News Release

FOR IMMEDIATE RELEASE
July 22, 2009

For More Information Contact:
Susan Knight, Chief Financial Officer
952.937.4000

MTS Reports 2009 Third Quarter Financial Results

Ø 17 percent sequential orders increase from Q2; 31 percent year-over-year decline due to weak economy

Ø Strong operating cash flow of $21 million resulting from lower working capital utilization

Ø 22 percent revenue decrease on lower backlog and order volume year-over-year

Ø EPS before discontinued operations down 70 percent on lower volume, including severance charges totaling $0.05 per share, consistent with full year outlook

Ø Fiscal 2009 full-year revenue and EPS outlook affirmed, excluding anticipated Q4 severance charges

Eden Prairie, Minn. – July 22, 2009 – MTS Systems Corporation (NASDAQ: MTSC) today reported fiscal 2009 third quarter financial results. “We are encouraged by the sequential improvement in orders this quarter. At the same time, our financial results support our view that we are in the midst of a fundamental market reset,” said Laura B. Hamilton, chief executive officer and chair. “Accordingly, we continue to take the steps necessary to both resize our business as well as invest in key growth areas as we look to the future. We remain confident we will continue to manage through this economic challenge and position ourselves for long term success.”

Third Quarter Results

On a sequential basis, orders increased 17 percent compared to second quarter 2009, driven by the Test organic business. Backlog decreased 7 percent to $163 million.

On a year-over-year basis, orders totaled $80.7 million, a decline of 31 percent, due to lower volume in the Test segment in the Americas and Europe, and lower volume in the Sensors segment across all geographies. This includes a 34 percent negative impact from the decline in the organic business and a 2 percent negative impact from currency translation, partially offset by a 5 percent benefit from SANS, our recently acquired Chinese subsidiary.

Revenue was $90.8 million, a decrease of 22 percent compared to the previous year. This includes a 21 percent decline in the Test organic business, a 38 percent decrease in the Sensors business and a 3 percent negative impact of currency translation, partially offset by a 6 percent benefit from SANS.

Gross profit was $34.6 million, down 27 percent compared to third quarter last year. The gross margin rate was 38.1 percent, 2.3 percentage points lower than in the prior year, driven by weaker volume and severance charges. SANS positively impacted the margin rate in the quarter by 0.2 percentage points.

Income from operations was $4.8 million, a decrease of 68 percent compared to the prior year. This was primarily driven by lower gross profit and the previously mentioned severance charges, partially offset by reduced operating expenses. Operating expenses decreased 8 percent, or $2.7 million. Excluding SANS, operating expenses were down 16 percent, or $5.3 million, resulting from a reduction in the number of employees and lower discretionary spending.

As previously announced, in the third quarter, MTS approved a plan for an additional capacity-related reduction in its workforce in response to the continued weakness in industrial capital spending. The actions impacted approximately 65 positions and resulted in a pretax severance charge of $1.2 million, or $0.05 per share. The year-to-date pre-tax severance charges totaled $4.0 million, or $0.17 per share. The Company also previously announced that, combined with these actions, it anticipates further workforce and cost reduction actions in the fourth quarter related to material sourcing and process and structure improvements. Combined, these actions will result in annual savings of $15-20 million for fiscal 2010.

Earnings from continuing operations decreased 70 percent to $0.19 per diluted share on income of $3.1 million. Lower income from operations and unfavorable net interest, primarily resulting from reduced interest rates in Europe, negatively impacted earnings from continuing operations by $0.42 and $0.06, respectively. Net income totaled $3.1 million, or $0.19 per diluted share, a decrease of 75 percent compared to the prior year. During the third quarter fiscal 2008, the Company sold the net assets of its Nano Instruments product line which resulted in a net gain from discontinued operations of $0.10 per diluted share.

Cash Position

Cash and cash equivalents at the end of the third quarter totaled $118.9 million, compared to $99.3 million at the end of the fiscal 2009 second quarter. Operating activities generated cash of $21.2 million in the third quarter. During the period, the Company invested $1.8 million in capital expenditures, paid $2.5 million in dividends and purchased approximately 126,000 shares of common stock for $2.7 million.

Segment Results


Test Segment:

On a sequential basis, orders rose 23 percent compared to second quarter 2009, driven by a 27 percent increase in the organic business, partially offset by a 7 percent decrease in the SANS business. Also on a sequential basis, backlog decreased 8 percent to $153 million, which includes an 8 percent and 3 percent decline in the organic and SANS businesses, respectively.

On a year-over-year basis, orders for the Test segment were $65.5 million, a decrease of 29 percent. The organic business was down 33 percent due to lower volume across all geographies and a 3 percent unfavorable impact of currency translation, partially offset by a 7 percent increase from SANS. Third quarter fiscal 2008 orders included one large order (orders exceeding $5 million) totaling approximately $10 million. There were no such large orders in this quarter.

Revenue was $76.5 million, a decrease of 17 percent compared to last year. The organic business declined 21 percent, while SANS contributed 7 percent growth in the quarter. Currency translation unfavorably impacted revenue by 3 percent.

Gross profit was $26.9 million, a 20 percent reduction compared to last year. Third quarter gross margin rate was 35.2 percent, a decrease of 1.1 percentage points compared to the prior year. The organic business decreased 1.7 percentage points primarily resulting from lower volume and severance charges. SANS favorably impacted the gross margin rate by 0.6 percentage points.

Income from operations was $4.1 million, a year-over-year decrease of 60 percent. This includes a 75 percent decline in the organic business, primarily due to lower gross profit and severance charges, partially offset by reduced operating expenses. The organic business results include $1.0 million of severance charges. SANS broke even in the quarter.

Sensors Segment:

On a sequential basis, orders decreased 3 percent compared to second quarter 2009 and backlog rose sequentially 11 percent to $10 million.

On a year-over-year basis, orders for the Sensors segment were $15.2 million, a decrease of 39 percent, due to lower volume across all geographies, including a 2 percent unfavorable impact of currency translation.

Revenue was $14.3 million, a decline of 42 percent from the prior year, driven by lower volume worldwide, and includes a 3 percent negative impact from currency translation.

Gross profit was $7.7 million, down 44 percent compared to last year. Third quarter gross margin rate was 54.0 percent, a decrease of 1.8 percentage points compared to third quarter fiscal 2008, resulting from lower volume.

Income from operations was $0.7 million, a decrease of 84 percent compared to third quarter fiscal 2008, due to lower gross profit partially offset by reduced operating expenses.

Outlook:

The Company reaffirmed the fiscal 2009 full-year revenue and EPS outlook provided last quarter which stated that, without a significant improvement in orders in the second half of the year, full-year revenue would be down approximately 10 to 15 percent and earnings per share would decline approximately 50 percent. The outlook excludes Q4 cost-reduction charges.

Hamilton concluded, “This changing environment continues to present MTS with exciting opportunities for future growth. This includes renewable energy and environmentally friendly technologies where we help further innovation and in emerging geographies where we help build capabilities. MTS is financially strong and well positioned to take advantage of these trends.”

Third Quarter Conference Call:

A conference call will be held on July 23, 2009, at 10:00 a.m. EDT (9:00 a.m. CDT). Call +1-719-457-2703; and state the Conference passcode “5489858.” Telephone re-play will be available through July 30, 2009. 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 November 18, 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.