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 March 28, 2009 ("Second Quarter of Fiscal 2009") Compared to Three Months Ended March 29, 2008 ("Second Quarter of Fiscal 2008")

Highlights for the Second Quarter of Fiscal 2009 include:

• Orders decreased 46.7% to $69.2 million, compared to $129.9 million for the Second Quarter of Fiscal 2008, as sharply lower demand in worldwide capital spending in the Company's markets had a negative impact on both the Test and Sensors segments. Backlog of undelivered orders was $175.4 million, including $12.7 million from SANS, a decrease of 19.7% from backlog of $218.4 million at December 27, 2008. Backlog at the end of the Second Quarter of Fiscal 2008 was $246.1 million.

• Revenue decreased 4.0% to $107.7 million, compared to $112.2 million in the Second Quarter of Fiscal 2008. This decrease was primarily driven by a 27.2% decline in the Sensors segment, partially offset by a 4.2% benefit from SANS. Revenue volume in the organic Test business was relatively flat (where "organic" as used throughout Item 2. is defined as "without the SANS acquisition").

• In February 2009, the Company announced and initiated a workforce reduction in order to align the Company's operating cost structure with changing market conditions. In connection with the workforce reduction, the Company incurred severance and benefit costs totaling $2.8 million, of which $2.7 million and $0.1 million was reported in the Test and Sensors segments, respectively. Of the $2.8 million total costs, $1.2 million, $1.4 million, and $0.2 million were reported in Cost of Sales, Selling and Marketing, and General and Administrative expense, respectively.

• Income from operations decreased 15.8% to $11.7 million, compared to $13.9 million for the Second Quarter of Fiscal 2008, as the unfavorable impact of the volume decline in the Sensors segment, severance and benefit costs associated with the previously mentioned workforce reduction, as well as a $1.2 million operating loss from SANS, more than offset reduced variable compensation and other operating expenses in both the organic Test business and the Sensors segment.

• The effective tax rate was 27.9%, an increase of 15.3 percentage points compared to a tax rate of 12.6% for the Second Quarter of Fiscal 2008. This increase was primarily due to a $3.7 million tax benefit from the repatriation of earnings from Japanese affiliates in the Second Quarter of Fiscal 2008.

• Earnings per diluted share decreased $0.32, or 42.1%, to $0.44, compared to $0.76 for the Second Quarter of Fiscal 2008. A higher tax rate, lower income from operations and currency related losses negatively impacted earnings per diluted share by $0.10, $0.09 and $0.09, respectively.

• Cash and cash equivalents at the end of the quarter totaled $99.3 million, compared to $104.8 million at the end of the prior quarter. Cash flows from operations generated $10.2 million. During the quarter, the Company invested $2.8 million in capital expenditures, paid $2.5 million in dividends, and purchased 125,400 shares of common stock for $3.1 million.

Six Months Ended March 28, 2009 ("First Half of Fiscal 2009") Compared to Six Months Ended March 29, 2008 ("First Half of Fiscal 2008")

Highlights for the First Half 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 electromechanical 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 Half of Fiscal 2009 were $12.0 million. SANS reported a $3.5 million loss from operations during the First Half of Fiscal 2009, on $8.0 million of revenue, driven by lower gross profit and increased operating expenses associated with acquisition-related items.

• Orders decreased 35.0% to $164.6 million, compared to $253.4 million for the First Half of Fiscal 2008, as sharply lower demand in worldwide capital spending in the Company's markets had a negative impact on both the Test and Sensors segments.

• Revenue increased 2.1% to $224.3 million, compared to $219.6 million in the First Half of Fiscal 2008. This increase was primarily due to a 7.9% increase in the organic Test business, driven by higher opening backlog, partially offset by a 20.9% decline in the Sensors segment. SANS provided a 3.6% benefit for the First Half of Fiscal 2009.

• As previously mentioned, the Company announced and initiated a workforce reduction during the First Half of Fiscal Year 2009. As a result, the Company incurred severance and benefit arrangement costs totaling $2.8 million, of which $2.7 million and $0.1 million was reported in the Test and Sensors segments, respectively. Of the $2.8 million total costs, $1.2 million, $1.4 million, and $0.2 million were reported in Cost of Sales, Selling and Marketing, and General and Administrative expense, respectively.

