10-Q

United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended December 27, 2014
or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________
Commission File Number 0-2382

MTS SYSTEMS CORPORATION

(Exact name of Registrant as specified in its charter)

MINNESOTA	41-0908057
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

14000 Technology Drive, Eden Prairie, MN 55344

(Address of principal executive offices)    (Zip Code)

Registrant’s telephone number, including area code: (952) 937-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

xYes oNo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

xYes oNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x    Accelerated filer o    Non-accelerated filer o  (Do not check if a smaller reporting company) Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

oYes xNo

The number of shares outstanding of the issuer’s common stock as of January 28, 2015 was 15,013,904 shares.

MTS SYSTEMS CORPORATION

REPORT ON FORM 10-Q
FOR THE THREE FISCAL MONTHS ENDED DECEMBER 27, 2014

INDEX

			Page No.
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Consolidated Balance Sheets as of December 27, 2014 and September 27, 2014	2
		Consolidated Statements of Income for the Three Fiscal Months Ended December 27, 2014 and December 28, 2013	3
		Consolidated Statements of Comprehensive Income for the Three Fiscal Months Ended December 27, 2014 and December 28, 2013	4
		Consolidated Statements of Cash Flows for the Three Fiscal Months Ended December 27, 2014 and December 28, 2013	5
		Condensed Notes to Consolidated Financial Statements	6 - 21
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 - 33
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
	Item 4.	Controls and Procedures	34
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings	34 - 35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 6.	Exhibits	36
SIGNATURES			37

1

PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements

MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(unaudited - in thousands, except per share data)

	December 27, 2014		September 27, 2014
ASSETS
Current Assets:
Cash and cash equivalents	$	55,345	$	60,397
Accounts receivable, net of allowances for doubtful accounts of $2,888 and $2,609, respectively		109,051		104,399
Unbilled accounts receivable		77,439		75,762
Inventories		89,643		83,557
Prepaid expenses and other current assets		19,451		13,937
Deferred income taxes		12,665		12,930
Total current assets		363,594		350,982
Property and equipment, net		80,867		81,575
Goodwill		27,574		26,123
Other intangible assets, net		20,758		21,178
Other assets		3,515		3,694
Deferred income taxes		3,569		3,856
Total assets	$	499,877	$	487,408
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
Current Liabilities:
Short-term borrowings	$	65,000	$	60,000
Accounts payable		29,563		27,189
Accrued payroll and related costs		26,735		30,009
Advance payments from customers		61,222		52,335
Accrued warranty costs		5,188		4,286
Accrued income taxes		3,552		6,041
Deferred income taxes		1,573		1,641
Accrued dividends		4,439		4,476
Other accrued liabilities		20,622		17,004
Total current liabilities		217,894		202,981
Deferred income taxes		10,557		6,045
Non-current accrued income taxes		4,819		5,990
Defined benefit pension plan obligation		6,743		7,654
Other long-term liabilities		5,704		6,611
Total liabilities		245,717		229,281
Shareholders’ Investment:
Common stock, $0.25 par; 64,000 shares authorized: 15,036 and 15,180 shares issued and outstanding as of December 27, 2014 and September 27, 2014, respectively		3,759		3,795
Additional paid-in capital		—		6,112
Retained earnings		248,228		242,396
Accumulated other comprehensive income		2,173		5,824
Total shareholders’ investment		254,160		258,127
Total liabilities and shareholders’ investment	$	499,877	$	487,408

The accompanying condensed notes to consolidated financial statements are an integral part of these statements.

2

MTS SYSTEMS CORPORATION
Consolidated Statements of Income
(unaudited - in thousands, except per share data)

	Three Fiscal Months Ended
	December 27, 2014			December 28, 2013
Revenue:
Product	$	124,481		$	121,159
Service		18,103			17,251
Total revenue		142,584			138,410
Cost of sales:
Product		75,532			74,625
Service		10,221			9,246
Total cost of sales		85,753			83,871
Gross profit		56,831			54,539
Operating expenses:
Selling and marketing		21,254			21,483
General and administrative		14,202			13,206
Research and development		5,564			5,703
Total operating expenses		41,020			40,392
Income from operations		15,811			14,147
Interest expense, net		(167	)		(160	)
Other expense, net		(759	)		(292	)
Income before income taxes		14,885			13,695
Provision for income taxes		1,099			4,550
Net income	$	13,786		$	9,145
Earnings per share:
Basic-
Earnings per share	$	0.91		$	0.60
Weighted average number of common shares outstanding - basic		15,108			15,352
Diluted-
Earnings per share	$	0.90		$	0.59
Weighted average number of common shares outstanding - diluted		15,270			15,539
Dividends declared per share	$	0.30		$	0.30

The accompanying condensed notes to consolidated financial statements are an integral part of these statements.

3

MTS SYSTEMS CORPORATION
Consolidated Statements of Comprehensive Income
(unaudited - in thousands)

	Three Fiscal Months Ended
	December 27, 2014			December 28, 2013
Net income	$	13,786		$	9,145
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(4,812	)		960
Derivative instruments:
Unrealized net (loss) gain		1,444			27
Net (gain) loss reclassified to earnings		(1,082	)		319
Defined benefit pension plan:
Unrealized net gain		386			433
Net loss reclassified to earnings		95			81
Currency exchange rate change		318			(86	)
Other comprehensive (loss) income		(3,651	)		1,734
Comprehensive income	$	10,135		$	10,879

The accompanying condensed notes to consolidated financial statements are an integral part of these statements.

4

MTS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
(unaudited - in thousands)

	Three Fiscal Months Ended
	December 27, 2014			December 28, 2013
Cash flows from operating activities:
Net income	$	13,786		$	9,145
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		2,196			880
Excess tax benefits for stock-based compensation		(119	)		(171	)
Net periodic pension benefit cost		268			459
Depreciation and amortization		5,195			4,490
Deferred income taxes		4,850			365
Bad debt provision		325			112
Changes in operating assets and liabilities:
Accounts and unbilled accounts receivable		(10,727	)		9,482
Inventories		(6,745	)		(1,251	)
Prepaid expenses		(3,887	)		(307	)
Accounts payable		2,901			(2,292	)
Accrued payroll and related costs		(3,098	)		(2,603	)
Advance payments from customers		8,405			(2,651	)
Accrued warranty costs		918			597
Other assets and liabilities		(1,323	)		7,557
Net cash provided by operating activities		12,945			23,812
Cash flows from investing activities:
Purchases of property and equipment		(4,474	)		(4,554	)
Cash flows from financing activities:
Receipts under short-term borrowings		5,000			—
Payments under short-term borrowings		(26	)		—
Excess tax benefits from stock-based compensation		119			171
Cash dividends		(4,561	)		(4,641	)
Proceeds from exercise of stock options and employee stock purchase plan		969			1,230
Payments to purchase and retire common stock		(12,804	)		(10,982	)
Net cash used in financing activities		(11,303	)		(14,222	)
Effect of exchange rate on changes in cash		(2,220	)		119
Net (decrease) increase in cash and cash equivalents		(5,052	)		5,155
Cash and cash equivalents, at beginning of period		60,397			48,333
Cash and cash equivalents, at end of period	$	55,345		$	53,488
Supplemental disclosure of cash flow information:
Cash paid during the period for -
Interest	$	176		$	114
Income taxes	$	3,414		$	3,567
Non-cash financing activities:
Dividends declared not yet paid	$	4,439		$	4,504

The accompanying condensed notes to consolidated financial statements are an integral part of these statements.

5

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

The consolidated financial statements include the accounts of MTS Systems Corporation and its wholly owned subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated.

The interim unaudited consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The information furnished in these consolidated financial statements includes normal recurring adjustments and reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles accepted in the United States of America (“U.S. GAAP”), and U.S. GAAP requires the Company to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014 filed with the SEC. Interim results of operations for the first quarter ended December 27, 2014 are not necessarily indicative of the results to be expected for the full year.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to September 30. The Company’s fiscal years ended September 27, 2014 and September 28, 2013 consisted of 52 weeks. The Company’s fiscal year ending October 3, 2015 will consist of 53 weeks.

Summary of Significant Accounting Policies

The Company believes that of its significant accounting policies, the following are particularly important to the portrayal of the Company’s results of operations and financial position and may require the application of a higher level of judgment by the Company’s management and, as a result, are subject to an inherent degree of uncertainty.

Revenue Recognition. The Company recognizes revenue on a sales arrangement when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery and title transfer has occurred or services have been rendered; the sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled.

Orders that are manufactured and delivered in less than six months with routine installations and no special acceptance protocols may contain multiple elements for revenue recognition purposes. The Company considers each deliverable that provides value to the customer, on a standalone basis, a separable element. Separable elements in these arrangements may include the design and manufacture of hardware and essential software, installation services, training and/or post contract software maintenance and support. The Company initially allocates consideration to each separable element using the relative selling price method. Selling prices are determined by the Company based on either vendor-specific objective evidence (“VSOE”) (the actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, the Company’s best estimate of the selling price. Factors considered by the Company in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by the Company to provide the deliverable, as well as the Company’s historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training are not considered separable. Accordingly, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.

6

Certain contractual arrangements require longer production periods, generally longer than six months (long-term contracts), and may contain non-routine installations and special acceptance protocols. These arrangements often include hardware and essential software, installation services, training and support. Long-term contractual arrangements involving essential software typically include significant production, modification, and customization. For long-term arrangements with essential software and all other long-term arrangements with complex installations and/or unusual acceptance protocols, revenue is recognized using the percentage-of-completion method, based on the cost incurred to-date relative to estimated total cost of the contract.

Elements of an arrangement that do not separately fall within the scope of the percentage-of-completion method (e.g., training and post-contract software maintenance and support) are recognized as the service is provided in amounts determined based on VSOE, or in the absence of VSOE, the Company’s best estimate of the selling price.

Under the terms of the Company’s long-term contracts, revenue recognized using the percentage-of-completion method may not, in certain circumstances, be invoiced until completion of contractual milestones, upon shipment of the equipment, or upon installation and acceptance by the customer. Unbilled amounts for these contracts appear in the Consolidated Balance Sheets as Unbilled Accounts Receivable.

Revenue from arrangements for services such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts. Revenue from post contract software maintenance and support services is recognized ratably over the defined contractual period of the maintenance agreement.

The Company’s sales arrangements typically do not include specific performance-, cancellation-, termination-, or refund-type provisions. In the event a customer cancels a contractual arrangement, the Company would typically be entitled to receive reimbursement from the customer for actual costs incurred under the arrangement plus a reasonable margin.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

Inventories. Inventories consist of material, labor and overhead costs and are stated at the lower of cost or market value, determined under the first-in, first-out accounting method. Inventories at December 27, 2014 and September 27, 2014 were as follows:

	December 27, 2014		September 27, 2014
	(expressed in thousands)
Customer projects in various stages of completion	$	23,606	$	22,559
Components, assemblies and parts		66,037		60,998
Total	$	89,643	$	83,557

Software Development Costs. The Company capitalizes certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials and services, salary and benefits of the Company’s development and technical support staff, and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on the Company’s product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and the Company has established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the product’s estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

The Company’s capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. The Company capitalized $0.6 million of software development costs for the first quarter ended December 27, 2014. There were no software development costs for the first quarter ended December 28, 2013. Amortization expense for software development costs for the first quarter ended December 27, 2014 and December 28, 2013 was $0.6 million and $0.7 million, respectively. See Note 4 in the Condensed Notes to Consolidated Financial Statements for additional information on capitalized software development costs.

7

Impairment of Long-Lived Assets. The Company reviews the carrying value of long-lived assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances such as asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, the Company recognizes an asset impairment charge against operations. The amount of the impairment loss recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value.

Goodwill. Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is not amortized, but instead tested at least annually for impairment. Goodwill is also tested for impairment as changes in circumstances occur indicating that the carrying value may not be recoverable. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.

Warranty Obligations. Sales of the Company’s products and systems are subject to limited warranty obligations that are included in customer contracts. For sales that include installation services, warranty obligations typically extend for a period of twelve to twenty-four months from the date of either shipment or acceptance. Product obligations typically extend for a period of twelve to twenty-four months from the date of purchase. Under the terms of these warranties, the Company is obligated to repair or replace any components or assemblies it deems defective due to workmanship or materials. The Company reserves the right to reject warranty claims where it determines that failure is due to normal wear, customer modifications, improper maintenance, or misuse. The Company records general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects historical warranty claims experience over the preceding twelve-month period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. In addition, warranty provisions are also recognized for certain nonrecurring product claims that are individually significant. Warranty provisions and claims for the first quarter ended December 27, 2014 and December 28, 2013 were as follows:

	Three Fiscal Months Ended
	December 27, 2014			December 28, 2013
	(expressed in thousands)
Beginning balance	$	4,286		$	4,694
Warranty provisions		2,135			2,163
Warranty claims		(1,496	)		(1,567	)
Adjustments to preexisting warranties		279			—
Currency translation		(16	)		18
Ending balance	$	5,188		$	5,308

Income Taxes. The Company records a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of its deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results. See Note 11 in the Condensed Notes to Consolidated Financial Statements for additional information on income taxes.

8

Derivative Financial Instruments. The Company’s results of operations could be materially impacted by changes in foreign currency exchange rates, as well as changes in interest rates on its floating rate indebtedness. In an effort to manage exposure to these risks, the Company periodically enters into forward and option currency exchange contracts, interest rate swaps and forward interest rate swaps. Because the market value of these hedging contracts is derived from current market rates, they are classified as derivative financial instruments. The Company does not use derivatives for speculative or trading purposes. The derivative contracts contain credit risk to the extent that the Company’s counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality. For derivative instruments executed under master netting arrangements, the Company has the contractual right to offset fair value amounts recognized for the right to reclaim cash collateral with obligations to return cash collateral. The Company does not offset fair value amounts recognized on these derivative instruments. At both December 27, 2014 and December 28, 2013, the Company did not have any foreign exchange contracts with credit-risk related contingent features. See Note 7 in the Condensed Notes to Consolidated Financial Statements for additional information on derivatives and hedging activities.

2. Recent Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with customers (Topic 606)”. This update clarifies the principles for revenue recognition in transactions involving contracts with customers. The new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The guidance will be effective for the Company’s interim and annual reporting periods beginning after December 15, 2016, which is the Company’s Fiscal Year 2018. Early adoption is not permitted. The Company has not yet evaluated what impact, if any, the adoption of this guidance may have on the Company’s financial condition, results of operations, or disclosures.

3. Stock-Based Compensation

The Company compensates its officers, directors, and employees with stock-based compensation under the 2011 Stock Incentive Plan (“2011 Plan”) approved by the Company’s shareholders in 2011, and administered under the supervision of the Company’s Board of Directors. During Fiscal Year 2013, the Company’s shareholders approved a 1.3 million increase in the number of shares that can be issued under the 2011 Plan, bringing the aggregate total to 2.3 million. During the First Quarter of Fiscal Year 2015 and the First Quarter of Fiscal Year 2014, the Company awarded stock options and restricted stock units under the 2011 Plan. At December 27, 2014, a total of 1,005,861 shares were available for future grant under the 2011 Plan. These shares will be available for issuance until January 31, 2018.

In 2011, the Company’s shareholders approved a 2012 Employee Stock Purchase Plan (“ESPP”) which was effective on January 1, 2012. During the Second Quarter of Fiscal Year 2014 and the Fourth Quarter of Fiscal Year 2014, the Company issued shares of its common stock to participants under the ESPP. At December 27, 2014, a total of 703,890 shares were available for ESPP share issuances under the 2012 stock plan. Shares will be available for issuance under the 2012 ESPP until December 31, 2021.

During the first quarter ended December 27, 2014, the Company granted an award of approximately 162,000 stock options, 41,000 restricted stock units and 16,000 performance restricted stock units to officers and employees Company-wide. During the first quarter ended December 28, 2013, the Company granted an award of approximately 331,000 stock options and 70,000 restricted stock units to officers and employees Company-wide. The stock options vest proportionally on the first three anniversaries of the grant date and expire seven years from the grant date. The restricted stock units vest proportionally on the first three anniversaries of the grant date and performance restricted stock units vest based on the attainment of return on invested capital performance targets at the end of the one, two and three year performance periods.

9

The stock options were granted at an exercise price equal to the closing market price of the Company’s stock on the date of grant. The fair value of stock options granted has been estimated as of the date of grant using the multiple option form of the Black-Scholes valuation model, based on the grant price and assumptions regarding the expected grant life, stock price volatility, dividends, and risk-free interest rates. Each vesting period of an option award is valued separately, with this value being recognized as expense evenly over the vesting period. The weighted average per share fair value of the stock options granted under the Company-wide award during the first quarter ended December 27, 2014 and December 28, 2013 was $12.12 and $13.97, respectively. The weighted average assumptions used to determine the fair value of these stock options were as follows:

Expected life (in years)	3.5
Risk-free interest rate	1.1	%
Expected volatility	27.4	%
Dividend yield	1.8	%

The expected life represents the period that the stock option awards are expected to be outstanding and was determined based on historical and anticipated future exercise and expiration patterns.

The risk-free interest rate used is based on the yield of constant maturity U.S. Treasury bonds on the grant date with a remaining term equal to the expected life of the grant. The Company estimates stock price volatility based on a historical weekly price observation. The dividend yield assumption is based on the annualized current dividend divided by the share price on the grant date.

The fair value of the restricted stock units granted under the Company-wide award during the first quarter ended December 27, 2014 and December 28, 2013 was $64.65 and $64.90 respectively, representing the market value of the Company’s shares at the date of grant minus the present value of estimated forgone dividends over the vesting period. The proportionate value of restricted stock units and performance stock units associated with each vesting period is allocated to expense evenly over the vesting period.

4. Capital Assets

Property and Equipment
Property and equipment at December 27, 2014 and September 27, 2014 consists of the following:

	December 27, 2014			September 27, 2014
	(expressed in thousands)
Land and improvements	$	1,708		$	1,710
Buildings and improvements		53,606			54,271
Machinery and equipment		153,465			150,917
Total		208,779			206,898
Less accumulated depreciation		(127,912	)		(125,323	)
Property and equipment, net	$	80,867		$	81,575

Goodwill

Goodwill at December 27, 2014 and September 27, 2014 was $27.6 million and $26.1 million, respectively. During the First Quarter of Fiscal Year 2015 the Company recognized an adjustment of $1.7 million related to a deferred tax liability as part of the provisional allocation of the Roehrig Engineering, Inc. (“REI”) purchase price assigned to the assets acquired and liabilities assumed. Refer to footnote 14 for details regarding this acquisition.

10

Other Intangible Assets
Other intangible assets at December 27, 2014 and September 27, 2014 consist of the following:

	December 27, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in Years)
	(dollar amounts expressed in thousands)
Software development costs	$	17,312	$	(12,244	)	$	5,068		6.4
Patents		12,151		(4,643	)		7,508		14.5
Trademarks and trade names		6,303		(1,509	)		4,794		29.4
Customer List		2,562		(274	)		2,288		8.1
Land-use rights		1,258		(158	)		1,100		47.8
Total	$	39,586	$	(18,828	)	$	20,758		14.0

	September 27, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in Years)
	(dollar amounts expressed in thousands)
Software development costs	$	16,713	$	(11,644	)	$	5,069		5.7
Patents		12,204		(4,453	)		7,751		14.4
Trademarks and trade names		6,349		(1,458	)		4,891		29.3
Customer List		2,485		(134	)		2,351		8.1
Land-use rights		1,269		(153	)		1,116		47.8
Total	$	39,020	$	(17,842	)	$	21,178		13.4

Amortization expense recognized during the first quarter ended December 27, 2014 and December 28, 2013 was $1.0 million and $0.9 million, respectively.

11

5. Earnings Per Common Share

Basic earnings per share are computed by dividing net earnings by the daily weighted average number of common shares outstanding during the applicable periods. Diluted earnings per share include the potentially dilutive effect of common shares issued in connection with outstanding stock-based compensation awards using the treasury stock method. Under the treasury stock method, shares associated with certain stock options have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding. As a result, stock options to acquire less than 0.1 million weighted common shares have been excluded from diluted weighted shares outstanding for each of the first quarter ended December 27, 2014 and December 28, 2013, respectively. The potentially dilutive effect of common shares issued in connection with outstanding stock options is determined based on net income. A reconciliation of these amounts is as follows:

	Three Fiscal Months Ended
	December 27, 2014		December 28, 2013
	(expressed in thousands, except per share data)
Net income	$	13,786	$	9,145
Weighted average common shares outstanding		15,108		15,352
Dilutive potential common shares		162		187
Total diluted weighted shares outstanding		15,270		15,539
Earnings per share:
Basic	$	0.91	$	0.60
Diluted	$	0.90	$	0.59

6. Business Segment Information

The Company’s Chief Executive Officer and management regularly review financial information for the Company’s two operating segments, “Test” and “Sensors.” Test provides testing equipment, systems, and services to the ground vehicles, materials and structures markets. Sensors provides high-performance position sensors for a variety of industrial and mobile hydraulic applications.

The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements found in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014. In evaluating each segment’s performance, management focuses on income from operations. This measure excludes interest income and expense, income taxes and other non-operating items. Corporate expenses, including costs associated with various support functions such as human resources, information technology, finance and accounting, and general and administrative costs, are allocated to the reportable segments primarily on the basis of revenue.

Financial information by reportable segment for the first quarter ended December 27, 2014 and December 28, 2013 was as follows:

	Three Fiscal Months Ended
	December 27, 2014		December 28, 2013
	(expressed in thousands)
Revenue by Segment:
Test	$	118,085	$	113,523
Sensors		24,499		24,887
Total revenue	$	142,584	$	138,410
Income from Operations by Segment:
Test	$	11,976	$	9,841
Sensors		3,835		4,306
Total income from operations	$	15,811	$	14,147

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7. Derivative Instruments and Hedging Activities

The Company uses foreign currency derivatives to hedge against foreign currency exchange risk. Some derivatives are designated as cash flow hedges and qualify as hedging instruments pursuant to Accounting Standards Codification (“ASC”) 815; others are accounted for and reported under the guidance of ASC 830-20-10. Regardless of the designation for accounting purposes, the Company believes that all of its derivative instruments are hedges of transactional risk exposures. The fair value of the Company’s outstanding designated and undesignated derivative assets and liabilities are reported in the December 27, 2014 and September 27, 2014 Consolidated Balance Sheets as follows:

	December 27, 2014
	Prepaid Expenses and Other Current Assets		Other Accrued Liabilities
Designated hedge derivatives:	(expressed in thousands)
Cash flow hedges	$	2,362	$	238
Total designated hedge derivatives		2,362		238
Derivatives not designated as hedges:
Balance sheet derivatives		63		—
Total hedge and other derivatives	$	2,425	$	238

	September 27, 2014
	Prepaid Expenses and Other Current Assets		Other Accrued Liabilities
Designated hedge derivatives:	(expressed in thousands)
Cash flow hedges	$	1,750	$	178
Total designated hedge derivatives		1,750		178
Derivatives not designated as hedges:
Balance sheet derivatives		641		—
Total hedge and other derivatives	$	2,391	$	178

A reconciliation of the net fair value of foreign exchange cash flow hedge assets and liabilities subject to master netting arrangements that are recorded in the December 27, 2014 and September 27, 2014 Consolidated Balance Sheets to the net fair value that could have been reported in the respective Consolidated Balance Sheets is as follows:

December 27, 2014
Assets												Liabilities
Gross Amounts not Offset in the Consolidated Balance Sheet												Gross Amounts not Offset in the Consolidated Balance Sheet
Gross Amount of Recognized Assets		Gross Liabilities Offset in the Consolidated Balance Sheet		Net Amount of Assets Presented in the Consolidated Balance Sheet		Derivatives Subject to Offset		Cash Collateral Received		Net Amount (1)		Gross Amount of Recognized Liabilities		Gross Assets Offset in the Consolidated Balance Sheet		Net Amount of Liabilities Presented in the Consolidated Balance Sheet		Derivatives Subject to Offset		Cash Collateral Pledged		Net Amount (2)
(expressed in thousands)
$	2,362	$	—	$	2,362	$	—	$	—	$	2,362	$	238	$	—	$	238	$	—	$	—	$	238

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September 27, 2014
Assets												Liabilities
Gross Amounts not Offset in the Consolidated Balance Sheet												Gross Amounts not Offset in the Consolidated Balance Sheet
Gross Amount of Recognized Assets		Gross Liabilities Offset in the Consolidated Balance Sheet		Net Amount of Assets Presented in the Consolidated Balance Sheet		Derivatives Subject to Offset		Cash Collateral Received		Net Amount (1)		Gross Amount of Recognized Liabilities		Gross Assets Offset in the Consolidated Balance Sheet		Net Amount of Liabilities Presented in the Consolidated Balance Sheet		Derivatives Subject to Offset		Cash Collateral Pledged		Net Amount (2)
(expressed in thousands)
$	1,750	$	—	$	1,750	$	—	$	—	$	1,750	$	178	$	—	$	178	$	—	$	—	$	178

(1)	Net fair value of foreign exchange cash flow hedge assets that could have been reported in the Consolidated Balance Sheet.
(2)	Net fair value of foreign exchange cash flow liabilities that could have been reported in the Consolidated Balance Sheet.

