Lionel statement on product lines

[Bob Keller]

Jerry Calabrese Addresses Lionel’s Commitment to Scale Product and the Legacy Control System

10/17/2008 Since my appearance at the Toy Train Museum at Strasburg Wednesday afternoon, a rumor has been circulating that Lionel is getting out of the high end, scale steam engine business. It’s my pleasure to nip this rumor in the bud.

As those of you who were there know, I arrived late and a bit harried from the long drive from New York to the York Toy Train Museum presentation in Strasburg on Wednesday afternoon. I guess I was not as clear as I thought I was when I responded to a question from the crowd that has led to the rumor that Lionel is ‘getting out of the scale steam locomotive business.’

Let me start by saying that however the rumor got started, it’s absolutely not true and I want to set the record straight:

Far from withdrawing from the high end, scale engine market, Lionel is betting heavily on the passion of scale enthusiasts, but in a new and more reasoned way that fully commits the company to its new Vision Line. That means that the new Lionel Vision Line will do its best to create a limited number of absolutely “Must Have” steam and diesel scale engines, rolling stock and accessories, and will replace the current JLC designation for our high end engines.

The new Vision Line will be dedicated to creating totally innovative, limited edition, scale steam and diesel engines that will be the most detailed and beautiful products we have ever made. I feel strongly that the success of all our future high end, scale products depends on Lionel’s ability to create engines, rolling stock and accessories that hobbyists feel they “must have”, because they are a rock-certain value and are totally compelling.

More important, when Lionel has hit that mark with engines like the Acela, the Big Boy and our recent UP Heritage diesel series, those engines sold out and held their prices in the marketplace, giving assurance to scale enthusiasts that they had spent their hard earned money wisely. Though not scale offerings, early sales indicate that the same will be true of our new Conventional Classics series. And judging from the early reaction at York, it will also be true of the new R-27 Subway, and M-7 Metro North sets, though it is not scale.

So let me be absolutely clear:

· Lionel has spent, and is still spending, more than $3 million to develop the new Legacy Control System

· In addition to the dedication of long-time Lionel employees, we have brought in people like Jon Zahornacky and Mike Regan to work on the creation, development and servicing of Legacy

· We have opened a San Francisco area office so that our partner Neil Young can continue to influence and guide Legacy development

· Engines like the Big Boy and the FEF are the state of the art in scale steam die casting and detail, as are our UP Heritage diesel engines, as are the soon to be seen R-27 Subways

· We have embarked on an unprecedented program to demonstrate our new Legacy System, and our new engines and other products at High Rail clubs, key retail stores and regional shows

While I’m at it, let me lay out the rest of our new plan to reorganize Lionel’s product line, starting with our first catalog of 2009:

The Lionel Vision Line will represent the best of what we can do right now, as well as what we hope to be able to do in the future. The list of innovative and compelling Legacy Control System features will continue to grow, and the Vision Line is where you will see them first. The same will be true of new and innovative Vision rolling stock and accessories.

In addition to Vision, we will also offer the new Lionel Classic Line which will mostly be non scale steam and diesel engines, accessories and rolling stock. As you have recently seen with our Pre War offerings, some of the new Classics line will be conventional – others will be Legacy empowered.

In addition to Vision and Classic, the Lionel Popular Line will be made up of our ready to run train sets, and related products like: Polar Express, Pennsylvania Flyer, Holiday Traditions, and all of the other sets that have been so dramatically successful in both the hobby and mainstream markets.

Finally, we plan to reconfigure and broaden our Custom Line, by making it possible for clubs and hobbyists to buy engines and rolling stock in less mainstream road names and numbers.

What all this means is that in these seriously uncertain times, Lionel is making this much absolutely certain:

We’ve been around since 1900, and weathered a lot of bad and dangerous times, some of which were national, global and even self imposed. Through all of those dark times, one thing has provided the ballast that has enabled Lionel to endure and prosper. That one thing has been our desire to make the products you want, at the highest level of quality of which we are capable, and to offer them to you at the most fair and reasonable prices possible. Despite all of the changes that have taken place over the last 108 years, that promise has not and will not change.

Thanks for your continuing loyalty to Lionel, and rest assured it’s mutual.

Jerry Calabrese President and CEO Lionel Electric Trains