• Income from operations decreased 8.5% to $23.7 million, compared to $25.9 million for the First Half of Fiscal 2008, as the unfavorable impact of the volume decline in the Sensors segment, severance and benefit costs associated with the workforce reduction, as well as a $3.5 million operating loss from SANS, more than offset reduced variable compensation and other operating expenses in both the organic Test business and the Sensors segment.

• The effective tax rate was 25.8%, an increase of 3.1 percentage points compared to a tax rate of 22.7% for the First Quarter of Fiscal 2008. This increase was primarily due to a $3.7 million tax benefit from the repatriation of earnings from Japanese affiliates in the First Half of Fiscal 2008, partially offset by a $1.0 million tax benefit from the retroactive extension of U.S. R&D credits in the First Half of Fiscal 2009.

• Earnings per diluted share decreased $0.20, or 16.4%, to $1.02, compared to $1.22 for the First Half of Fiscal 2008, primarily due to decreased net income. This decrease was primarily driven by lower income from operations, increased net interest expense, and unfavorable losses on foreign currency transactions, which unfavorably impacted earnings per diluted share by $0.09, $0.06 and $0.04, respectively.

• Cash and cash equivalents at March 28, 2009 totaled $99.3 million, compared to $114.1 million at the end of Fiscal 2008. Cash flows from operations generated $15.7 million. During the First Half of Fiscal 2009, the Company borrowed $16.0 million from its credit facility, paid an additional $21.6 million for the acquisition of SANS, invested $5.9 million in capital expenditures, and purchased 245,500 shares of common stock for $6.7 million.

Detailed Financial Results

Total Company

Orders and Backlog

Second Quarter of Fiscal 2009 Compared to Second Quarter of Fiscal 2008

The following is a comparison of Second Quarter of Fiscal 2009 and Second
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
           March 29,      Business        SANS          Currency        March 28,
             2008          Change      Acquisition     Translation         2009
Orders   $       129.9   $    (63.9 ) $         6.5   $        (3.3 ) $         69.2

Orders totaled $69.2 million, a decrease of $60.7 million, or 46.7%, compared to orders of $129.9 million for the Second 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 $6.5 million increase from SANS. Orders from international customers for the Second Quarter of Fiscal 2009 represented 66.9% of total orders, compared to 66.6% for the Second Quarter of Fiscal 2008.

Backlog of undelivered orders at March 28, 2009 was $175.4 million, a decrease of 19.7% from backlog of $218.4 million at December 27, 2008. Backlog at the end of the Second Quarter of Fiscal 2009 included $12.7 million from SANS. Backlog at the end of the Second Quarter of Fiscal 2008 was $246.1 million. The Company seldom experiences order cancellations larger than $1.0 million; however, current economic conditions could have an adverse impact on order cancellations in the future.

Results of Operations

Second Quarter of Fiscal 2009 Compared to Second Quarter of Fiscal 2008

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


                                                     Three Months Ended
                                                  March 28,      March 29,
                                                     2009          2008         Variance     % Variance
Revenue                                           $    107.7    $     112.2    $     (4.5 )      -4.0 %
Cost of sales                                           66.2           66.1           0.1         0.2 %
Gross profit                                            41.5           46.1          (4.6 )     -10.0 %
Gross margin                                            38.6 %         41.1 %        -2.5 %
Operating expenses:
Selling and marketing                                   17.9           19.7          (1.8 )      -9.1 %
General administrative                                   8.0            8.5          (0.5 )      -5.9 %
Research and development                                 3.9            4.0          (0.1 )      -2.5 %
Total operating expenses                                29.8           32.2          (2.4 )      -7.5 %

Income from operations                                  11.7           13.9          (2.2 )     -15.8 %

Interest expense                                        (0.5 )         (0.3 )        (0.2 )      66.7 %
Interest income                                          0.3            0.9          (0.6 )     -66.7 %
Other (expense) income, net                             (1.1 )          0.8          (1.9 )           NM
Income before income taxes and discontinued
operations                                              10.4           15.3          (4.9 )     -32.0 %
Provision for income taxes                               2.9            1.9           1.0        52.6 %
Income before discontinued operations                    7.5           13.4          (5.9 )     -44.0 %

