RC2 paying $15M to licensor HIT Entertainment

Toy maker RC2 Corp. said Monday it will pay $15 million to HIT Entertainment Ltd. to be released from indemnification claims stemming from product recalls.

Last year, concerns about lead in surface paint led RC2 to issue a voluntary recall of Thomas & Friends products that potentially affected about 269,000 toys. Litigation followed. RC2 licenses the products from HIT Entertainment.

Besides accepting $15 million to release RC2 from indemnification claims, licensor HIT Entertainment also accepted an extended license term on the Thomas & Friends Wooden Railway product line and an immediate reduction in licensing payments on this product line.

Further, HIT Entertainment accepted a shortened license term on the Take Along Thomas & Friends die-cast product line.

RC2 expects that lowering the licensing payments and extending the term on the Thomas & Friends Wooden Railway product line license will help offset the one-time payment and reduced future profits from shortening the Take Along Thomas & Friends product line.

Shares of RC2, whose brands also include Learning Curve, John Deere toys and Battle Wheels, fell 8 cents to $16.79 in afternoon trading.