Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). In addition, certain statements in our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services; (iii) statements of assumptions underlying such statements; (iv) statements regarding business relationships with vendors, customers or collaborators; and (v) statements regarding products, their characteristics, performance, sales potential or effect in the hands of customers. Words such as "believes," "anticipates," "expects," "intends," "targeted," "should," "potential," "goals," "strategy," and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those factors described in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 27, 2008. Such important factors include:

• We may experience difficulty obtaining materials or components for our products
• We may experience difficulties obtaining the services of skilled employees
• We may not achieve our growth plans for the expansion of our business
• We are significantly international in scope, which poses multiple unique risks
• Our business could be adversely affected by product liability and commercial litigation
• Government regulation could impose significant costs and other constraints on our business
• We may fail to protect our intellectual property effectively, or may infringe upon the intellectual property of others
• The sales, delivery and acceptance cycle for many of our products is irregular and may not develop as anticipated
• Our customers are in cyclical industries
• Our business is subject to intense competition
• Interest rate fluctuations could adversely affect our results of operations
• Volatility in the global economy could adversely affect our results of operations

The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our reports on Forms 10-Q and 8-K to be filed by the Company in fiscal year 2009.

About MTS Systems Corporation

MTS Systems Corporation is a leading global supplier of mechanical test systems and high-performance industrial position sensors. The Company's testing solutions help customers accelerate and improve their design and development processes and are used for determining the mechanical behavior of materials, components, and structures. MTS' high-performance position sensors provide controls for a variety of industrial and mobile hydraulic applications. MTS had 1,660 employees and revenue of $461 million for the fiscal year ended September 27, 2008.

Summary of Financial Results

Three Months Ended December 27, 2008 ("First Quarter of Fiscal 2009") Compared to Three Months Ended December 29, 2007 ("First Quarter of Fiscal 2008")

Highlights for the First Quarter of Fiscal 2009 include:

• On September 28, 2008 the Company acquired substantially all of the assets of SANS Group ("SANS") for $50.0 million. SANS has manufacturing facilities in both Shenzhen and Shanghai, China, and is headquartered in Shenzhen. SANS manufactures material testing solutions and offers a variety of products, including electro-mechanical and static-hydraulic testing machines. The results of operations for SANS have been included in the Company's results of operations since the date of the acquisition, and are reported in the Company's Test segment. Orders for SANS for the First Quarter of Fiscal 2009 were $5.5 million. SANS reported a $2.3 million loss from operations during the First Quarter of Fiscal 2009, on $3.3 million of revenue, driven by reduced gross profit and increased operating expenses associated with acquisition-related items.

• Orders for the First Quarter of Fiscal 2009 decreased 22.8% to $95.3 million, compared to $123.5 million for the First Quarter of Fiscal 2008, as worldwide economic decline had a negative impact on both the Test and Sensors segments.

• Revenue for the First Quarter of Fiscal 2009 increased 8.6% to $116.6 million, compared to $107.4 million in the First Quarter of Fiscal 2008. This increase was primarily due to a 15.3% increase in the organic Test business, driven by higher opening backlog, and a 3.0% benefit from SANS, partially offset by a 14.3% decline in the Sensors segment and a 3.4% unfavorable impact of currency translation.

• Income from operations for the First Quarter of Fiscal 2009 was relatively flat at $11.9 million, compared to $12.1 million for the First Quarter of Fiscal 2008, as the unfavorable impact of the volume decline in the Sensors segment, as well as a $2.3 million operating loss from SANS, more than offset increased volume and reduced operating expenses in the organic Test business.

• The effective tax rate for the First Quarter of Fiscal 2009 was 24.1%, a decrease of 11.0 percentage points compared to a tax rate of 35.1% for the First Quarter of Fiscal 2008. This decrease was primarily due to legislation enacted in the First Quarter of Fiscal 2009 that extended U.S. R&D credits, with an effective date that is retroactive to January 1, 2008. The R&D credits provided a tax benefit of $1.0 million.

• Earnings per diluted share for the First Quarter of Fiscal 2009 increased $0.10, or 21.3%, to $0.57, compared to $0.47 for the First Quarter of Fiscal 2008. A lower tax rate, as well reduced shares outstanding in the First Quarter of Fiscal 2009 favorably impacted earnings per diluted share by $0.08 and $0.03, respectively.

