Methode Electronics, Inc. Announces Third Quarter Sales and Earnings and Plans For Optical Products Business IPO

CHICAGO, IL. Methode Electronics, Inc. (Nasdaq: METHA) today announced its sales and earnings for the third quarter and nine-month periods ended January 31, 2000, and its intention to pursue an initial public offering of a portion of the ownership of some of the companies comprising its Optical segment.

Third Quarter and Nine-Month Sales and Earnings

Methode s consolidated sales for the third quarter ended January 31, 2000, were $102,023,000, up 6% from $96,387,000 a year ago. Net income amounted to $7,353,000, up from $7,122,000, with earnings of $0.21 per share as compared to $0.20 in the prior year period.

Consolidated sales for the nine month period ended January 31, 2000, were $304,991,000, up 4% from $292,224,000, a year ago with net income of $21,210,000, down from $23,988,000, and earnings of $0.60 per share as compared to $0.68 in the prior year period.

President James W. McGinley said, "Methode is managed on a technology product basis with its businesses broken down primarily into the Optical and Electronic segments. The business units included in the Optical segment principally employ light to convert and convey electronic signals. The business units included in the Electronic segment principally employ electronic processes to connect, control and convey signals. The principal product categories, which collectively accounted for more than 60% of consolidated sales, for the current quarter and nine-month period are optoelectronic devices for the Optical segment and automotive controls for the Electronic segment.

"As to our Optical segment, over the last two years we have enjoyed strong growth in sales and earnings from our optoelectronics division, which is a producer of high performance optoelectronic transceiver sub-systems. These transceivers, operating at rates in excess of 1 billion bits of data per second or Gbps, employ the Gigabit Ethernet and Fibre Channel protocols in data communications and storage area network applications and represent the "high end" of networking technology.

"In April of 1999, we acquired Methode Communication Modules, Inc., also a designer and manufacturer of optoelectronic transceiver sub-systems. The acquisition targets the mid-range of data communications performance with transceivers operating in the 10 to 200 million data bits per second employing Ethernet and Fast Ethernet communications protocols. This acquisition complements our position in the higher data rate sector of the market.

"In late December 1999, we acquired the optoelectronics business assets of Spire Corporation through a newly created subsidiary Bandwidth Semiconductor, LLC. Anticipating the demand for increasing bandwidth to extend to new products operable at 10 Gbps, 40 Gbps and beyond, Bandwidth Semiconductor provides us with established capabilities in research and development into formulating optoelectronically active semiconductors using Metallorganic Chemical Vapor Deposition approaches to epitaxial crystal growth. We are focusing these resources onto the special problems of very high data transmission rates using light.

"Sales for the third quarter for the Optical segment (which includes some companies which will not be included in the new optical products company) were $21,301,000 up 62% over the prior year period, with profits of $2,751,000, up 21%. For the nine month period, Optical segment sales were $58,117,000, up 48% with profits of $8,713,000, up 43% from a year ago.

"For the third quarter, sales of optoelectronic transceivers were the prime Optical segment driver, with shipments and profits up more than 120% over the prior year period. "We believe that in the future the Methode Communications Modules and Bandwidth Semiconductor acquisitions will provide additional technology and manufacturing capability, but for our third quarter neither were profitable.

"For the other significant portion of our business, sales for the third quarter for the Electronic segment were $75,413,000, down 1% from the prior year period, with profits of $12,794,000, up 3% from a year ago. For the nine-month period, sales were down 2% to $226,651,000, with profits, which include a $3,000,000, second quarter pretax charge for bad debts, were down 5% to $33,528,000, from a year ago.

"In Methode s Electronic segment, sales of interconnect devices and controls for the automotive industry were up slightly in the third quarter over the prior year period, with profits up over 15%. Early in fiscal year 2000, we instituted a number of initiatives to better control our costs, and we have made progress in reducing scrap while increasing productivity and quality. We have been successfully working with both our customers and our vendors in a combined effort to contain or reduce costs, to maintain our outstanding quality rating and to secure new business to grow the Electronic segment. We are pleased with the fiscal 2000 advancements achieved with our automotive customers and products as well as the opportunities already presented for growth over the next few years.