Cash Flow Hedging – Currency Risks
Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Qualifying gains and losses related to changes in the market value of these contracts are reported as a component of Accumulated Other Comprehensive Income (“AOCI”) within Shareholders’ Investment on the Consolidated Balance Sheets and reclassified into earnings in the same period during which the underlying hedged transaction affects earnings. The effective portion of the cash flow hedges represents the change in fair value of the hedge that offsets the change in the functional currency value of the hedged item. Each month, the Company assesses whether its currency exchange contracts are effective and, when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively. Subsequent changes in the market value of ineffective currency exchange contracts are recognized as an increase or decrease in Revenue on the Consolidated Statement of Income, because that is the same line item upon which the underlying hedged transaction is reported.

At December 27, 2014 and December 28, 2013, the Company had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $40.9 million and $42.8 million, respectively. Upon netting offsetting contracts to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding was $37.2 million and $38.0 million at December 27, 2014 and December 28, 2013, respectively.

At December 27, 2014, the net market value of the foreign currency exchange contracts was a net asset of $2.1 million, consisting of $2.3 million in assets and $0.2 million in liabilities. At December 28, 2013, the net market value of the foreign currency exchange contracts was a net liability of $0.4 million, consisting of $0.8 million in liabilities and $0.4 million in assets.

The pretax amounts recognized in AOCI on currency exchange contracts for the first quarter ended December 27, 2014 and December 28, 2013, including (gains) losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in other comprehensive income (“OCI”), are as follows:

	Three Fiscal Months Ended
	December 27, 2014			December 28, 2013
	(expressed in thousands)
Beginning unrealized net gain in AOCI	$	1,414		$	754
Net (gain) loss reclassified into Revenue (effective portion)		(1,698	)		503
Net gain recognized in OCI (effective portion)		2,262			41
Ending unrealized net gain in AOCI	$	1,978		$	1,298

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The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was less than $0.1 million in each of the first quarter ended December 27, 2014 and December 28, 2013. At December 27, 2014 and December 28, 2013, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $2.0 million and a net gain of $1.3 million, respectively. The maximum remaining maturity of any forward or optional contract at December 27, 2014 and December 28, 2013 was 2.5 years and 0.7 years, respectively.

Foreign Currency Balance Sheet Derivatives
The Company also uses foreign currency derivative contracts to maintain the functional currency value of monetary assets and liabilities denominated in non-functional foreign currencies. The gains and losses related to the changes in the market value of these derivative contracts are included in Other expense, net in the Consolidated Statements of Income.

At December 27, 2014 and December 28, 2013, the Company had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $88.3 million and $31.2 million, respectively. Upon netting offsetting contracts by counterparty banks to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding at December 27, 2014 and December 28, 2013 was $26.9 million and $0.2 million, respectively. At December 27, 2014, the net market value of the foreign exchange balance sheet derivative contracts was a net asset of $0.1 million. At December 28, 2013, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of $0.2 million.

The net gains (losses) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the first quarter ended December 27, 2014 and December 28, 2013 were as follows:

		Three Fiscal Months Ended
		December 27, 2014		December 28, 2013
	(expressed in thousands)
Net gain (loss) recognized in Other income (expense), net		$	338	$	(140	)

8. Fair Value Measurements

In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices that are available in active markets for identical assets or liabilities accessible to the Company at the measurement date.

Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The hierarchy gives the highest priority to Level 1, because this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.

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Financial Instruments Measured at Fair Value on a Recurring Basis
As of December 27, 2014 and September 27, 2014, financial assets and liabilities subject to fair value measurements on a recurring basis were as follows:

	December 27, 2014
	Level 1		Level 2		Level 3		Total
Assets:	(expressed in thousands)
Currency contracts(1)	$	—	$	2,425	$	—	$	2,425
Total assets	$	—	$	2,425	$	—	$	2,425
Liabilities:
Currency contracts(1)	$	—	$	238	$	—	$	238
Total liabilities	$	—	$	238	$	—	$	238

	September 27, 2014
	Level 1		Level 2		Level 3		Total
Assets:	(expressed in thousands)
Currency contracts(1)	$	—	$	2,391	$	—	$	2,391
Total assets	$	—	$	2,391	$	—	$	2,391
Liabilities:
Currency contracts(1)	$	—	$	178	$	—	$	178
Total liabilities	$	—	$	178	$	—	$	178

(1) Based on observable market transactions of spot currency rates and forward currency rates on equivalently termed instruments.

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis
The Company’s goodwill, intangible assets and other long-lived assets are nonfinancial assets that were acquired either as part of a business combination, individually or with a group of other assets. These nonfinancial assets were initially, and are currently, measured and recognized at amounts equal to the fair value determined as of the date of acquisition. Periodically, these nonfinancial assets are tested for impairment, by comparing their respective carrying values to the estimated fair value of the reporting unit or asset group in which they reside. In the event any of these nonfinancial assets were to become impaired, the Company would recognize an impairment loss equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value.

Fair value measurements of reporting units are estimated using an income approach involving discounted or undiscounted cash flow models that contain certain Level 3 inputs requiring management judgment, including projections of economic conditions and customer demand, revenue and margins, changes in competition, operating costs, working capital requirements, and new product introductions. Fair value measurements of the reporting units associated with the Company’s goodwill balances are estimated at least annually in the fourth quarter of each fiscal year for purposes of impairment testing. Fair value measurements associated with the Company’s intangible assets and other long-lived assets are estimated when events or changes in circumstances such as market value, asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable.

Financial Instruments not Measured at Fair Value
Certain of the Company’s financial instruments are not measured at fair value but nevertheless are recorded at carrying amounts approximating fair value, based on their short-term nature or variable interest rate. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings.

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9. Other Comprehensive Income

Other Comprehensive Income, a component of Shareholders’ Investment, consists of foreign currency translation adjustments, gains or losses on derivative instruments, and defined benefit pension plan adjustments.

Income tax expense or benefit allocated to each component of Other Comprehensive Income for the first quarter ended December 27, 2014 and December 28, 2013 was as follows:

	December 27, 2014
	Three Fiscal Months Ended
	Pretax Amount			Tax (Expense) or Benefit			Net of Tax Amount
	(expressed in thousands)
Foreign currency translation adjustments	$	(4,812	)	$	—		$	(4,812	)
Derivative instruments:
Unrealized net gain		2,262			(818	)		1,444
Net (gain) to reclassified earnings		(1,698	)		616			(1,082	)
Defined benefit pension plan:
Unrealized net gain		553			(167	)		386
Net loss reclassified to earnings		136			(41	)		95
Currency exchange rate change		318			—			318
Other comprehensive loss	$	(3,241	)	$	(410	)	$	(3,651	)

	December 28, 2013
	Three Fiscal Months Ended
	Pretax Amount			Tax (Expense) or Benefit			Net of Tax Amount
	(expressed in thousands)
Foreign currency translation adjustments	$	960		$	—		$	960
Derivative instruments:
Unrealized net gain		41			(14	)		27
Net loss reclassified to earnings		503			(184	)		319
Defined benefit pension plan:
Unrealized net gain		620			(187	)		433
Net loss to earnings		116			(35	)		81
Currency exchange rate change		(86	)		—			(86	)
Other comprehensive income	$	2,154		$	(420	)	$	1,734

17

The changes in the net-of-tax balances of each component of AOCI during the first quarter ended December 27, 2014 and December 28, 2013 were as follows:

	December 27, 2014
	Three Fiscal Months Ended
	Foreign Currency Translation Adjustments			Unrealized Gain (Loss) on Derivative Instruments			Defined Benefit Pension Plan Adjustments			Total
	(expressed in thousands)
Beginning balance	$	12,220		$	898		$	(7,294	)	$	5,824
Other comprehensive (loss) income before reclassifications		(4,812	)		1,444			704			(2,664	)
Amounts reclassified to earnings		—			(1,082	)		95			(987	)
Other comprehensive loss		(4,812	)		362			799			(3,651	)
Ending balance	$	7,408		$	1,260		$	(6,495	)	$	2,173

	December 28, 2013
	Three Fiscal Months Ended
	Foreign Currency Translation Adjustments		Unrealized Gain on Derivative Instruments		Defined Benefit Pension Plan Adjustments			Total
	(expressed in thousands)
Beginning balance	$	17,319	$	477	$	(5,459	)	$	12,337
Other comprehensive income before reclassifications		960		27		347			1,334
Amounts reclassified to earnings		—		319		81			400
Other comprehensive income		960		346		428			1,734
Ending balance	$	18,279	$	823	$	(5,031	)	$	14,071

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The effect on certain line items in the Consolidated Statements of Income of amounts reclassified out of AOCI for the first quarter ended December 27, 2014 and December 28, 2013 was as follows:

	Three Fiscal Months Ended						Affected Line Item in the Consolidated Statements of Income
	December 27, 2014			December 28, 2013
Derivative instruments:	(expressed in thousands)
Currency exchange contracts	$	1,698		$	(503	)	Revenue
Total net gains (losses) included in income before income taxes		1,698			(503	)
Income tax (expense) benefit		(616	)		184
Total net gains (losses) included in net income		1,082			(319	)
Defined benefit pension plan:
Actuarial losses		(74	)		(63	)	Cost of sales
Actuarial losses		(38	)		(33	)	Selling and marketing
Actuarial losses		(23	)		(20	)	General and administrative
Total losses included in income before income taxes		(135	)		(116	)
Income tax benefit		41			35
Total net losses included in net income		(94	)		(81	)
Total net-of-tax reclassifications out of accumulated other comprehensive income (losses) included in net income	$	988		$	(400	)

10. Financing

Short-term borrowings at December 27, 2014 and September 27, 2014 consist of the following:

	December 27, 2014		September 27, 2014
	(expressed in thousands)
Bank line of credit, monthly U.S. LIBOR plus 100 basis points, maturing January 2015, with optional month-to-month term renewal and loan repricing until September 2019	$	60,000	$	60,000
Bank line of credit, swing line loan (3.25% rate in effect at December 27, 2014), maturing September 2019	$	5,000		—
Total short-term borrowings	$	65,000	$	60,000

The Company’s credit facility provides for up to $200 million for working capital financing, permitted acquisitions, share purchases, or other general corporate purposes and expires in September 2019. At December 27, 2014 and September 27, 2014, outstanding borrowings under the credit facility were $65.0 million and $60.0 million, respectively. At December 27, 2014, the interest rate applicable to outstanding swing line and variable rate credit facility borrowings was 3.25 % and 1.16%, respectively. At September 27, 2014, the interest rate applicable to outstanding variable rate credit facility borrowings was 1.15%, which was the monthly U.S. LIBOR plus 100 basis points. At December 27, 2014, based upon the Company’s intention and ability to repay the entire balance within the next twelve fiscal months, the outstanding borrowings on the swing line loan are classified as short-term. At December 27, 2014, the Company had outstanding letters of credit drawn from the credit facility totaling $11.5 million, leaving $123.5 million of unused borrowing capacity. At September 27, 2014, the Company had outstanding letters of credit drawn from the credit facility totaling $9.4 million, leaving approximately $130.6 million of unused borrowing capacity.

19

11. Income Taxes

As of December 27, 2014, the Company’s liability for unrecognized tax benefits was $4.8 million, of which $2.4 million would favorably affect the Company’s effective tax rate if recognized. As of September 27, 2014, the Company’s liability for unrecognized tax benefits was $6.0 million, of which $3.8 million would favorably affect the Company’s effective tax rate if recognized. The change in unrecognized benefits that did affect the effective tax rate is primarily a result of a $1.8 million favorable resolution of audit matters in connection with the Internal Revenue Service (“IRS”) examination of the Company’s federal income tax returns for the fiscal tax years ending October 1, 2011 and September 29, 2012. As of December 27, 2014, the Company does not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law. The Act includes legislation that reinstated the United States Research and Development (R&D) tax credit retroactively from January 1, 2014 and extends it through December 31, 2014. As a result of this legislation, the Company recognized a tax benefit of approximately $2.1 million during the First Quarter of Fiscal year 2015.

12. Retirement Benefit Plan

One of the Company’s German subsidiaries has a non-contributory, defined benefit retirement plan for eligible employees. This plan provides benefits based on the employee’s years of service and compensation during the years immediately preceding retirement, early retirement, termination, disability, or death, as defined in the plan.

During Fiscal Year 2014, the Company initiated workforce reduction actions. These actions resulted in terminations of German employees who are eligible to receive future benefits under the German defined benefit pension plan. See Note 13 in Condensed Notes to Consolidated Financial Statements for additional information regarding the Company’s cost reduction actions that were initiated during the first quarter ended December 27, 2014.

The cost of the plan for the first quarter ended December 27, 2014 and December 28, 2013 included the following components:

	Three Fiscal Months Ended
	December 27, 2014			December 28, 2013
	(expressed in thousands)
Service cost	$	233		$	200
Interest cost		172			209
Expected return on plan assets		(273	)		(257	)
Net amortization and deferral		136			116
Special termination benefits		—			191
Net periodic benefit cost	$	268		$	459

The weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost for each of the first quarter ended December 27, 2014 and December 28, 2013 was 5.5%.

13. Severance and Related Costs

During Fiscal Year 2014, the Company initiated workforce and other cost reduction actions at certain of its locations in the U.S. and Europe. As a result of these cost reduction actions, the Company incurred severance and related costs of $4.3 million for the first quarter ended December 28, 2013.

20

The following table summarizes the severance and related costs included in the Company’s Consolidated Statements of Income for the first quarter ended December 27, 2014 and December 28, 2013:

	Three Fiscal Months Ended
	December 27, 2014		December 28, 2013
	(expressed in thousands)
Cost of sales	$	—	$	2,542
Selling and marketing		—		810
General and administrative		—		900
Total severance and related costs	$	—	$	4,252

The following table summarizes the severance and related costs included in the Company’s December 27, 2014 and September 27, 2014 Consolidated Balance Sheet:

	December 27, 2014		September 27, 2014
	(expressed in thousands)
Accrued payroll and related costs	$	1,215	$	1,567
Defined benefit pension plan obligation		—		26
Other long-term liabilities		1,342		1,783
Total severance and related costs	$	2,557	$	3,376

14. Business Acquisition

On June 17, 2014, the Company acquired Roehrig Engineering, Inc. (“REI”) for a total estimated purchase price of $14.8 million. REI is a leader in testing systems utilizing electric and electromagnetic actuation technology and is based in Lexington, North Carolina. The acquisition is part of the Company’s continued investment to expand the Company’s technology base and supplement its organic growth initiatives.

The transaction was accounted for under the acquisition method of accounting and the results of operations of the entity are included in the Company’s Consolidated Statements of Income as of and since June 17, 2014 and are reported in the Company’s Test segment. The acquisition of REI’s assets and liabilities does not constitute a material business combination and accordingly, pro forma results have not been included.

During the First Quarter of Fiscal Year 2015 the Company recognized an adjustment of $1.7 million related to a deferred tax liability as part of the provisional allocation of the purchase price assigned to the assets acquired and liabilities assumed.

The following table summarizes the preliminary provisional allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of acquisition:

(expressed in thousands):	Amount
Accounts receivable and inventory	$	1,763
Machinery and equipment		477
Deferred tax liability		(1,445	)
Current liabilities		(1,900	)
Identifiable intangible assets		4,593
Net Assets acquired		3,488
Goodwill		11,354
Total purchase price	$	14,842

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As of December 27, 2014, the Company has not completed its fair value determinations for all of the elements of the REI acquisition due to the timing of the closing date and the time required to complete certain valuations. The Company expects to complete the valuation in the Second Quarter of Fiscal Year 2015. Fair value determinations for all of the elements of the REI acquisition are preliminary. The Company will record any adjustments to the allocation of purchase price, if required, in the subsequent quarter.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

About MTS Systems Corporation

MTS Systems Corporation’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 2,180 employees at September 27, 2014 and revenue of $564 million for the fiscal year ended September 27, 2014.

Terms

When we use the terms “we,” “us,” the “Company,” or “our” in this report, unless the context otherwise requires, we are referring to MTS Systems Corporation.

First Quarter of Fiscal Year 2015 refers to the three fiscal months ended December 27, 2014; First Quarter of Fiscal Year 2014 refers to the three fiscal months ended December 28, 2013; Fiscal Year 2015 refers to the fiscal year ending October 3, 2015. Fiscal Year 2014 refers to the fiscal year ending September 27, 2014.

Company Strategy

Our goal is to grow profitably, generate strong cash flow, and deliver a superior return on invested capital to our shareholders by leveraging our leadership position in the research and development, product development and industrial and mobile equipment global end markets. Our desire is to be the innovation leader in creating test and measurement solutions to enable our customers’ success. Through innovation we believe we can create value for our customers which will drive our growth. There are four global macro-trends that will help enable this growth: energy scarcity; environmental concerns; globalization and the development of the emerging markets; and global demographics. These macro-trends have significant implications for our customers, such as increasing the demand for new and more innovative products and increasing our customers’ organizational complexity. We believe we have an excellent geographic footprint and are well positioned in both Test and Sensors to take advantage of these macro-trends and deliver significant profitable growth in the years ahead.

We are working toward our goal of sustained double digit growth in annual revenue, margin expansion and mid-to-upper teens for Return on Invested Capital (“ROIC”). Economic conditions and the competitive environment will impact the timing of when the goal is achieved. There are four primary opportunities to enable us to achieve these goals:

• Expanding research and development requirements;

• Expanding service offerings in the Test business;

• Growth in composite materials drives new testing requirements and technologies in the Test materials market; and

• Development of intelligent machines provides opportunity in the Sensors mobile hydraulics market.

We believe that our business model supports achieving our double digit growth milestone assuming we continue to move aggressively to build our infrastructure, expand our offerings and execute on opportunities with our key customers around the world. In order to accelerate our revenue growth over the next few years, investments in infrastructure, sales support and field service capacity and capability are essential. We invested significantly in Fiscal Year 2013 and 2014 and will continue to moderately invest in future years.

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Financial Results

 Total Company 

Orders and Backlog

The following is a comparison of First Quarter of Fiscal Year 2015 and First Quarter of Fiscal Year 2014 orders, separately identifying the estimated impact of currency translation (in millions):

	Three Fiscal Months Ended December 27, 2014							Three Fiscal Months Ended December 28, 2013
			Estimated
			Business Change		Currency Translation
Orders	$	135.3	$	1.8	$	(5.3	)	$	138.8

Orders
Orders in the First Quarter of Fiscal Year 2015 were $135.3 million, a decrease of $3.5 million, or 2.5%, compared to $138.8 million for the First Quarter of Fiscal Year 2014. Excluding the impact of currency translation, which affected both the Test segment (“Test”) and the Sensors segment (“Sensors”), orders increased 1.3%. The overall decrease in orders was driven by an $8.7 million decrease in large orders (equal to or in excess of $5.0 million) in Test, partially offset by base order growth in Test. Test orders decreased 2.1% reflecting a decline in service orders of 11.2%, partially offset by product order growth of 3.5%. Product order growth was driven by ground vehicle orders across all geographies, while the service order decline was driven by a shift in service resources toward competing custom project installations. Orders in the First Quarter of Fiscal Year 2015 included one large custom Test order totaling $5.2 million. Orders in the First Quarter of Fiscal Year 2014 included two large custom Test orders totaling $13.9 million. Excluding the large orders, Test base orders increased 6.4%, while Sensors orders declined 4.3%, including an estimated 6.6% unfavorable impact of currency translation.

Backlog
Backlog of undelivered orders at the end of the First Quarter of Fiscal Year 2015 was $313.7 million, an increase of 8.8% compared to $288.4 million at the end of the First Quarter of Fiscal Year 2014. We believe backlog is not an absolute indicator of future revenue because a portion of the orders in backlog could be cancelled at the customer’s discretion. While the backlog is subject to orders cancellations, we have not historically experienced a significant number of order cancellations.

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Results of Operations

The following is a comparison of First Quarter of Fiscal Year 2015 and First Quarter of Fiscal Year 2014 statements of operations (in millions, except per share data):

		Three Fiscal Months Ended
	December 27, 2014			December 28, 2013			% Variance
Revenue	$	142.6		$	138.4			3.0	%
Cost of sales		85.8			83.9			2.3	%
Gross profit		56.8			54.5			4.2	%
Gross margin		39.9	%		39.4	%
Operating expenses:
Selling and marketing		21.2			21.5			-1.4	%
General administrative		14.2			13.2			7.6	%
Research and development		5.6			5.7			-1.8	%
Total operating expenses		41.0			40.4			1.5	%
Income from operations		15.8			14.1			12.1	%
Interest expense, net		(0.2	)		(0.2	)		0.0	%
Other expense, net		(0.7	)		(0.2	)		250.0	%
Income before income taxes		14.9			13.7			8.8	%
Income tax provision		1.1			4.6			-76.1	%
Net income	$	13.8		$	9.1			51.6	%
Diluted earnings per share	$	0.90		$	0.59			52.5	%

The following is a comparison of First Quarter of Fiscal Year 2015 and First Quarter of Fiscal Year 2014 results of operations, separately identifying the impact of currency translation and severance and related costs (in millions):

	Three Fiscal Months Ended December 27, 2014												Three Fiscal Months Ended December 28, 2013
										Prior Year Severance and Related Costs
				Estimated
				Business Change			Currency Translation
Revenue	$	142.6		$	9.2		$	(5.0	)	$	—		$	138.4
Cost of sales		85.8			8.1			(3.6	)		(2.6	)		83.9
Gross profit		56.8			1.1			(1.4	)		2.6			54.5
		39.9	%											39.4	%
Operating expenses:
Selling and marketing		21.2			1.2			(0.7	)		(0.8	)		21.5
General administrative		14.2			2.2			(0.3	)		(0.9	)		13.2
Research and development		5.6			—			(0.1	)		—			5.7
Total operating expenses		41.0			3.4			(1.1	)		(1.7	)		40.4
Income from operations	$	15.8		$	(2.3	)	$	(0.3	)	$	4.3		$	14.1

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Revenue
Revenue in the First Quarter of Fiscal Year 2015 was $142.6 million, an increase of $4.2 million, or 3.0%, compared to $138.4 million for the First Quarter of Fiscal Year 2014. Excluding the impact of currency translation, revenue increased by 6.6%. Test contributed $118.1 million in revenue, or 4.1% growth as a result of a higher beginning of period backlog while Sensors contributed $24.5 million in revenue, or 1.6% decline as a result of an estimated 6.4% unfavorable impact of currency translation. Excluding currency, Sensors was up 2.5% compared to the prior year from a higher beginning of period backlog and strong orders in the First Quarter of Fiscal Year 2015.

Severance and Related Costs
We initiated workforce reductions and other cost reduction actions during the First Quarter of Fiscal year 2014. As a result of those cost reduction actions, during the First Quarter of Fiscal Year 2014, we incurred severance and related costs of $4.3 million, of which $2.6 million, $0.8 million, and $0.9 million were reported in Cost of Sales, Selling and Marketing, and General and Administrative expense, respectively.

Gross Profit
Gross profit in the First Quarter of Fiscal Year 2015 was $56.8 million, an increase of $2.3 million, or 4.2%, compared to $54.5 million for the First Quarter of Fiscal year 2014. Gross profit as a percentage of revenue was 39.9%, an increase of 0.5 percentage points from 39.4% for the First Quarter of Fiscal Year 2014. The previously mentioned severance and related costs of $2.6 million unfavorably impacted gross profit as a percentage of revenue by 1.8 percentage points for the First Quarter of Fiscal Year 2014. Excluding these costs and the impact from currency translation the gross margin rate in the First Quarter of Fiscal Year 2015 decreased 1.9 percentage points, primarily due to an unfavorable product mix in both the Test and Sensors businesses.

Selling and Marketing Expense
Selling and marketing expense in the First Quarter of Fiscal Year 2015 was $21.2 million, a decrease of $0.3 million, or 1.4%, compared to $21.5 million for the First Quarter of Fiscal Year 2014. The decrease was driven by severance and related costs of $0.8 million in the First Quarter of Fiscal Year 2014 partially offset by the timing of selling activities to drive future revenue. Selling and marketing expense as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 14.9%, compared to 15.5% for the First Quarter of Fiscal Year 2014.

General and Administrative Expense
General and administrative expense in the First Quarter of Fiscal Year 2015 was $14.2 million, an increase of $1.0 million, or 7.6%, compared to $13.2 million for the First Quarter of Fiscal Year 2014. The increase was primarily driven by higher compensation costs related to the departure of the former Test Senior Vice President and General Manager, increased consulting expense associated with a transitional services agreement and higher legal costs. These higher expenses were partially offset by deceased severance and related costs of $0.9 million. General and administrative expense as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 10.0%, compared to 9.5% for the First Quarter of Fiscal Year 2014.

Research and Development Expense
Research and development expense in the First Quarter of Fiscal Year 2015 was $5.6 million, relatively flat compared to $5.7 million for the First Quarter of Fiscal Year 2014. However, research and development expense actually increased approximately $0.5 million as a result of research and development costs expended in the development of software which were capitalized to Property and equipment, net in the Consolidated Balance Sheet. Research and development expense as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 3.9%, compared to 4.1% for the First Quarter of Fiscal Year 2014.

Income from Operations
Income from operations in the First Quarter of Fiscal Year 2015 was $15.8 million, an increase of $1.7 million, or 12.1%, compared to income from operations of $14.1 million for the First Quarter of Fiscal Year 2014. Excluding the previously mentioned severance and related costs of $4.3 million incurred in the First Quarter of Fiscal Year 2014, income from operations decreased 14.1%, driven by the decreased gross margin and higher general and administrative expenses.

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Operating income as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 11.1%, compared to 10.2% for the First Quarter of Fiscal Year 2014.

Interest Expense, net
Net interest expense in both the First Quarter of Fiscal Year 2015 and the First Quarter of Fiscal year 2014 was $0.2 million.