• Cash and cash equivalents at the end of the First Quarter of Fiscal 2009 totaled $104.8 million, compared to $114.1 million at the end of the First Quarter of Fiscal 2008. Cash flows from operations generated $5.5 million. During the First Quarter of Fiscal 2009, the Company borrowed $16.0 million from its credit facility, paid an additional $18.9 million for the acquisition of SANS, invested $3.0 million in capital expenditures, and purchased 120,100 shares of common stock for $3.6 million.

Detailed Financial Results

Orders and Backlog

First Quarter of Fiscal 2009 Compared to First Quarter of Fiscal 2008

The following is a comparison of First Quarter of Fiscal 2009 and First Quarter
of Fiscal 2008 orders, separately identifying the impact of the SANS acquisition
as well as the impact of currency translation (in millions):


         Three Months                                                  Three Months
             Ended        Organic                                         Ended
         December 29,     Business        SANS          Currency       December 27,
             2007          Change      Acquisition     Translation         2008
Orders   $       123.5   $    (31.9 ) $         5.5   $        (1.8 ) $         95.3

Orders for the First Quarter of Fiscal 2009 totaled $95.3 million, a decrease of $28.2 million, or 22.8%, compared to orders of $123.5 million for the First Quarter of Fiscal 2008. This decrease is primarily due to lower order volume in both the organic Test business and Sensors segment across all geographies, partially offset by a $5.5 million increase from SANS. Orders from international customers for the First Quarter of Fiscal 2009 represented 65.5% of total orders, compared to 60.4% for the First Quarter of Fiscal 2008.

Backlog of undelivered orders at the end of the First Quarter of Fiscal 2009, was $218.4 million, a decrease of 6.9% from backlog of $234.7 million at September 27, 2008. Backlog at the end of the First Quarter of Fiscal 2009 included $10.8 million from SANS. Backlog at the end of the First Quarter of Fiscal 2008 was $227.5 million. During the First Quarter of Fiscal 2009, the Company experienced one order cancellation in the Test segment approximating $3.0 million. The Company seldom experiences order cancellations larger than $1.0 million, however, economic conditions could have an adverse impact on future order cancellations.

Results of Operations

First Quarter of Fiscal 2009 Compared to First Quarter of Fiscal 2008

The following is a comparison of First Quarter of Fiscal 2009 and First Quarter
of Fiscal 2008 statements of operations (in millions, except per share data):


                                                   Three Months Ended
                                             December 27,      December 29,
                                                 2008              2007          Variance      % Variance
Revenue                                     $        116.6    $        107.4    $      9.2          8.6 %
Cost of sales                                         72.4              64.2           8.2         12.8 %
Gross profit                                          44.2              43.2           1.0          2.3 %
Gross margin                                          37.9 %            40.2 %        -2.3 %
Operating expenses:
Selling and marketing                                 19.1              19.0           0.1          0.5 %
General administrative                                 9.9               8.1           1.8         22.2 %
Research and development                               3.3               4.0          (0.7 )      -17.5 %
Total operating expenses                              32.3              31.1           1.2          3.9 %
Income from operations                                11.9              12.1          (0.2 )       -1.7 %
Interest expense                                      (0.5 )            (0.3 )        (0.2 )       66.7 %
Interest income                                        0.5               0.9          (0.4 )      -44.4 %
Other income (expense), net                            1.0              (0.1 )         1.1            NM
Income before income taxes and
discontinued operations                               12.9              12.6           0.3          2.4 %
Provision for income taxes                             3.1               4.4          (1.3 )      -29.5 %
Income before discontinued operations                  9.8               8.2           1.6         19.5 %
Income from discontinued operations, net
of tax                                                   -               0.2          (0.2 )          NM
Net income                                  $          9.8    $          8.4    $      1.4         16.7 %
Diluted earnings per share                  $         0.57    $         0.47          0.10         21.3 %

"NM" represents comparisons that are not meaningful to this analysis.

