Lionel files for chapter 11 bankruptcy

Discussion in 'G / O / S Scale Model Trains' started by Lionel Lines, Nov 16, 2004.

  1. Lionel Lines

    Lionel Lines New Member

    Lionel LLC Files For Chapter 11 Protection

    Chesterfield, Michigan - November 15, 2004 - Lionel LLC, the nation’s number one model train manufacturer, today announced that it has filed a voluntary petition in the Bankruptcy Court of the Southern district of New York for protection under Chapter 11 of the U.S. Bankruptcy Code¹. The filing was prompted by a $40.8 million judgment against the company for the alleged misappropriation of a competitor’s toy train designs by a subcontractor.

    Lionel’s day-to-day operations will continue as usual, including meeting all merchandise shipping obligations customary for the holiday selling period and rolling out new products on schedule. The company remains dedicated to creating and manufacturing the quality product for which it has long been known.

    Jerry Calabrese, the recently named CEO of Lionel, said, “The MTH judgment alone has forced us to take this action. Lionel is a sound company that enjoys healthy sales, growing demand for our products and the best brand and reputation in the business. Having said that, the size and weight of this judgment is just too much for what is essentially a small business to bear. Taking advantage of bankruptcy protection will not only allow us to pursue an eventual reversal of this unfair decision, it will enable us to create, manufacture and ship our products in our normal and usual way.”

    About Lionel LLC
    Lionel LLC is one of the world’s leading marketers of model trains and accessories. Established in 1900, the Lionel name is the most widely recognized brand in the toy train industry and one of the most recognized brands in America. Lionel has been at the center of every major innovation in toy train manufacturing and marketing since its inception.

    Chapter 11 of the U.S. Bankruptcy Code allows a company to continue to operate its business and manage its assets in the ordinary course of business. Congress enacted Chapter 11 to enable a debtor to preserve its going concern value and operations, as well as to provide its employees with jobs and to satisfy creditor claims based upon the value of the reorganized company.
  2. Chessie6459

    Chessie6459 Gauge Oldtimer

    Lionel Lines, you beat me to it. I was getting ready to post that LOL. I can't believe what i read. :eek: :eek:
  3. Injector

    Injector New Member

    So am I understanding this right? They stole some plans from another company and got caught? So now they are trying to beat the crime by filing Bankruptcy? That doesn't sound fair, but neither is stealing plans. Also, it says "alleged misappropriation of a competitor’s toy train designs by a subcontractor", but if they lost shouldn't it use the word did rather than alleged?
  4. TR-Flyer

    TR-Flyer Member

    As i understand it, Lionel's subcontractor did the alleged deed. But, as anyone familiar with MTH accessories knows, Lionel could have a REALLY good case against MTH. Most of MTH's accesories are rip offs of old Lionel and Flyer units. I expect the big kids will be going at it for a while over this one.

    I just hope Lionel continues to produce trains. Well, truth be told, i also hope the verdict gets thrown out.

  5. Dave Farquhar

    Dave Farquhar Member

    The other thing about this case is that the $40.8 million judgment is awfully close to the value of Lionel's assets. If I remember correctly, Lionel has about $43 million in assets and about $33 million in debts. So a $40+ million verdict is, essentially, a corporate death penalty.

    Chapter 11 allows them to stay in business while they look at their options, which includes appeal, or paying a smaller amount determined by the bankruptcy court. MTH has tried to paint this as Lionel trying to escape its verdict, but in reality it's a company trying to do what it has to do in order to stay in business. Any other company would do the same thing.

    Also, yes, I would expect news stories and other objective sources to drop the word "alleged" now that Lionel has been found guilty, but a Lionel news release is hardly an objective source. Any corporate news release is going to contain a good amount of spin.
  6. SAL Comet

    SAL Comet Member

    Well lets see, Lionel must have sold 80,000 loco's at $500 a pop and at 100% profit to make 40Mil. off the "stolen" design. Sounds like a radical judge that hates corporate America and wants to punish them out of bisiness,IMHO.
  7. Alan B

    Alan B Member

    Well MTH proved losses of about $30 million per year resulting from Lionel's theft. So, a total judgment of $40 million doesn't seem excessive.
  8. TR-Flyer

    TR-Flyer Member

    For an interesting look at the Lionel "spin" check out their new CEO's chat at their website.

    Sounds like a fellow who plans on moving ahead and expects to win.

    As long as they keep making Flyonel stuff i'll be happy.

  9. SAL Comet

    SAL Comet Member

    I'm not disputing you Alan, but I find it hard to believe they lost $30 mil. in sales, much less $30 mil in profit. And even so, what the other $10 mil. for?
  10. Injector

    Injector New Member

    Punishment. Compensatory damages cover actual losses. Punitive damages are the judges way of saying "you not only broke the law, you broke the law knowing you were breaking it and in essance thuming your nose at US laws". So let me hit you with this big stick called 40 million so that maybe Horizon or KLine won't try the same BS next year. It's called a corprate death sentence.

    Also, maybe the judge had a Lionel train set as a kid and this is his way of paying them back for their high quality product that was broke by New Year? :D :D :D
  11. Alan B

    Alan B Member

    According to the testimony, MTH had about $60 million in sales before the theft and had $30 million after. Lionel didn't really dispute that part of the evidence. In fact, Lionel's defense left a lot to be desired. About the only thing they did was keep the previous management from saying anything to lead to criminal liability for themselves or Lionel, the company. That may have been their goal all along. The new management has a new theory that they want to pursue on appeal or to try and negotiate the judgment downward. The new management says the damages should have been based on profits or wholesale prices, not retail. That does ignore the fact that MTH proved actuall sales at trial, and Lionel did not dispute it then.

    There is the whole problem. Lionel is stuck with the facts as they were proven at trial. They would like to have another shot but that's not how our legal system works. I'm glad Lionel's owners fired the management team that got the company in trouble. I sincerely hope that Calabrese can negotiate some kind of deal with MTH, otherwise, Mike is going to end up with Lionel. And that would not be good for competition, such as there is in O scale.

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