523(Address of principal executive offices) 
 Registrant's telephone number, including area code: 630-573-7200
 
 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 Yes
X
No
 Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
 Yes
X
No
 On August 9, 2004, there were outstanding 20,340,980 shares of the Registrant's $0.01 par value common stock.
 
  RC2 CORPORATION
 
 FORM 10-Q
 
 JUNE 30, 2004
 
 INDEX
 
 PART I - FINANCIAL INFORMATION
  PageItem 1.
Condensed Consolidated Balance Sheets as of June 30,2004 and December 31, 2003
3Condensed Consolidated Statements of Earnings for the ThreeMonths and Six Months Ended June 30, 2004 and 2003
4Condensed Consolidated Statements of Cash Flows for theSix Months Ended June 30, 2004 and 2003
5Notes to Unaudited Condensed Consolidated FinancialStatements
6Item 2.
Management's Discussion and Analysis of Financial Conditionand Results of Operations
20Item 3.
Quantitative and Qualitative Disclosures about Market Risk
28Item 4.
Controls and Procedures
28
 
 PART II - OTHER INFORMATION
 
 Item 1.
Legal Proceedings
29Item 2.
Changes in Securities, Use of Proceeds andIssuer Purchases of Equity Securities
29Item 3.
Defaults Upon Senior Securities
29Item 4.
Submission of Matters to a Vote of Security Holders
29Item 5.
Other Information
30Item 6.
Exhibits and Reports on Form 8-K
30Signatures
32
  2 PART I.  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 RC2 Corporation and Subsidiaries
 Condensed Consolidated Balance Sheets
 (In thousands)
 June 30, 2004
December 31, 2003(Unaudited)
(Unaudited)AssetsCash and cash equivalents

$
11,805

$
16,548Restricted cash


-


33Accounts receivable, net


50,780


72,164Inventory


48,974


37,464Other current assets


13,388


12,369Total current assets


124,947


138,578Property and equipment, net


42,165


38,554Goodwill


171,857


159,720Intangible assets, net


44,117


44,042Other non-current assets


1,199


935Total assets

$
384,285

$
381,829Liabilities and stockholders equityAccounts payable and accrued expenses

$
52,779

$
48,179Current maturities of term loan


17,500


15,000Other current liabilities


5,648


4,928Total current liabilities


75,927


68,107Revolving line of credit


28,750


35,000Non-current portion of term loan


25,000


35,000Other long-term liabilities


15,419


18,423Total liabilities


145,096


156,530Stockholders equity


239,189


225,299Total liabilities and stockholders' equity

$
384,285

$
381,829 
 See accompanying notes to condensed consolidated financial statements.
 
 3 RC2 Corporation and Subsidiaries
 Condensed Consolidated Statements of Earnings
 (In thousands, except per share data)
 
 For the three months ended June 30,
For the six months ended
June 30,2004
2003
2004
2003(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)Net sales

$
69,399

$
70,059

$
130,699

$
112,411Cost of sales


32,661


35,841


62,952


55,642Gross profit


36,738


34,218


67,747


56,769Selling, general and administrative expenses


26,559


26,774


52,141


44,416Operating income


10,179


7,444


15,606


12,353Interest expense, net


668


1,061


1,454


1,421Other expense (income)


(127
)

359


(85
)

219Income before income taxes


9,638


6,024


14,237


10,713Income tax expense


3,468


2,289


5,125


4,071Net income

$
6,170

$
3,735

$
9,112

$
6,642Net income per share:Basic

$
0.35

$
0.22

$
0.52

$
0.39Diluted

$
0.33

$
0.21

$
0.49

$
0.37Weighted average shares outstanding:Basic


17,540


17,142


17,481


16,906Diluted


18,655


18,169


18,576


17,862 
 See accompanying notes to condensed consolidated financial statements.
 
 4 RC2 Corporation and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
 
  For the six months ended June 30,2004
2003(Unaudited)
(Unaudited)Cash flows from operating activitiesNet income

$
9,112

$
6,642Depreciation and amortization


6,000


5,663Amortization of deferred financing costs


148


98Loss on disposal of assets


40


93Changes in operating assets and liabilities


15,207


(14,824
)Net cash provided by (used in) operating activities


30,507


(2,328
)Cash flows from investing activitiesPurchase of property and equipment


(5,958
)

(5,186
)Purchase of LCI, net of cash acquired


---


(99,042
)Purchase of Playing Mantis, net of cash acquired


(16,272
)

---Proceeds from disposal of property and equipment


87


30Increase in other non-current assets


(17
)

(266
)Net cash used in investing activities


(22,160
)

(104,464
)Cash flows from financing activitiesProceeds from bank on credit facility


22,000


120,000Payments to bank on credit facility


(35,750
)

(11,000
)Issuance of common stock upon option exercise


666


---Proceeds from reissuance of treasury stock


---


91Issuance of common stock for ESPP


59


68Payment of note payable


---


(2,862
)Net cash (used in) provided by financing activities


(13,025
)

106,297Effect of exchange rate changes on cash


(98
)

204Net decrease in cash and cash equivalents


(4,776
)

(291
)Cash and cash equivalents, beginning of year


16,548


17,104Decrease (increase) in restricted cash


33


(40
)Cash and cash equivalents, end of period

$
11,805

$
16,773Supplemental information:Cash flows during the period for:Interest

$
1,372

$
1,261Income taxes

$
5,364

$
4,916Income tax refunds received

$
126

$
89Non-cash investing and financing activity during the period:91,388 shares of stock issued for the purchase
of Playing Mantis

$
2,868

$
---666,666 shares of stock issued for the
purchase of LCI

$
---

$
7,810
 
 See accompanying notes to condensed consolidated financial statements.
 5 RC2 Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
 
 Note 1 - Basis of Presentation
 
 The condensed consolidated financial statements include the accounts of RC2 Corporation and its subsidiaries (the Company or RC2). All intercompany transactions and balances have been eliminated.
 
