Lionel Financials and other stuff all in one thread.

Discussion in 'G / O / S Scale Model Trains' started by ozzy, Apr 25, 2007.

  1. ozzy

    ozzy Active Member

    Lionel Financials - March '07 by Erol Gurcan

    Lionel's monthly operating report for March 2007, filed with the bankruptcy court on April 13, 2007, showed net earnings, or profit of $189,000. While the amount itself is small, it is a profit nonetheless, which is significant for this time of year. During the calendar year 2006, Lionel did not post a monthly profit during the first seven months of that year. Additionally, in March 2006, Lionel showed a loss of $349,000 and in March 2005, a loss of $534,000.

    For the first three months(first quarter) of 2007, even with the March profit factored in, Lionel has lost over $2.6 million. In January 2007, it lost over $1.7 million, and in February, lost almost $1.1 million. In contrast, during the first three months of 2006, Lionel's losses were lower, at $1,556,000. Thus, its losses to date this year are over $1,000,000 greater than for the same period last year.
    Although the losses so far this year are higher than last year, gross and net sales continue to increase. For the first three months of 2007, Lionel had gross sales of $12,261,000 and net sales of $11,458,000. In 2006, its gross and net sales for the same period were $10,190,000 and $9,780,000 respectively. The sales numbers for 2007 so far show significant increases from 2006 of over 2 million dollars. This is especially intriguing since this time of year does not account for most of the company's sales to hobby shops/mass merchandise retailers. In other words, since Lionel's business is mostly seasonal, this is the slow time of year since it comes right after Christmas. In 2006, Lionel's gross sales were $62 million.
    Gross and net sales for March 2007 were also about 2 million higher than in March 2006. Lionel's gross and sales for March 2007 were $6,958,000 and $6,466,000 respectively. Gross sales in March 2006 were $4,824,000 and net sales were $4,627,000.
    Ed. note: Lionel is a privately held company but their financials are entered into the public record on a monthly basis as part of Lionel's bankruptcy proceedings.

    Lionel train maker's emergence from bankruptcy stalled

    NEW YORK -- Lionel LLC won approval Wednesday to pay lawyers and financial advisers who are working to bring the model train maker out of bankruptcy protection.
    Lionel -- maker of its iconic miniature trains, tracks and accouterments since 1900 -- also pushed back a status conference about when it must submit a plan to emerge from court protection. Its plan filing has been put on hold by a trade secrets lawsuit, brought by rival Mike's Train House Inc., which must first be settled in U.S. District Court in the Eastern District of Michigan.
    Chesterfield.-based Lionel asked U.S. Bankruptcy Judge Burton Lifland to approve $675,808.72 in fees. The company's bankruptcy attorneys, from the firm Schulte Roth & Zabel LLP, were paid $95,977.50 in fees and $2,145.46 in expenses for work done from Sept. 1 to Dec. 31 of last year.
    The company entered bankruptcy court protection on Nov. 15, 2004.
    Lionel has sold more than 50 million trains since it was founded, according to the company's Web site.


    Appeal's Court Denies MTH's Petition For Rehearing by Erol Gurcan

    On April 19, The Sixth Circuit Court of Appeals denied MTH's petition for a rehearing of its December 14, 2006 decision. That earlier decision vacated the jury's $40.8 million verdict in favor of MTH in the trade secrets case, and remanded it to the Eastern District of Michigan for another trial. While the above news is certainly important, it is not unexpected. I stated in a post in January that MTH's chances of prevailing on the petition were small. Additionally, MTH's Attorney Alec Ostrow stated at least twice at the bankruptpcy court conference on January 9, 2007 that is was unlikely MTH would prevail on the petition.
    The more important question now becomes, what is going to happen now that the appeals process is over. Where do we go from here?
    Click on the link below to read on

