Lionel Earns $2.8 Million Profit in November 2006 by Erol Gurcan
On December 14, 2006, Lionel filed its monthly operating report for November 2006, with the bankruptcy court. For the month of November, Lionel posted a profit, or net income of $2,868,000. Its monthly disbursements were $6,818,000. The report was affirmed to by its Chief Financial officer, Scott Turkington. Lionel is required to file a monthly operating report since it is in bankruptcy. November’s numbers were obtained directly from its profit and loss summary filed with the court.
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Lionel’s gross sales figures for November were $11,448,000, and net sales were $11,080,000. Its year to date (YTD) gross and net sales numbers through November 26, 2006 are $55,286,000 and $53,122,000, respectively. During an in person interview on October 17, 2006, Lionel CEO Jerry Calabrese stated he expected calendar year 2006 gross sales to be in the $65 million dollar range. (As a side note, my entire interview with Mr. Calabrese and visit to Lionel’s NYC showroom with lots of photos will be posted here in a couple of days. Look for it!).
Significantly, the November $2.8 million dollar profit and monthly gross and net sales figures are its best so far for the 2006 calendar year. In October, Lionel’s monthly profit was almost $1.1 million, September’s was $1.6 million, and Augusts’ was $460,000. Lionel posted monthly losses between January and July 2006, but that is to be expected, at least in part, as its business is seasonal.
Also significant is that with the November profit factored in, Lionel is now operating in the black, with a 2006 year to date profit of $760,000. Through the end of October, it was in the red to the extent of $2.1 million. We will know in mid January if Lionel posts a profit for the year when its December earnings figures will be public.
I spoke to Lionel CEO Jerry Calabrese this morning about its November 2006 profit and year’s sales to date. Mr. Calabrese was “pleased but not surprised” about how well they doing at the present time, which he described as “spectacular”, and better than 2005, which he also thought was a good business year. He wanted to remind all that Lionel’s business is seasonal, and its profits are higher later this year because they shipped later in the year. He also expected Lionel to turn post a profit in December.
Some in the past have also asked about Lionel’s professional fees since it’s has been involved in several different lawsuits. It’s professional fees (which it defines as “retained professionals, Chapter 11 and Court costs”) for 2006 are almost $2.1 million. This figure is similar to its operating loss through the end of October, as stated above.
HOW THE TRADE SECRETS DECISION AFFECTS LIONEL’S EXIT FROM BANKRUPTCY
On a related legal matter, yesterday’s court decision in the MTH Lionel trade secrets case will have an impact in Lionel’s exit from bankruptcy. (On December 14, the three judge appeals court unanimously nullified the jury’s $40.7 million dollar verdict in favor of MTH and granted Lionel a new trial, due to legal mistakes made during the jury trial. A new trial will occur in the future if the parties do not settle the case before hand. The court also vacated the jury’s $12.8 million dollar unjust enrichment award, calling it a double recovery in light of the almost $12 million dollars awarded for past lost profits).
On July 26, 2006, Bankruptcy Judge Burton Lifland entered an order giving Lionel 75 days to file a reorganization plan once the appeals court issued its decision in the separate trade secrets case. Now that this case has been decided, Lionel’s 75 days in which to file the plan begins to run. The deadline to file it is on or around March 1, 2007. Once Lionel’s 75 days to file a plan expires, other interested parties (like MTH) have 60 days to file their own plan. It is expected that if there is a second jury trial, Lionel will no longer be in bankruptcy when that occurs.
JERRY AND MIKE COMMENT ON THE TRADE SECRETS DECISION
In light of yesterday’s court decision which orders a new trial, (instead of affirming or reducing the jury’s verdict to a specific number), and separate patent infringement lawsuit filed by MTH in June claiming $17 million in damages, I asked Mr. Calabrese during our telephone conversation today if the plan is still to exit from bankruptcy. He stated it was. He was also very pleased with the appeals court’s decision, calling it a “home run.” In light of all the statements now on the OGR forum about settling the case in response to my legal summary of December 14, he emphasized that he had tried repeatedly to settle it in person with MTH’s Mike Wolf, before the appeals court heard oral argument on June 7, 2006.
Mr. Calabrese stated he would still be interested in settling the case. He was open to having Mike Wolf call him. If that does not occur, he was confident that Lionel would prevail at trial due to the parameters imposed by the appeals court’s decision.
I also spoke to MTH’s owner Mike Wolf yesterday. Obviously, he was disappointed with the court’s ruling, which overall was more beneficial to Lionel. Like Jerry, he also stated he would be interested in settling the case now, but was prepared to retry it if necessary. His opinions about a second trial are stated in MTH’s statement on the appeals court verdict at the top of page one on the OGR forum, and need not be repeated here.
Mike also correctly emphasized that the appeals court held MTH’s design plans were trade secrets. Had the court determined they were not, it would have dismissed MTH’s case altogether without the possibility of a second trial, or possibility of a future settlement. If there is a second trial, the jury will not need to address the issue if MTH’s design plans are trade secrets, since the appeal’s court already made that determination.
Lastly, I would like to wish all a Merry Christmas and/or Happy Hanukkah.
Erol
Erol B. Gurcan, an O Gauge industry legal expert, is a regular contributor to OGaugeWatch.com
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