The following is a comparison of First Quarter of Fiscal 2009 and First Quarter of Fiscal 2008 results of operations, separately identifying the impact of the SANS acquisition as well as the impact of currency translation (in millions):

                      Three Months                                                  Three Months
                          Ended         Organic                                         Ended
                      December 29,     Business         SANS          Currency      December 27,
                          2007          Change       Acquisition     Translation        2008
Revenue               $       107.4   $       9.5   $         3.3   $        (3.6 ) $       116.6
Cost of sales                  64.2           8.3             2.6            (2.7 )          72.4
Gross profit                   43.2           1.2             0.7            (0.9 )          44.2
                               40.2 %                        21.2 %                          37.9 %
Operating expenses:
Selling and
marketing                      19.0          (0.4 )           1.0            (0.5 )          19.1
General
administrative                  8.1          (0.2 )           2.0               -             9.9
Research and
development                     4.0          (0.7 )             -               -             3.3
Total operating
expenses                       31.1          (1.3 )           3.0            (0.5 )          32.3
Income (loss) from
operations            $        12.1   $       2.5   $        (2.3 ) $        (0.4 ) $        11.9

Revenue for the First Quarter of Fiscal 2009 was $116.6 million, an increase of $9.2 million, or 8.6%, compared to revenue of $107.4 million for the First Quarter of Fiscal 2008. This increase was primarily driven by higher opening backlog in the organic Test business, as well as $3.3 million from SANS, partially offset by lower volume in the Sensors segment, and an estimated $3.6 million unfavorable impact of currency translation. Revenue from international customers for the First Quarter of Fiscal 2009 represented 65.1% of total revenue, compared to 65.8% for the First Quarter of Fiscal 2008.

Gross profit for the First Quarter of Fiscal 2009 was $44.2 million, an increase of $1.0 million, or 2.3%, compared to gross profit of $43.2 million for the First Quarter of Fiscal 2008. Gross profit as a percentage of revenue for the First Quarter of Fiscal 2009 was 37.9%, a decrease of 2.3 percentage points from 40.2% for the First Quarter of Fiscal 2008. This decrease was primarily due to the volume decline in the Sensors segment, as well as unfavorable product mix in the organic Test business. In addition, SANS negatively impacted gross profit by 0.5 percentage points in the First Quarter of Fiscal 2009, primarily due to the sale of inventory that was written up to fair value as part of the acquisition.

Selling and marketing expensefor the First Quarter of Fiscal 2009 was $19.1 million, relatively flat compared to $19.0 million for the First Quarter of Fiscal 2008, as a $1.0 million increase from SANS was substantially offset by reduced commission payments in the organic Test business. Selling and marketing expense as a percentage of revenue for the First Quarter of Fiscal 2009 was 16.4%, compared to 17.7% for the First Quarter of Fiscal 2008.

General and administrative expensefor the First Quarter of Fiscal 2009 was $9.9 million, an increase of $1.8 million, or 22.2%, compared to $8.1 million for the First Quarter of Fiscal 2008. This increase was primarily driven by SANS, as well as increased compensation and benefit payments in the Sensors segment, partially offset by net reduced legal and other professional fees in the organic Test business,. General and administrative expense as a percentage of revenue for the First Quarter of Fiscal 2009 was 8.5%, compared to 7.5% for the First Quarter of Fiscal 2008.

Research and development expensefor the First Quarter of Fiscal 2009 was $3.3 million, a decrease of $0.7 million, or 17.5%, compared to $4.0 million for the First Quarter of Fiscal 2008. The decrease was due to a temporary reallocation of resources towards other operating initiatives in the organic Test business, as well as reduced spending in the Sensors segment. Research and development expense as a percentage of revenue for the First Quarter of Fiscal 2009 was 2.8%, compared to 3.7% for the First Quarter of Fiscal 2008.

Income from operationsfor the First Quarter of Fiscal 2009 was $11.9 million, relatively flat compared to income from operations of $12.1 million for the First Quarter of Fiscal 2008, as increased gross profit and reduced operating expenses in the organic Test business were substantially offset by lower gross profit in the Sensors segment, and a $2.3 million operating loss from SANS. Operating income as a percentage of revenue for the First Quarter of Fiscal 2009 was 10.2%, compared to 11.3% for the First Quarter of Fiscal 2008.

Interest expense was $0.5 million for the First Quarter of Fiscal 2009, an increase of $0.2 million compared to $0.3 million for the First Quarter of Fiscal 2008, as the interest expense incurred on the higher level of short-term borrowings was substantially offset by a reduction in fixed-rate long-term debt.