 The accompanying condensed consolidated financial statements have been prepared by management and, in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, 2004 and December 31, 2003, the results of its operations for the three-month and six-month periods ended June 30, 2004 and 2003, and its cash flows for the six-month periods ended June 30, 2004 and 2003.
 
 Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K for the year ended December 31, 2003.
 
 The results of operations for the three-month and six-month periods ended June 30, 2004 are not necessarily indicative of the operating results for the full year.
 
 Note 2 - Business Combinations
 
 On June 7, 2004, we acquired substantially all the assets of Playing Mantis, Inc. with an effective date of June 1, 2004. Closing consideration consisted of $17.0 million of cash and 91,388 shares of the Companys common stock. Additional cash consideration of up to $4.0 million may be earned in the transaction by Playing Mantis based on achieving net sales and margin targets for 2004 and net sales targets for 2005. Playing Mantis, based in Mishawaka, Indiana, designs and markets collectible vehicle replicas under the Johnny Lightning® and Polar Lights® brands and collectible figures under the Memory Lane brand. Playing Mantis products are primarily sold at mass merchandising, hobby, craft, drug and grocery chains. This transaction has been accounted for under the purchase method of accounting and, accordingly, the operating results of Playing Mantis have been included in our condensed consolidated financial statements since the effective date of the acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $13.4 million has been recorded as goodwill in the accompanying condensed consolidated balance sheet at June 30, 2004.
  6 The purchase price was allocated to the net assets of Playing Mantis based on their estimated relative fair values on June 1, 2004 as follows:
(In thousands)
 
 Total purchase price, including expenses

$19,140Less:Current assets
$5,322Property, plant and equipment
4,046Liabilities assumed
(3,634)
5,734Excess of purchase price over net assets acquired

$13,406 
 The allocation of the purchase price is subject to final determination based on valuations and other determinations that will be completed through 2005 including performing valuations to determine the fair value of any acquired identifiable intangible assets. To the extent such assets are amortizable, amortization expense will be increased.  The unaudited pro forma condensed consolidated results of operations for Playing Mantis are not presented due to the immateriality of the assets acquired.
 
 On June 4, 2004, we entered into a definitive agreement to acquire The First Years Inc. The transaction is a cash merger and is subject to approval by the holders of two-thirds of The First Years common stock and other closing conditions. The acquisition is expected to close in RC2s 2004 third quarter. The merger agreement provides for the exchange of all of The First Years outstanding shares for a cash payment by RC2 of $18.60 per share in the merger, which net of cash acquired, equates to a cash consideration of approximately $136.8 million. This amount excludes certain costs, such as transaction fees and expenses. The First Years Inc., based in Avon, Massachusetts, is an international developer and marketer of infant and toddler care and play products sold under The First Years ® brand name and under various licenses, including Winnie the Pooh. The First Years products are sold at toy, mass merchandising, drug and grocery chains, and at specialty retailers. Approximately $0.3 million of deferred costs associated with the acquisition of The First Years are included in other non-current assets on the Company's condensed consolidated balance sheet at June 30, 2004.  This transaction is expected to be funded with a new committed senior credit facility .
  7
  Upon the closing of the acquisition of The First Years, the Company expects to replace its March 2003 credit facility with a new credit facility. The Company has received a commitment letter from one of its current lenders and an affiliate of that lender for the new credit facility. The new credit facility is expected to be for $170.0 million and will consist of both a term loan and a revolving line of credit, with each maturing four years from the date of the agreement. Approximately $40.0 million of the term loan will have a fixed interest rate through the first three years of the agreement. The remaining term loan and the revolving line of credit will bear interest, at the Companys option, at a base rate or at a LIBOR rate plus an applicable margin. The applicable margin will be based on the Companys ratio of consolidated debt to earnings before interest, taxes, depreciation and amortization (EBITDA). As a condition to the credit facility, the Company will be required to pay a commitment fee on the average daily unused portion of the revolving line of credit. Under the terms of the credit facility, the Company will be required to comply with certain financial and non-financial covenants. Among other restrictions, the Company will be restricted in its ability to pay dividends, incur additional debt and make acquisitions above certain amounts. Approximately $0.1 million of deferred financing fees relating to the new credit facility are included in other non-current assets on the Companys condensed consolidated balance sheet at June 30, 2004.
 
 On March 4, 2003, with an effective date of February 28, 2003, we acquired Learning Curve International, Inc. (Learning Curve) and certain of its affiliates (collectively, LCI) through the merger of a wholly owned subsidiary of RC2 with and into Learning Curve for approximately $104.4 million in cash (excluding transaction expenses) and 666,666 shares of the Company's common stock, including $12.0 million in escrow to secure Learning Curves indemnification obligations under the merger agreement. Additional consideration of up to $6.5 million was contingent upon LCI product lines reaching certain sales and margin targets in 2003. This contingent consideration was not payable because the targets were not met in 2003. LCI develops and markets a variety of high-quality, award winning traditional children's toys for every stage of childhood from birth through age eight. This transaction has been accounted for under the purchase method of accounting and, accordingly, the operating results of LCI have been included in our condensed consolidated financial statements since the effective date of the acquisition. The purchase was funded with a credit facility (See Note 7  Debt). Additionally, the Company purchased the remaining minority interest of several of the LCI affiliates subsequent to February 28, 2003. As a result, all subsidiaries of the Company were wholly owned by July 31, 2003. Minority interest income of $9,570 has been included in selling, general and administrative expenses in our accompanying condensed consolidated statement of earnings for those periods prior to the remaining minority interest purchases. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $38.4 million and $39.8 million has been recorded as goodwill in the accompanying condensed consolidated balance sheets at June 30, 2004 and December 31, 2003, respectively.
  8
  The purchase price was allocated to the net assets of LCI based on their estimated relative fair values on February 28, 2003, and as of the dates of the remaining minority interest purchases as follows:
 