Income from discontinued operations, net of
tax                                                        -            0.1          (0.1 )           NM
Net income                                        $      7.5    $      13.5    $     (6.0 )     -44.4 %
Diluted earnings per share                        $     0.44    $      0.76         (0.32 )     -42.1 %

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

The following is a comparison of Second Quarter of Fiscal 2009 and Second 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
                                      March 29,       Business         SANS           Currency         March 28,
                                        2008           Change       Acquisition      Translation         2009
Revenue                             $       112.2    $     (6.0 )  $         4.7    $        (3.2 )  $       107.7
Cost of sales                                66.1          (0.9 )            2.7             (1.7 )           66.2
Gross profit                                 46.1          (5.1 )            2.0             (1.5 )           41.5
                                             41.1 %                         42.6 %                            38.6 %
Operating expenses:
Selling and marketing                        19.7          (2.5 )            1.2             (0.5 )           17.9
General administrative                        8.5          (2.3 )            2.0             (0.2 )            8.0
Research and development                      4.0             -                -             (0.1 )            3.9
Total operating expenses                     32.2          (4.8 )            3.2             (0.8 )           29.8

Income (loss) from operations       $        13.9    $     (0.3 )  $        (1.2 )  $        (0.7 )  $        11.7

Revenue was $107.7 million, a decrease of $4.5 million, or 4.0%, compared to revenue of $112.2 million for the Second Quarter of Fiscal 2008. This decrease was primarily due to lower volume in the Sensors segment and an estimated $3.2 million unfavorable impact of currency translation, partially offset by $4.7 million from SANS. Revenue in the organic Test business was relatively flat. Revenue from international customers represented 62.2% of total revenue, compared to 63.9% for the Second Quarter of Fiscal 2008.

Gross profit was $41.5 million, a decrease of $4.6 million, or 10.0%, compared to gross profit of $46.1 million for the Second Quarter of Fiscal 2008. Gross profit as a percentage of revenue was 38.6%, a decrease of 2.5 percentage points from 41.1% for the Second Quarter of Fiscal 2008. This decrease was primarily due to the volume decline in the Sensors segment, increased warranty expense in the organic Test business, and $1.2 million severance and benefit costs associated with the workforce reduction that was initiated in the Second Quarter of Fiscal 2009, partially offset by a $1.9 million reduction in variable compensation expense. In addition, SANS positively impacted gross profit by 0.2 percentage points in the Second Quarter of Fiscal 2009.

Selling and marketing expensewas $17.9 million, a decrease of $1.8 million, or 9.1%, compared to $19.7 million for the Second Quarter of Fiscal 2008. This decrease was primarily due to lower commissions and sales incentives, reduced spending, as well as a $0.8 million reduction in variable compensation expense in both the organic Test business and Sensors segment. This decrease was partially offset by $1.4 million severance and benefit costs associated with the previously mentioned workforce reduction, and $1.2 million increase from SANS. Selling and marketing expense as a percentage of revenue for the Second Quarter of Fiscal 2009 was 16.6%, compared to 17.6% for the Second Quarter of Fiscal 2008.

General and administrative expensewas $8.0 million, a decrease of $0.5 million, or 5.9%, compared to $8.5 million for the Second Quarter of Fiscal 2008. This decrease was primarily due to a $1.2 million reduction in variable compensation expense, and lower legal expense in the organic Test business, partially offset by $2.0 million from SANS, and $0.2 million severance and benefit costs associated with a previously mentioned workforce reduction. General and administrative expense as a percentage of revenue was 7.4%, compared to 7.6% for the Second Quarter of Fiscal 2008.

Research and development expensewas $3.9 million, relatively flat compared to the Second Quarter of Fiscal 2008. Research and development expense as a percentage of revenue was 3.6%, flat compared for the Second Quarter of Fiscal 2008.

Income from operationswas $11.7 million, a decrease of $2.2 million, or 15.8%, compared to income from operations of $13.9 million for the Second Quarter of Fiscal 2008, as decreased volume in the Sensors segment, as well as a $1.2 million operating loss from SANS, more than offset reduced variable compensation and other operating expenses in the both the organic Test business and Sensors segment. Operating income as a percentage of revenue was 10.9%, compared to 12.4% for the Second Quarter of Fiscal 2008.

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

Interest income was $0.3 million, a decrease of $0.6 million compared to $0.9 million for the Second Quarter of Fiscal 2008, due to lower interest rates applied to lower average cash and cash equivalent balances compared to the Second Quarter of Fiscal 2008.