Other Expense, net
Other expense, net in the First Quarter of Fiscal Year 2015 was expense of $0.7 million, an increase of $0.5 million, compared to expense of $0.2 million in the First Quarter of Fiscal Year 2014. This increase was primarily driven by $1.0 million increased net losses on foreign currency transactions, partially offset by a $0.5 million decrease in other expense.

Provision for Income Taxes
Provision for income taxes in the First Quarter of Fiscal Year 2015 totaled $1.1 million, a decrease of $3.5 million, or 76.1%, compared to $4.6 million for the First Quarter of Fiscal Year 2014. The effective tax rate for the First Quarter of Fiscal Year 2015 was 7.4%, a decrease of 25.8 percentage points compared to a tax rate of 33.2% for the First Quarter of Fiscal Year 2014. This decrease in the effective tax rate was primarily due to the enactment of tax legislation in the First Quarter of Fiscal Year 2015 that retroactively extended the United States research and development tax credits and resulted in a discrete tax benefit of $2.1 million. In addition, the Company recognized a discrete tax benefit of $1.8 million associated with the favorable resolution of audit matters in connection with the IRS examination of tax years ending October 1, 2011 and September 29, 2012.

Net income
Net income in the First Quarter of Fiscal Year 2015 was $13.8 million, an increase of $4.7 million, or 51.6%, compared to $9.1 million for the First Quarter of Fiscal year 2014. The increase was primarily driven by higher income from operations and a lower effective tax rate. Earnings per diluted share were $0.90, an increase of $0.31 per share, or 52.5%, compared to $0.59 per share for the First Quarter of Fiscal Year 2014. The previously mentioned research and development tax credits and favorable reserve adjustments in connection with the IRS audit of previous years positively impacted earnings per share by $0.14 and $0.11, respectively. The $4.3 million charge for severance and related costs in the First Quarter of Fiscal Year 2014 negatively impacted earnings per diluted share by $0.19.

Segment Results

 Test Segment 

Orders and Backlog

The following is a comparison of First Quarter of Fiscal Year 2015 and First Quarter of Fiscal Year 2014 orders for Test, separately identifying the estimated impact of currency translation (in millions):

	Three Fiscal Months Ended December 27, 2014							Three Fiscal Months Ended December 28, 2013
			Estimated
			Business Change		Currency Translation
Orders	$	110.6	$	1.2	$	(3.6	)	$	113.0

Orders
Orders in the First Quarter of Fiscal Year 2015 totaled $110.6 million, a decrease of $2.4 million, or 2.1%, compared to orders of $113.0 million for the First Quarter of Fiscal year 2014. Excluding the impact of currency translation, orders increased 1.1%. This increase was primarily due to a 6.4% growth in base orders offset by variability in large orders and an 11.2% service order decline. First Quarter of Fiscal Year 2015 orders included a $5.2 million Americas order in the ground vehicle market for a tread wear simulation system. Orders in the First Quarter of Fiscal Year 2014 included two large orders in China totaling $13.9 million, one of which was an $8.0 million order in the structures market for seismic testing and the other was a $5.9 million ground vehicle order for suspension testing. The 6.4% increase in base orders was fueled by growth in the ground vehicles market across all geographies. Test accounted for 81.8% of total Company orders, compared to 81.4% for the First Quarter of Fiscal Year 2014.

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Backlog
Backlog of undelivered orders at the end of the First Quarter of Fiscal Year 2015 was $297.5 million, an increase of 9.3% compared to backlog of $272.2 million at the end of the First Quarter of Fiscal Year 2014.

Results of Operations

The following is a comparison of First Quarter of Fiscal Year 2015 and First Quarter of Fiscal Year 2014 results of operations for Test, separately identifying the impact of currency translation and severance and related costs (in millions):

	Three Fiscal Months Ended December 27, 2014												Three Fiscal Months Ended December 28, 2013
										Prior Year Severance and Related Costs
				Estimated
				Business Change			Currency Translation
Revenue	$	118.1		$	8.0		$	(3.4	)	$	—		$	113.5
Cost of sales		74.4			6.9			(2.8	)		(2.6	)		72.9
Gross profit		43.7			1.1			(0.6	)		2.6			40.6
		37.0	%											35.8	%
Operating expenses:
Selling and marketing		16.4			1.1			(0.4	)		(0.8	)		16.5
General administrative		11.5			2.4			(0.1	)		(0.9	)		10.1
Research and development		3.8			(0.4	)		—			—			4.2
Total operating expenses		31.7			3.1			(0.5	)		(1.7	)		30.8
Income from operations	$	12.0		$	(2.0	)	$	(0.1	)	$	4.3		$	9.8

Revenue
Revenue in the First Quarter of Fiscal Year 2015 was $118.1 million, an increase of $4.6 million, or 4.1%, compared to revenue of $113.5 million for the First Quarter of Fiscal Year 2014. Excluding the impact of currency translation, revenue increased 7.0%. This increase was primarily driven by higher beginning of period backlog.

Gross Profit
Gross profit in the First Quarter of Fiscal Year 2015 was $43.7 million, an increase of $3.1 million, or 7.6%, compared to $40.6 million for the First Quarter of Fiscal year 2014. Gross profit as a percentage of revenue was 37.0%, an increase of 1.2 percentage points from 35.8% for the First Quarter of Fiscal Year 2014. Severance and related costs of $2.6 million unfavorably impacted gross profit as a percentage of revenue by 2.3 percentage points for the First Quarter of Fiscal Year 2014. Excluding these costs and the impact from currency translation, the gross margin rate decreased by 1.6 percentage points primarily as a result of product mix resulting from a higher content of custom projects and the impact of currency translation.

Selling and Marketing Expense
Selling and marketing expense in the First Quarter of Fiscal Year 2015 was $16.4 million, a decrease of $0.1 million, or 0.6%, compared to $16.5 million for the First Quarter of Fiscal Year 2014. The decrease was driven by severance and related costs of $0.8 million in the First Quarter of Fiscal Year 2014 partially offset by the timing of selling activities to drive future revenue growth. Selling and marketing expense as a percentage of revenue for the First Quarter of Fiscal year 2015 was 13.9%, compared to 14.5% for the First Quarter of Fiscal Year 2014.

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General and Administrative Expense
General and administrative expense in the First Quarter of Fiscal Year 2015 was $11.5 million, an increase of $1.4 million, or 13.9%, compared to $10.1 million for the First Quarter of Fiscal Year 2014, resulting from higher compensation costs related to the departure of the former Test Senior Vice President and General Manager, increased consulting expense associated with a transitional services agreement and higher legal costs. These higher expenses were partially offset by deceased severance and related costs of $0.9 million. General and administrative expense as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 9.7%, compared to 8.9% for the First Quarter of Fiscal Year 2014.

Research and Development Expense
Research and development expense in the First Quarter of Fiscal Year 2015 was $3.8 million, a decrease of $0.4 million, or 9.5%, compared to $4.2 million for the First Quarter of Fiscal Year 2014. The decrease in research and development was primarily attributable to capitalization of research and development costs expended in the development of software of $0.5 million. Research and development expense as a percentage of revenue for the First Quarter of Fiscal year 2015 was 3.2%, compared to 3.7% for the First Quarter of Fiscal Year 2014.

Income from Operations
Income from operations in the First Quarter of Fiscal Year 2015 was $12.0 million, an increase of $2.2 million, or 22.4%, compared to $9.8 million for the First Quarter of Fiscal year 2014. Excluding the previously mentioned severance and related costs of $4.3 million incurred in the First Quarter of Fiscal Year 2014, income from operations decreased 14.9%, driven by the decreased gross margin and higher operating expenses. Operating income as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 10.2%, compared to 8.6% for the First Quarter of Fiscal Year 2014.

 Sensors Segment 

Orders and Backlog

The following is a comparison of First Quarter of Fiscal Year 2015 and First Quarter of Fiscal Year 2014 orders for Sensors, separately identifying the estimated impact of currency translation (in millions):

	Three Fiscal Months Ended December 27, 2014							Three Fiscal Months Ended December 28, 2013
			Estimated
			Business Change		Currency Translation
Orders	$	24.7	$	0.6	$	(1.7	)	$	25.8

Orders
Orders in the First Quarter of Fiscal Year 2015 totaled $24.7 million, a decrease of $1.1 million, or 4.3%, compared to orders of $25.8 million for the First Quarter of Fiscal year 2014. Excluding the impact of currency translation, orders increased 2.3%. Sensors accounted for 18.2% of total Company orders, compared to 18.6% for the First Quarter of Fiscal Year 2014.

Backlog
Backlog of undelivered orders at the end of the First Quarter of Fiscal Year 2015 was $16.2 million, flat compared to backlog at the end of the First Quarter of Fiscal Year 2014.

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Results of Operations

The following is a comparison of First Quarter of Fiscal 2015 to First Quarter of Fiscal 2014 results of operations for Sensors, separately identifying the estimated impact of currency translation (in millions):

	Three Fiscal Months Ended December 27, 2014									Three Fiscal Months Ended December 28, 2013
				Estimated
				Business Change			Currency Translation
Revenue	$	24.5		$	1.2		$	(1.6	)	$	24.9
Cost of sales		11.4			1.2			(0.8	)		11.0
Gross profit		13.1			—			(0.8	)		13.9
		53.4	%								55.7	%
Operating expenses:
Selling and marketing		4.8			0.1			(0.3	)		5.0
General administrative		2.7			(0.2	)		(0.2	)		3.1
Research and development		1.8			0.4			(0.1	)		1.5
Total operating expenses		9.3			0.3			(0.6	)		9.6
Income from operations	$	3.8		$	(0.3	)	$	(0.2	)	$	4.3

Revenue
Revenue in the First Quarter of Fiscal Year 2015 was $24.5 million, a decrease of $0.4 million, or 1.6%, compared to revenue of $24.9 million for the First Quarter of Fiscal Year 2014. Excluding the impact of currency translation, Sensors revenue was up 4.8% as a result of a higher beginning of period backlog and strong orders in the first quarter of Fiscal Year 2015.

Gross Profit
Gross profit in the First Quarter of Fiscal Year 2015 was $13.1million, a decrease of $0.8 million, or 5.8%, compared to $13.9 million for the First Quarter of Fiscal Year 2014. Gross profit as a percentage of revenue was 53.4%, a decrease of 2.3 percentage points from 55.7% for the First Quarter of Fiscal Year 2014. The lower gross margin rates were driven by an unfavorable product mix resulting from sales improvement in certain industrial and mobile hydraulic markets that have a lower margin rate.

Selling and Marketing Expense
Selling and marketing expense in the First Quarter of Fiscal Year 2015 was $4.8 million, a decrease of $0.2 million, or 4.0%, compared to $5.0 million for the First Quarter of Fiscal Year 2014, including an estimated $0.3 million favorable impact of currency translation. Selling and marketing expense as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 19.6%, compared to 20.1% for the First Quarter of Fiscal Year 2014.

General and Administrative Expense
General and administrative expense in the First Quarter of Fiscal Year 2015 was $2.7 million, a decrease of $0.4 million, or 12.9%, compared to $3.1 million for the First Quarter of Fiscal Year 2014, including an estimated $0.2 million favorable impact of currency translation. General and administrative expense as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 11.0%, compared to 12.4% for the First Quarter of Fiscal Year 2014.

Research and Development Expense
Research and development expense in the First Quarter of Fiscal Year 2015 was $1.8 million, an increase of $0.3 million, or 20.0%, compared to $1.5 million for the First Quarter of Fiscal Year 2014. The increase was primarily driven by higher compensation and benefits resulting from increased headcount. Research and development expense as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 7.3%, compared to 6.0% for the First Quarter of Fiscal Year 2014.

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Income from Operations
Income from operations in the First Quarter of Fiscal year 2015 was $3.8 million, a decrease of $0.5 million, or 11.6%, compared to income from operations of $4.3 million for the First Quarter of Fiscal Year 2014. The decrease was primarily due to lower gross profit, partially offset by decreased operating expenses. Operating income as a percentage of revenue for the First Quarter of Fiscal Year 2015 was 15.5% compared to 17.3% for the First Quarter of Fiscal Year 2014.

Capital Resources and Liquidity

We had cash and cash equivalents of $55.3 million at the end of the First Quarter of Fiscal Year 2015. Of this amount, $7.7 million was located in North America, $27.6 million in Europe, and $20.0 million in Asia. Of the $47.6 million of cash located outside of the U.S., approximately $22.0 million is not available for use in the U.S. without the incurrence of U.S. federal and state income tax. We believe our cash and cash equivalents, anticipated cash from operations and current and anticipated financing arrangements will be sufficient to meet our liquidity requirements through at least the next 12 months.

The North American balance was primarily invested in bank deposits. In Europe and Asia, the balances were primarily invested in money market funds and bank deposits. In accordance with our investment policy, we place cash equivalent investments with issuers who have high-quality investment credit ratings. In addition, we limit the amount of investment exposure we have with any particular issuer. Our investment objectives are to preserve principal, maintain liquidity, and achieve the best available return consistent with our primary objectives of safety and liquidity. At the end of the First Quarter of Fiscal Year 2015, we held no short-term investments.

Total cash and cash equivalents decreased $5.1 million in the First Quarter of Fiscal Year 2015, primarily due to purchases of our common stock, investment in property and equipment, dividend payments, and increased working capital requirements, partially offset by earnings and proceeds received from short-term borrowings. Total cash and cash equivalents increased $5.2 million in the First Quarter of Fiscal Year 2014, primarily due to earnings and decreased working capital requirements, partially offset by purchases of our common stock from the share purchase program, dividend payments, and investment in property and equipment.

Cash flows from operating activities provided cash totaling $12.9 million for the First Quarter of Fiscal Year 2015, compared to cash provided of $23.8 million for the First Quarter of Fiscal Year 2014. Cash provided for the First Quarter of Fiscal Year 2015 was primarily due to earnings and $8.4 million increased advance payments received from customers driven by the mix of orders in the quarter and $2.9 million increased accounts payable resulting from general timing of purchases and payments, partially offset by $10.7 million increased accounts and unbilled receivables resulting from general timing of billing and collections, and $6.7 million increased inventories to support future revenue.

Cash provided for the First Quarter of Fiscal Year 2014 was primarily due to earnings and $9.5 million decreased accounts and unbilled receivables resulting from general timing of billing and collections, partially offset by $2.7 million decreased advance payments received from customers driven by the mix of orders in the quarter, $2.3 million decreased accounts payable resulting from general timing of purchases and payments, and $1.3 million increased inventories to support future revenue.

Cash flows from investing activities required the use of cash totaling $4.5 million for the First Quarter of Fiscal year 2015, compared to the use of cash totaling $4.6 million for the First Quarter of Fiscal Year 2014, each of which reflects investment in property and equipment.

Cash flows from financing activities used cash totaling $11.3 million for the First Quarter of Fiscal Year 2015, compared to the cash used totaling $14.2 million for the First Quarter of Fiscal Year 2014. The cash used for the First Quarter of Fiscal Year 2015 was primarily due to the use of $12.3 million to purchase approximately 181,300 shares of our common stock from the share purchase program, as well as dividend payments of $4.6 million, partially offset by $5.0 million net proceeds from short-term borrowings and $1.0 million received in connection with stock option exercises. The cash used for the First Quarter of Fiscal Year 2014 was primarily due to the use of $11.0 million to purchase approximately 166,900 shares of our common stock, as well as dividend payments of $4.6 million.

Under the terms of our borrowing agreements, we have agreed to certain financial covenants. At the end of the First Quarter of Fiscal Year 2015, we were in compliance with the financial terms and conditions of those agreements.

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Off-Balance Sheet Arrangements

As of December 27, 2014, we did not have any off-balance sheet arrangements, as such term is defined in rules promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies

The Consolidated Financial Statements are prepared in accordance with GAAP, and GAAP requires us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these financial statements, we have made our best estimates and judgments of certain amounts, giving due consideration to materiality. We believe that of our significant accounting policies, the following are particularly important to the portrayal of the Company’s results of operations and financial position, may require the application of a higher level of judgment by us, and as a result, are subject to an inherent degree of uncertainty. For further information see “Summary of Significant Accounting Policies” under Note 1 to the Consolidated Financial Statements, included in Item 8 of our Annual Report on Form 10-K for 2014.

Revenue Recognition: We are required to comply with a variety of technical accounting requirements in order to achieve consistent and accurate revenue recognition. The most significant area of judgment and estimation is percentage of completion contract accounting. We develop cost estimates that include materials, component parts, labor and overhead costs. Detailed cost plans are developed for all aspects of the contracts during the bidding phase of the contract. Cost estimates are largely based on actual historical performance of similar projects combined with current knowledge of the projects in progress. Significant factors that impact the cost estimates include technical risk, inflationary cost of materials and labor, changes in scope and schedule, and internal and subcontractor performance. Actual costs incurred during the project phase are monitored and compared to the estimates on a monthly basis. Cost estimates are revised based on changes in circumstances. Anticipated losses on long-term contracts are recognized when such losses become evident.

Inventories: We maintain a material amount of inventory to support our engineering and manufacturing operations. This inventory is stated at the lower of cost or market. On a regular basis, we review our inventory and identify that which is excess, slow moving, and obsolete by considering factors such as inventory levels, expected product life, and forecasted sales demand. Any identified excess, slow moving, and obsolete inventory is written down to its market value through a charge to income from operations. It is possible that additional inventory write-down charges may be required in the future if there is a significant decline in demand for our products and we do not adjust our manufacturing production accordingly.

Impairment of Long-Lived Assets: We review the carrying value of long-lived assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances such as asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, we recognize an asset impairment charge against operations. The amount of the impairment loss recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value.

Goodwill: We test goodwill at least annually for impairment. Goodwill is also tested for impairment as changes in circumstances occur indicating that the carrying value may not be recoverable. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.

As of December 27, 2014, the Company has three reporting units, all of which are assigned goodwill. At December 27, 2014, the Test reporting unit was assigned $14.9 million of goodwill which includes the former SANS reporting unit; REI was assigned $11.2 million as a result of June 17, 2014 acquisition and the Sensors reporting unit was assigned $1.5 million. During the fourth quarter of Fiscal Year 2014, we determined the former SANS reporting unit should be aggregated with the Test reporting unit as it has become fully integrated within our Test reporting unit. Prior to aggregating the former reporting unit, we performed a test to determine whether or not there was any impairment of the $14.9 million in goodwill assigned to SANS and determined that no impairment exists. The fair value of a reporting unit is estimated using a discounted cash flow model that requires input of certain estimates and assumptions requiring our judgment, including projections of economic conditions and customer demand, revenue and margins, changes in competition, operating costs, and new product introductions.

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Software Development Costs: We incur costs associated with the development of software to be sold, leased, or otherwise marketed. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. In evaluating the recoverability of capitalized software costs, we compare expected product performance, utilizing forecasted revenue amounts, to the total costs incurred to date and estimates of additional costs to be incurred. If revised forecasted product revenue is less than, and/or revised forecasted costs are greater than, the previously forecasted amounts, the net realizable value may be lower than previously estimated, which could result in the recognition of an impairment charge in the period in which such a determination is made.

Warranty Obligations: We are subject to warranty obligations on sales of our products. We record general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects historical warranty claims experience over the preceding twelve months. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. In addition, warranty provisions are also recognized for certain nonrecurring product claims that are individually significant. A certain amount of judgment is required in determining appropriate reserve levels for anticipated warranty claims. While these reserve levels are based on historical warranty experience, they may not reflect the actual claims that will occur over the upcoming warranty period, and additional warranty reserves may be required.

Income Taxes: We record a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of our deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with customers (Topic 606)”. This update clarifies the principles for revenue recognition in transactions involving contracts with customers. The new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The guidance will be effective for the Company’s interim and annual reporting periods beginning after December 15, 2016, which is the Company’s Fiscal Year 2018. Early adoption is not permitted. The Company has not yet evaluated what impact, if any, the adoption of this guidance may have on the Company’s financial condition, results of operations, or disclosures.

Other Matters

Our dividend policy is to maintain a payout ratio that allows dividends to increase with the long-term growth of earnings per share, while sustaining dividends through economic cycles. Our dividend practice is to target over time a payout ratio of approximately 25% of net earnings per share.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” regarding financial projections 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. Words such as “may,” “will,” “should,” “expects,” “intends,” “projects,” “plans,” “believes,” “estimates,” “targets,” “anticipates,” and similar expressions are used to identify these forward-looking 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 2014 Form 10-K. Such important factors include:

• We may not achieve our growth plans for the expansion of our business because our long-term success depends on our ability to expand our business through new product development, mergers and acquisitions, geographic expansion, and service offerings, all of which are subject to inherent risks including, but not limited to: market demand; market acceptance of products; and the Company’s ability to advance its technology

• The changes we are making in our Test segment processes and operating systems may not deliver the results we require for growth of the business

• Our business operations may be affected by government contracting risks

• Our business is significantly international in scope, which poses multiple risks including, but not limited to: currency value fluctuations; difficulty enforcing agreements and collecting receivables; trade protection measures and import and export matters; tax rates in certain foreign countries that exceed those in the U.S. and the imposition of withholding requirements on foreign earnings; higher danger of terrorist activity; imposition of tariffs, exchange controls and other restrictions; difficulty in staffing and managing global operations; and compliance with a variety of foreign laws and regulations; changes in general economic and political conditions where we operate, particularly in emerging markets

• We may be required to recognize impairment charges for long-lived assets

• Volatility in the global economy and foreign currency could adversely affect results

• Our business is subject to strong competition

• We are subject to risks because we design and manufacture first-of-kind products

• We may experience difficulties obtaining the services of skilled employees

• We may fail to protect our intellectual property effectively, or may infringe upon the intellectual property of others

• Our business could be adversely affected by product liability claims and commercial litigation

• We may experience difficulty obtaining materials or components for our products, or the cost of materials or components may increase

• Government regulation imposes significant costs and other constraints

• The backlog, sales, delivery and acceptance cycle for many of our products is irregular and may not develop as anticipated

• Our customers are in cyclical industries and a downturn in those industries could adversely affect results

• We have been required to conduct a good faith reasonable country of origin analysis on our use of “conflict materials,” which has imposed and may impose additional costs on us and could raise reputational and other risks

• Interest rate fluctuations could adversely affect results

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 risks with caution and form your own critical and independent conclusions about the likely effect of these risks 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 Forms 8-K to be filed by the Company in 2015.

33

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our investment portfolio at December 27, 2014 included $55.3 million of cash and cash equivalents. The cash equivalent portion of our investment portfolio is invested in money market funds and bank deposits. A hypothetical 1.0 percentage point increase or decrease in market interest rates would have caused interest income to increase or decrease by $0.2 million for the first quarter ended December 27, 2014.

We are exposed to market risk from changes in foreign currency exchange rates and interest rates. We manage exposure to changes in foreign currency exchange rates through our regular operating and financing activities and through the use of foreign currency exchange contracts. These contracts are used to manage our overall exposure to exchange rate fluctuations, as the gains and losses on these contracts are intended to offset gains and losses on our assets, liabilities, and cash flows.

A hypothetical 10% appreciation or depreciation in foreign currencies against the U.S. dollar, assuming all other variables were held constant, would have resulted in an estimated increase or decrease of $5.5 million in revenue for the first quarter ended December 27, 2014.

At December 27, 2014, our short-term borrowings outstanding consisted of $65.0 million utilization of the revolving credit facility. This utilization of the credit facility involves interest payments calculated at a floating rate and, therefore, is impacted by the effect of increases or decreases in market interest rates. Because we anticipate the borrowing to be outstanding for only a short period of time, we have elected not to mitigate this risk. A hypothetical 1.0 percentage point increase or decrease in interest rates, assuming all other variables were held constant, would have resulted in an estimated increase or decrease of $0.2 million in interest expense for the first quarter ended December 27, 2014.

Item 4. Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 27, 2014, our disclosure controls and procedures were effective.

There were no changes that occurred during the fiscal quarter ended December 27, 2014 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Investigative Matters (Government Investigation)
As previously reported by the Company with disclosures starting in March 2012, the Company investigated certain gift, travel, entertainment and other expenses incurred in connection with some of the Company operations in the Asia-Pacific region. This investigation focused on possible violations of Company policy, corresponding internal control issues and possible violations of applicable law, including the Foreign Corrupt Practices Act. Substantial investigative work was completed on this matter and the Company took remedial actions, including changes to internal control procedures and removing certain persons formerly employed in the Company’s Korea office. The Company voluntarily disclosed this matter to the Department of Justice and the SEC (the “Agencies”). The Company presented the results of the Company’s investigation and the Company’s corrective actions to representatives of the Agencies on January 16, 2013. The Company is now investigating certain business practices in China. This investigation has a similar focus to the prior investigation as described above. The Company has updated the Agencies regarding this investigation and the Company has taken certain initial remedial actions, including changes to internal control procedures and removing certain persons formerly employed by the Company in the China business. The Company is in regular communication with the Agencies regarding these investigations. The Company cannot predict the outcome of the matters described in this paragraph at this time or whether these matters will have a material adverse impact on the Company’s business prospects, financial condition, operating results or cash flows.