 (In thousands)
 
 Total purchase price, including expenses

$116,965Less:Current assets
$51,678Property, plant and equipment
5,871Intangible assets
39,627Other long-term assets
4,353Liabilities assumed
(22,918)
78,611Excess of purchase price over net assets acquired

$38,354 
 The following unaudited pro forma condensed consolidated results of operations for the six-months ended June 30, 2003 assume that the LCI acquisition occurred as of January 1, 2003:
 
 (In thousands, except per share data)
 
 2003(Unaudited)Net sales
$128,938Net income
$    3,890Net income per share:Basic
$0.23Diluted
$0.22 
 9
 Pro forma data does not purport to be indicative of the results that would have been obtained had this acquisition actually occurred at the beginning of the period presented and is not intended to be a projection of future results.
 Twelve million dollars of the purchase price for Learning Curve was originally deposited in an escrow account to secure Learning Curve's indemnification obligations under the merger agreement. In the merger agreement, Learning Curve agreed to indemnify the Company for losses relating to breaches of Learning Curve's representations, warranties and covenants in the merger agreement and for specified liabilities relating to Learning Curve's historical business. The Company may make indemnification claims against the escrow account until the later of March 31, 2005, or the completion of the audit of the Company's financial statements for the year ending December 31, 2004. The amount in escrow was reduced to $10 million in May 2003. During the quarter ended December 31, 2003, Learning Curve settled litigation involving Playwood Toys, Inc. and the settlement amount of $11.2 million was funded in part through a $10.1 million payment from the escrow account, which constituted all of the funds then in the escrow account. The Company is required to return a part of that amount to the escrow account based on the tax benefits realized by the Company relating to the settlement amount less other expenses relating to the litigation. The amount to be returned to the escrow is estimated at approximately $3.2 million, which would be available to the Company for future claims under the terms of the escrow. On March 30, 2004, the Company made an additional escrow claim of $295,908 relating primarily to alleged breaches of Learning Curve's representations and warranties in the merger agreement. The representatives of the former Learning Curve shareholders dispute this additional escrow claim, and no assurance can be given as to the outcome of this matter.
 
 Note 3Accounting for Stock-based Compensation
 
 The Company accounts for stock-based compensation arrangements with employees in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is based on the difference, if any, on the measurement date, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock. The compensation expense is amortized on a straight-line basis over the vesting period of the options. To date, no compensation expense has been recorded related to stock-based compensation agreements with employees.
 
  10
 
 For the three months ended
June 30,
For the six months ended June 30,2004
2003
2004
2003(In thousands, except per share data)

(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)Net income as reported

$
6,170

$
3,735

$
9,112

$
6,642Deduct: total stock-based employee
compensation expense determined under
fairvalue-based method for all awards,
net ofrelated tax effects


(392
)

(254
)

(678
)

(464
)Pro forma net income

$
5,778

$
3,481

$
8,434

$
6,178Basic net income per share:As reported

$
0.35

$
0.22

$
0.52

$
0.39Pro forma

$
0.33

$
0.20

$
0.48

$
0.37Diluted net income per share:As reported

$
0.33

$
0.21

$
0.49

$
0.37Pro forma

$
0.31

$
0.19

$
0.45

$
0.35 
 The fair value of each stock option, excluding options issued for shares under the ESPP, is estimated on the date of grant based on the Black-Scholes option pricing model that assumes, among other things, no dividend yield, risk-free rates of return from 3.53% to 5.74%, volatility factors of 78.06% to 87.76% and expected life of 7 to 10 years. The weighted average fair value of options granted under the Companys stock option plan during the first six months of 2004 and 2003 was $18.98 and $11.64, respectively.
 
 The fair value of each option issued under the ESPP was estimated on the first day of the related quarterly period based on the Black-Scholes option pricing model with the following assumptions: expected life of three months, expected volatility of 78.06% to 85.34% and risk-free interest rates of 0.93% to 1.72%. The weighted average fair value of those purchase rights granted during the first half of 2004 and 2003 was $7.14 and $4.35, respectively.
 
 The pro forma disclosure is not likely to be indicative of pro forma results that may be expected in future years because of the fact that options vest over several years. Compensation expense is recognized as the options vest and additional awards may be granted.
 11
 Note 4  Business Segments
 
 
 The Company is a worldwide designer, producer and marketer of high quality, innovative, branded collectible, hobby, toy and infant products. The Company has historically reported its results by geographic area in accordance with the enterprise wide disclosure requirements of SFAS No. 131. However, during the most recent quarter, the Company has redefined its geographic areas to be consistent with what it now deems to be the reporting segments of the Company.
 
 The Companys reportable segments are North America and International.
 
 The North America segment, which includes the United States, Canada and Mexico, and the International segment, which includes sales to non-North America markets, include the design, development, production and marketing of collectible, hobby, toy and infant products.
 
 Segment performance is measured at the operating income level. Segment assets are comprised of all assets, net of applicable reserves and allowances.
 