    First, the parties are still in the mediation process. Specifically according to the mediator Morris's report filed with the bankrupcy Court on April 17, MTH's and Lionel's lawyers met with her on February 21. On March 14, The attorneys, as well as MTH's Mike Wolf and Lionel's Jerry Calabrese met with the mediator for a full day. The mediation was continued by telephone on March 22, March 27 and April 5, 2007. The next in person mediation is scheduled for April 25. Both parties have also exchanged settlement proposals with regard to both the trade secrets and separate patent infringement lawsuits. The mediatior has advised Judge Lifland that in her opinion, both parties have acted in good faith and she has requested the court not take any action concerning any litigation until after the next scheduled mediation on April 25. The parties are scheduled to appear before Judge Lifland on May 22, so it is unlikely any litigation will occur before then anyway.
    The recent denial by the appeals court of MTH's petition for a rehearing, strengthens Lionel's bagaining position during the future mediation process since the appeals process is now over.
    If the mediation produces a settlement of both the trade secrets and separate $17.5 patent infringement lawsuit (involving sychronized smoke and sound), all the litigation between the parties would end.
    However, what will happen if the mediation process does not produce a settlement of both the trade secrets and patent infringment cases, or produces a settlement of only one of the two? Judge Lifland made it clear at both the January 9 and February 22 Court conferences (both of which I attended), that if both of MTH's separate lawsuits against Lionel are not resolved during the mediation process, he would conduct a Bankruptcy Code section 502c damages hearing. If Judge Lifland does indeed do this, he would essentially be moving the trial from the District Court in Michigan (the court where a jury awarded MTH over $40 million dollars in the trade secrets case and where the appeals court remanded it after it vacated the monetary award). In addition, Judge Lifland would be taking away MTH's right to a jury trial. My bankrutpcy lawyer friends have told me he has the power to do this to expedite Lionel's exit from bankruptcy.
    Of course, MTH wants a jury trial since one jury already awarded it $40.8 million dollars ($38.6 against Lionel individually) almost three years ago on June 7, 2004. In fact, MTH's attorney, Alec Ostrow, at both the January 9 and February 22 court conferences, objected when Judge Lifland stated that any potential damages would be decided by him, stating th judge was usurping the District Court's function by moving the trade serets case to his court.
    Lionel's attorneys have not objected when Judge Lifland previously stated he intended on conducting a damages estimation hearing. I believe they would be in favor of having the bankruptcy judge decide the issue of potential damages rather than a jury, which would most likely be more sympathetic to a plaintiff such as MTH. Moreover, Lionel's CEO Jerry Calabrese has told me in the past he wants to exit from bankruptcy as quickly as possible. A trial on the potential damages issue in the bankruptcy court would certainly occur more quickly than a jury trial in the Federal District Court in Dertoit, Michigan. Judge Lifland has previously stated he wants to expedite Lionel's exit from bankruptcy since they have been there for a long time. Lionel filed for bankruptcy on November 15, 2004, now a period of almost 2 and a half years.
    Moreover, a quicker trial and exit from bankruptcy would also benefit Lionel, if it needed to obtain any sort of future financing or capital. It would also remove any stigma associated with being in bankruptcy.
    Any other discussion of what could occur in the future with regard to the legal proceedings would be speculation, so I will not attempt to do so.
  2. Cannonball

    Cannonball More Trains Than Brains

    Why don't the two companies just merge and become Lionel MTH already? It would get MTH more distribution and help get Lionel out of the crapper financially.
  3. Dave Farquhar

    Dave Farquhar Member

    Well, we don't know that MTH is much better off financially than Lionel is. Since MTH is a private company, its financials aren't disclosed. Lionel's are being disclosed right now only because they're in bankruptcy.

    Lionel is confident they can turn it around on their own, and the positive signs are there. They've lost money so far this year, but turning a profit for the month of March is unheard of. Last year and the year before that, they made all their money in the second half of the year, if not in the fourth quarter. It wasn't long ago that both sales AND revenue were declining.
  4. Cannonball

    Cannonball More Trains Than Brains

    I wonder what would happen if they focused more on one end of the spectrum or the other. Either move away from the "trainset" market and dealing strictly with higher end models or cut out some of the fancy stuff and really dive into inexpensive sets that bring people on tighter budgets into the hobby.
  5. Renovo PPR

    Renovo PPR Just a Farmer

    In the terms of adjusted dollars the train sets offered today are lower than they were when Dad bought my first Lionel train set. :) But then again I think State Troopers only made around $3,000 a year then.

    I suspect that the past couple of years have been better if not good for both. The lower named sets drive the brand while the higher price engines drive the profit. Drop one or focus on only one then you have nothing in the future.:cry:
  6. Dave Farquhar

    Dave Farquhar Member

    Some people argue that the high end of the market is what got all of the companies in trouble. Initially it was a gold mine for MTH, because nobody had really done the high-end stuff before, but then everyone else started doing it. So they were investing in all of this expensive tooling and the one-upmanship made it difficult to recoup the cost of the tooling since the item might not stay in production more than a couple of years. It's hard to compete using your five-year-old tooling if a competitor came out with something last year with more detail than yours. K-Line never recovered from the arms race and was the first to go.

    Lionel started putting a lot more emphasis on its starter sets in the last couple of years, and getting sets into stores like Macy's and Target and FAO Schwarz this past Christmas was something totally new. They hadn't done anything like that since the glory days. Jerry Calabrese has also done a good job of getting the company's name into the press. Four years ago, the general public mostly didn't know Lionel trains were still being made. Today a story about Lionel shows up in some good-sized newspaper once every 2-4 months, and that publicity doesn't cost the company anything other than the time for the interview and maybe the cost of a few phone calls.

    At this point Lionel probably can't afford to totally pull out of the high end of the market, but shifting a lot of its emphasis to starter sets seems to be helping. And that makes sense. The market for $300 train sets is much larger than the market for $1,500 locomotives. If you have to sell more than double the dollar amount to get the same profit, that's not a big deal because the market is more than that much bigger and it's a lot cheaper to reach.

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