34

Litigation
The Company is subject to various claims, legal actions, and complaints arising in the ordinary course of business. Management believes the final resolution of legal matters outstanding as of December 27, 2014 will not have a material adverse effect on the consolidated financial position or results of operations of the Company. The Company expenses legal costs as incurred.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Company Equity Securities:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
September 28, 2014 -
November 1, 2014		68,905	$	68.15		68,905		1,062,257
November 2, 2014 -
November 29, 2014		56,439	$	66.48		56,439		1,005,818
November 30, 2014 -
December 27, 2014		55,980	$	68.57		55,980		949,838
Total		181,324	$	67.76		181,324

We purchase our common stock to mitigate dilution related to new shares created by employee equity compensation such as stock option, restricted stock, restricted stock units, and employee stock purchase plan awards, as well as to return excess capital to shareholders.

During the First Quarter of Fiscal Year 2015, our share purchases were executed under a 2.0 million share purchase authorization approved by our Board of Directors and announced on February 11, 2011. Authority over pricing and timing under the authorization has been delegated to management. The share purchase authorization has no expiration date.

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Item 6. Exhibits

Exhibit Number	Description
10.1	Letter Agreement, dated December 9, 2014, by and between MTS Systems Corporation and John Emholz, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed December 15, 2014.
10.2	MTS Systems Corporation 2011 Stock Incentive Plan, conformed copy including all amendments through October 1, 2013 (filed herewith).
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (furnished herewith).
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (furnished herewith).

101.INS **	XBRL Instance Document (furnished herewith).
101.SCH **	XBRL Taxonomy Extension Schema Document (furnished herewith).
101.CAL **	XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith).
101.DEF **	XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith).
101.LAB **	XBRL Taxonomy Extension Label Linkbase Document (furnished herewith).
101.PRE **	XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith).

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MTS SYSTEMS CORPORATION
Dated:	February 2, 2015	/s/ JEFFREY A. GRAVES
		Jeffrey A. Graves
		President and Chief Executive Officer
		(Principal Executive Officer)
Dated:	February 2, 2015	/s/ JEFFREY P. OLDENKAMP
		Jeffrey P. Oldenkamp
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

37

EX-10.2

Exhibit 10.2

MTS SYSTEMS CORPORATION

2011 STOCK INCENTIVE PLAN

Plan Term: January 31, 2011 through January 31, 2018

Adopted by the Board of Directors on November 23, 2010
Amended by First Amendment adopted by the Board on January 24, 2011
Amended by Second Amendment adopted by the Board on January 31, 2013
Amended by Third Amendment adopted by the Board on October 1, 2013

Approved by the Shareholders of the Company on February 5, 2013

TABLE OF CONTENTS

SECTION			PAGE
1.	PURPOSE		1
2.	DEFINITIONS		1
	2.1	BOARD	1
	2.2	CAUSE	1
	2.3	CODE	1
	2.4	COMMITTEE	1
	2.5	COMPANY	1
	2.6	DEFERRED COMPENSATION	1
	2.7	DISABILITY	1
	2.8	EXCHANGE ACT	1
	2.9	EXERCISE PRICE	2
	2.10	FAIR MARKET VALUE	2
	2.11	INSIDER	2
	2.12	ISO	2
	2.13	KEY EMPLOYEE	2
	2.14	KEY PERSON	2
	2.15	NQSO	2
	2.16	OPTION	2
	2.17	OUTSIDE DIRECTOR	2
	2.18	PARTICIPANT	3
	2.19	PERFORMANCE-BASED EXCEPTION	3
	2.20	PERFORMANCE GOAL	3
	2.21	PERFORMANCE PERIOD	3
	2.22	PERFORMANCE STOCK	3
	2.23	PERFORMANCE UNITS	3
	2.24	PLAN	3
	2.25	QUALIFYING EVENT	3
	2.26	RESTRICTED STOCK AWARD	3
	2.27	RESTRICTED STOCK UNIT	4
	2.28	RETIREMENT	4
	2.29	SERVICE	4
	2.30	SHARE	4
	2.31	SPECIFIED EMPLOYEE	4
	2.32	STOCK APPRECIATION RIGHT	4
	2.33	STOCK INCENTIVE	4
	2.34	STOCK INCENTIVE AGREEMENT	4
	2.35	SUBSIDIARY	4
	2.36	TEN PERCENT SHAREHOLDER	4
3.	SHARES SUBJECT TO STOCK INCENTIVES		5
	3.1	AGGREGATE SHARES AUTHORIZED AND LIMITATIONS	5
	3.2	SHARE COUNTING	5
	3.3	LIMITATIONS ON STOCK INCENTIVES	6
	3.4	SHARE ADJUSTMENT	6

4.	EFFECTIVE DATE AND TERM OF PLAN		6
5.	ADMINISTRATION		7
	5.1	GENERAL ADMINISTRATION	7
	5.2	AUTHORITY OF THE COMMITTEE	7
	5.3	DELEGATION OF AUTHORITY	7
	5.4	DECISIONS BINDING	7
6.	ELIGIBILITY		8
7.	TERMS AND CONDITIONS OF STOCK INCENTIVES		8
	7.1	ALL STOCK INCENTIVES	8
	7.2	OPTIONS	10
	7.3	RESTRICTED STOCK	12
	7.4	RESTRICTED STOCK UNITS	12
	7.5	STOCK APPRECIATION RIGHTS	13
	7.6	PERFORMANCE STOCK AND PERFORMANCE UNITS	14
	7.7	OTHER AWARDS	15
	7.8	NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AND RESTRICTED STOCK UNITS	15
8.	SECURITIES REGULATION		16
	8.1	LEGALITY OF ISSUANCE	16
	8.2	RESTRICTIONS ON TRANSFER;REPRESENTATIONS;LEGENDS	16
	8.3	REGISTRATION OF SHARES	16
9.	COMPLIANCE WITH THE CODE		16
	9.1	DISCRETION IN FORMULATION OF PERFORMANCE CRITERIA	16
	9.2	PERFORMANCE PERIODS	17
	9.3	MODIFICATIONS TO PERFORMANCE GOAL CRITERIA	17
	9.4	LIMITATION ON PAYMENT OR EXERCISE	17
	9.5	DELAY IN PAYMENT OR EXERCISE FOR SPECIFIED EMPLOYEES	17
	9.6	WITHHOLDING	17
	9.7	NOTIFICATION OF DISQUALIFYING DISPOSITIONS OF AN ISO	18
10.	NON-US PROVISIONS		18
11.	CHANGE OF CONTROL OF THE COMPANY		18
	11.1	CHANGE IN CONTROL	18
	11.2	VESTING UPON A CHANGE IN CONTROL	19
	11.3	DISPOSITION OF STOCK INCENTIVES	20
	11.4	GENERAL RULE FOR OTHER STOCK INCENTIVES	21
12.	AMENDMENTS OR TERMINATION		21
	12.1	AMENDMENT OF PLAN	21
	12.2	TERMINATION OF PLAN	21
	12.3	AMENDMENT OF STOCK INCENTIVES	21
13.	MISCELLANEOUS		22
	13.1	SHAREHOLDER RIGHTS	22
	13.2	NO GUARANTEE OF CONTINUED RELATIONSHIP	22

13.3	TRANSFERS & RESTRUCTURINGS	22
13.4	LEAVES OF ABSENCE	22
13.5	GOVERNING LAW/CONSENT TO JURISDICTION	23
13.6	ESCROW OF SHARES	23
13.7	NO FRACTIONAL SHARES	23
13.8	FORFEITURE AND RECOUPMENT	23
13.9	SEVERABILITY	24
13.10	NO TRUST OR FUND CREATED	24

MTS SYSTEMS CORPORATION
2011 STOCK INCENTIVE PLAN

SECTION 1
PURPOSE

The purpose of the Plan is to enable MTS Systems Corporation (the “Company”) and its Subsidiaries to attract and retain employees, directors and service providers of the Company by aligning financial interests of these individuals with the other stockholders of the Company.

The Plan provides for the grant of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Stock, Performance Units, and other awards to aid the Company in obtaining these goals, subject to the approval by the shareholders.

SECTION 2
DEFINITIONS

2.1	BOARD means the Board of Directors of the Company.
2.2	CAUSE means, unless otherwise defined in the Stock Incentive Agreement or in a separate agreement with the Participant that governs Stock Incentives granted under this Plan, a felony conviction of a Participant or a material violation of any Company policy, including, without limitation, any policy contained in the Company’s Code of Conduct Manual, or due to embezzlement from or theft of property belonging to the Company, regardless of when facts resulting in a finding of Cause are discovered by the Company.
2.3	CODE means the Internal Revenue Code of 1986, as amended and any successor, and regulations promulgated thereunder.
2.4	COMMITTEE means the Compensation Committee of the Board or any other committee appointed by the Board to administer the Plan.
2.5	COMPANY means MTS Systems Corporation, a corporation organized under the laws of the State of Minnesota (or any successor corporation).
2.6	DEFERRED COMPENSATION means any Stock Incentive under this Plan that provides for the “deferral of compensation” as defined in Treas. Reg. §1.409A-1(b) and that would be subject to the taxes specified in Section 409A(a)(1) of the Code if and to the extent the Stock Incentive Agreement does not meet or is not administered and interpreted in compliance with the requirements of Section 409A(a)(2), (3) and (4) of the Code. Deferred Compensation shall not include any amount that is otherwise exempt from the requirements of Section 409A of the Code.
2.7	DISABILITY means a physical or mental condition resulting from a bodily injury or disease or mental disorder rendering such person incapable of continuing to perform the essential employment duties of such person at the Company as such duties existed immediately prior to the bodily injury, disease or mental disorder.
2.8	EXCHANGE ACT means the Securities Exchange Act of 1934, as amended and any successor, and regulations and rules promulgated thereunder.

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2.9	EXERCISE PRICE means the price that shall be paid to purchase one (1) Share upon the exercise of an Option granted under this Plan.
2.10	FAIR MARKET VALUE of one Share on any given date shall be determined by the Committee as follows: (a) if the Shares are listed for or admitted for trading on one of more national securities exchanges, the last reported sales price on the principal exchange on the date in question, or if such Shares shall not have been traded on such principal exchange on such date, the last reported sales price on such principal exchange on the first day prior thereto on which such Shares were so traded; or (b) if the Shares are not listed for or admitted for trading on a national securities exchange, but is traded in the over-the-counter market, the closing bid price for such Shares on the date in question, or if there is no such bid price for such Shares on such date, the closing bid price on the first day prior thereto on which such price existed; or (c) if neither (a) or (b) is applicable, with respect to any Option intended to qualify as an ISO, by any fair and reasonable determination made in good faith by the Committee, and, with respect to any other Stock Incentive that is intended to be exempt from the requirements of Section 409A of the Code, a value determined by the reasonable application of a reasonable valuation method as defined in regulations promulgated under Section 409A of the Code, which determination shall be final and binding on all parties.
2.11	INSIDER means an individual who is, on the relevant date, an officer, member of the Board or ten percent (10%) beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.12	ISO (“Incentive Stock Option”) means an Option granted under this Plan to purchase Shares that is intended by the Company to satisfy the requirements of Section 422 of the Code.
2.13	KEY EMPLOYEE means any employee of the Company or any Subsidiary holding a key management or technical position as determined by the Committee.
2.14	KEY PERSON means a person, other than a Key Employee, who is (a) a member of the Board; or (b) a service provider providing bona fide services to the Company or any Subsidiary who is eligible to receive Shares that are registered by a Registration Statement on Form S-8 under the the Securities Act of 1933, as amended, as in effect on the date hereof or any registration form(s) under the Securities Act of 1933, as amended, subsequently adopted by the Securities and Exchange Commission.
2.15	NQSO (“Non-Qualified Stock Option”) means an option granted under this Plan to purchase Shares that is not intended by the Company to satisfy the requirements of Section 422 of the Code, and includes any ISO that, by subsequent action of the Company or the Participant permitted by the Plan, ceases to be an ISO.
2.16	OPTION means an ISO or a NQSO.
2.17	OUTSIDE DIRECTOR means a member of the Board who is not an employee and who: (a) is a “non-employee director” under Rule 16b-3 under the Exchange Act, as amended from time to time; (b) is an “outside director” under Section 162(m) of the Code; (c) satisfies the requirements of the principal stock exchange for the Shares relating to the independence of directors or the independence of directors serving on the Compensation Committee of the Board; and (d) satisfies the independence or similar

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	requirement of the Securities and Exchange Commission applicable to directors or to directors serving on the Compensation Committee of the Board.
2.18	PARTICIPANT means a Key Person, Key Employee, or any other employee who is designated to receive an award under the Plan by the Committee.
2.19	PERFORMANCE-BASED EXCEPTION means the performance-based exception from the tax deductibility limitations of Section 162(m) of the Code.
2.20	PERFORMANCE GOAL means, unless and until the Board proposes for shareholder vote and shareholders approve a change in the general performance measures set forth in this Section, the performance measure(s) to be used by the Committee for purposes of making Bonus Awards shall be chosen from among the following: (a) earnings per share; (b) net income (before or after taxes); (c) return measures (including, but not limited to, return on assets, equity or sales); (d) cash flow return on investments (net cash flows divided by owners equity); (e) earnings before or after taxes, depreciation and/or amortization; (f) revenues and or sales (gross or net); (g) operating income (before or after taxes); (h) total shareholder return; (i) corporate performance indicators (indices based on the level of certain services provided to customers); (j) cash generation, working capital, profit and/or revenue targets; (k) growth measures, such as revenue or sales growth; (l) ratios, such as expenses or market share; and/or (m) share price (including, but not limited to, growth measures and total shareholder return). In setting performance goals using these performance measures, the Committee may establish goals on an absolute basis, rate basis, or relative to a peer group performance or other benchmark, and may exclude the effect of changes in accounting standards and non-recurring unusual events specified by the Committee, such as write-offs, capital gains and losses and acquisitions and dispositions of businesses.
2.21	PERFORMANCE PERIOD means the period during which a performance goal must be attained with respect to a Stock Incentive that is performance based, as determined by the Committee.
2.22	PERFORMANCE STOCK means an award of Shares granted to a Participant that is subject to the achievement of performance criteria, either as to the delivery of such Shares or the calculation of the amount deliverable as a result of achieving a level of performance over a specified Performance Period, or any combination thereof.
2.23	PERFORMANCE UNITS means a contractual right granted to a Participant to receive a Share (or cash equivalent) upon achievement of performance criteria or a level of performance over a specified Performance Period that are deliverable either at the end of the Performance Period or at a later time.
2.24	PLAN means the MTS Systems Corporation 2011 Stock Incentive Plan, as it may be further amended from time to time.
2.25	QUALIFYING EVENT means, with respect to a Participant, such Participant’s death, Disability or Retirement.
2.26	RESTRICTED STOCK AWARD means an award of Shares granted to a Participant under this Plan that is subject to restrictions in accordance with the terms and provisions of this Plan and the applicable Stock Incentive Agreement.

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2.27	RESTRICTED STOCK UNIT means a contractual right granted to a Participant under this Plan to receive a Share (or cash equivalent) that is subject to restrictions of this Plan and the applicable Stock Incentive Agreement.
2.28	RETIREMENT means retirement from active employment with the Company and any subsidiary or parent corporation of the Company on or after age 65, or upon an earlier date with the consent of the Committee, and upon such terms and conditions as determined by the Committee.
2.29	SERVICE means services provided to the Company or any Subsidiary as either a Key Employee or a Key Person.
2.30	SHARE means one share of the common stock of the Company.
2.31	SPECIFIED EMPLOYEE means a Participant who is a “key employee” as described in Section 416(i)(1)(A) of the Code, disregarding paragraph (5) thereof. For purposes of determining key employees under Section 416(i)(1)(A) of the Code, the definition of compensation shall be the same as defined in the Company’s Retirement Savings Plan, but excluding any compensation of a Participant whose location is not effectively connected with the conduct of a trade or business within the United States. If a Participant is a key employee at any time during the 12 months ending on each September 30, the Participant is a Specified Employee for the 12 month period commencing on the next January 1. Any such identification of a Specified Employee under this Plan shall apply to all nonqualified deferred compensation plans in which the Specified Employee participates. In the case of certain corporate transactions (a merger, acquisition or spin-off), or in the case of nonresident alien employees, the Company will determine Specified Employees in accordance with Treas. Reg. §1.409A-1(i).
2.32	STOCK APPRECIATION RIGHT means a right granted to a Participant pursuant to the terms and provisions of this Plan whereby the individual, without payment to the Company (except for any applicable withholding or other taxes), receives Shares, or such other consideration as the Committee may determine, in an amount equal to the excess of the Fair Market Value per Share on the date on which the Stock Appreciation Right is exercised over the exercise price per Share noted in the Stock Appreciation Right, for each Share subject to the Stock Appreciation Right.
2.33	STOCK INCENTIVE means an ISO, NQSO, Restricted Stock, Restricted Stock Unit, Stock Appreciation Right, Performance Stock, Performance Unit, or cash.
2.34	STOCK INCENTIVE AGREEMENT means a document, agreement, certificate, resolution or other evidence in writing or electronic form approved by the Committee that sets forth the terms and conditions of a Stock Incentive granted by the Company or a Subsidiary to a Participant.
2.35	SUBSIDIARY means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.
2.36	TEN PERCENT SHAREHOLDER means a person who owns (after taking into account the attribution rules of Section 424(d)) of the Code more than ten percent (10%) of the

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total combined voting power of all classes of shares of stock of either the Company or a Subsidiary.

SECTION 3
SHARES SUBJECT TO STOCK INCENTIVES

3.1	AGGREGATE SHARES AUTHORIZED AND LIMITATIONS. The aggregate number of Shares that may be issued under the Plan is Two Million Three Hundred Thousand (2,300,000) Shares. In addition, Shares subject to awards currently outstanding under the Company’s 2006 Stock Incentive Plan that are terminated, cancelled, surrendered or forfeited without the delivery of Shares may be reissued at the discretion of the Committee under the Plan. The aggregate number of Shares described above are subject to adjustment as provided in Section 3.4. Within the aggregate limit specified above and subject to adjustment as provided in Section 3.4:
	(a)	No more than Two Million Three Hundred Thousand (2,3000,000) Shares may be used for Incentive Stock Options; and
	(b)	No more than Sixty Thousand (60,000) Shares may be used for Stock Incentives for non-employee Directors in any calendar year (subject to the principle in Section 3.2(f)).
	Such Shares shall be reserved, to the extent that the Company deems appropriate, from authorized but unissued Shares, and from Shares which have been reacquired by the Company.
3.2	SHARE COUNTING. For purposes of determining the limits described in this Plan, in particular this Section 3, Shares covered by a Stock Incentive shall not be counted as used unless and until actually delivered to a Participant. If any Shares covered by a Stock Incentive are not purchased or are forfeited or reacquired by the Company prior to vesting, or if a Stock Incentive terminates, or is cancelled without the delivery of any Shares, such Shares shall be added back to the limits described in this Plan and are again available for grants from the Plan. In addition, the following principles shall apply in determining the number of Shares under any applicable limit:
	(a)	Shares tendered or attested to in payment of the Exercise Price of an Option shall not be added back to the applicable limit;
	(b)	Shares withheld by the Company to satisfy the tax withholding obligation shall not be added back to the applicable limit;
	(c)	Shares that are reacquired by the Company with the amount received upon exercise of an Option shall not be added back to the applicable limit;
	(d)	The aggregate Shares exercised pursuant to a Stock Appreciation Right that is settled in Shares shall reduce the applicable limit, rather than the number of Shares actually issued;
	(e)	Any Stock Incentive that is settled in cash shall not reduce the applicable limit; and
	(f)	Restricted Stock, Restricted Stock Units, Performance Stock, Performance Units and other Stock Incentive settled in Shares shall reduce the applicable limit by 2.5 Shares for each Share covered by the Incentive.

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3.3

LIMITATIONS ON STOCK INCENTIVES. Subject to adjustment pursuant to Section 3.4, no Participant may be granted any Stock Incentive covering an aggregate number of Shares in excess of Two Hundred Thousand (200,000) in any calendar year. Notwithstanding the foregoing, in connection with his or her initial service, a Participant may be granted Stock Incentives covering not more than an additional One Hundred Thousand (100,000) Shares, which shall not count against the limit set forth in the preceding sentence. The foregoing limits shall be determined by applying the principles of Section 3.2 (in particular Section 3.2(f)). With respect to any Performance Unit or Other Award that is not denominated in Shares, the maximum amount that a Participant may receive in any calendar year is Two Million dollars ($2,000.000).

3.4

SHARE ADJUSTMENT. Notwithstanding anything in Section 12 to the contrary: (a) the number of Shares reserved under Section 3.1, (b) the limit on the number of Shares that may be granted subject to Stock Incentives during a calendar year to any individual under Section 3.1 and 3.3, (c) the number of Shares subject to certain Stock Incentives granted subject to Section 3.1, and (d) the Exercise Price of any Options and the specified price of any Stock Appreciation Rights, shall be adjusted by the Committee in an equitable manner to reflect any change in the capitalization of the Company, including, but not limited to, such changes as stock dividends or stock splits. Furthermore, the Committee shall have the right to adjust (in a manner that satisfies the requirements of Code Section 424(a)): (i) the number of Shares reserved under Section 3.1; (ii) the number of Shares subject to certain Stock Incentives subject to Section 3.1; and (iii) the Exercise Price of any Options and the specified exercise price of any Stock Appreciation Rights in the event of any corporate transaction described in Section 424(a) of the Code that provides for the substitution or assumption of such Stock Incentives. If any adjustment under this Section creates a fractional Share or a right to acquire a fractional Share, such fractional Share shall be disregarded, and the number of Shares reserved under this Plan and the number subject to any Stock Incentives granted under this Plan shall be the next lower number of Shares, rounding all fractions downward. An adjustment made under this Section by the Committee shall be conclusive and binding on all affected persons and, further, shall not constitute an increase in the number of Shares reserved under Section 3.1 or an increase in any limitation imposed by the Plan.

SECTION 4
EFFECTIVE DATE AND TERM OF PLAN

The effective date of this Plan shall be January 31, 2011, provided, however, that if the Plan is not approved by the shareholders of the Company within 12 months of the approval by the Board, the Plan will be terminated and all Stock Incentives granted under the Plan will be terminated and deemed null and void and further provided that no Stock Incentive shall vest and no Shares may be issued under the Plan prior to approval of the Plan by the shareholders of the Company. No Stock Incentive shall be granted under this Plan on or after the earlier of:

(a)	the seventh (7th) anniversary of the effective date of this Plan, and
(b)	the date on which all of the Shares reserved under Section 3 of this Plan have been issued or are no longer available for use under this Plan.

This Plan shall continue in effect until all outstanding Stock Incentives have been exercised in full or are no longer exercisable and all Restricted Stock Awards or Restricted Stock Units have vested or been forfeited.

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SECTION 5
ADMINISTRATION

5.1	GENERAL ADMINISTRATION. The Committee shall administer this Plan. The Committee, acting in its absolute discretion, shall exercise such powers and take such action as expressly called for under this Plan. The Committee shall have full power to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend or waive rules and regulations for the Plan’s administration, and to make all other determinations and take all other actions that may be necessary or advisable for the administration of the Plan. Notwithstanding anything herein to the contrary, the Board may, without further action of the Committee, exercise the powers and duties of the Committee or any delegate under the Plan, unless such exercise would cause any Stock Incentive not to comply with the requirements of Section 162(m) of the Code.
5.2	AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Articles of Incorporation or By-laws of the Company, and subject to the provisions herein, the Committee shall have full power to: (a) select Participants in the Plan; (b) determine the types of Stock Incentives for each Participant in a manner consistent with the Plan; (c) determine the number of Shares or the method of determining the number of Shares or other payment under such Stock Incentive; (d) determine the terms and conditions of Stock Incentives in a manner consistent with the Plan, including the time and manner of exercise, the restrictions on the rights granted under the Stock Incentive and the lapse thereof, the manner of payment, if any, the restrictions or holding period applicable to the payment or Stock received upon exercise or in satisfaction of the Stock Incentive; and (e) amend the terms and conditions of any outstanding Stock Incentives as provided in accordance with Section 12.3. The Committee shall have the independent authority and discretion over the appointment, compensation and oversight of the services of advisors to the Committee, including compensation consultants and legal counsel, provided such advisors meet the standards for independence as established by the Securities Exchange Commission. The Company shall pay the compensation and expenses of such advisors. The Committee may seek the assistance of such other persons as it may see fit in carrying out its routine administrative functions concerning the Plan.
5.3	DELEGATION OF AUTHORITY. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board. The Committee may appoint one or more separate committees (any such committee, a “Subcommittee”) composed of two or more Outside Directors of the Company (who may but need not be members of the Committee) and may delegate to any such Subcommittee or to one or more executive officers of the Company the authority to grant Stock Incentives, and/or to administer the Plan or any aspect of it; provided, however, that only the Committee may grant Stock Incentives that meet the Performance-Based Exception, and only the Committee may grant Stock Incentives to Insiders.
5.4	DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of this Plan and all related orders and resolutions of the Committee shall be final, conclusive and binding on all persons, including the Company, its shareholders, members of the Board, Participants, and their estates and beneficiaries.

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SECTION 6
ELIGIBILITY

Participants selected by the Committee shall be eligible for the grant of Stock Incentives under this Plan, but no Participant shall have the right to be granted a Stock Incentive under this Plan merely as a result of his or her status as a Key Person or Key Employee. Notwithstanding the foregoing, an ISO may only be granted to a Key Employee.