 Results are not necessarily those that would be achieved were each segment an unaffiliated business enterprise. Information by segment and a reconciliation to reported amounts for the three months and six months ended June 30, 2004 and 2003 are as follows:
  Three Months Ended June 30,(In thousands)

2004
2003Net sales:North America

$
57,962

$
61,911International


11,641


17,495Sales and transfers between segments


(204
)

(9,347
)Combined total

$
69,399

$
70,059Operating income:North America

$
7,993

$
5,889International


2,186


1,555Combined total

$
10,179

$
7,444
 12 
 
 (In thousands)

June 30, 2004
December 31, 2003Total assets:North America

$
327,818

$
328,116International


56,467


53,713Combined total

$
384,285

$
381,829  
 Six Months Ended June 30,(In thousands)

2004
2003Net sales:North America

$
109,761

$
99,804International


21,325


24,074Sales and transfers between segments


(387
)

(11,467
)Combined total

$
130,699

$
112,411Operating income:North America

$
12,018

$
10,297International


3,588


2,056Combined total

$
15,606

$
12,353 
 13 The following table presents consolidated net sales by each group of product categories and by distribution channel for the three months ended June 30, 2004 and 2003:
 
 (In thousands)

2004
2003Automotive, high performance andracing vehicle replicas


$14,167


$19,168Agricultural, construction and outdoorsports vehicle replicas


9,491


8,529Traditional children's toys


34,803


30,982Sports trading cards, apparel and souvenirs


7,474


9,225Collectible figures


2,280


1,341Other


1,184


814Net sales

$
69,399

$
70,059Chain retailers

$
27,924

$
31,371Specialty and hobby wholesalers
and retailers


27,240


26,321OEM dealers


6,994


5,095Corporate promotional


3,699


3,666Direct to consumers


2,522


2,846Other


1,020


760Net sales

$
69,399

$
70,059 
 The following table presents consolidated net sales by each group of product categories and by distribution channel for the six months ended June 30, 2004 and 2003:
 
 (In thousands)

2004
2003Automotive, high performance andracing vehicle replicas


$26,682


$33,714Agricultural, construction and outdoorsports vehicle replicas


18,162


16,647Traditional children's toys


67,925


42,170Sports trading cards, apparel and souvenirs


11,818


15,584Collectible figures


3,871


3,041Other


2,241


1,255Net sales

$
130,699

$
112,411Chain retailers

$
55,248

$
48,958Specialty and hobby wholesalersand retailers


51,359


39,974OEM dealers


11,085


10,300Corporate promotional


6,814


6,647Direct to consumers


4,240


5,408Other


1,953


1,124Net sales

$
130,699

$
112,411 
 14 Note 5  Comprehensive Income
 
 The Company reports comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to report all changes in equity during a period, except those resulting from investment by owners and distributions to owners, in a financial statement for the period in which they are recognized. Comprehensive income for the six-month periods ended June 30, 2004 and 2003 is calculated as follows:
 
 (In thousands)
2004
2003Net income
$9,112
$6,642Other comprehensive income  foreign currencytranslation adjustments
25
698Comprehensive income
$9,137
$7,340 
 Note 6 - Common Stock
 
 Authorized and outstanding shares and the par value of the Company's voting common stock are as follows:
 
 Authorized
Par
Shares Outstanding
Shares Outstanding atShares
Value
at June 30, 2004
December 31, 2003Voting Common Stock
28,000,000
$0.01
17,625,963
17,380,598 
 At December 31, 2003, the Company held 1,812,465 shares of its common stock in treasury. In January and April of 2004, the Company sold 3,251 shares out of treasury to Company employees under the ESPP for $59,695. In January and April 2003, the Company sold 5,517 shares out of treasury to Company employees under the ESPP for $67,413. In March of 2003, the Company sold 6,500 shares out of treasury to three of the Company's executive officers for $79,677 and issued 750 shares to key employees as compensation for an underlying value of $11,708.
 
 As discussed in Note 2, the Company issued 91,388 shares of the Companys common stock in June 2004 in connection with its acquisition of Playing Mantis. The Company also issued 666,666 shares of the Company's common stock in March of 2003 in connection with its acquisition of LCI.
 15 Note 7  Debt
 
 Upon the closing of the acquisition of LCI on March 4, 2003, with an effective date of February 28, 2003, the Company entered into a credit facility to replace its previous credit facility. This credit facility is comprised of a $60.0 million term loan and an $80.0 million revolving loan, both of which mature on April 30, 2006 with scheduled quarterly principal payments ranging from $3.8 million to $10.0 million commencing on December 31, 2003 and continuing thereafter with a final balloon payment upon maturity. Thirty million dollars of the term loan has an interest rate of 2.61% plus applicable margin through the maturity of the agreement. The remaining term loan and revolving loan bear interest, at the Company's option, at a base rate or at a LIBOR rate plus applicable margin. The applicable margin is based on the Company's ratio of consolidated debt to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) and varies between 0.75% and 1.75%. At June 30, 2004, the margin in effect was 1.25% for LIBOR loans. The Company is also required to pay a commitment fee of 0.25% to 0.40% per annum on the average daily unused portion of the revolving loan. Under the terms of this credit facility, the Company is required to comply with certain financial and non-financial covenants. Among other restrictions, the Company is restricted in its ability to pay dividends, incur additional debt and make acquisitions above certain amounts. The key financial covenants include minimum EBITDA and interest coverage and leverage ratios. The credit facility is secured by working capital assets and certain intangible assets. On June 30, 2004, the Company had $71.3 million outstanding on this credit facility and was in compliance with all covenants.
 