Interest income was $0.5 million for the First Quarter of Fiscal 2009, a decrease of $0.4 million compared to $0.9 million for the First Quarter of Fiscal 2008, due to lower interest rates applied to lower average cash and cash equivalents balances in the First Quarter of Fiscal 2009 compared to the First Quarter of Fiscal 2008.

Other income (expense), netwas $1.0 million of net other income for the First Quarter of Fiscal 2009, an increase of $1.1 million compared to $0.1 million of net other expense in the First Quarter of Fiscal 2008. This increase in net other income was primarily due to net gains on foreign currency transactions in the First Quarter of Fiscal 2009.

Provision for income taxestotaled $3.1 million for the First Quarter of Fiscal 2009, a decrease of $1.3 million, or 29.5%, compared to $4.4 million for the First Quarter of Fiscal 2008, primarily due to a lower effective tax rate. The effective tax rate for the First Quarter of Fiscal 2009 was 24.1%, a decrease of 11.0 percentage points compared to a tax rate of 35.1% for the First Quarter of Fiscal 2008. This decrease was primarily due to legislation enacted in the First Quarter of Fiscal 2009 that extended U.S. R&D credits, with an effective date that was retroactive to January 1, 2008.

Net income was $9.8 million for the First Quarter of Fiscal 2009, an increase of $1.4 million, or 16.7%, compared to $8.4 million for the First Quarter of Fiscal 2008. The increase in net income was primarily driven by a decreased income tax and favorable gains on foreign currency transactions.

The reduction in number of shares outstanding, resulting from the Company's share purchases, positively impacted earnings per share by $0.03 for the First Quarter of Fiscal 2009.

Segment Results

Test Segment

Orders and Backlog

First Quarter of Fiscal 2009 Compared to First Quarter of Fiscal 2008

The following is a comparison of First Quarter of Fiscal 2009 and First Quarter
of Fiscal 2008 orders for the Test segment, separately identifying the impact of
the SANS acquisition as well as the impact of currency translation (in
millions):


              Three Months                                                  Three Months
                  Ended        Organic                                         Ended
              December 29,     Business        SANS          Currency       December 27,
                  2007          Change      Acquisition     Translation         2008
     Orders   $       101.2   $    (28.4 ) $         5.5   $        (1.3 ) $         77.0

Orders for the First Quarter of Fiscal 2009 totaled $77.0 million, a decrease of $24.2 million, or 23.9%, compared to orders of $101.2 million for the First Quarter of Fiscal 2008, primarily due to lower volume in the organic business across all geographies resulting from an overall weakening of the global economy, partially offset by $5.5 million from SANS. First Quarter of Fiscal 2008 orders included one large custom order for approximately $6.6 million. The Test segment accounted for 80.8% of total Company orders for the First Quarter of Fiscal 2009, compared to 81.9% for the First Quarter of Fiscal 2008. Orders from international customers for the First Quarter of Fiscal 2009 represented 64.2% of total orders, compared to 57.4% for the First Quarter of Fiscal 2008.

Backlog of undelivered orders at the end of the First Quarter of Fiscal 2009 was $207.9 million, a decrease of 6.7% from backlog of $222.8 million at September 27, 2008. Backlog at the end of the First Quarter of Fiscal 2009 included $10.8 million from SANS. Backlog at the end of the First Quarter of Fiscal Year 2008 was $215.8 million.

Results of Operations

First Quarter of Fiscal 2009 Compared to First Quarter of Fiscal 2008

The following is a comparison of First Quarter of Fiscal 2009 and First Quarter of Fiscal 2008 results of operations for the Test segment, separately identifying the impact of the SANS acquisition as well as the impact of currency translation (in millions):