SECTION 7
TERMS AND CONDITIONS OF STOCK INCENTIVES

7.1	ALL STOCK INCENTIVES.
	(a)	Grants of Stock Incentives. The Committee, in its absolute discretion, shall grant Stock Incentives under this Plan from time to time and shall have the right to grant new Stock Incentives in exchange for outstanding Stock Incentives; provided, however, the Committee shall not have the right to: (i) lower the Exercise Price of an existing Option; (ii) take any action which would be treated as a “repricing” under generally accepted accounting principles; or (iii) cancel an existing Option at a time when its Exercise Price exceeds the fair market value of the underlying stock subject to such Option in exchange for another Stock Incentive, including cash or other equity in the Company (except as provided in Sections 3.4, 10 and 11).
	(b)	Shares Subject to Stock Incentives. The number of Shares as to which a Stock Incentive shall be granted shall be determined by the Committee in its sole discretion, subject to the provisions of Section 3.1 as to the total number of Shares available for grants under the Plan, and to any other restrictions contained in this Plan.
	(c)	Stock Incentive Agreements. Each Stock Incentive shall be evidenced by a Stock Incentive Agreement. The Stock Incentive Agreement may be in an electronic medium, may be limited to notation on the books and records of the Company and, with the approval of the Committee, need not be signed by a representative of the Company or a Participant. The Committee shall have sole discretion to modify the terms and provisions of any Stock Incentive in accordance with Section 12.3.
	(d)	Date of Grant. The date a Stock Incentive is granted shall be no earlier than the date on which the Committee: (i) has approved the terms and conditions of the Stock Incentive Agreement; (ii) has determined the recipient of the Stock Incentive and the number of Shares covered by the Stock Incentive; and (iii) has taken all such other action necessary to direct the grant of the Stock Incentive.
	(e)	Vesting of Stock Incentives. Stock Incentives under the Plan may have restrictions on the vesting or delivery of and, in the case of Options, the right to exercise, that lapse based upon the service of a Participant, or based upon other criteria that the Committee may determine appropriate, such as the attainment of performance criteria as determined by the Committee, including but not limited to one or more Pperformance Goals. If the Award is intended to meet the Performance-Based Exception, the attainment of such performance goals must satisfy the requirements of Sections 9.1, 9.2 and 9.3. Except as otherwise provided in Section 7.1(f), until the end of the period(s) of time specified in the

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	vesting schedule and/or the satisfaction of any performance criteria, the Shares subject to such Stock Incentive Award shall remain subject to forfeiture.
(f)	Acceleration of Vesting of Stock Incentives. In the event of the death or Disability of the Participant while in the employ of the Company (or in the case of a Director, while serving as a Director), any Stock Incentive Award shall immediately be exercisable in full, or any restrictions thereon shall immediately lapse, as the case may be. Notwithstanding anything to the contrary in this Plan, the Committee shall have the power to permit, in its sole discretion, an acceleration of the expiration of the applicable restrictions or the applicable period of such restrictions with respect to any part or all of the Shares awarded to a Participant; provided, however, the Committee may grant Stock Incentive Awards precluding such accelerated vesting in order to qualify the Stock Incentive Awards for the Performance-Based Exception.
(g)	Dividend Equivalents. The Committee may grant dividend equivalents with respect to any Stock Incentive. The Committee shall establish the terms and conditions to which the dividend equivalents are subject. Under a dividend equivalent, a Participant shall be entitled to receive payments equivalent to the amount of dividends paid by the Company to holders of Shares with respect to the number of dividend equivalents held by the Participant, which may be paid concurrently with the payment of dividends or deferred and paid at a later date. The dividend equivalent may provide for payment in Shares or in cash, or a fixed combination of Shares or cash, or the Committee may reserve the right to determine the manner of payment at the time the dividend equivalent is payable. Any such dividend equivalent that is intended to exempt from Section 409A of the Code with respect to a Stock Incentive that constitutes Deferred Compensation shall be stated in a separate arrangement.
(h)	Transferability of Stock Incentives. Except as otherwise provided in a Participant’s Stock Incentive Agreement, no Stock Incentive granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except upon the death of the holder Participant by will or by the laws of descent and distribution. Except as otherwise provided in a Participant’s Stock Incentive Agreement, during the Participant’s lifetime, only the Participant may exercise any Option or Stock Appreciation Right unless the Participant is incapacitated, in which case the Option or Stock Appreciation Right may be exercised by and any other Stock Incentive may be payable to the Participant’s legal guardian, legal representative, or other representative whom the Committee deems appropriate based on applicable facts and circumstances. The determination of incapacity of a Participant and the identity of appropriate representative of the Participant to exercise the Option or receive any other payment under a Stock Incentive if the Participant is incapacitated shall be determined by the Committee.
(i)	Deferral Elections. The Committee may require or may permit Participants to elect to defer the issuance of Shares or the settlement of Stock Incentives in cash under this Plan pursuant to such rules, procedures, or programs as it may establish from time to time. However, notwithstanding the preceding sentence, the Committee shall not, in establishing the terms and provisions of any Stock Incentive, or in exercising its powers under this Plan: (i) create any arrangement which would constitute an employee pension benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act, as amended, unless the

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		arrangement provides benefits solely to one or more individuals who constitute members of a select group of management or highly compensated employees; or (ii) create any arrangement that would constitute Deferred Compensation unless the arrangement complies with Section 9.4 and 9.5 or unless the Committee, at the time of grant, specifically provides that the Stock Incentive is not intended to comply with Section 409A of the Code.
7.2	OPTIONS.
	(a)	Grants of Options. Each grant of an Option shall be evidenced by a Stock Incentive Agreement that shall specify whether the Option is an ISO or NQSO, and incorporate such other terms as the Committee deems consistent with the terms of this Plan and, in the case of an ISO, necessary or desirable to permit such Option to qualify as an ISO. The Committee and/or the Company may modify the terms and provisions of an Option in accordance with Section 12 even though such modification may change the Option from an ISO to a NQSO.
	(b)	Termination of Service other than upon a Qualifying Event. Except as provided in the Option Agreement or a separate agreement with the Participant that covers Options, or as otherwise provided by the Committee: (i) if the Participant’s Service with the Company and/or a Subsidiary ends before the Options vest, the Participant shall forfeit all unvested Options; and (ii) any Options held by such Participant may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after 180 days after such termination, or the expiration of the stated term of the Options, whichever period is the shorter. In the event a Participant’s Service with the Company or any Subsidiary is terminated for Cause, all unexercised Options granted to such Participant shall immediately terminate.
	(c)	Termination of Service upon a Qualifying Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant that covers Options, and except as otherwise provided by the Committee: (i) if a Qualifying Event occurs before the date or dates on which Options vest, the Participant shall forfeit all unvested Options; and (ii) any Options held by such Participant may thereafter be exercised to the extent it was exercisable at the time of such Qualifying Event, but may not be exercised after 180 days after such Qualifying Event, or the expiration of the stated term of the Options, whichever period is the shorter.
	(d)	Exercise Price. Subject to adjustment in accordance with Section 3.4 and the other provisions of this Section, the Exercise Price shall be specified in the applicable Stock Incentive Agreement and shall not be less than the Fair Market Value of a Share on the date the Option is granted. With respect to each ISO to a Participant who is not a Ten Percent Shareholder, the Exercise Price shall not be less than the Fair Market Value of a Share on the date the ISO is granted. With respect to each ISO to a Participant who is a Ten Percent Shareholder, the Exercise Price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date the ISO is granted.
	(e)	Option Term. Each Option granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related Stock Incentive Agreement, but no Stock Incentive Agreement shall: (i) make an Option exercisable prior to the date such Option is granted or after it has been exercised

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	in full; or (ii) make an Option exercisable after the date that is: (A) the tenth (10th) anniversary (seventh (7th) anniversary for options granted prior to January 31, 2013) of the date such Option is granted, if such Option is a NQSO or an ISO granted to a Participant who is not a Ten Percent Shareholder; or (B) the fifth (5th) anniversary of the date such Option is granted, if such Option is an ISO granted to a Ten Percent Shareholder. Options issued under the Plan may become exercisable based on the service of a Participant, or based upon the attainment (as determined by the Committee) of performance criteria, including but not limited to Performance Goals. Any Option that is intended to qualify for the Performance-Based Exception must satisfy the requirements of Sections 9.1, 9.2 and 9.3.
(f)	Payment. The Exercise Price of Shares acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations by delivering to the Company or its designated agent, either: (i) in cash or by check at the time the Option is exercised; or (ii) at the discretion of the Committee at the time of the grant of the Option (or subsequently in the case of an NQSO): (A) by delivery (or by attestation) of other Shares, including Shares acquired as part of the exercise (i.e., a pyramid exercise); (B) if permitted by applicable law, the withholding of Shares delivered by that number of Shares equal to the Fair Market Value of the Exercise Price (i.e., a cashless or net exercise); (C) according to a deferred payment or other similar arrangement with the Participant, including use of a promissory note (except for executive officers and Directors of the Company to the extent such loans and similar arrangements are prohibited under Section 402 of the Sarbanes-Oxley Act of 2002); (D) pursuant to a “same day sale” program exercised through a brokerage transaction as permitted under the provisions of Regulation T applicable to cashless exercises promulgated by the Federal Reserve Board so long as the Company’s equity securities are registered under Section 12 of the Exchange Act, unless prohibited by Section 402 of the Sarbanes-Oxley Act of 2002; or (E) by some combination of the foregoing. Notwithstanding the foregoing, with respect to any Participant who is an Insider, a tender of Shares or, a cashless or net exercise shall be a subsequent transaction approved as part of the original grant of an Option for purposes of the exemption under Rule 16b-3 of the Exchange Act. Except as provided above, payment shall be made at the time that the Option or any part thereof is exercised, and no Shares shall be issued or delivered upon exercise of an Option until full payment has been made by the Participant. The holder of an Option, as such, shall have none of the rights of a shareholder.
(g)	ISO Tax Treatment Requirements. With respect to any Option that is intended to be an ISO, to the extent that the aggregate Fair Market Value (determined as of the date of grant of such Option) of Shares with respect to which such Option is exercisable for the first time by any individual during any calendar year exceeds one hundred thousand dollars ($100,000), to the extent of such excess, such Option shall not be treated as an ISO in accordance with Section 422(d) of the Code and in Treas. Reg. §1.422-4. With respect to any Option that is intended to be an ISO, such Option shall cease to be treated as an ISO if the Participant disposes of Shares acquired upon exercise of the Option within two (2) years from the date of the granting of the Option or within one (1) year of the exercise of the Option, or if the Participant has not met the requirements of Section 422(a)(2) of the Code.

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7.3	RESTRICTED STOCK.
	(a)	Grants of Restricted Stock Awards. Shares awarded pursuant to Restricted Stock Awards shall be subject to such restrictions as determined by the Committee for periods determined by the Committee. The Committee may require a cash payment from the Participant in exchange for the grant of a Restricted Stock Award or may grant a Restricted Stock Award without the requirement of a cash payment.
	(b)	Termination of Service other than a Qualifying Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering the Restricted Stock, if the Participant’s Service with the Company and/or a Subsidiary ends for any reason other than a Qualifying Event before any restrictions lapse, the Participant shall forfeit all unvested Restricted Stock, unless the Committee determines that some or all of the Participant’s unvested Restricted Stock shall vest as of the date of such event.
	(c)	Termination of Service upon a Qualifying Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering the Restricted Stock: (i) if a Qualifying Event occurs before the date or dates on which restrictions lapse, the Participant shall forfeit all unvested Restricted Stock, unless the Committee determines that some or all of the Participant’s unvested Restricted Stock shall vest as of the date of such event; and (ii) in the case of Restricted Stock based on performance criteria then, as of the date on which such Qualifying Event occurs, the Participant shall be entitled to receive a number of Shares that is determined by measuring the selected performance criteria from the Company’s most recent publicly available quarterly results that are available as of the date the Qualifying Event occurs or such later date as the Committee determines, but no later than the end of the Performance Period; provided, however, the Committee may grant Restricted Stock Awards precluding such partial awards when a Qualifying Event occurs in order to qualify the Restricted Stock for the Performance-Based Exception.
	(d)	Voting, Dividend & Other Rights. Unless the applicable Stock Incentive Agreement provides otherwise, a Participant awarded Restricted Stock shall be entitled to vote and to receive dividends during the periods of restriction of the Shares to the same extent as the Participant would have been entitled if the Shares were not restricted.
7.4	RESTRICTED STOCK UNITS.
	(a)	Grants of Restricted Stock Units. A Restricted Stock Unit shall entitle the Participant to receive one Share at such future time and upon such terms as specified by the Committee in the Stock Incentive Agreement. The Committee may require a cash payment from the Participant in exchange for the grant of Restricted Stock Units or may grant Restricted Stock Units without such requirement.
	(b)	Termination of Service other than upon a Qualifying Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering the Restricted Stock Unit, if the Participant’s Service with the Company and/or a Subsidiary ends before the Restricted Stock Units vest, the Participant shall forfeit all unvested Restricted Stock Units, unless the Committee

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		determines that the Participant’s unvested Restricted Stock Units shall vest as of the date of such event.
	(c)	Termination of Service upon a Qualifying Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering the Restricted Stock Unit: (i) if a Qualifying Event occurs before the date or dates on which restrictions lapse, the Participant shall forfeit all unvested Restricted Stock Units, unless the Committee determines that the Participant’s unvested Restricted Stock Units shall vest as of the date of such event; and (ii) in the case of Restricted Stock Units that are based on performance criteria, then as of the date on which such Qualifying Event occurs, the Participant shall be entitled to receive a number of Shares that is determined by measuring the selected performance criteria from the Company’s most recent publicly available quarterly results that are available as of the date the Qualifying Event occurs or such later date, but not later than the end of the Performance Period; provided, however, the Committee may grant Restricted Stock Units precluding entitlement to a partial award when a Qualifying Event occurs in order to qualify the Restricted Stock Units for the Performance-Based Exception.
	(d)	Voting, Dividend & Other Rights. A Participant awarded Restricted Stock Units shall not be entitled to vote or to receive dividends until the date the Shares are issued to the Participant pursuant to the Restricted Stock Units, and, unless the Stock Incentive Agreement provides otherwise, the Participant shall not be entitled to any dividend equivalents (as described in Section 7.1(g)).
7.5	STOCK APPRECIATION RIGHTS.
	(a)	Grants of Stock Appreciation Rights. A Stock Appreciation Right shall entitle the Participant to receive upon exercise the excess of the Fair Market Value of number of Shares exercised, over the specified price for such Shares. The specified price for a Stock Appreciation Right granted in connection with a previously or contemporaneously granted Option, shall not be less than the Exercise Price for Shares that are subject to the Option. In the case of any other Stock Appreciation Right, the specified price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share at the time the Stock Appreciation Right is granted. If related to an Option, the exercise of a Stock Appreciation Right shall result in a pro rata expiration and cancellation of the same number of Shares of the related Option for which the Stock Appreciation Right has been exercised.
	(b)	Stock Appreciation Right Term. Each Stock Appreciation Right granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related Stock Incentive Agreement, but no Stock Incentive Agreement shall: (i) make a Stock Appreciation Right exercisable prior to the date such Stock Appreciation Right is granted or after it has been exercised in full; or (ii) make a Stock Appreciation Right exercisable after the date that is: (A) the seventh (7th) anniversary of the date such Stock Appreciation Right is granted; or (B) the fifth (5th) anniversary of the date such Stock Appreciation Right is granted, if such Stock Appreciation Right is granted in connection with the grant of an ISO to a Ten Percent Shareholder. Stock Appreciation Rights issued under the Plan may become exercisable based on the service of a Participant, or based upon the attainment (as determined by the Committee) of performance criteria, including but not limited to Performance Goals. Any Stock Appreciation Right that is

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		intended to qualify for the Performance-Based Exception must satisfy the requirements of Sections 9.1, 9.2 and 9.3.
	(c)	Payment. Upon exercise of a Stock Appreciation Right, the Company shall pay to the Participant the appreciation with Shares (computed using the aggregate Fair Market Value of Shares on the date of exercise) or in cash, or in any combination thereof as specified in the Stock Incentive Agreement or, if not specified, as the Committee determines. To the extent that a Stock Appreciation Right is exercised, the specified price shall be treated as paid in Shares for purposes of Section 3.
	(d)	Termination of Service other than upon a Qualifying Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant that governs the Stock Appreciation Rights granted, or as otherwise provided by the Committee: (i) if the Participant’s Service with the Company and/or a Subsidiary ends before the Stock Appreciation Rights vest, the Participant shall forfeit all unvested Stock Appreciation Rights; and (ii) any Stock Appreciation Rights held by such Participant may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after 180 days after such termination, or the expiration of the stated term of the Stock Appreciation Rights, whichever period is the shorter. In the event a Participant’s employment with the Company or any Subsidiary is terminated for Cause, all unexercised Stock Appreciation Rights granted to such Participant shall immediately terminate.
	(e)	Termination of Service upon a Qualifying Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant that governs the Stock Appreciation Rights granted, and except as otherwise provided by the Committee: (i) if a Qualifying Event occurs before the date or dates on which Stock Appreciation Rights vest, the Participant shall forfeit all unvested Stock Appreciation Rights; and (ii) any Stock Appreciation Rights held by such Participant may thereafter be exercised to the extent it was exercisable at the time of such Qualifying Event, but may not be exercised after 180 days after such Qualifying Event, or the expiration of the stated term of the Stock Appreciation Rights, whichever period is the shorter.
	(f)	Special Provisions for Tandem Stock Appreciation Rights. A Stock Appreciation Right granted in connection with an Option may only be exercised to the extent that the related Option has not been exercised. A Stock Appreciation Right granted in connection with an ISO: (i) will expire no later than the expiration of the underlying ISO; (ii) may be for no more than the difference between the exercise price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Stock Appreciation Right is exercised; (iii) may be transferable only when, and under the same conditions as, the underlying ISO is transferable; and (iv) may be exercised only: (A) when the underlying ISO could be exercised; and (B) when the Fair Market Value of the Shares subject to the ISO exceeds the exercise price of the ISO.
7.6	PERFORMANCE STOCK AND PERFORMANCE UNITS.
	(a)	Awards of Performance Stock and Performance Units. Performance Stock and Performance Units shall become payable to a Participant upon achievement of performance criteria as determined by the Committee. Each award will specify

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		the number of Performance Stock or Performance Units to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors; provided, however, that no such adjustment will be made in the case of a grant that is intended to qualify for the Performance-Based Exception, other than as provided in Sections 9.1, 9.2 and 9.3. Subject to the limitation set forth in Section 3.4, any grant of Performance Stock or Performance Units may specify that the amount payable with respect thereto may not exceed a maximum specified by the Committee at the date of grant.
	(b)	Payment. Each grant will specify the time and manner of payment of Performance Stock or Performance Units that have been earned. Any Performance Stock award shall be payable in Shares. Any Performance Unit award may specify that the amount payable with respect thereto may be paid by the Company in cash, in Shares or in any combination thereof and may either grant to the Participant or retain in the Committee the right to elect among cash or Shares.
7.7	OTHER AWARDS.
	(a)	Other awards may, subject to limitations under applicable law, be granted to any Participant denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares or factors that may influence the value of such Shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase rights for Shares, awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof, or any other factors designated by the Committee. The Committee shall determine the terms and conditions of such awards.
	(b)	Cash awards, as an element of or supplement to any other Stock Incentives granted under this Plan, may also be granted to Participants on such terms and conditions as the Committee may determine, subject to the limitation set forth in Section 3.4.
	(c)	Shares may be granted to a Participant as a bonus, or in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, subject to such terms as the Committee shall determine, subject to the limitation set forth in Section 3.4.
	(d)	Participants designated by the Committee may be permitted to reduce compensation otherwise payable in cash in exchange for Shares or other Stock Incentives under the Plan.
7.8	NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Notwithstanding any other provisions of this Plan, a grant of Restricted Stock or Restricted Stock Units shall be made to each Director who is not an employee of the Company or any Subsidiary within the meaning of Rule 16b-3 of the Exchange Act and who at the regular annual shareholders meeting is elected (or re-elected) to the Board. Except as provided in (a) and (b) below, the number of Shares and the other terms of this Restricted Stock or Restricted Stock Unit shall be determined by the Board in its sole discretion prior to such annual meeting of shareholders. The date of grant of the Restricted Stock is the date on which such non-employee Director is elected or reelected to serve on the Board. Each grant of Restricted Stock or Restricted Stock Unit to

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a non-employee Director shall vest on the date of the next regular annual shareholder meetings following the date of grant if the non-employee Director continues to serve as a member of the Board through such annual meeting; provided, however, that if the non-employee Director ceases to serve as a member of the Board prior to the next regular annual shareholder meeting, the grant shall partially vest based on the length of time from the time of grant to the date such services cease, and the date the grant would have otherwise vested.

The Board, in its discretion, may, in addition to the Restricted Stock and Restricted Stock Unit grants provided above, grant any additional Stock Incentive to all non-employee Directors or to any individual non-employee Director, provided that such grant shall be solely for substantial services performed or to be performed by the non-employee Directors or non-employee Director as determined in good faith by the Board.

SECTION 8
SECURITIES REGULATION

8.1	LEGALITY OF ISSUANCE. No Share shall be issued under this Plan unless and until the Committee has determined that all required actions have been taken to register such Share under the Securities Act of 1933 or the Company has determined that an exemption therefrom is available, any applicable listing requirement of any stock exchange on which the Share is listed has been satisfied, and any other applicable provision of state, federal or foreign law, including foreign securities laws where applicable, has been satisfied.
8.2	RESTRICTIONS ON TRANSFER; REPRESENTATIONS; LEGENDS. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act of 1933 or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act of 1933, the securities laws of any state, the United States or any other applicable foreign law. If the offering and/or sale of Shares under the Plan is not registered under the Securities Act of 1933 and the Company determines that the registration requirements of the Securities Act of 1933 apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Securities Act of 1933, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel. All Stock Incentive Agreements shall contain a provision stating that any restrictions under any applicable securities laws will apply.
8.3	REGISTRATION OF SHARES. The Company may, and intends to, but is not obligated to, register or qualify the offering or sale of Shares pursuant to this Plan under the Securities Act of 1933 or any other applicable state, federal or foreign law.

SECTION 9
COMPLIANCE WITH THE CODE

9.1 DISCRETION IN FORMULATION OF PERFORMANCE CRITERIA. The Committee shall have the discretion to adjust the determinations of the degree of attainment of the

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	pre-established performance criteria; provided, however, that any Stock Incentives that are intended to qualify for the Performance-Based Exception may not be adjusted upward (although the Committee shall retain the discretion to adjust such Stock Incentives downward).
9.2	PERFORMANCE PERIODS. The Committee shall have the discretion to determine the period during which any performance criteria, including any Performance Goal must be attained with respect to a Stock Incentive. Such period may be of any length, and must be established prior to the start of such period or within the first ninety (90) days of such period (provided that the performance criteria are not in any event set after 25% or more of such period has elapsed).
9.3	MODIFICATIONS TO PERFORMANCE GOAL CRITERIA. In the event that the applicable tax and/or securities laws and regulatory rules and regulations change to permit Committee discretion to alter the governing performance measures noted above without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Stock Incentives that shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements under Section 162(m) of the Code to qualify for the Performance-Based Exception.
9.4	LIMITATION ON PAYMENT OR EXERCISE. With respect to any Stock Incentive that constitutes Deferred Compensation, such Stock Incentive shall provide for payment or exercise only upon: (a) a fixed date or schedule that complies with the requirements of Treas. Reg. §1.409A-3; (b) on a date based upon the Participant’s “separation from service,” or “disability,” or “unforeseeable emergency” as those terms are defined under Section 409A of the Code; (c) the Participant’s death; or (d) a Change in Control as defined in Section 11.1. Any election permitted under any Stock Incentive that constitutes Deferred Compensation shall comply with the requirements of Treas. Reg. §1.409A-2 and shall be irrevocable as of the date of grant of the Stock Incentive. In addition, with respect to any Stock Incentive that constitutes Deferred Compensation, except to the extent acceleration or deferral is permitted by or complies with the requirements of Section 409A of the Code, neither the Committee nor a Participant may accelerate or defer the time or schedule of any payment or exercise of, or the amount scheduled to be reported as income as a result.
9.5	DELAY IN PAYMENT OR EXERCISE FOR SPECIFIED EMPLOYEES. Notwithstanding anything in the Plan, unless the Stock Incentive Agreement specifically provides otherwise, no Stock Incentive that constitutes Deferred Compensation shall be paid to or exercised by a Specified Employee earlier than 181 days following the Participant’s “separation from service” as defined for purposes of Section 409A of the Code (or if earlier, upon the Specified Employee’s death), except as permitted under Section 409A of the Code and the regulations and other guidance promulgated thereunder. The Committee may specify in the Stock Incentive Agreement that the amount of the Deferred Compensation delayed pursuant to this Section 16.4 shall accumulate interest or earnings during the period of such delay.
9.6	WITHHOLDING. All taxes imposed on any Stock Incentive shall be the sole responsibility of the Participant. The Company shall have the right to deduct or withhold, or require a Participant to remit to the Company as a condition precedent for the grant, exercise, satisfaction of conditions or the lapse of restrictions under any Stock Incentive or the issuance of Shares, an amount sufficient to satisfy the federal, state and local

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	taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result. Unless the Stock Incentive Agreement provides otherwise, the Participant may satisfy such tax obligation by:
	(a)	electing to have the Company withhold a portion of the Shares otherwise to be delivered upon such exercise, satisfaction of conditions or lapse of restriction with a Fair Market Value equal to the amount of such taxes, provided that the maximum amount shall not exceed the amount of the minimum required withholding; and
	(b)	delivering to the Company Shares other than Shares issuable upon such exercise, satisfaction of conditions or lapse of restrictions with a Fair Market Value equal to the amount of such taxes.
	Notwithstanding the foregoing, with respect to any Participant who is an Insider, a withholding or tender of Shares shall be a subsequent transaction approved as part of the Stock Incentive for purposes of the exemption under Rule 16b-3 of the Exchange Act.
9.7	NOTIFICATION OF DISQUALIFYING DISPOSITIONS OF AN ISO. If a Participant sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of: (a) the date two (2) years after the date of grant of such ISO; or (b) the date one (1) year after the exercise of such ISO, then the Participant shall immediately notify the Company in writing of such sale or disposition and shall cooperate with the Company in providing sufficient information to the Company for the Company to properly report such sale or disposition to the Internal Revenue Service. The Participant acknowledges and agrees that he or she may be subject to federal, state and/or local tax withholding by the Company on the compensation income recognized by Participant from any such early disposition, and agrees that he or she shall include the compensation from such early disposition in his gross income for federal tax purposes. The Company may condition the exercise of any ISO on the Participant’s express written agreement with these provisions of this Plan.