 Note 8  Net Income Per Share
 
 The Company computes net income per share in accordance with SFAS No. 128, "Earnings Per Share." Under the provisions of SFAS No. 128, basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. Options to purchase 5,000 shares of common stock at $18.72 per share were outstanding during both the three months and six months ended June 30, 2003, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common stock.
  Note 9  Legal Proceedings
 
 The Company has certain contingent liabilities resulting from litigation and claims incident to the ordinary course of business. Management believes that the probable resolution of such contingencies will not materially affect the financial position or the results of the Company's operations.
 16 Note 10  Use of Estimates
 Note 11  Reclassifications
 
  
 Note 12  Related Party Transactions
 
  
  
  
  
 Note 13  Commitments and Contingencies
 
  
   17 At June 30, 2004, the Company had $1.6 million in total commitments for equipment purchases and construction expenses relating to the expansion of the distribution facility in Dyersville, Iowa. Additionally, payments of $0.5 million were made for equipment and construction expenses during the first half of 2004. The Company has received verbal approval for approximately $400,000 in grants from the state of Iowa to assist in the expansion of the Dyersville distribution facility. Approvals for additional grant applications with the state of Iowa are still pending.
 
 The Company markets virtually all of its products under licenses from other parties. These licenses are generally limited in scope and duration and authorize the sale of specific licensed products on a nonexclusive basis. The Company has approximately 700 licenses with various vehicle and equipment manufacturers, race team owners, drivers, sponsors, agents and entertainment and media companies, generally for terms of one to three years. Many of the licenses include minimum guaranteed royalty payments that the Company must pay whether or not it meets specified sales targets. The Company believes it either achieved its minimum guarantees or has accrued for the costs related to these guarantees for the six months ended June 30, 2004.
 
 We do not expect renewal of our licenses with Hendrick Motorsports for racing vehicle replicas, apparel and souvenirs for its NASCAR Nextel Cup drivers including Jimmie Johnson. These licenses expire during 2005. In 2004, we expect that our net sales related to these licenses with Hendrick Motorsports will be approximately $4.5 million.
 
 Note 14  Insurance Recovery
 
 During the first quarter of 2004, the Company received an insurance recovery of $232,000 relating to the lost margin on product destroyed during a fire at the Companys third-party warehouse in the United Kingdom in October 2003. This insurance recovery is included in the Companys cost of sales for the six months ended June 30, 2004.
 
 Note 15  Employee Benefit Plans
 
 The Company maintains a funded noncontributory defined benefit pension plan that covers a select group of the Companys workforce. The plan provides defined retirement benefits based on the employees years of service.
 
 18
 The components of net periodic benefit cost for the three months ended June 30, 2004 and 2003 are as follows:
 
 (In thousands)
2004
2003Service cost
$ 27
$ 30Interest cost
172
167Expected return on plan assets
(216)
(201)Amortization of prior service costs
5
5Amortization of net loss
45
19Net periodic benefit cost
$ 33
$ 20 
 The components of net periodic benefit cost for the six months ended June 30, 2004 and 2003 are as follows:
 
 (In thousands)
2004
2003Service cost
$ 55
$ 60Interest cost
344
334Expected return on plan assets
(432)
(402)Amortization of prior service costs
10
10Amortization of net loss
90
38Net periodic benefit cost
$ 67
$ 40 The Company contributed $778,530 to the pension benefit plan during the six months ended June 30, 2004. The Company expects to make additional contributions during the fiscal 2004 year of approximately $0.4 million.
 19 Note 16  Subsequent Event
 
 Subsequent to quarter end, the Company completed a public offering of 2,655,000 shares of common stock and certain selling stockholders sold 220,000 shares of common stock at a price of $31.00 per share. The Company received proceeds of $77.8 million from the offering, net of underwriting discount, and used $69.5 million of the net proceeds to repay outstanding debt and retained $8.3 million for general corporate purposes.
 
 Item 2. Management's Discussion and Analysis of Financial
 Condition and Results of Operations
 
 The following is a discussion and analysis of the Company's financial condition, results of operations, liquidity and capital resources. The discussion and analysis should be read in conjunction with the Company's unaudited condensed consolidated financial statements and notes thereto included elsewhere herein.
 
 RESULTS OF OPERATIONS
 
 Operating Highlights
 
 Net sales for the quarter ended June 30, 2004, decreased approximately 1%. The acquisition of Playing Mantis, effective June 1, 2004, added less than $1 million of net sales to our results and was slightly dilutive to the net income per share for the quarter. Gross margin increased to 52.9% for the second quarter of 2004 from 48.8% for the second quarter of 2003 primarily due to a more favorable product sales mix, focused efforts to eliminate low volume and low margin products and the realization of integration cost savings. Selling, general and administrative expenses as a percentage of net sales increased slightly to 38.3% for the second quarter of 2004 from 38.2% for the second quarter of 2003. Operating income increased to $10.2 million for the second quarter 2004 compared to $7.4 million for the second quarter of 2003, and, as a percentage of net sales, operating income increased to 14.7% for the second quarter of 2004 from 10.6% for the second quarter of 2003.
 
