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Methode Electronics Reports Q3

CHICAGO, Ill. — Methode Electronics, Inc. (NYSE: MEI), a global developer of custom engineered and application specific products and solutions, today announced financial results for the Fiscal 2011 third quarter ended January 29, 2011.

Methode's third-quarter Fiscal 2011 net sales increased $12.2 million, or 13.7 percent, to $101.3 million from $89.1 million in the third quarter of Fiscal 2010. Translation of foreign currency decreased net sales $1.4 million, or 1.4 percent, in the year-over-year comparison.

Net income increased $10.4 million to $5.9 million, or $0.16 per share, in the third quarter of Fiscal 2011 from a loss of $4.5 million, or $0.12 per share, in the same period of Fiscal 2010. The increase in the Fiscal 2011 period is primarily due to higher sales and gross margins (including other income), a $1.7 million benefit for settlement of the Blue Angel dispute, an income tax expense decrease of $3.8 million and lower legal expenses related to the Delphi patent and supply agreement litigation of $1.2 million, partially offset by costs related to a certain vendor's production and delivery issues of $1.3 million, costs related to manufacturing inefficiencies due to multiple product launches, as well as higher stock option and stock award amortization expense of $1.2 million in the Fiscal 2011 period. The third quarter of Fiscal 2010 was impacted by costs related to the inability to adjust direct labor and overhead costs due to the unexpected cancellation of the Delphi supply agreement and restructuring charges of $0.6 million.

In June 2006, Methode sold certain unsecured claims it had filed against Delphi in Delphi's bankruptcy proceeding to Credit Suisse for $3.1 million. These claims were subsequently assigned by Credit Suisse to Blue Angel. In July 2010, Blue Angel claimed that based on developments in the Delphi bankruptcy proceeding, Methode owed Blue Angel $3.1 million plus interest. In October 2010, Blue Angel filed a complaint seeking $3.1 million plus applicable interest. During the second quarter of Fiscal 2011, Methode recorded an expense of $3.8 million for these unsecured claims. The matter was settled for $2.1 million causing a reversal of expense of $1.7 million in the third quarter of Fiscal 2011.

Excluding the restructuring charge in the Fiscal 2010 third quarter and the Blue Angel expense reversal in the Fiscal 2011 third quarter, Methode's net income was $4.1 million, or $0.11 per share, in the third quarter of Fiscal 2011 compared to a loss of $3.9 million, or $0.11 per share, in the same period of Fiscal 2010.

Consolidated gross margins (including other income) as a percentage of sales were 19.2 percent in the Fiscal 2011 third quarter compared to 17.2 percent in the same period of Fiscal 2010. Gross margins (including other income) in the Fiscal 2011 period were negatively impacted by costs related to a certain vendor's production and delivery issues in North America and costs related to manufacturing inefficiencies due to multiple product launches in Malta, offset by higher sales volumes in Asia and North America. The third quarter of Fiscal 2010 was impacted by costs related to the inability to adjust direct labor and overhead costs due to the unexpected cancellation of the Delphi supply agreement.

Selling and administrative expenses decreased $1.6 million, or 9.4 percent, to $15.5 million in the Fiscal 2011 third quarter compared to $17.1 million in the prior-year third quarter due primarily to the Blue Angel expense reversal and lower legal expenses related to the Delphi patent and supply agreement litigation. These lower expenses were partially offset by higher stock option and stock award amortization expense and higher selling and marketing expenses in the North American and Asian Automotive segments as a result of higher sales.

In the Fiscal 2011 third quarter, income tax expense decreased $3.8 million to a net benefit of $1.5 million compared to an expense of $2.3 million for the Fiscal 2010 third quarter. The net benefit in the third quarter of Fiscal 2011 was primarily due to a benefit of $2.8 million related to the expiration of uncertain tax positions and interest from prior periods, partially offset by income taxes for foreign profits of $1.2 million. The expense in the third quarter of Fiscal 2010 includes a benefit of $2.7 million due to the settlement of uncertain tax positions and related interest from prior periods, offset by $5.0 million of other tax related expenses.

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