SECTION 10
STOCK INCENTIVES TO PARTICIPANTS OUTSIDE THE US

The Committee shall have the authority to require that any Stock Incentive Agreement relating to a Stock Incentive in a jurisdiction outside of the United States contain such terms as are required by local law in order to constitute a valid grant under the laws of such jurisdiction. Such authority shall be notwithstanding the fact that the requirements of the local jurisdiction may be different from or more or less restrictive than the terms set forth in this Plan. No purchase or delivery of Shares pursuant to a Stock Incentive to a Participant outside the United States shall occur until applicable restrictions imposed pursuant to this Plan (as modified as provided in this Section 10) or the applicable Stock Incentive have terminated.

SECTION 11
CHANGE IN CONTROL OF THE COMPANY

11.1 CHANGE IN CONTROL. “Change in Control” of the Company means an event that would be required to be reported in response to Item 6(e) on Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement, including, without limitation, if:

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	(a)	Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or other than a Subsidiary of the Company, becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities; or
	(b)	During any period of two consecutive years (not including any period ending prior to the effective date of this Plan), the Incumbent Directors cease for any reason to constitute at least a majority of the Board. The term “Incumbent Directors” shall mean those individuals who are members of the Board of Directors on the effective date of this Plan and any individual who subsequently becomes a member of the Board (other than a director designated by a person who has entered into agreement with the Company to effect a transaction contemplated by Section 11.1(c)) whose election or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the then Incumbent Directors; or
	(c)	In the event:
		(i)	the Company consummates a merger, consolidation, share exchange, division or other reorganization of the Company with any corporation or entity, other than an entity owned at least 80% by the Company, unless immediately after such transaction, the shareholders of the Company immediately prior to such transaction beneficially own, directly or indirectly 51% or more of the combined voting power of resulting entity’s outstanding voting securities as well as 51% or more of the Total Market Value of the resulting entity, or in the case of a division, 51% or more of the combined voting power of the outstanding voting securities of each entity resulting from the division as well as 51% or more of the Total Market Value of each such entity, in each case in substantially the same proportion as such shareholders owned shares of the Company prior to such transaction;
		(ii)	the Company consummates an agreement for the sale or disposition (in one transaction or a series of transactions) of assets of the Company, the total consideration of which is greater than 51% of the Total Market Value of the Company; or
		(iii)	the Company adopts a plan of complete liquidation or winding up of the Company.
	(d)	“Total Market Value” shall mean the aggregate market value of the Company’s or the resulting entity’s outstanding common stock (on a fully diluted basis) plus the aggregate market value of the Company’s or the resulting entity’s other outstanding equity securities as measured by the exchange rate of the transaction or by such other method as the Committee determines where there is not a readily ascertainable exchange rate.
11.2	VESTING UPON A CHANGE IN CONTROL. Except as otherwise provided in a Stock Incentive Agreement or as provided in the next sentence, if a Change in Control occurs, and if the agreements effectuating the Change in Control do not provide for the assumption or substitution of all Stock Incentives granted under this Plan, with respect to

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	any Stock Incentive granted under this Plan that is not so assumed or substituted (a “Non-Assumed Stock Incentive”), such Stock Incentive shall immediately vest and be exercisable and any restrictions thereon shall lapse. Notwithstanding the foregoing, unless the Committee determines at or prior to the Change in Control, no Stock Incentive that is subject to any performance criteria for which the performance period has not expired, shall accelerate at the time of a Change in Control.
11.3	DISPOSITION OF STOCK INCENTIVES. Except as otherwise provided in a Stock Incentive Agreement, the Committee, in its sole and absolute discretion, may, with respect to any or all of such Non-Assumed Stock Incentives, take any or all of the following actions to be effective as of the date of the Change in Control (or as of any other date fixed by the Committee occurring within the thirty (30) day period immediately preceding the date of the Change in Control, but only if such action remains contingent upon the effectuation of the Change in Control) (such date referred to as the “Action Effective Date”):
	(a)	Unilaterally cancel such Non-Assumed Stock Incentive in exchange for:
		(i)	whole and/or fractional Shares (or whole Shares and cash in lieu of any fractional Share) or whole and/or fractional shares of a successor (or for whole shares of a successor and cash in lieu of any fractional share) that, in the aggregate, are equal in value to the excess of:
			(A)	in the case of Options, the Shares that could be purchased subject to such Non-Assumed Stock Incentive less the aggregate Exercise Price for the Options with respect to such Shares; and
			(B)	in the case of Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Stock, Performance Units and Other Awards, Shares subject to such Stock Incentive determined as of the Action Effective Date (taking into account vesting), less the value of any consideration payable on exercise.
		(ii)	cash or other property equal in value to the excess of:
			(A)	in the case of Options, the Shares that could be purchased subject to such Non-Assumed Stock Incentive less the aggregate Exercise Price for the Options with respect to such Shares; and
			(B)	in the case of Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Stock, Performance Units and Other Awards, Shares subject to such Stock Incentive determined as of the Action Effective Date (taking into account vesting) less the value of any consideration payable on exercise.
		In the event the Exercise Price or consideration payable on exercise is equal to or greater than the Shares, cash or other property payable as provided in paragraphs (i) and (ii) above, then such Options and other Stock Incentives shall be automatically cancelled without payment of any consideration therefor.
	(b)	In the case of Options, unilaterally cancel such Non-Assumed Option after providing the holder of such Option with: (i) an opportunity to exercise such Non-Assumed Option to the extent vested within a specified period prior to the date of the Change in Control; and (ii) notice of such opportunity to exercise prior to the

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		commencement of such specified period. However, notwithstanding the foregoing, to the extent that the recipient of a Non-Assumed Stock Incentive is an Insider, payment of cash in lieu of whole or fractional Shares or shares of a successor may only be made to the extent that such payment: (A) has met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act; or (B) is a subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act. Unless a Stock Incentive Agreement provides otherwise, the payment of cash in lieu of whole or fractional Shares or in lieu of whole or fractional shares of a successor shall be considered a subsequent transaction approved by the original grant of the Option.
11.4	GENERAL RULE FOR OTHER STOCK INCENTIVES. If a Change in Control occurs, then, except to the extent otherwise provided in the Stock Incentive Agreement pertaining to a particular Stock Incentive or as otherwise provided in this Plan, each Stock Incentive shall be governed by applicable law and the documents effectuating the Change in Control.

SECTION 12
AMENDMENT OR TERMINATION

12.1	AMENDMENT OF PLAN. This Plan may be amended by the Committee from time to time to the extent that the Committee deems necessary or appropriate; provided, however, no such amendment shall be made without the approval of the shareholders of the Company if such amendment:
	(a)	increases the number of Shares reserved under Section 3, except as set forth in Section 3.4;
	(b)	extends the maximum life of the Plan under Section 4 or the maximum exercise period under Section 7;
	(c)	decreases the minimum Exercise Price under Section 7;
	(d)	changes the designation of Participant eligible for Stock Incentives under Section 6; or
	(e)	would cause the Plan to no longer comply with Rule 16b-3 of the Exchange Act, Section 422 of the Code.
	Shareholder approval of other material amendments (such as an expansion of the types of awards available under the Plan, an extension of the term of the Plan, or a change to the method of determining the Exercise Price of Options issued under the Plan) may also be required pursuant to rules promulgated by an established stock exchange or a national market system.
12.2	TERMINATION OF PLAN. The Board also may suspend the granting of Stock Incentives under this Plan at any time and may terminate this Plan at any time.
12.3	AMENDMENT OF STOCK INCENTIVES. The Committee shall have the right to modify, amend or cancel any Stock Incentive after it has been granted if:

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(a)	the modification, amendment or cancellation does not diminish the rights or benefits of the Participant under the Stock Incentive (provided, however, that a modification, amendment or cancellation that results solely in a change in the tax consequences with respect to a Stock Incentive shall not be deemed as a diminishment of rights or benefits of such Stock Incentive);
(b)	the Participant consents in writing to such modification, amendment or cancellation;
(c)	there is a dissolution or liquidation of the Company;
(d)	this Plan and/or the Stock Incentive Agreement expressly provides for such modification, amendment or cancellation; or
(e)	the Company would otherwise have the right to make such modification, amendment or cancellation by applicable law.
Notwithstanding the forgoing, the Committee may reform any provision in a Stock Incentive extended to be exempt from Section 409A of the Code to maintain to maximum extent practicable the original intent of the applicable provision without violating the provisions of Section 409A of the Code; provided, however, that if no reasonably practicable reformation would avoid the imposition of any penalty tax or interest under Section 409A of the Code, no payment or benefit will be provided under the Stock Incentive and the Stock Incentive will be deemed null, void and of no force and effect, and the Company shall have no further obligation in connection with such Stock Incentive.

SECTION 13
MISCELLANEOUS

13.1	SHAREHOLDER RIGHTS. Except as provided in Section 7. 3 with respect to Restricted Stock, or in a Stock Incentive Agreement, no Participant shall have any rights as a shareholder of the Company as a result of the grant of a Stock Incentive pending the actual delivery of Shares subject to such Stock Incentive to such Participant.
13.2	NO GUARANTEE OF CONTINUED RELATIONSHIP. The grant of a Stock Incentive to a Participant under this Plan shall not constitute a contract of employment or other relationship with the Company and shall not confer on a Participant any rights upon his or her termination of employment or relationship with the Company in addition to those rights, if any, expressly set forth in the Stock Incentive Agreement that evidences his or her Stock Incentive.
13.3	TRANSFERS & RESTRUCTURINGS. The transfer of a Participant’s employment between or among the Company or a Subsidiary (including the merger of a Subsidiary into the Company) shall not be treated as a termination of his or her Service under this Plan. Likewise, the continuation of Service by a Participant with a corporation that is a Subsidiary shall be deemed to be a termination of Service when such corporation ceases to be a Subsidiary.
13.4	LEAVES OF ABSENCE. Unless the Committee provides otherwise, vesting of Stock Incentives granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be in the Service of the Company in the case of any leave of absence approved by the Company. With respect to any ISOs, no such leave may exceed 90 days unless reemployment upon expiration of such leave is guaranteed by

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	statute or contract and if reemployment upon expiration of a leave of absence is not so guaranteed, then three (3) months following the 91st day of such leave any ISO held by the Participant will cease to be treated as an ISO and if exercised thereafter will be treated for tax purposes as a NQSO.
13.5	GOVERNING LAW/CONSENT TO JURISDICTION. This Plan shall be construed under the laws of the State of Minnesota without regard to principles of conflicts of law. Each Participant consents to the exclusive jurisdiction in the United States District Court for the District of Minnesota for the determination of all disputes arising from this Plan and waives any rights to remove or transfer the case to another court.
13.6	ESCROW OF SHARES. To facilitate the Company’s rights and obligations under this Plan, the Company reserves the right to appoint an escrow agent, who shall hold the Shares owned by a Participant pursuant to this Plan.
13.7	NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any Stock Incentive, and the Committee shall determine whether cash shall be paid in lieu of any fractional Share or whether such Shares shall be cancelled or otherwise eliminated.
13.8	FORFEITURE AND RECOUPMENT. Without limiting in any way the generality of the Committee’s power to specify any terms and conditions of an Award consistent with law, and for greater clarity, the Committee may specify in an Stock Incentive Agreement that the Participant’s rights, payments, and benefits with respect to a Stock Incentive, including any payment or Shares received upon exercise or in satisfaction of the Stock Incentive under this Plan shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions, without limit as to time. Such events shall include, but shall not be limited to, failure to accept the terms of the Stock Incentive Agreement, termination of Service under certain or all circumstances, violation of material Company policies, misstatement of financial or other material information about the Company, fraud, misconduct, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection, or other agreement that may apply to the Participant, or other conduct by the Participant that the Committee determines is detrimental to the business or reputation of the Company and its Subsidiaries, including facts and circumstances discovered after termination of Service.
	(a)	The Company shall require the chief executive officer and chief financial officer of the Company to disgorge bonuses, other incentive- or equity-based compensation, and profits on the sale of Shares received within the 12-month period following the public release of financial information if there is a restatement of such financial information because of material noncompliance, due to misconduct, with financial reporting requirements under the federal securities laws. In no event shall the amount to be recovered by the Company be less than the amount required to be repaid or recovered as a matter of law. The operation of this subsection (a) shall be in accordance with the provisions of Section 302 of Sarbanes-Oxley Act and any applicable guidance.
	(b)	The Company shall require each current and former executive officer to disgorge bonuses, other incentive- or equity-based compensation received within 36-month period prior to the public release of the restatement of financial information due to material noncompliance with the financial reporting requirements under the federal securities laws. The amount to be recovered shall be the percentage

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		of incentive compensation, including equity awards, in excess of what would have been paid without the restated results. The operation of this subsection (b) shall be in accordance with the provisions of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any applicable guidance.
	(c)	The Committee shall determine, as late as the time of the recoupment, regardless of whether such method is stated in the Stock Incentive Agreement, whether the Company shall effect any such recoupment: (i) by seeking repayment from the Participant; (ii) by reducing (subject to applicable law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program or arrangement maintained by the Company or any of its affiliates; (iii) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the Company’s otherwise applicable compensation practices; (iv) by a holdback or escrow (before or after taxation) of part or all of the Shares, payment or property received upon exercise or satisfaction of the Stock Incentive; or (v) by any combination of the foregoing.
13.9	SEVERABILITY. If any provision of the Plan or any Stock Incentive is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Stock Incentive under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Stock Incentive, such provision shall be stricken as to such jurisdiction or as to such Stock Incentive, and the remainder of the Plan or any such Stock Incentive shall remain in full force and effect.
13.10	NO TRUST OR FUND CREATED. Neither the Plan nor any Stock Incentive shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Subsidiary and a Participant. To the extent that any Paticipant acquires a right to receive payments from the Company or any Subsidiary pursuant to a Stock Incentive, such right shall be no greater than the right of any unsecured general creditor of the Company or any Subsidiary.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jeffrey A. Graves, certify that:

1.          I have reviewed this quarterly report on Form 10-Q of MTS Systems Corporation;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 2, 2015
	/s/ JEFFREY A. GRAVES
	Jeffrey A. Graves
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jeffrey P. Oldenkamp, certify that:

1.          I have reviewed this quarterly report on Form 10-Q of MTS Systems Corporation;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 2, 2015
	/s/ JEFFREY P. OLDENKAMP
	Jeffrey P. Oldenkamp
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

MTS SYSTEMS CORPORATION
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

The undersigned, Jeffrey A. Graves, the Chief Executive Officer of MTS Systems Corporation (the “Company”), has executed this Certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 2014 (the “Report”).

The undersigned hereby certifies that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 2, 2015
	/s/ JEFFREY A. GRAVES
	Jeffrey A. Graves
	President and Chief Executive Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

MTS SYSTEMS CORPORATION
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

The undersigned, Jeffrey P. Oldenkamp, the Chief Financial Officer of MTS Systems Corporation (the “Company”), has executed this Certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 2014 (the “Report”).

The undersigned hereby certifies that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 2, 2015
	/s/ JEFFREY P. OLDENKAMP
	Jeffrey P. Oldenkamp
	Senior Vice President and Chief Financial Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.

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Capital Assets (Property and Equipment) (Details) (USD $)	3 Months Ended
	Dec. 27, 2014	Sep. 27, 2014
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 208,779,000	$ 206,898,000
Less accumulated depreciation	(127,912,000)	(125,323,000)
Property and equipment, net	80,867,000	81,575,000
Goodwill	27,574,000	26,123,000
Change in goodwill	1,700,000
Land and improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,708,000	1,710,000
Building and improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	53,606,000	54,271,000
Machinery and equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 153,465,000	$ 150,917,000

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Sep. 27, 2014	Sep. 29, 2012	Oct. 01, 2011
Income Taxes [Abstract]
Unrecognized tax benefits	$ 4.8	$ 6.0
Unrecognized tax benefits that would favorably impact the effective tax rate on continuing operations	2.4	3.8	1.8	1.8
Tax benefit through R&D legislation	$ 2.1

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014		Sep. 27, 2014
Assets:
Currency contracts	$ 2,425	[1]	$ 2,391	[1]
Total assets	2,425		2,391
Liabilities:
Currency contracts	238	[1]	178	[1]
Total liabilities	238		178
Fair Value, Inputs, Level 2 [Member]
Assets:
Currency contracts	2,425	[1]	2,391	[1]
Total assets	2,425		2,391
Liabilities:
Currency contracts	238	[1]	178	[1]
Total liabilities	$ 238		$ 178

[1] Based on observable market transactions of spot currency rates and forward currency rates on equivalently termed instruments.

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Retirement Benefit Plan (Narrative) (Details)	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Retirement Benefit Plan [Abstract]
Expected rate of return on plan assets	5.50%	5.50%

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Derivative Instruments and Hedging Activities (Pretax Amounts Recognized In Accumulated Other Comprehensive Income On Currency Contracts) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Derivative [Line Items]
Net (gain) loss reclassified into Revenue (effective portion)	$ 142,584	$ 138,410
Net (loss) gain recognized in OCI (effective portion)	2,262	41
Foreign Exchange Cash Flow Hedges [Member]
Derivative [Line Items]
Beginning unrealized net gain in AOCI	1,414	754
Net (gain) loss reclassified into Revenue (effective portion)	(1,698)	503
Net (loss) gain recognized in OCI (effective portion)	2,262	41
Ending unrealized net gain in AOCI	$ 1,978	$ 1,298

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Business Acquisition (Tables)

3 Months Ended

Dec. 27, 2014

Business Acquisition [Abstract]

Fair Values Assigned To The Assets And Liabilities Assumed

(expressed in thousands) :		Amount
Accounts receivable and inventory	$	1,763
Machinery and equipment		477
Deferred tax liability		(1,445)
Current liabilities		(1,900)
Identifiable intangible assets		4,593
Net Assets acquired		3,488
Goodwill		11,354
Total purchase price	$	14,842

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Severance And Related Costs (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 28, 2013
Severance And Related Costs [Abstract]
Total severance and related costs	$ 4,252

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Earnings Per Common Share (Tables)

3 Months Ended

Dec. 27, 2014

Earnings Per Common Share [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands, except per share data)
Net income	$	13,786	$	9,145
Weighted average common shares outstanding		15,108		15,352
Dilutive potential common shares		162		187
Total diluted weighted shares outstanding		15,270		15,539
Earnings per share:
Basic	$	0.91	$	0.60
Diluted	$	0.90	$	0.59

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Other Comprehensive Income (Schedule Of Changes In Each Component Of Accumulated Other Comprehensive Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Other Comprehensive Income [Abstract]
Foreign Currency Translation Adjustment, Beginning balance	$ 12,220	$ 17,319
Foreign Currency Translation Adjustments, Other comprehensive income (loss) before reclassifications	(4,812)	960
Foreign Currency Translation Adjustments, Other Comprehensive income (loss)	(4,812)	960
Foreign Currency Translation Adjustment, Ending balance	7,408	18,279
Unrealized (Loss) Gain on Derivative Instruments, Beginning balance	898	477
Unrealized (Loss) Gain on Derivative Instruments, Other comprehensive income (loss) before reclassifications	1,444	27
Unrealized (Loss) Gain on Derivative Instruments, Net loss reclassified to earning	(1,082)	319
Unrealized (Loss) Gain on Derivative Instruments, Other comprehensive income (loss)	362	346
Unrealized (Loss) Gain on Derivative Instruments, Ending balance	1,260	823
Defined Benefit Pension Plan Adjustments, Beginning balance	(7,294)	(5,459)
Defined Benefit Pension Plan Adjustments, Other Comprehensive income (loss) before reclassifications	704	347
Defined Benefit Pension Plan Adjustments, Net Loss reclassified to earning	95	81
Pension Benefit Plan Adjustments, Other comprehensive income (loss)	799	428
Defined Benefit Pension Plan Adjustments, Ending balance	(6,495)	(5,031)
Total, Beginning balance	5,824	12,337
Total, Other comprehensive income (loss) before reclassifications	(2,664)	1,334
Total, Amounts reclassified to earnings	(987)	400
Other comprehensive (loss) income	(3,651)	1,734
Total, Ending balance	$ 2,173	$ 14,071

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Business Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014 segment	Dec. 28, 2013
Segment Reporting Information [Line Items]
Number of operating segments	2
Revenue	$ 142,584	$ 138,410
Income from operations	15,811	14,147
Test [Member]
Segment Reporting Information [Line Items]
Revenue	118,085	113,523
Income from operations	11,976	9,841
Sensors [Member]
Segment Reporting Information [Line Items]
Revenue	24,499	24,887
Income from operations	$ 3,835	$ 4,306

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Stock-Based Compensation (Narrative) (Details) (USD $)	3 Months Ended		12 Months Ended
	Dec. 27, 2014	Dec. 28, 2013	Sep. 28, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted		162,000
Stock options vesting period	3 years
Stock options expiration period	7 years
Weighted average per share fair value of the stock options granted	$ 13.97	$ 12.12
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted	41,000	331,000
Stock options vesting period	3 years
Weighted average per share fair value of the stock options granted	$ 64.65	$ 64.90
2011 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Increase in shares issued			1,300,000
Shares issued			2,300,000
Shares available for grant	1,005,861
2012 Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for grant	703,890
Officers And Employees [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted	16,000	70,000

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Financing (Narrative) (Details) (USD $)	3 Months Ended
	Dec. 27, 2014	Sep. 27, 2014
Line of Credit Facility [Abstract]
Line of credit facility, borrowing capacity	$ 200,000,000
Line of Credit Facility, Expiration Date	Sep. 01, 2019
Total short-term borrowings	65,000,000	60,000,000
Letters of credit outstanding, amount	11,500,000	9,400,000
Line of credit facility, remaining borrowing capacity	$ 123,500,000	$ 130,600,000
Swing Line Of Credit [Member]
Line of Credit Facility [Abstract]
Line of credit facility, interest rate	3.25%
Variable Rate Credit Facility [Member]
Line of Credit Facility [Abstract]
Line of credit facility, interest rate	1.16%	1.15%

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Business Acquisition (Fair Values Assigned To The Assets And Liabilities Assumed) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014	Jun. 17, 2014
Business Acquisition [Line Items]
Goodwill	$ 27,574	$ 26,123
Roehrig Engineering, Inc. "REI" [Member]
Business Acquisition [Line Items]
Accounts receivable and inventory			1,763
Machinery and equipment			477
Deferred tax liability			(1,445)
Current liabilities			(1,900)
Identifiable intangible assets			4,593
Net liabilities acquired			3,488
Goodwill			11,354
Total purchase price			$ 14,842

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Derivative Instruments and Hedging Activities (Net Gains (Losses) Recognized in Income for Derivative Contracts) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Derivative Instruments and Hedging Activities [Abstract]
Net gain (loss) recognized in Other income (expense), net	$ 338	$ (140)

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Stock-Based Compensation

3 Months Ended

Dec. 27, 2014

Stock-Based Compensation [Abstract]

Stock-Based Compensation

3. Stock-Based Compensation

The Company compensates its officers, directors, and employees with stock-based compensation under the 2011 Stock Incentive Plan (“2011 Plan”)approved by the Company’s shareholders in 2011, and administered under the supervision of the Company’s Board of Directors. During fiscal year 2013, the Company’s shareholders approved a 1.3 million increase in the number of shares that can be issued under the 2011 Plan, bringing the aggregate total to 2.3 million. During the First Quarter of Fiscal year 2015 and the First Quarter of Fiscal year 2014, the Company awarded stock options and restricted stock units under the 2011 Plan. At December 27, 2014, a total of 1,005,861 shares were available for future grant under the SIP.  These shares will be available for issuance under the SIP until January 31, 2018.

In 2011, the Company's shareholders approved a 2012 Employee Stock Purchase Plan (“ESPP”) which was effective on January 1, 2012. During the Second Quarter of Fiscal year 2014 and the Fourth Quarter of Fiscal year 2014, the Company issued shares of its common stock to participants under the ESPP. At December 27, 2014, a total of 703,890 shares were available for ESPP share issuances under the 2012 stock plan. Shares will be available for issuance under the 2012 ESPP until December 31, 2021.

During the first quarter ended December 27, 2014, the Company granted an award of approximately 162,000 stock options,  41,000 restricted stock units and 16,000 performance restricted stock units to officers and employees Company-wide. During the first quarter ended December 28, 2013, the Company granted an award of approximately 331,000 stock options and 70,000 restricted stock units to officers and employees Company-wide. The stock options vest proportionally on the first three anniversaries of the grant date and expire seven years from the grant date. The restricted stock units vest proportionally on the first threeanniversaries of the grant date and performance restricted stock units vest based on the attainment of return on invested capital performance targets at the end of the one, two and three year performance periods.