 Net sales for the six months ended June 30, 2004, increased approximately 16.3% primarily due to the addition of LCI for the entire first half of 2004, compared with only four months of 2003, as reflected in the significant increase in net sales in our traditional childrens toys category. Gross margin increased to 51.8% for the first half of 2004 from 50.5% for the first half of 2003 primarily due to product mix and our continuing efforts to eliminate low margin and low volume products. Selling, general and administrative expenses as a percentage of net sales increased slightly to 39.9% for the first half of 2004 from 39.5% for the first half of 2003. Operating income increased to $15.6 million for the first half 2004 compared to $12.4 million for the first half of 2003, and, as a percentage of net sales, operating income also increased to 11.9% for the first half of 2004 from 11.0% for the first half of 2003.
 20 Pending Acquisition of The First Years
 
 On June 4, 2004, we entered into a definitive agreement to acquire The First Years Inc. The transaction is a cash merger and is subject to approval by the holders of two-thirds of The First Years and other closing conditions. The acquisition is expected to close in our 2004 third quarter. The merger agreement provides for the exchange of all of The First Years outstanding shares for a cash payment by us of $18.60 per share in the merger, which net of cash acquired, equates to a cash consideration of approximately $136.8 million. This amount excludes certain costs, such as transaction fees and expenses. Our future results of operations will likely be significantly affected if we complete our pending acquisition of The First Years. The First Years, based in Avon, Massachusetts, is an international developer and marketer of infant and toddler care and play products sold under The First Years ® brand name and under various licenses, including Winnie the Pooh. The First Years products are sold at toy, mass merchandising, drug and grocery chains, and at specialty retailers. This transaction is expected to be funded with a new committed senior credit facility. See -Liquidity and Capital Resources.
 
 Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
 
 Net sales Net sales for the second quarter of 2004 decreased $0.7 million, or 1%, to $69.4 million from $70.1 million for the second quarter of 2003. Net sales increases occurred in our traditional children's toys, agricultural, construction and outdoor sports vehicle replicas and collectible figures categories, but these were offset by decreases in our other product categories.
 
 Net sales in our traditional children's toy category increased 12% primarily due to strong sales in our Thomas & Friends and John Deere Kids ride-ons and preschool activity toy product lines. Net sales in our agricultural, construction and outdoor sports vehicle replicas category increased approximately 11% primarily due to new product releases through the John Deere dealer network as well as continuing strong performance in our John Deere Full Throttle product line. Net sales in our smallest product category, collectible figures, increased 70% primarily due to strong sales of our JoyRide Studios collectible figures. Net sales in our automotive, high performance and racing vehicle replicas category decreased approximately 26% mainly due to lower sales in our The Fast and The Furious product lines and our racing and custom/classic vehicle replicas. Net sales in our sports trading cards, apparel and souvenirs category decreased approximately 19% primarily due lower sales of our NASCAR licensed products, both apparel/souvenirs and trading cards.
 
 Gross profit. Gross profit increased $2.5 million, or 7.3%, to $36.7 million for the three months ended June 30, 2004 from $34.2 million for the three months ended June 30, 2003. The gross profit margin (as a percentage of net sales) increased to 52.9% in the second quarter of 2004 compared to 48.8% in the second quarter of 2003 primarily due to a more favorable product mix in the second quarter of 2004 versus the second quarter of 2003, focused efforts to eliminate low volume and low margin products and also the realization of integration cost savings. Our quarterly gross margins can be affected by the mix of product that is shipped during each quarter. While overall, all of our product categories approximate a similar gross margin, individual product lines within a category can carry gross margins that vary significantly and cause quarterly fluctuations, based on the timing of these individual shipments throughout the year.  There were no major changes in the components of cost of sales.
 21 Selling, general and administrative expenses. Selling, general and administrative expenses decreased $0.2 million, or 0.7%, to $26.6 million for the three months ended June 30, 2004 from $26.8 million for the three months ended June 30, 2003. As a percentage of net sales, selling, general and administrative expenses increased slightly to 38.3% for the three months ended June 30, 2004 from 38.2% for the three months ended June 30, 2003. Although cost savings, specifically in marketing and administrative expenses, related to the LCI acquisition were realized during the second quarter of 2004, increases in other operating expenses partially offset the cost savings achieved.
 
 Operating income. Operating income increased to $10.2 million for the second quarter of 2004 from $7.4 million for the second quarter of 2003. As a percentage of net sales, operating income also increased to 14.7% of net sales in the second quarter of 2004 from 10.6% in the prior year second quarter.
 
 Net interest expense . Net interest expense of $0.7 million for the three months ended June 30, 2004 and $1.1 million for the three months ended June 30, 2003 relates primarily to bank term loans and lines of credit.  The decrease in net interest expense was due to a decrease in average outstanding debt balances and lower interest rates.
 
 Income tax. Income tax expense for the three months ended June 30, 2004 and 2003 includes provisions for federal, state and foreign income taxes at an effective rate of 36.0% and 38.0%, respectively.
 
 Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
 
 Net sales. Net sales for the six months ended June 30, 2004 increased $18.3 million, or 16.3%, to $130.7 million from $112.4 million for the six months ended June 30, 2003. The increase was primarily attributable to the addition of the Learning Curve business for the entire first half of 2004 compared with only four months in 2003. Net sales increases occurred in our traditional children's toys, agricultural, construction and outdoor sports vehicle replicas, and collectible figures categories, but these were partially offset by decreases in our other product categories.
 
 Net sales in our traditional children's toy category increased 61% primarily due to the addition of the Learning Curve branded product lines for the six months of 2004 versus only four months of 2003, as well as strong sales in our John Deere Kids ride-ons and preschool activity toys product line. Net sales in our agricultural, construction and outdoor sports vehicle replicas category increased approximately 9% primarily due to increased sales in our John Deere product lines. Net sales in our smallest product category, collectible figures, increased 27% primarily due to strong sales in our JoyRide figures product line. Net sales in our sports trading cards, apparel and souvenirs category decreased approximately 24% primarily due to lower sales of NASCAR trading cards and apparel. Net sales in our automotive, high performance and racing vehicle replicas category decreased approximately 21% mainly due to lower sales in our The Fast and The Furious product lines and our racing and custom/classic vehicle replicas.
 22 Gross profit.
 