Other (expense) income, netwas $1.1 million of net other expense, a decrease of $1.9 million compared to $0.8 million of net other income in the Second Quarter of Fiscal 2008. This decrease was primarily due to net losses on foreign currency transactions compared to net gains on foreign currency transactions in the Second Quarter of Fiscal 2008.

Provision for income taxestotaled $2.9 million, an increase of $1.0 million, or 52.6%, compared to $1.9 million for the Second Quarter of Fiscal 2008, primarily due to a higher effective tax rate. The effective tax rate was 27.9%, an increase of 15.3 percentage points compared to a tax rate of 12.6% for the Second Quarter of Fiscal 2008. This increase was primarily due to a $3.7 million tax benefit from the repatriation of earnings from Japanese affiliates in the Second Quarter of Fiscal 2008.

Net income was $7.5 million, a decrease of $6.0 million, or 44.4%, compared to $13.5 million for the Second Quarter of Fiscal 2008. The decrease in net income was primarily driven by lower income from operations, unfavorable losses on foreign currency transactions, and increased income tax expense.

The reduction in number of shares outstanding, resulting from the Company's share purchases, positively impacted earnings per share by $0.02 for the Second Quarter of Fiscal 2009.

Segment Results

Test Segment

Orders and Backlog

Second Quarter of Fiscal 2009 Compared to Second Quarter of Fiscal 2008

The following is a comparison of Second Quarter of Fiscal 2009 and Second
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
                March 29,      Business        SANS          Currency        March 28,
                  2008          Change      Acquisition     Translation         2009
     Orders   $       104.9   $    (55.3 ) $         6.5   $        (2.6 ) $         53.5

Orders totaled $53.5 million, a decrease of $51.4 million, or 49.0%, compared to orders of $104.9 million for the Second Quarter of Fiscal 2008, primarily due to lower volume in the organic business across all geographies resulting from sharply lower demand in worldwide capital spending in the segment's markets, partially offset by $6.5 million from SANS. Second Quarter of Fiscal 2008 orders included three large orders in excess of $5 million totaling approximately $30 million. There were no such large orders in the Second Quarter of Fiscal 2009. The Test segment accounted for 77.3% of total Company orders, compared to 80.8% for the Second Quarter of Fiscal 2008. Orders from international customers represented 67.2% of total orders, compared to 65.1% for the Second Quarter of Fiscal 2008.

Backlog of undelivered orders at the end of the quarter was $166.3 million, a decrease of 20.0% from backlog of $207.9 million at December 27, 2008. Backlog included $12.7 million from SANS. Backlog at the end of the Second Quarter of Fiscal Year 2008 was $233.5 million.

Results of Operations

Second Quarter of Fiscal 2009 Compared to Second Quarter of Fiscal 2008

The following is a comparison of Second Quarter of Fiscal 2009 and Second
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
                                      March 29,        Business         SANS           Currency         March 28,
                                         2008           Change       Acquisition      Translation          2009
Revenue                             $         87.8    $      0.7    $         4.7    $        (2.2 )  $         91.0
Cost of sales                                 55.5           1.6              2.7             (1.3 )            58.5
Gross profit                                  32.3          (0.9 )            2.0             (0.9 )            32.5
                                              36.8 %                         42.6 %                             35.7 %
Operating expenses:
Selling and marketing                         15.4          (1.8 )            1.2             (0.4 )            14.4
General administrative                         5.6          (1.6 )            2.0             (0.1 )             5.9
Research and development                       2.9           0.1                -                -               3.0
Total operating expenses                      23.9          (3.3 )            3.2             (0.5 )            23.3

Income (loss) from operations       $          8.4    $      2.4    $        (1.2 )  $        (0.4 )  $          9.2

Revenue was $91.0 million, an increase of $3.2 million, or 3.6%, compared to revenue of $87.8 million for the Second Quarter of Fiscal 2008. The organic Test business was relatively flat, while revenue from SANS was $4.7 million. This revenue increase was partially offset by an estimated $2.2 million unfavorable impact of currency translation. Revenue from international customers represented 60.5% of total revenue, compared to 61.4% for the Second Quarter of Fiscal 2008.

Gross profit was $32.5 million, relatively flat compared to the Second Quarter . . .