The stock options were granted at an exercise price equal to the closing market price of the Company’s stock on the date of grant. The fair value of stock options granted has been estimated as of the date of grant using the multiple option form of the Black-Scholes valuation model, based on the grant price and assumptions regarding the expected grant life, stock price volatility, dividends, and risk-free interest rates. Each vesting period of an option award is valued separately, with this value being recognized as expense evenly over the vesting period. The weighted average per share fair value of the stock options granted under the Company-wide award during the first quarter ended December 27, 2014 and December 28, 2013 was $12.12 and $13.97, respectively. The weighted average assumptions used to determine the fair value of these stock options were as follows:

Expected life (in years)	3.5
Risk-free interest rate	1.1	%
Expected volatility	27.4	%
Dividend yield	1.8	%

The expected life represents the period that the stock option awards are expected to be outstanding and was determined based on historical and anticipated future exercise and expiration patterns.

The risk-free interest rate used is based on the yield of constant maturity U.S. Treasury bonds on the grant date with a remaining term equal to the expected life of the grant. The Company estimates stock price volatility based on a historical weekly price observation. The dividend yield assumption is based on the annualized current dividend divided by the share price on the grant date.

The fair value of the restricted stock units granted under the Company-wide award during the first quarter ended December 27, 2014 and December 28, 2013 was $64.65 and $64.90, respectively, representing the market value of the Company’s shares at the date of grant minus the present value of estimated forgone dividends over the vesting period. The proportionate value of restricted stock units and performance stock units associated with each vesting period is allocated to expense evenly over the vesting period.

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Derivative Instruments and Hedging Activities (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Derivative [Line Items]
Gross notional amount of foreign exchange derivatives outstanding	$ 40.9	$ 42.8
Net notional amount of foreign exchange derivatives	37.2	38.0
Net market value of the foreign currency exchange contracts	2.1	0.4
Net market value of the foreign currency exchange contracts, Assets	0.2	0.8
Net market value of the foreign currency exchange contracts, Liabilities	2.3	0.4
Recognized in earnings as a result of the ineffectiveness of cash flow hedges	0.1	0.1
Amount projected to be reclassified from Accumulated Other Comprehensive Income into earnings	2.0	1.3
Foreign Exchange Balance Sheet Derivative Contracts [Member]
Derivative [Line Items]
Gross notional amount of foreign exchange derivatives outstanding	88.3	31.2
Net notional amount of foreign exchange derivatives	26.9	0.2
Maximum [Member]
Derivative [Line Items]
Maximum remaining maturity of any forward or optional contract derivatives (in years)	2 years 6 months	8 months 12 days
Maximum [Member] | Foreign Exchange Balance Sheet Derivative Contracts [Member]
Derivative [Line Items]
Net market value of the foreign currency exchange contracts	$ 0.1	$ 0.2

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Other Comprehensive Income (Tables)

3 Months Ended

Dec. 27, 2014

Other Comprehensive Income [Abstract]

Schedule Of Other Comprehensive Income (Loss)

	December 27, 2014
	Three Fiscal Months Ended
			Tax		Net of
	Pretax		(Expense)		Tax
	Amount		or Benefit		Amount
	(expressed in thousands)
Foreign currency translation adjustments	$	(4,812)	$	-	$	(4,812)
Derivative instruments:
Unrealized net gain		2,262		(818)		1,444
Net (gain) reclassified to earnings		(1,698)		616		(1,082)
Defined benefit pension plan:
Unrealized net gain		553		(167)		386
Net loss reclassified to earnings		136		(41)		95
Currency exchange rate change		318		-		318
Other comprehensive loss	$	(3,241)	$	(410)	$	(3,651)

Schedule Of Changes In Each Component Of Accumulated Other Comprehensive Income

	December 27, 2014
	Three Fiscal Months Ended
	Foreign		Unrealized		Defined
	Currency		Gain (Loss)		Benefit
	Translation		on Derivative		Pension Plan
	Adjustments		Instruments		Adjustments		Total
	(expressed in thousands)
Beginning balance	$	12,220	$	898	$	(7,294)	$	5,824
Other comprehensive
loss before reclassifications		(4,812)		1,444		704		(2,664)
Amounts reclassified to earnings		-		(1,082)		95		(987)
Other comprehensive Loss		(4,812)		362		799		(3,651)
Ending balance	$	7,408	$	1,260	$	(6,495)	$	2,173

	December 28, 2013
	Three Fiscal Months Ended
	Foreign		Unrealized		Defined
	Currency		Gain on		Benefit
	Translation		Derivative		Pension Plan
	Adjustments		Instruments		Adjustments		Total
	(expressed in thousands)
Beginning balance	$	17,319	$	477	$	(5,459)	$	12,337
Other comprehensive
income before reclassifications		960		27		347		1,334
Amounts reclassified to earnings		-		319		81		400
Other comprehensive income		960		346		428		1,734
Ending balance	$	18,279	$	823	$	(5,031)	$	14,071

Schedule Of Amounts Reclassified Out Of Accumulated Other Comprehensive Income

			Three Fiscal Months Ended			Affected Line Item in the
		December 27,		December 28,		Consolidated Statements
		2014		2013		of Income
Derivative instruments:	(expressed in thousands)
Currency exchange contracts		$	1,698	$	(503)	Revenue
Total net gains (losses) included in income
before income taxes			1,698		(503)
Income tax (expense) benefit			(616)		184
Total net gains (losses) included in net income			1,082		(319)
Defined benefit pension plan:
Actuarial losses			(75)		(63)	Cost of sales
Actuarial losses			(38)		(33)	Selling and marketing
Actuarial losses			(23)		(20)	General and administrative
Total losses included in income
before income taxes			(136)		(116)
Income tax benefit			41		35
Total net losses included in net income			(95)		(81)
Total net-of-tax reclassifications out of
accumulated other comprehensive
income included in net income (loss)		$	987	$	(400)

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Fair Value Measurements (Tables)

3 Months Ended

Dec. 27, 2014

Fair Value Measurements [Abstract]

Financial Assets And Liabilities Subject To Fair Value Measurements On A Recurring Basis

	December 27, 2014
		Level 1		Level 2		Level 3		Total
Assets:	(expressed in thousands)
Currency contracts(1)	$	-	$	2,425	$	-	$	2,425
Total assets	$	-	$	2,425	$	-	$	2,425
Liabilities:
Currency contracts(1)	$	-	$	238	$	-	$	238
Total liabilities	$	-	$	238	$	-	$	238

	September 27, 2014
		Level 1		Level 2		Level 3		Total
Assets:	(expressed in thousands)
Currency contracts(1)	$	-	$	2,391	$	-	$	2,391
Total assets	$	-	$	2,391	$	-	$	2,391
Liabilities:
Currency contracts(1)	$	-	$	178	$	-	$	178
Total liabilities	$	-	$	178	$	-	$	178

(1) Based on observable market transactions of spot currency rates and forward currency rates on equivalently termed instruments.

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Retirement Benefit Plan (Schedule Of Costs For The Retirement Benefit Plan) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Retirement Benefit Plan [Abstract]
Service cost	$ 233	$ 200
Interest cost	172	209
Expected return on plan assets	(273)	(257)
Net amortization and deferral	136	116
Special termination benefits		191
Net periodic benefit cost	$ 268	$ 459

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Derivative Instruments and Hedging Activities (Fair Value Of Outstanding Designated And Undesignated Derivative Assets And Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	$ 2,425	$ 2,391
Derivative liability, fair value	238	178
Foreign Exchange Cash Flow Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	2,362	1,750
Designated as Hedging Instrument [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	2,362	1,750
Derivative liability, fair value	238	178
Designated as Hedging Instrument [Member] | Foreign Exchange Cash Flow Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	2,362	1,750
Derivative liability, fair value	238	178
Not Designated as Hedging Instrument [Member] | Foreign Exchange Balance Sheet Derivative Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	$ 63	$ 641

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Financing (Tables)

3 Months Ended

Dec. 27, 2014

Financing [Abstract]

Schedule Of Short-term Borrowings

		December 27,		September 27,
		2014		2014
	(expressed in thousands)
Bank line of credit, monthly U.S. LIBOR plus 100 basis points, maturing
January 2015, with optional month-to-month term renewal and loan repricing
until September 2019	$	60,000	$	60,000
Bank line of credit, swing line loan (3.25% rate in effect at December 27, 2014),
maturing September 2019	$	5,000		-
Total short-term borrowings	$	65,000	$	60,000

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Retirement Benefit Plan (Tables)

3 Months Ended

Dec. 27, 2014

Retirement Benefit Plan [Abstract]

Schedule Of Costs For The Retirement Benefit Plan

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Service cost	$	233	$	200
Interest cost		172		209
Expected return on plan assets		(273)		(257)
Net amortization and deferral		136		116
Special termination benefits		-		191
Net periodic benefit cost	$	268	$	459

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Recent Accounting Pronouncements

3 Months Ended

Dec. 27, 2014

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

2. Recent Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with customers (Topic 606)”.  This update clarifies the principles for revenue recognition in transactions involving contracts with customers.  The new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized.  The new model will require revenue recognition to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The guidance will be effective for the Company’s interim and annual reporting periods beginning after December 15, 2016, which is the Company’s fiscal year 2018. Early adoption is not permitted.  The Company has not yet evaluated what impact, if any, the adoption of this guidance may have on the Company’s financial condition, results of operations, or disclosures.

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Severance And Related Costs (Tables)

3 Months Ended

Dec. 27, 2014

Severance And Related Costs [Abstract]

Summary Of Severance Charges On Statement Of Income

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Cost of sales	$	-	$	2,542
Selling and marketing		-		810
General and administrative		-		900
Total severance and related costs	$	-	$	4,252

Summary Of Severance Charges On Balance Sheet

		December 27,		September 27,
		2014		2014
	(expressed in thousands)
Accrued payroll and related costs	$	1,215	$	1,567
Defined benefit pension plan obligation		-		26
Other long-term liabilities		1,342		1,783
Total severance and related costs	$	2,557	$	3,376

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Capital Assets (Other Capital Assets) (Details) (USD $)	3 Months Ended		12 Months Ended
	Dec. 27, 2014	Dec. 28, 2013	Sep. 27, 2014
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 39,586,000		$ 39,020,000
Accumulated Amortization	(18,828,000)		(17,842,000)
Net Carrying Value	20,758,000		21,178,000
Weighted average useful life (in years)	14 years		13 years 4 months 24 days
Amortization expense	1,000,000	900,000
Software development costs [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	17,312,000		16,713,000
Accumulated Amortization	(12,244,000)		(11,644,000)
Net Carrying Value	5,068,000		5,069,000
Weighted average useful life (in years)	6 years 4 months 24 days		5 years 8 months 12 days
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	12,151,000		12,204,000
Accumulated Amortization	(4,643,000)		(4,453,000)
Net Carrying Value	7,508,000		7,751,000
Weighted average useful life (in years)	14 years 6 months		14 years 4 months 24 days
Trademarks and trade names [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	6,303,000		6,349,000
Accumulated Amortization	(1,509,000)		(1,458,000)
Net Carrying Value	4,794,000		4,891,000
Weighted average useful life (in years)	29 years 4 months 24 days		29 years 3 months 18 days
Customer Lists [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	2,562,000		2,485,000
Accumulated Amortization	(274,000)		(134,000)
Net Carrying Value	2,288,000		2,351,000
Weighted average useful life (in years)	8 years 1 month 6 days		8 years 1 month 6 days
Land-use rights [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,258,000		1,269,000
Accumulated Amortization	(158,000)		(153,000)
Net Carrying Value	$ 1,100,000		$ 1,116,000
Weighted average useful life (in years)	47 years 9 months 18 days		47 years 9 months 18 days

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Financing (Schedule Of Short-term Borrowings) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Financing [Abstract]
Bank line of credit, monthly U.S. LIBOR plus 100 basis points, maturing January 2015, with optional month-to-month term renewal and loan repricing until September 2019	$ 60,000	$ 60,000
Bank line of credit, swing line loan (3.25% rate in effect at December 27, 2014), maturing September 2019	5,000
Total short-term borrowings	$ 65,000	$ 60,000

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Current Assets:
Cash and cash equivalents	$ 55,345	$ 60,397
Accounts receivable, net of allowances for doubtful accounts of $2,888 and $2,609, respectively	109,051	104,399
Unbilled accounts receivable	77,439	75,762
Inventories	89,643	83,557
Prepaid expenses and other current assets	19,451	13,937
Deferred income taxes	12,665	12,930
Total current assets	363,594	350,982
Property and equipment, net	80,867	81,575
Goodwill	27,574	26,123
Other intangible assets, net	20,758	21,178
Other assets	3,515	3,694
Deferred income taxes	3,569	3,856
Total Assets	499,877	487,408
Current Liabilities:
Short-term borrowings	65,000	60,000
Accounts payable	29,563	27,189
Accrued payroll and related costs	26,735	30,009
Advance payments from customers	61,222	52,335
Accrued warranty costs	5,188	4,286
Accrued income taxes	3,552	6,041
Deferred income taxes	1,573	1,641
Accrued dividends	4,439	4,476
Other accrued liabilities	20,622	17,004
Total current liabilities	217,894	202,981
Deferred income taxes	10,557	6,045
Non-current accrued income taxes	4,819	5,990
Defined benefit pension plan obligation	6,743	7,654
Other long-term liabilities	5,704	6,611
Total Liabilities	245,717	229,281
Shareholders' Investment:
Common stock, $0.25 par; 64,000 shares authorized: 15,036 and 15,180 shares issued and outstanding as of December 27, 2014 and September 27, 2014, respectively	3,759	3,795
Additional paid-in capital		6,112
Retained earnings	248,228	242,396
Accumulated other comprehensive income	2,173	5,824
Total Shareholders' Investment	254,160	258,127
Total Liabilities and Shareholders' Investment	$ 499,877	$ 487,408

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Derivative Instruments and Hedging Activities (Reconciliation Of The Net Fair Value Of Foreign Exchange Cash Flow Hedge Assets And Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014		Sep. 27, 2014
Offsetting Liabilities [Line Items]
Gross Amount of Recognized Assets	$ 2,425		$ 2,391
Gross Liabilities Offset in the Consolidated Balance Sheet	238		178
Foreign Exchange Cash Flow Hedges [Member]
Offsetting Liabilities [Line Items]
Gross Amount of Recognized Assets	2,362		1,750
Net Amount of Assets Presented in the Consolidated Balance Sheet	2,362		1,750
Net Amount	2,362	[1]	1,750	[1]
Gross Amount of Recognized Liabilities	238		178
Net Amount of Liabilities Presented in the Consolidated Balance Sheet	238		178
Net Amount	$ 238	[2]	$ 178	[2]

[1] Net fair value of foreign exchange cash flow hedge assets that could have been reported in the Consolidated Balance Sheet.

[2] Net fair value of foreign exchange cash flow liabilities that could have been reported in the Consolidated Balance Sheet.

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Cash flows from operating activities:
Net income	$ 13,786	$ 9,145
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	2,196	880
Excess tax benefits from stock-based compensation	(119)	(171)
Net periodic pension benefit cost	268	459
Depreciation and amortization	5,195	4,490
Deferred income taxes	4,850	365
Bad debt provision	325	112
Changes in operating assets and liabilities:
Accounts and unbilled accounts receivable	(10,727)	9,482
Inventories	(6,745)	(1,251)
Prepaid expenses	(3,887)	(307)
Accounts payable	2,901	(2,292)
Accrued payroll and related costs	(3,098)	(2,603)
Advance payments from customers	8,405	(2,651)
Accrued warranty costs	918	597
Other assets and liabilities	(1,323)	7,557
Net cash provided by operating activities	12,945	23,812
Cash flows from investing activities:
Purchases of property and equipment	(4,474)	(4,554)
Cash flows from financing activities:
Receipts under short-term borrowings	5,000
Payments under short-term borrowings	(26)
Excess tax benefits from stock-based compensation	119	171
Cash dividends	(4,561)	(4,641)
Proceeds from exercise of stock options and employee stock purchase plan	969	1,230
Payments to purchase and retire common stock	(12,804)	(10,982)
Net cash used in financing activities	(11,303)	(14,222)
Effect of exchange rate on changes in cash	(2,220)	119
Net (decrease) increase in cash and cash equivalents	(5,052)	5,155
Cash and cash equivalents, at beginning of period	60,397	48,333
Cash and cash equivalents, at end of period	55,345	53,488
Cash paid during the period for -
Interest	176	114
Income taxes	3,414	3,567
Non-cash financing activities:
Dividends declared not yet paid	$ 4,439	$ 4,504

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Severance And Related Costs (Summary Of Severance Charges On Balance Sheet) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Restructuring Cost and Reserve [Line Items]
Total severance and related costs	$ 2,557	$ 3,376
Accrued Payroll And Related Costs [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and related costs	1,215	1,567
Defined Benefit Pension Plan Obligation [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and related costs		26
Other Long-term Liabilities [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and related costs	$ 1,342	$ 1,783

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Basis of Presentation (Inventories) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
Basis of Presentation [Abstract]
Customer projects in various stages of completion	$ 23,606	$ 22,559
Components, assemblies and parts	66,037	60,998
Total	$ 89,643	$ 83,557

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Basis of Presentation (Tables)

3 Months Ended

Dec. 27, 2014

Basis of Presentation [Abstract]

Inventories

	December 27,		September 27,
	2014		2014
		(expressed in thousands)
Customer projects in various stages of completion	$	23,606	$	22,559
Components, assemblies and parts		66,037		60,998
Total	$	89,643	$	83,557

Warranty Obligations

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Beginning balance	$	4,286	$	4,694
Warranty provisions		2,135		2,163
Warranty claims		(1,496)		(1,567)
Adjustments to preexisting warranties		279		-
Currency translation		(16)		18
Ending balance	$	5,188	$	5,308

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Basis of Presentation (Warranty Obligations) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Warranty provisions and claims [Roll Forward]
Beginning balance	$ 4,286	$ 4,694
Warranty provisions	2,135	2,163
Warranty claims	(1,496)	(1,567)
Adjustments to preexisting warranties	279
Currency translation	(16)	18
Ending balance	$ 5,188	$ 5,308

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Capital Assets (Tables)

3 Months Ended

Dec. 27, 2014

Capital Assets [Abstract]

Property And Equipment

		December 27,		September 27,
		2014		2014
	(expressed in thousands)
Land and improvements	$	1,708	$	1,710
Buildings and improvements		53,606		54,271
Machinery and equipment		153,465		150,917
Total		208,779		206,898
Less accumulated depreciation		(127,912)		(125,323)
Property and equipment, net	$	80,867	$	81,575

Other Intangible Assets

	December 27, 2014
							Weighted
							Average
		Gross Carrying		Accumulated		Net Carrying	Useful Life
		Amount		Amortization		Value	(in Years)
	(dollar amounts expressed in thousands)
Software development costs	$	17,312	$	(12,244)	$	5,068	6.4
Patents		12,151		(4,643)		7,508	14.5
Trademarks and trade names		6,303		(1,509)		4,794	29.4
Customer List		2,562		(274)		2,288	8.1
Land-use rights		1,258		(158)		1,100	47.8
Total	$	39,586	$	(18,828)	$	20,758	14.0

	September 27, 2014
							Weighted
							Average
		Gross Carrying		Accumulated		Net Carrying	Useful Life
		Amount		Amortization		Value	(in Years)
	(dollar amounts expressed in thousands)
Software development costs	$	16,713	$	(11,644)	$	5,069	5.7
Patents		12,204		(4,453)		7,751	14.4
Trademarks and trade names		6,349		(1,458)		4,891	29.3
Customer List		2,485		(134)		2,351	8.1
Land-use rights		1,269		(153)		1,116	47.8
Total	$	39,020	$	(17,842)	$	21,178	13.4

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Basis of Presentation

3 Months Ended

Dec. 27, 2014

Basis of Presentation [Abstract]

Basis of Presentation

1. Basis of Presentation

The consolidated financial statements include the accounts of MTS Systems Corporation and its wholly owned subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated.

The interim unaudited consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The information furnished in these consolidated financial statements includes normal recurring adjustments and reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles accepted in the United States of America (“U.S. GAAP”),  and U.S. GAAP requires the Company to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2014 filed with the SEC. Interim results of operations for the first quarter ended December 27, 2014 are not necessarily indicative of the results to be expected for the full year.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to September 30.  The Company’s fiscal years ended September 27, 2014 and September 28, 2013 consisted of 52 weeks.  The Company’s fiscal year ending October 3, 2015 will consist of 53 weeks.

Summary of Significant Accounting Policies

The Company believes that of its significant accounting policies, the following are particularly important to the portrayal of the Company’s results of operations and financial position and may require the application of a higher level of judgment by the Company’s management and, as a result, are subject to an inherent degree of uncertainty.

Revenue Recognition.  The Company recognizes revenue on a sales arrangement when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery and title transfer has occurred or services have been rendered; the sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled.

Orders that are manufactured and delivered in less than six months with routine installations and no special acceptance protocols may contain multiple elements for revenue recognition purposes. The Company considers each deliverable that provides value to the customer, on a standalone basis, a separable element. Separable elements in these arrangements may include the design and manufacture of hardware and essential software, installation services, training and/or post contract software maintenance and support. The Company initially allocates consideration to each separable element using the relative selling price method. Selling prices are determined by the Company based on either vendor-specific objective evidence (“VSOE”) (the actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, the Company’s best estimate of the selling price. Factors considered by the Company in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by the Company to provide the deliverable, as well as the Company’s historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training are not considered separable. Accordingly, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.

Certain contractual arrangements require longer production periods, generally longer than six months (long-term contracts), and may contain non-routine installations and special acceptance protocols. These arrangements often include hardware and essential software, installation services, training and support. Long-term contractual arrangements involving essential software typically include significant production, modification, and customization. For long-term arrangements with essential software and all other long-term arrangements with complex installations and/or unusual acceptance protocols, revenue is recognized using the percentage-of-completion method, based on the cost incurred to-date relative to estimated total cost of the contract.

Elements of an arrangement that do not separately fall within the scope of the percentage-of-completion method (e.g., training and post-contract software maintenance and support) are recognized as the service is provided in amounts determined based on VSOE, or in the absence of VSOE, the Company’s best estimate of the selling price.

Under the terms of the Company’s long-term contracts, revenue recognized using the percentage-of-completion method may not, in certain circumstances, be invoiced until completion of contractual milestones, upon shipment of the equipment, or upon installation and acceptance by the customer. Unbilled amounts for these contracts appear in the Consolidated Balance Sheets as Unbilled Accounts Receivable.

Revenue from arrangements for services such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts. Revenue from post contract software maintenance and support services is recognized ratably over the defined contractual period of the maintenance agreement.

The Company’s sales arrangements typically do not include specific performance-, cancellation-, termination-, or refund-type provisions. In the event a customer cancels a contractual arrangement, the Company would typically be entitled to receive reimbursement from the customer for actual costs incurred under the arrangement plus a reasonable margin.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

Inventories.  Inventories consist of material, labor and overhead costs and are stated at the lower of cost or market value, determined under the first-in, first-out accounting method. Inventories at December 27, 2014 and September 27, 2014 were as follows:

	December 27,		September 27,
	2014		2014
		(expressed in thousands)
Customer projects in various stages of completion	$	23,606	$	22,559
Components, assemblies and parts		66,037		60,998
Total	$	89,643	$	83,557

Software Development Costs.The Company capitalizes certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials and services, salary and benefits of the Company’s development and technical support staff, and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on the Company’s product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and the Company has established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the product’s estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

The Company’s capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. The Company capitalized $0.6 million of software development costs for the first quarter ended December 27, 2014.  There were no software development costs for the first quarter ended December 28, 2013. Amortization expense for software development costs for thefirst quarter ended December 27, 2014 and December 28,  2013 was $0.6 million and $0.7 million, respectively.  See Note 4 in the Condensed Notes to Consolidated Financial Statements for additional information on capitalized software development costs.

Impairment of Long-Lived Assets.  The Company reviews the carrying value of long-lived assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances such as asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, the Company recognizes an asset impairment charge against operations. The amount of the impairment loss recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value.

Goodwill.Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is not amortized, but instead tested at least annually for impairment. Goodwill is also tested for impairment as changes in circumstances occur indicating that the carrying value may not be recoverable. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.

Warranty Obligations.  Sales of the Company’s products and systems are subject to limited warranty obligations that are included in customer contracts. For sales that include installation services, warranty obligations typically extend for a period of twelve to twenty-four months from the date of either shipment or acceptance. Product obligations typically extend for a period of twelve to twenty-four months from the date of purchase. Under the terms of these warranties, the Company is obligated to repair or replace any components or assemblies it deems defective due to workmanship or materials. The Company reserves the right to reject warranty claims where it determines that failure is due to normal wear, customer modifications, improper maintenance, or misuse. The Company records general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects historical warranty claims experience over the preceding twelve-month period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. In addition, warranty provisions are also recognized for certain nonrecurring product claims that are individually significant. Warranty provisions and claims for the first quarter ended December 27, 2014 and December 28, 2013 were as follows:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Beginning balance	$	4,286	$	4,694
Warranty provisions		2,135		2,163
Warranty claims		(1,496)		(1,567)
Adjustments to preexisting warranties		279		-
Currency translation		(16)		18
Ending balance	$	5,188	$	5,308

Income Taxes.  The Company records a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of its deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results. See Note 11 in the Condensed Notes to Consolidated Financial Statements for additional information on income taxes.