 Selling, general and administrative expenses.
 
 Operating income.
 
 Net interest expense
 
 Income tax.
 
  
  
 23 Upon the closing of the acquisition of LCI on March 4, 2003, with an effective date of February 28, 2003, the Company entered into a new credit facility to replace its previous credit facility. This credit facility is comprised of a $60.0 million term loan and an $80.0 million revolving loan, both of which mature on April 30, 2006 with scheduled quarterly principal payments ranging from $3.8 million to $10.0 million commencing on December 31, 2003 and continuing thereafter with a final balloon payment upon maturity. Thirty million dollars of the term loan has an interest rate of 2.61% plus applicable margin through the maturity of the agreement. The remaining term loan and revolving loan bear interest, at the Company's option, at a base rate or at a LIBOR rate plus applicable margin. The applicable margin is based on the Company's ratio of consolidated debt to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) and varies between 0.75% and 1.75%.  At June 30, 2004, the margin in effect was 1.25% for LIBOR loans. The Company is also required to pay a commitment fee of 0.25% to 0.40% per annum on the average daily unused portion of the revolving loan. Under the terms of this credit facility, the Company is required to comply with certain financial and non-financial covenants. Among other restrictions, the Company is restricted in its ability to pay dividends, incur additional debt and make acquisitions above certain amounts. The key financial covenants include minimum EBITDA and interest coverage and leverage ratios. The credit facility is secured by working capital assets and certain intangible assets. On June 30, 2004, the Company had $71.3 million outstanding on this credit facility and was in compliance with all covenants.
 
 During the six months ended June 30, 2004, the Company made total payments of $28.3 million on its line of credit and $7.5 million on its term loan. At June 30, 2004, the Company had $50.6 million available on its line of credit.
 
 Subsequent to quarter end, the Company completed a public offering of 2,655,000 shares of common stock and certain selling stockholders sold 220,000 shares of common stock at a price of $31.00 per share. The Company received proceeds of $77.8 million from the offering, net of underwriting discount, and used $69.5 million of the net proceeds to repay outstanding debt and retained $8.3 million for general corporate purposes.
 
 Upon the closing of the acquisition of The First Years, the Company expects to replace its March 2003 credit facility with a new credit facility. The Company has received a commitment letter from one of its current lenders and an affiliate of that lender for the new credit facility. The new credit facility is expected to be for $170.0 million and will consist of both a term loan and a revolving line of credit, with each maturing four years from the date of the agreement. Approximately $40.0 million of the term loan will have a fixed interest rate through the first three years of the agreement. The remaining term loan and the revolving line of credit will bear interest, at the Companys option, at a base rate or at a LIBOR rate plus an applicable margin. The applicable margin will be based on the Companys ratio of consolidated debt to earnings before interest, taxes, depreciation and amortization (EBITDA). As a condition to the credit facility, the Company will be required to pay a commitment fee on the average daily unused portion of the revolving line of credit. Under the terms of the credit facility, the Company will be required to comply with certain financial and non-financial covenants. Among other restrictions, the Company will be restricted in its ability to pay dividends, incur additional debt and make acquisitions above certain amounts.
 
 24 The Company has met its working capital needs through funds generated from operations and available borrowings under the credit agreement. The Company's working capital requirements fluctuate during the year based on the seasonality related to sales. Due to seasonal increases in demand for the Company's products, working capital financing requirements are usually highest during the third and fourth quarters. The Company expects that capital expenditures during 2004, principally for molds and tooling, will be approximately $15.0 million.
During the quarter ended June 30, 2004, the Company entered into a 15-year lease agreement for a 400,000 square foot distribution facility located in Rochelle, Illinois. The Companys total rent commitment over the 15-year term is $18.5 million, which equates to an average monthly rent payment of $102,608. There were no other significant changes to the Companys commitments during the first half of 2004.

The Company believes that its cash flow from operations, cash on hand and borrowings under the credit agreement will be sufficient to meet its working capital and capital expenditure requirements and provide the Company with adequate liquidity to meet anticipated operating needs for 2004. However, if the Company's capital requirements vary materially from those currently planned, the Company may require additional debt or equity financing. There can be no assurance that financing, if needed, would be available on terms acceptable to the Company, if at all. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
 The Company makes certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. The accounting policies described below are those the Company considers critical in preparing its consolidated financial statements. These policies include significant estimates made by management using information available at the time the estimates are made. However, as described below, these estimates could change materially if different information or assumptions were used.
 
 Allowance for Doubtful Accounts. The allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed uncollectible. The allowance for doubtful accounts reduces gross trade receivables to their net realizable value. The Company's allowance is based on management's assessment of the business environment, customers' financial condition, historical trends, customer payment practices, receivable aging and customer disputes. The Company has purchased credit insurance that covers a portion of its receivables from major customers. The Company will continue to proactively review its credit risks and adjust its customer terms to reflect the current environment.
 
 Inventory. Inventory, which consists of finished goods, has been written down for excess quantities and obsolescence, and is stated at lower of cost or market. Cost is determined by the first-in, first-out method and includes all costs necessary to bring inventory to its existing condition and location. Market represents the lower of replacement cost or estimated net realizable value. Inventory write-downs are recorded for damaged, obsolete, excess and slow-moving inventory. The Company's management uses estimates to record these write-downs based on its review of inventory by product category, length of time on hand and order bookings. Changes in public and consumer preferences and demand for product or changes in customer buying patterns and inventory management could impact the inventory valuation.
 25 Impairment of Long-Lived Assets, Goodwill and Other Intangible Assets.
 