"The balance of our Electronic segment is comprised of entities which manufacture connectors and interconnect devices, dataMate terminators and adapters, and cable assembly product lines. For the quarter, we enjoyed solid performances from several of our connector-oriented companies with improved or nearly even results year-to-year. We for some time have faced a maturing market in our dataMate terminator business and during the quarter experienced a decline in earnings of approximately $0.01 per share as compared to a year ago from this and related businesses. Our only significant disappointments were declining results out of our Far East disk drive-oriented connector operation along with the performance of our domestic cable assembly facility. The year-to-year profit comparisons for these two operations resulted in approximately a $0.03 per share decline in the quarter s results.

"For the fourth quarter we are looking for improved sales over the third quarter of fiscal year 2000, but, due to the aforementioned losses relating to our investment in new products and businesses concerning Methode Communication Modules and Bandwidth Semiconductor, we will expect to fall short of last year s very strong fourth quarter Optical segment results.

PLANS FOR OPTICAL PRODUCTS BUSINESS IPO

"We plan to carve out our optical products business into a new independent publicly traded company. The new optical products company will consist of Methode s optoelectronics division, its subsidiaries Methode Communications Modules, Inc. and Bandwidth Semiconductor, LLC and certain other assets. Certain business units which are currently included in Methode s Optical segment will not be included in the new optical products company and will be retained by Methode.

"It is currently expected that the new optical products company will offer approximately 15% of its common stock in an initial public offering during the first half of fiscal 2001. Methode expects to distribute the remaining shares to its stockholders in a tax-free transaction at a later date. We intend to accomplish significant business objectives through the initial public offering and spin-off," President McGinley concluded.

An initial public offering of the common stock of the new optical products company is subject to, among other things, the development of definitive separation agreements, the preparation and filing of a registration statement with the Securities and Exchange Commission and market conditions. The spin- off will be subject to, among other things, the receipt of a favorable Internal Revenue Service ruling that the separation will be tax-free to Methode and its stockholders for U.S. federal income tax purposes. No offer of securities in the new optical products company will be made except by means of a prospectus. While an initial public offering of common stock of the new optical products company is planned for the first half of fiscal 2001 and a spin-off at a later date, it should be noted that due to numerous uncertainties involved in these matters, there can be no assurances that an initial public offering or full separation will be completed as described or within the time periods outlined above.

Methode, in conjunction with its Third Quarter Sales and Earnings Release, will conduct a conference call, led by its President, James W. McGinley, on Thursday, February 24, at 9:00 a.m. CST. To participate call 888-222-2994. A replay of the call will be available for six days, beginning at 3:00 p.m. CST, February 24. To hear the replay call 800-388-1593, Code No. 12452.

Certain statements in this press release are forward-looking statements that are subject to certain risks and uncertainties. The Company s business is highly dependent upon specific makes and models of automobiles. Therefore, the Company s financial results will be subject to many of the same risks that apply to the automotive industry, such as general economic conditions, interest rates and consumer spending patterns. A significant portion of the balance of the Company s business relates to the computer and telecommunication industries which are subject to many of the same risks facing the automotive industry as well as fast-moving technological change. Other factors which may result in materially different results for future periods include actual growth in the Company s various markets; operating costs; currency exchange rates and devaluations; delays in development, production and marketing of new products; and other factors set forth from time to time in the Company s Form 10-K and other reports filed with the Securities and Exchange Commission. Any of these factors could cause the Company s actual results to differ materially from those described in the forward-looking statements. The forward-looking statements in this press release are intended to be subject to the safe harbor protection provided under the securities law.

Contact: James W. McGinley, President, or Michael T. Perkins, Manager of Investor Relations, both of Methode Electronics, Inc., 708-867-9600, or Investor Relations, Morgen-Walke Associates, Inc., 212-850-5600, for Methode Electronics, Inc.