                                 Three Months                                                  Three Months
                                    Ended         Organic                                         Ended
                                 December 29,     Business        SANS          Currency       December 27,
                                     2007          Change      Acquisition     Translation         2008
Revenue                         $         84.2   $     12.8   $         3.3   $        (3.1 ) $         97.2
Cost of sales                             54.2          9.6             2.6            (2.5 )           63.9
Gross profit                              30.0          3.2             0.7            (0.6 )           33.3
                                          35.6 %                       21.2 %                           34.3 %
Operating expenses:
Selling and marketing                     14.8         (0.6 )           1.0            (0.4 )           14.8
General administrative                     5.6         (0.3 )           2.0               -              7.3
Research and development                   2.7         (0.5 )             -               -              2.2
Total operating expenses                  23.1         (1.4 )           3.0            (0.4 )           24.3
Income (loss) from operations   $          6.9   $      4.6   $        (2.3 ) $        (0.2 ) $          9.0

Revenue for the First Quarter of Fiscal 2009 was $97.2 million, an increase of $13.0 million, or 15.4%, compared to revenue of $84.2 million for the First Quarter of Fiscal 2008. This increase was primarily driven by higher opening backlog in the organic business, as well as $3.3 million from SANS, partially offset by an estimated $3.1 million unfavorable impact of currency translation. Revenue from international customers for the First Quarter of Fiscal 2009 represented 64.0% of total revenue, compared to 63.9% for the First Quarter of Fiscal 2008.

Gross profit for the First Quarter of Fiscal 2009 was $33.3 million, an increase of $3.3 million, or 11.0%, compared to gross profit of $30.0 million for the First Quarter of Fiscal 2008. Gross profit as a percentage of revenue for the First Quarter of Fiscal 2009 was 34.3%, a decrease of 1.3 percentage points from 35.6% for the First Quarter of Fiscal 2008. This decease was primarily due to a higher mix of lower-margin custom projects and higher material costs, particularly steel and aluminum, in the organic business. In addition, SANS negatively impacted gross profit by 0.5 percentage points in the First Quarter of Fiscal 2009.

Selling and marketing expensefor the First Quarter of Fiscal 2009 was $14.8 million, flat compared to the First Quarter of Fiscal 2008, as a $1.0 million increase from SANS was offset by reduced commission payments in the organic business. Selling and marketing expense as a percentage of revenue for the First Quarter of Fiscal 2009 was 15.2%, compared to 17.6% for the First Quarter of Fiscal 2008.

General and administrative expensefor the First Quarter of Fiscal 2009 was $7.3 million, an increase of $1.7 million, or 30.4%, compared to $5.6 million for the First Quarter of Fiscal 2008. This increase was primarily due to SANS, partially offset by a net reduction in legal and other professional fees in the organic business. General and administrative expense as a percentage of revenue for the First Quarter of Fiscal 2009 was 7.5%, compared to 6.7% for the First Quarter of Fiscal 2008.

Research and development expensefor the First Quarter of Fiscal 2009 was $2.2 million, a decrease of $0.5 million, or 18.5%, compared to $2.7 million for the First Quarter of Fiscal 2008. The decrease was due to a temporary reallocation of resources towards other operating initiatives. Research and development expense as a percentage of revenue for the First Quarter of Fiscal 2009 was 2.3%, compared to 3.2% for the First Quarter of Fiscal 2008.

Income from operationsfor the First Quarter of Fiscal 2009 was $9.0 million, an increase of $2.1 million, or 30.4%, compared to income from operations of $6.9 million for the First Quarter of Fiscal 2008. This increase in primarily due to increased gross profit and reduced operating expenses in the organic business, partially offset by a $2.3 million operating loss from SANS. Operating income as a percentage of revenue for the First Quarter of Fiscal 2009 was 9.3%, compared to 8.2% for the First Quarter of Fiscal 2008.

SANS Acquisition

Orders and revenue for the First Quarter of Fiscal 2009 were $5.5 million and $3.3 million, respectively. Gross profit as a percentage of revenue for the First Quarter of Fiscal 2009 was 21.2%. Gross profit includes a $0.8 million reduction associated with the sale of inventory that was written up to fair value as part of the acquisition, which negatively impacted the gross margin rate by 24.2%. Loss from operations for the First Quarter of Fiscal 2009 was $2.3 million, driven by reduced gross profit and increased operating expenses associated with integration costs.

Sensors Segment

Orders and Backlog

First Quarter of Fiscal 2009 Compared to First Quarter of Fiscal 2008

The following is a comparison of First Quarter of Fiscal 2009 and First Quarter
of Fiscal 2008 orders for the Sensors segment, separately identifying the impact
of currency translation (in millions):
. . .