 Income Taxes.
 Accrued Allowances.
 
 Accrued Royalties.
 
 26
  
 . management techniques, may increase the risk of underproduction of popular items, overproduction of less popular items and failure to achieve tight shipping schedules; competition in the markets for the Company's products may increase significantly; the Company is dependent upon continuing licensing arrangements with vehicle manufacturers, agricultural equipment manufacturers, major race sanctioning bodies, race team owners, drivers, sponsors, agents and other licensors; the Company may experience unanticipated negative results of litigation; the Company relies upon a limited number of independently owned factories located in China to manufacture a significant portion of its vehicle replicas and certain other products; the Company is dependent upon the continuing willingness of leading retailers to purchase and provide shelf space for the Company's products; and general economic conditions in the Company's markets . The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this report or to update them to reflect events or circumstances occurring after the date of this report.
 27 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
 The Company's exposure to market risk is limited to interest rate risk associated with its credit agreement and foreign currency exchange rate risk associated with its foreign operations.
 
 Based on the Company's interest rate exposure on variable rate borrowings at June 30, 2004, a one-percentage-point increase in average interest rates on the Company's borrowings would increase future interest expense by approximately $34,375 per month and a five-percentage point increase would increase future interest expense by approximately $171,875 per month. The Company determined these amounts based on approximately $41.3 million of variable rate borrowings at June 30, 2004, multiplied by 1% and 5%, respectively, and divided by 12. The Company is currently not using any interest rate collars, hedges or other derivative financial instruments to manage or reduce interest rate risk. As a result, any increase in interest rates on the Company's variable rate borrowings would increase interest expense and reduce net income.
 
 Item 4. Controls and Procedures
 
 As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic filings with the Securities and Exchange Commission. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives and based on the evaluation described above, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at reaching that level of reasonable assurance.
 
 There was no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the Company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
 28 PART II.  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 
 The Company has certain contingent liabilities resulting from litigation and claims incident to the ordinary course of business. Management believes that the probable resolution of such contingencies will not materially affect the financial position or the results of the Company's operations.
 
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
 
 (a)  Not applicable.
 
 (b)  Not applicable.
 
 (c)  Pursuant to the Playing Mantis acquisition, the Company issued 91,388 shares of common stock to Playing Mantis. The shares were issued in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act), pursuant to Section 4(2) of the Securities Act.
 
 (d)  Not applicable.
 
 (e)  Not applicable.
 
 Item 3. Defaults Upon Senior Securities.
 
 Not applicable.
 
 Item 4. Submission of Matters to a Vote of Security Holders.
 
 The annual meeting of stockholders of the Company was held on May 7, 2004. The matters voted upon, including the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to each such matter were as follows:
 
 Proposal 1:  Election of directors
 
 For

WithheldJohn S. Bakalar
14,940,299

611,240Peter K.K. Chung
11,744,067

3,807,472Thomas M. Collinger
14,997,949

553,590Robert E. Dods
11,743,917

3,807,622Michael J. Merriman, Jr.
15,020,499

531,040Boyd L. Meyer
10,114,287

5,437,252Paul E. Purcell
11,744,067

3,807,472Richard E. Rothkopf
11,746,917

3,804,622Curtis W. Stoelting
11,785,780

3,765,759John J. Vosicky
15,251,710

299,829Daniel M. Wright
14,861,247

690,292
 
 29 Proposal 2:  Ratification of KPMG as auditors for the Company for the year ending December 31, 2004.
 For
Against
Abstain
Broker Non-Votes15,546,873
90,994
3,672
0
 
 Item 5. Other Information.
 
 Not applicable.
 
 Item 6. Exhibits and Reports on Form 8-K.
 
 (a)  Exhibits:
 
 2.1 Agreement and Plan of Merger, dated as of June 4, 2004, among The First Years Inc., the Company and RBVD Acquisition Corp. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated June 4, 2004 (File No. 0-22635) filed by the Company with the Securities and Exchange Commission on July 12, 2004).
  3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 0-22635) filed by the Company with the Securities and Exchange Commission on May 14, 2002).
  3.2 First Amendment to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 0-22635) filed by the Company with the Securities and Exchange Commission on May 14, 2002).
  3.3 Certificate of Ownership and Merger changing the Company's name to Racing Champions Ertl Corporation (incorporated by reference to Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 0-22635) filed by the Company with the Securities and Exchange Commission on May 14, 2002).
  3.4 Certificate of Ownership and Merger changing the Company's name to RC2 Corporation (incorporated by reference to Exhibit 3.4 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 0-22635) filed by the Company with the Securities and Exchange Commission on May 14, 2003).
 30
  3.5Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.5 of the Companys Quarterly Report on Form 10Q for the quarter ended March 31, 2004 (File No. 0-22536) filed by the Company with the Securities and Exchange Commission on May 10, 2004).
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1*  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
 
 _______________________
 
 * This certification is not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
 
 (b)  Reports on Form 8-K:
 
 On April 28, 2004 the Company furnished a Current Report on Form 8-K pursuant to Item 12 regarding a press release issued on April 27, 2004 with respect to the Company's results for its fiscal quarter ended March 31, 2004.
 
 31 SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Dated this 9th day of August 2004.
 
 RC2 CORPORATION
 
 By  /s/ Curtis W. Stoelting
 Curtis W. Stoelting, Chief Executive Officer
 
 
 By  /s/ Jody L. Taylor
 Jody L. Taylor, Chief Financial Officer and Secretary
  
 32