News Release

FOR IMMEDIATE RELEASE
November 13, 2008

For More Information Contact:
Susan Knight, Chief Financial Officer
(952) 937-4000

MTS Reports 33% EPS Growth in Fourth Quarter


Eden Prairie, Minn. – November 13, 2008 – MTS Systems Corporation (NASDAQ: MTSC) today reported fourth quarter net income of $14.5 million, or $0.85 per diluted share, an increase of 26 percent and 33 percent, respectively, compared to the fourth quarter fiscal 2007.

Fiscal year 2008 net income was $49.2 million, or $2.80 per diluted share, an increase of 17 percent and 22 percent, respectively, compared to fiscal 2007.

“Our performance this year, in particular the very strong finish amidst a challenging global economy, was outstanding,” said Laura B. Hamilton, Chair and Chief Executive Officer. “In the fourth quarter, we delivered double digit revenue growth in both businesses, an improved gross margin rate in the Test segment and record earnings per share, which contributed to double digit growth in orders, revenue and earnings per share for the year. Finishing strong is critical to positioning MTS for the times ahead.”

Hamilton continued, “As we begin fiscal 2009, our backlog is up 15 percent from last year, we have a very healthy balance sheet, broad geographic and market mix, and strong business fundamentals across both segments including the acquisition of SANS in China. At the same time, we’ve experienced a weakening in Sensors’ orders in the fourth quarter that has continued into November and there are recent currency rate fluctuations. Energy, the environment and globalization will continue to create opportunities for MTS over the next several years although timing is less clear today. Given the unprecedented volatility in the global economy, at this time we are not issuing fiscal year 2009 guidance.”

Fourth Quarter Results

Fourth quarter orders totaled $115.2 million, an increase of 7 percent compared to fourth quarter fiscal 2007. This represents 8 percent and 5 percent growth in the Test and Sensors segments, respectively, driven by growth in Europe and Americas and includes an estimated $4 million favorable impact from currency translation. Backlog decreased 3 percent to $235 million compared to third quarter fiscal 2008.

Revenue in the fourth quarter was $124.1 million, an increase of 14 percent compared to fourth quarter fiscal 2007. This increase included 13 percent and 17 percent growth in the Test and Sensors segments, respectively, and reflects higher volume across all geographies. An estimated $4 million favorable impact was due to currency translation.

Gross profit in the fourth quarter was $53.7 million, an increase of 15 percent compared to fourth quarter fiscal 2007. The gross margin rate was 43.3 percent, an increase of 0.4 percentage points compared to fourth quarter fiscal 2007, driven by increased volume in both segments and improved margins on custom projects in the Test segment.

Income from operations in the fourth quarter totaled $21.0 million, an increase of 45 percent compared to fourth quarter fiscal 2007, primarily resulting from higher volume.

Income before discontinued operations in the fourth quarter increased to $0.85 per diluted share, or $14.5 million, up 33 percent compared to fourth quarter fiscal 2007. This increase was driven by higher operating income, partially offset by higher income tax expense of $3.5 million. The effective tax rate in the fourth quarter was 34.5 percent, an increase of 8.1 percentage points compared to fourth quarter fiscal 2007. The lower fiscal 2007 rate included the enactment of favorable tax legislation in Germany and the U.S, which allowed the Company to record a $1.3 million tax benefit in the fourth quarter of fiscal 2007. Reduced shares outstanding positively impacted earnings per share on income from continuing operations by $0.05 for the quarter.

Cash and cash equivalents at the end of fourth quarter fiscal 2008 totaled $114.1 million, a decrease of $5.8 million compared to the end of third quarter fiscal 2008. Cash flow from operations generated $3.0 million. During the fourth quarter, the Company borrowed $24.0 million from its credit facility, and invested $13.7 million in SANS and $3.0 million in capital expenditures.

Full Year Results

Fiscal 2008 orders were $485.3 million, an increase of 15 percent compared to fiscal 2007, and included 14 percent and 18 percent growth in the Test and Sensors segments, respectively. The results included an estimated $21 million favorable impact of currency translation. Backlog increased 15 percent in the fiscal year to $235 million.

Fiscal 2008 revenue was $460.5 million, an increase of 12 percent compared to fiscal 2007. This increase included 9 percent and 25 percent growth in the Test and Sensors segments, respectively, and an estimated $22 million favorable impact from currency translation.

Gross profit for fiscal 2008 was $190.3 million, an increase of 10 percent compared to fiscal 2007. This increase included an estimated $7 million favorable impact from currency translation. The gross margin rate for fiscal 2008 was 41.3 percent, a decrease of 1.0 percentage points compared to fiscal 2007. The decrease was primarily driven by unfavorable product mix in the Test segment, partially offset by higher volume.

Fiscal 2008 income from operations was $61.8 million, an increase of 14 percent compared to fiscal 2007. This increase was primarily due to increased gross profit and lower research and development expense in the Test segment, as the Company allocated certain of its resources towards capitalized software development activities during the fiscal year, partially offset by planned increases in operating expenditures to support strategic initiatives.

Fiscal 2008 income before discontinued operations increased 20 percent to $2.68 per diluted share on income of $47.1 million compared to fiscal 2007. The increase was driven by stronger performance in both segments, and $1.0 million favorable currency transaction gains, partially offset by higher income tax expense of $2.8 million. The higher income tax expense is primarily due to increased operating income. Reduced shares outstanding positively impacted earnings per share on income before discontinued operations by $0.11 for fiscal 2008. Fiscal 2008 net income totaled $49.2 million, or $2.80 per diluted share, an increase of 17 percent compared to fiscal 2007.

Segment Results


Test Segment:

Fourth Quarter:

Test segment orders were $91.9 million for fourth quarter fiscal 2008, an increase of 8 percent compared to fourth quarter fiscal 2007, reflecting an increase in the Americas and Europe. During the fourth quarter of fiscal 2008, the Company booked one large custom order for approximately $5 million, compared to fiscal 2007 orders which included one large custom order of approximately $7 million. Backlog decreased 3 percent to $223 million compared to the third quarter of fiscal 2008. Fourth quarter revenue was $99.7 million, an increase of 14 percent compared to fourth quarter fiscal 2007, primarily due to an increase in custom business.

Gross profit in the fourth quarter was $39.7 million, an increase of 14 percent compared to fourth quarter fiscal 2007, driven by higher volume. Fourth quarter gross margin rate was 39.8 percent, an increase of 0.3 percentage points compared to fourth quarter fiscal 2007, primarily due to improved margins on large custom projects. The gross profit rate was up 3.5 percentage points compared to third quarter fiscal 2008.

Income from operations for fourth quarter fiscal 2008 was $15.4 million, an increase of 48 percent compared to fourth quarter fiscal 2007. This increase is primarily driven by higher sales volume and gross profit.

Full Year:

Test segment orders for fiscal 2008 totaled $389.8 million, an increase of 14 percent compared to fiscal 2007, reflecting an increase in Europe and the Americas and an estimated $14 million favorable impact of currency translation. Fiscal 2008 orders included six large custom orders totaling approximately $52 million, compared to fiscal 2007 orders, which included five large custom orders totaling approximately $41 million. Backlog increased 16 percent during the year to $223 million compared to fiscal 2007. Fiscal 2008 revenue was $364.1 million, an increase of 9 percent compared to fiscal 2007, primarily driven by an increase in custom business and an estimated $15 million favorable impact of currency translation.

Gross profit for fiscal 2008 was $135.7 million, an increase of 4 percent compared to fiscal 2007, driven by higher volume. Fiscal 2008 gross margin rate was 37.3 percent, a decrease of 2.0 percentage points compared to fiscal 2007, primarily due to unfavorable product mix.

Income from operations for fiscal 2008 was $41.1 million, an increase of 5 percent compared to fiscal 2007. This increase is primarily driven by higher gross profit and lower research and development expense as the Company allocated certain of its resources towards capitalized software development activities during the fiscal year, partially offset by planned increases in operating expenditures to support strategic initiatives.

Sensors Segment:

Fourth Quarter:

Sensors segment orders were $23.3 million for fourth quarter fiscal 2008, an increase of 5 percent compared to fourth quarter fiscal 2007, primarily due to a favorable impact of currency translation. Backlog decreased 8 percent to $12 million compared to the third quarter of fiscal 2008. Fourth quarter revenue was $24.4 million, an increase of 17 percent compared to fourth quarter fiscal 2007, driven by increased worldwide volume.

Gross profit in the fourth quarter was $14.0 million, an increase of 18 percent compared to fourth quarter fiscal 2007. Fourth quarter gross margin rate was 57.4 percent, an increase of 0.2 percentage points compared to fourth quarter fiscal 2007, reflecting higher volume.

Income from operations for fourth quarter fiscal 2008 was $5.6 million, an increase of 37 percent compared to fourth quarter fiscal 2007, primarily due to increased gross profit, partially offset by planned increases in operating expenditures.

Full Year:

Sensor segment orders for fiscal 2008 were $95.5 million, an increase of 18 percent compared to fiscal 2007, reflecting increased worldwide growth and an estimated $7 million favorable impact of currency translation. Backlog remained flat during the year at $12 million. Fiscal 2008 revenue was $96.4 million, an increase of 25 percent compared to fiscal 2007, driven by increased worldwide volume and an estimated $7 million favorable impact of currency translation.

Gross profit for fiscal 2008 was $54.6 million, an increase of 28 percent compared to fiscal 2007. Fiscal 2008 gross margin rate was 56.6 percent, and increase of 1.1 percentage points compared to fiscal 2007, primarily due to increased volume.

Income from operations for fiscal 2008 was $20.7 million, an increase of 40 percent compared to fiscal 2007, primarily due to increased gross profit, partially offset by planned increases in operating expenditures.

Fiscal Year 2008 Earnings Release and Conference Call

A conference call will be held on Friday, November 14, 2008, at 10:00 a.m. EDT (9:00 a.m. CDT). Call +1-719-325-4828; and state the conference passcode “9761641.” Telephone re-play will be available through November 21, 2008. Call +1-719-457-0820.

If you prefer to listen live over the Internet, please log on to the web at http://www.mts.com/en/InvestorRelations/events/index.asp and click on the webcast event notice. The webcast will be archived through January 19, 2009.

About MTS Systems Corporation

MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company’s testing hardware and software solutions help customers accelerate and improve their design, development and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. MTS’ high-performance position sensors provide controls for a variety of industrial and vehicular applications. MTS had 1,660 employees and revenue of $461 million for the fiscal year ended September 27, 2008. Additional information on MTS can be found on the worldwide web at http://www.mts.com.

This release contains “forward-looking statements” made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. In addition to the factors discussed above, other important risk factors are delineated in the Company’s most recent SEC Form 10-Q and 10-K filings.