Derivative Financial Instruments.  The Company’s results of operations could be materially impacted by changes in foreign currency exchange rates, as well as changes in interest rates on its floating rate indebtedness. In an effort to manage exposure to these risks, the Company periodically enters into forward and option currency exchange contracts, interest rate swaps and forward interest rate swaps. Because the market value of these hedging contracts is derived from current market rates, they are classified as derivative financial instruments. The Company does not use derivatives for speculative or trading purposes. The derivative contracts contain credit risk to the extent that the Company’s counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality. For derivative instruments executed under master netting arrangements, the Company has the contractual right to offset fair value amounts recognized for the right to reclaim cash collateral with obligations to return cash collateral. The Company does not offset fair value amounts recognized on these derivative instruments. At both December 27, 2014 and December 28, 2013, the Company did not have any foreign exchange contracts with credit-risk related contingent features. See Note 7 in the Condensed Notes to Consolidated Financial Statements for additional information on derivatives and hedging activities.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 27, 2014	Sep. 27, 2014
ASSETS
Accounts receivable, allowances for doubtful accounts	$ 2,888	$ 2,609
Shareholders' Investment:
Common stock, par value (in dollars per share)	$ 0.25	$ 0.25
Common stock, shares authorized (in shares)	64,000,000	64,000,000
Common stock, shares issued (in shares)	15,036,000	15,180,000
Common stock, shares outstanding (in shares)	15,036,000	15,180,000

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Income Taxes

3 Months Ended

Dec. 27, 2014

Income Taxes [Abstract]

Income Taxes

11. Income Taxes

As of December 27, 2014, the Company’s liability for unrecognized tax benefits was $4.8 million, of which $2.4 million would favorably affect the Company’s effective tax rate if recognized. As of September 27, 2014, the Company’s liability for unrecognized tax benefits was $6.0 million, of which $3.8 million would favorably affect the Company’s effective tax rate if recognized. The change in unrecognized benefits that did affect the effective tax rate is primarily a result of a $1.8 million favorable resolution of audit matters in connection with the Internal Revenue Service (“IRS”) examination of the Company’s federal income tax returns for the fiscal tax years ending October 1, 2011 and September 29, 2012. As of December 27, 2014, the Company does not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law. The Act includes legislation that reinstated the United States Research and Development (R&D) tax credit retroactively from January 1, 2014 and extends it through December 31, 2014. As a result of this legislation, the Company recognized a tax benefit of approximately $2.1 million during the First Quarter of Fiscal year 2015.

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Document and Entity Information	3 Months Ended
	Dec. 27, 2014	Jan. 28, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	MTS SYSTEMS CORP
Entity Central Index Key	0000068709
Current Fiscal Year End Date	--10-03
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		15,013,904
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 27, 2014

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Retirement Benefit Plan

3 Months Ended

Dec. 27, 2014

Retirement Benefit Plan [Abstract]

Retirement Benefit Plan

12. Retirement Benefit Plan

One of the Company’s German subsidiaries has a non-contributory, defined benefit retirement plan for eligible employees. This plan provides benefits based on the employee’s years of service and compensation during the years immediately preceding retirement, early retirement, termination, disability, or death, as defined in the plan.

During the Fiscal year 2014, the Company initiated workforce reduction actions. These actions resulted in terminations of German employees who are eligible to receive future benefits under the German defined benefit pension plan.See Note 13 in Condensed Notes to Consolidated Financial Statements for additional information regarding the Company’s cost reduction actions that were initiated during the first quarter ended December 27, 2014.

The cost of the plan for the first quarter ended December  27, 2014 and December 28, 2013included the following components:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Service cost	$	233	$	200
Interest cost		172		209
Expected return on plan assets		(273)		(257)
Net amortization and deferral		136		116
Special termination benefits		-		191
Net periodic benefit cost	$	268	$	459

The weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost for each of the first quarter ended December  27, 2014 and December 28,  2013 was 5.5%

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Revenue:
Product	$ 124,481	$ 121,159
Service	18,103	17,251
Total revenue	142,584	138,410
Cost of sales:
Product	75,532	74,625
Service	10,221	9,246
Total cost of sales	85,753	83,871
Gross profit	56,831	54,539
Operating expenses:
Selling and marketing	21,254	21,483
General and administrative	14,202	13,206
Research and development	5,564	5,703
Total operating expenses	41,020	40,392
Income from operations	15,811	14,147
Interest expense, net	(167)	(160)
Other expense, net	(759)	(292)
Income before income taxes	14,885	13,695
Provision for income taxes	1,099	4,550
Net income	$ 13,786	$ 9,145
Basic-
Earnings per share (in dollars per share)	$ 0.91	$ 0.60
Weighted average number of common shares outstanding - basic (in shares)	15,108	15,352
Diluted-
Earnings per share (in dollars per share)	$ 0.90	$ 0.59
Weighted average number of common shares outstanding - diluted (in shares)	15,270	15,539
Dividends declared per share (in dollars per share)	$ 0.30	$ 0.30

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Business Segment Information

3 Months Ended

Dec. 27, 2014

Business Segment Information [Abstract]

Business Segment Information

6. Business Segment Information

The Company’s Chief Executive Officer and management regularly review financial information for the Company’s two operating segments, “Test” and “Sensors.” Test provides testing equipment, systems, and services to the ground vehicles, materials and structures markets. Sensors provides high-performance position sensors for a variety of industrial and mobile hydraulic applications.

The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements found in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014. In evaluating each segment’s performance, management focuses on income from operations. This measure excludes interest income and expense, income taxes and other non-operating items. Corporate expenses, including costs associated with various support functions such as human resources, information technology, finance and accounting, and general and administrative costs, are allocated to the reportable segments primarily on the basis of revenue.

Financial information by reportable segment for the first quarter ended December 27, 2014 and December 28, 2013 was as follows:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Revenue by Segment:
Test	$	118,085	$	113,523
Sensors		24,499		24,887
Total revenue	$	142,584	$	138,410
Income from Operations by Segment:
Test	$	11,976	$	9,841
Sensors		3,835		4,306
Total income from operations	$	15,811	$	14,147

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Earnings Per Common Share

3 Months Ended

Dec. 27, 2014

Earnings Per Common Share [Abstract]

Earnings Per Common Share

5. Earnings Per Common Share

Basic earnings per share are computed by dividing net earnings by the daily weighted average number of common shares outstanding during the applicable periods. Diluted earnings per share include the potentially dilutive effect of common shares issued in connection with outstanding stock-based compensation awards using the treasury stock method. Under the treasury stock method, shares associated with certain stock options have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding. As a result, stock options to acquire less than0.1 million weighted common shares have been excluded from diluted weighted shares outstanding for each of the first quarter ended December 27, 2014 and December  28, 2013, respectively.  The potentially dilutive effect of common shares issued in connection with outstanding stock options is determined based on net income. A reconciliation of these amounts is as follows:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands, except per share data)
Net income	$	13,786	$	9,145
Weighted average common shares outstanding		15,108		15,352
Dilutive potential common shares		162		187
Total diluted weighted shares outstanding		15,270		15,539
Earnings per share:
Basic	$	0.91	$	0.60
Diluted	$	0.90	$	0.59

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Stock-Based Compensation (Tables)

3 Months Ended

Dec. 27, 2014

Stock-Based Compensation [Abstract]

Weighted Average Assumptions Used To Determine Fair Value Of Stock Options

Expected life (in years)	3.5
Risk-free interest rate	1.1	%
Expected volatility	27.4	%
Dividend yield	1.8	%

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Severance And Related Costs

3 Months Ended

Dec. 27, 2014

Severance And Related Costs [Abstract]

Severance And Related Costs

13. Severance and Related Costs

During Fiscal year 2014, the Company initiated workforce and other cost reduction actions at certain of its locations in the U.S. and Europe. As a result of these cost reduction actions, the Company incurred severance and related costs of $4.3 million for the first quarter ended December 28, 2013.

The following table summarizes the severance and related costs included in the Company’s Consolidated Statements of Income for the first quarter ended December 27, 2014 and December 28, 2013:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Cost of sales	$	-	$	2,542
Selling and marketing		-		810
General and administrative		-		900
Total severance and related costs	$	-	$	4,252

The following table summarizes the severance and related costs included in the Company’s December 27, 2014 and September 27, 2014 Consolidated Balance Sheet:

		December 27,		September 27,
		2014		2014
	(expressed in thousands)
Accrued payroll and related costs	$	1,215	$	1,567
Defined benefit pension plan obligation		-		26
Other long-term liabilities		1,342		1,783
Total severance and related costs	$	2,557	$	3,376

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Other Comprehensive Income

3 Months Ended

Dec. 27, 2014

Other Comprehensive Income [Abstract]

Other Comprehensive Income

9. Other Comprehensive Income

Other Comprehensive Income, a component of Shareholders’ Investment, consists of foreign currency translation adjustments, gains or losses on derivative instruments, and defined benefit pension plan adjustments.

Income tax expense or benefit allocated to each component of Other Comprehensive Income for the first quarter ended December  27, 2014 and December 28, 2013was as follows:

	December 27, 2014
	Three Fiscal Months Ended
			Tax		Net of
	Pretax		(Expense)		Tax
	Amount		or Benefit		Amount
	(expressed in thousands)
Foreign currency translation adjustments	$	(4,812)	$	-	$	(4,812)
Derivative instruments:
Unrealized net gain		2,262		(818)		1,444
Net (gain) reclassified to earnings		(1,698)		616		(1,082)
Defined benefit pension plan:
Unrealized net gain		553		(167)		386
Net loss reclassified to earnings		136		(41)		95
Currency exchange rate change		318		-		318
Other comprehensive loss	$	(3,241)	$	(410)	$	(3,651)

	December 28, 2013
	Three Fiscal Months Ended
			Tax		Net of
	Pretax		(Expense)		Tax
	Amount		or Benefit		Amount
	(expressed in thousands)
Foreign currency translation adjustments	$	960	$	-	$	960
Derivative instruments:
Unrealized net gain		41		(14)		27
Net loss reclassified to earnings		503		(184)		319
Defined benefit pension plan:
Unrealized net gain		620		(187)		433
Net loss reclassified to earnings		116		(35)		81
Currency exchange rate change		(86)		-		(86)
Other comprehensive income	$	2,154	$	(420)	$	1,734

The changes in the net-of-tax balances of each component of AOCI during the first quarter ended December  27, 2014 and December 28, 2013were as follows:

	December 27, 2014
	Three Fiscal Months Ended
	Foreign		Unrealized		Defined
	Currency		Gain (Loss)		Benefit
	Translation		on Derivative		Pension Plan
	Adjustments		Instruments		Adjustments		Total
	(expressed in thousands)
Beginning balance	$	12,220	$	898	$	(7,294)	$	5,824
Other comprehensive
loss before reclassifications		(4,812)		1,444		704		(2,664)
Amounts reclassified to earnings		-		(1,082)		95		(987)
Other comprehensive Loss		(4,812)		362		799		(3,651)
Ending balance	$	7,408	$	1,260	$	(6,495)	$	2,173

	December 28, 2013
	Three Fiscal Months Ended
	Foreign		Unrealized		Defined
	Currency		Gain on		Benefit
	Translation		Derivative		Pension Plan
	Adjustments		Instruments		Adjustments		Total
	(expressed in thousands)
Beginning balance	$	17,319	$	477	$	(5,459)	$	12,337
Other comprehensive
income before reclassifications		960		27		347		1,334
Amounts reclassified to earnings		-		319		81		400
Other comprehensive income		960		346		428		1,734
Ending balance	$	18,279	$	823	$	(5,031)	$	14,071

The effect on certain line items in the Consolidated Statements of Income of amounts reclassified out of AOCI for the first quarter ended December  27, 2014 and December 28, 2013 was as follows:

			Three Fiscal Months Ended			Affected Line Item in the
		December 27,		December 28,		Consolidated Statements
		2014		2013		of Income
Derivative instruments:	(expressed in thousands)
Currency exchange contracts		$	1,698	$	(503)	Revenue
Total net gains (losses) included in income
before income taxes			1,698		(503)
Income tax (expense) benefit			(616)		184
Total net gains (losses) included in net income			1,082		(319)
Defined benefit pension plan:
Actuarial losses			(75)		(63)	Cost of sales
Actuarial losses			(38)		(33)	Selling and marketing
Actuarial losses			(23)		(20)	General and administrative
Total losses included in income
before income taxes			(136)		(116)
Income tax benefit			41		35
Total net losses included in net income			(95)		(81)
Total net-of-tax reclassifications out of
accumulated other comprehensive
income included in net income (loss)		$	987	$	(400)

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Business Acquisition (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended	0 Months Ended
	Dec. 27, 2014	Jun. 17, 2014
Business Acquisition [Line Items]
Adjustment to deferred tax liability	$ 1.7
Roehrig Engineering, Inc. "REI" [Member]
Business Acquisition [Line Items]
Total estimated purchase price		$ 14.8

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Derivative Instruments and Hedging Activities

3 Months Ended

Dec. 27, 2014

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

7. Derivative Instruments and Hedging Activities

The Company uses foreign currency derivatives to hedge against foreign currency exchange risk. Some derivatives are designated as cash flow hedges and qualify as hedging instruments pursuant to Accounting Standards Codification (“ASC”) 815; others are accounted for and reported under the guidance of ASC 830-20-10. Regardless of the designation for accounting purposes, the Company believes that all of its derivative instruments are hedges of transactional risk exposures. The fair value of the Company’s outstanding designated and undesignated derivative assets and liabilities are reported in the December 27, 2014 and September 27, 2014 Consolidated Balance Sheets as follows:

	December 27, 2014
		Prepaid Expenses
		and Other		Other Accrued
		Current Assets		Liabilities
Designated hedge derivatives:		(expressed in thousands)
Cash flow hedges	$	2,362	$	238
Total designated hedge derivatives		2,362		238
Derivatives not designated as hedges:
Balance sheet derivatives		63		-
Total hedge and other derivatives	$	2,425	$	238

	September 27, 2014
		Prepaid Expenses
		and Other		Other Accrued
		Current Assets		Liabilities
Designated hedge derivatives:		(expressed in thousands)
Cash flow hedges	$	1,750	$	178
Total designated hedge derivatives		1,750		178
Derivatives not designated as hedges:
Balance sheet derivatives		641		-
Total hedge and other derivatives	$	2,391	$	178

A reconciliation of the net fair value of foreign exchange cash flow hedge assets and liabilities subject to master netting arrangements that are recorded in the December 27, 2014 and September 27, 2014 Consolidated Balance Sheets to the net fair value that could have been reported in the respective Consolidated Balance Sheets is as follows:

December 27, 2014

Assets

Liabilities

Gross Amounts not Offset

Gross Amounts not Offset

in the Consolidated

in the Consolidated

Balance Sheet

Balance Sheet

Net

Net

Amount of

Amount of

Gross

Assets

Gross

Liabilities

Gross

Liabilities

Presented

Assets

Presented

Amount

Offset in the

in the

Gross

Offset in the

in the

of

Consolidated

Consolidated

Derivatives

Cash

Amount of

Consolidated

Consolidated

Derivatives

Cash

Recognized

Balance

Balance

Subject to

Collateral

Net

Recognized

Balance

Balance

Subject to

Collateral

Net

Assets

Sheet

Sheet

Offset

Received

Amount (1)

Liabilities

Sheet

Sheet

Offset

Pledged

Amount (2)

(expressed in thousands)

$

2,362

$

-

$

2,362

$

-

$

-

$

2,362

$

238

$

-

$

238

$

-

$

-

$

238

September 27, 2014

Assets

Liabilities

Gross Amounts not Offset

Gross Amounts not Offset

in the Consolidated

in the Consolidated

Balance Sheet

Balance Sheet

Net

Net

Amount of

Amount of

Gross

Assets

Gross

Liabilities

Gross

Liabilities

Presented

Assets

Presented

Amount

Offset in the

in the

Gross

Offset in the

in the

of

Consolidated

Consolidated

Derivatives

Cash

Amount of

Consolidated

Consolidated

Derivatives

Cash

Recognized

Balance

Balance

Subject to

Collateral

Net

Recognized

Balance

Balance

Subject to

Collateral

Net

Assets

Sheet

Sheet

Offset

Received

Amount (1)

Liabilities

Sheet

Sheet

Offset

Pledged

Amount (2)

(expressed in thousands)

$

1,750

$

-

$

1,750

$

-

$

-

$

1,750

$

178

$

-

$

178

$

-

$

-

$

178

(1) Net fair value of foreign exchange cash flow hedge assets that could have been reported in the Consolidated Balance Sheet.

(2) Net fair value of foreign exchange cash flow liabilities that could have been reported in the Consolidated Balance Sheet.

Cash Flow Hedging – Currency Risks

Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Qualifying gains and losses related to changes in the market value of these contracts are reported as a component of Accumulated Other Comprehensive Income (“AOCI”) within Shareholders’ Investment on the Consolidated Balance Sheets and reclassified into earnings in the same period during which the underlying hedged transaction affects earnings. The effective portion of the cash flow hedges represents the change in fair value of the hedge that offsets the change in the functional currency value of the hedged item. Each month, the Company assesses whether its currency exchange contracts are effective and, when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively. Subsequent changes in the market value of ineffective currency exchange contracts are recognized as an increase or decrease in Revenue on the Consolidated Statement of Income, because that is the same line item upon which the underlying hedged transaction is reported.

At December 27, 2014 and December 28,  2013, the Company had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $40.9 million and $42.8 million, respectively. Upon netting offsetting contracts to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding was $37.2 million and $38.0 million at December  27, 2014 and December  28, 2013, respectively.

At December  27, 2014, the net market value of the foreign currency exchange contracts was a net asset of $2.1 million, consisting of $2.3 million in assets and $0.2 million in liabilities. AtDecember 28, 2013, the net market value of the foreign currency exchange contracts was a net liability of $0.4 million, consisting of $0.8 million in liabilities and $0.4 million in assets.

The pretax amounts recognized in AOCI on currency exchange contracts for the first quarter ended December 27, 2014 and December 28,  2013, including gains (losses) reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in other comprehensive income (“OCI”), are as follows:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Beginning unrealized net gain in AOCI	$	1,414	$	754
Net (gain) loss reclassified into Revenue (effective portion)		(1,698)		503
Net gain recognized in OCI (effective portion)		2,262		41
Ending unrealized net gain in AOCI	$	1,978	$	1,298

The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was less than $0.1 million in each of the first quarter ended December  27, 2014 and December 28, 2013. At December  27, 2014 and December 28, 2013, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $2.0 million and a net gain of $1.3 million, respectively. The maximum remaining maturity of any forward or optional contract at December  27, 2014 and December 28,  2013 was 2.5 years and0.7 years, respectively.

Foreign Currency Balance Sheet Derivatives

The Company also uses foreign currency derivative contracts to maintain the functional currency value of monetary assets and liabilities denominated in non-functional foreign currencies. The gains and losses related to the changes in the market value of these derivative contracts are included in Other expense, net in the Consolidated Statements of Income.

At December  27, 2014 and December 28, 2013, the Company had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $88.3 million and  $31.2 million, respectively. Upon netting offsetting contracts by counterparty banks to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding at December  27, 2014 and December 28,  2013 was $26.9 million and $0.2 million, respectively. At December  27, 2014, the net market value of the foreign exchange balance sheet derivative contracts was a net asset of $0.1 million. At December28, 2013, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of $0.2 million.

The net gains (losses) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the first quarter ended December  27, 2014 and December 28, 2013 were as follows:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Net gain (loss) recognized in Other income (expense), net	$	338	$	(140)

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Fair Value Measurements

3 Months Ended

Dec. 27, 2014

Fair Value Measurements [Abstract]

Fair Value Measurements

8. Fair Value Measurements

In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices that are available in active markets for identical assets or liabilities accessible to the Company at the measurement date.

Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The hierarchy gives the highest priority to Level 1, because this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.

Financial Instruments Measured at Fair Value on a Recurring Basis

As of December  27, 2014 and September 27, 2014, financial assets and liabilities subject to fair value measurements on a recurring basis were as follows:

	December 27, 2014
		Level 1		Level 2		Level 3		Total
Assets:	(expressed in thousands)
Currency contracts(1)	$	-	$	2,425	$	-	$	2,425
Total assets	$	-	$	2,425	$	-	$	2,425
Liabilities:
Currency contracts(1)	$	-	$	238	$	-	$	238
Total liabilities	$	-	$	238	$	-	$	238

	September 27, 2014
		Level 1		Level 2		Level 3		Total
Assets:	(expressed in thousands)
Currency contracts(1)	$	-	$	2,391	$	-	$	2,391
Total assets	$	-	$	2,391	$	-	$	2,391
Liabilities:
Currency contracts(1)	$	-	$	178	$	-	$	178
Total liabilities	$	-	$	178	$	-	$	178

(1) Based on observable market transactions of spot currency rates and forward currency rates on equivalently termed instruments.

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

The Company’s goodwill, intangible assets and other long-lived assets are nonfinancial assets that were acquired either as part of a business combination, individually or with a group of other assets. These nonfinancial assets were initially, and are currently, measured and recognized at amounts equal to the fair value determined as of the date of acquisition. Periodically, these nonfinancial assets are tested for impairment, by comparing their respective carrying values to the estimated fair value of the reporting unit or asset group in which they reside. In the event any of these nonfinancial assets were to become impaired, the Company would recognize an impairment loss equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value.

Fair value measurements of reporting units are estimated using an income approach involving discounted or undiscounted cash flow models that contain certain Level 3 inputs requiring management judgment, including projections of economic conditions and customer demand, revenue and margins, changes in competition, operating costs, working capital requirements, and new product introductions. Fair value measurements of the reporting units associated with the Company’s goodwill balances are estimated at least annually in the fourth quarter of each fiscal year for purposes of impairment testing. Fair value measurements associated with the Company’s intangible assets and other long-lived assets are estimated when events or changes in circumstances such as market value, asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable.

Financial Instruments not Measured at Fair Value

Certain of the Company’s financial instruments are not measured at fair value but nevertheless are recorded at carrying amounts approximating fair value, based on their short-term nature or variable interest rate. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings.

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Financing

3 Months Ended

Dec. 27, 2014

Financing [Abstract]

Financing

10. Financing

Short-term borrowings at December 27, 2014 and September 27, 2014 consist of the following:

		December 27,		September 27,
		2014		2014
	(expressed in thousands)
Bank line of credit, monthly U.S. LIBOR plus 100 basis points, maturing
January 2015, with optional month-to-month term renewal and loan repricing
until September 2019	$	60,000	$	60,000
Bank line of credit, swing line loan (3.25% rate in effect at December 27, 2014),
maturing September 2019	$	5,000		-
Total short-term borrowings	$	65,000	$	60,000

The Company’s credit facility provides for up to $200 million for working capital financing, permitted acquisitions, share purchases, or other general corporate purposes and expires in September 2019. At December 27, 2014 and September 27, 2014, outstanding borrowings under the credit facility were $65.0 million and $60.0 million, respectively. At December 27, 2014, the interest rate applicable to outstanding swing line and variable rate credit facility borrowings was 3.25 % and 1.16%, respectively. At September 27, 2014, the interest rate applicable to outstanding variable rate credit facility borrowings was 1.15%, which was the monthly U.S.LIBOR plus 100 basis points. At December 27, 2014, based upon the Company’s intention and ability to repay the entire balance within the next twelve fiscal months, the outstanding borrowings on the swing line loan are classified as short-term. At December 27, 2014, the Company had outstanding letters of credit drawn from the credit facility totaling $11.5 million, leaving $123.5 million of unused borrowing capacity. At September 27, 2014, the Company had outstanding letters of credit drawn from the credit facility totaling $9.4 million, leaving approximately  $130.6 million of unused borrowing capacity.

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Basis of Presentation (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Basis of Presentation [Abstract]
Amortization expense on capitalized computer software	$ 0.6	$ 0.7
Life of warranty obligations, minimum (in months)	12 months
Life of warranty obligations for sales, maximum (in months)	24 months
Number of previous months historical warranty claims used to calculate warranty expense percentage (in months)	12 months

XML

Other Comprehensive Income (Schedule Of Amounts Reclassified Out Of Accumulated Other Comprehensive Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Revenue	$ 142,584	$ 138,410
Interest expense, net	(167)	(160)
Cost of sales	75,532	74,625
Selling and marketing	21,254	21,483
General and administrative	14,202	13,206
Actuarial losses	(136)	(116)
Income tax (expense) benefit	1,099	4,550
Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total net gains (losses) included in net income	987	(400)
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total net losses included in income before income taxes	1,698	(503)
Income tax (expense) benefit	(616)	184
Total net gains (losses) included in net income	1,082	(319)
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member] | Foreign Exchange Cash Flow Hedges [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Revenue	1,698	(503)
Accumulated Defined Benefit Plans Adjustment [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total net losses included in income before income taxes	(136)	(116)
Income tax (expense) benefit	41	35
Total net gains (losses) included in net income	(95)	(81)
Accumulated Defined Benefit Plans Adjustment [Member] | Cost of Sales [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Actuarial losses	(75)	(63)
Accumulated Defined Benefit Plans Adjustment [Member] | Selling and Marketing [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Actuarial losses	(38)	(33)
Accumulated Defined Benefit Plans Adjustment [Member] | General and Administrative [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Actuarial losses	$ (23)	$ (20)

XML

Basis of Presentation (Policies)

3 Months Ended

Dec. 27, 2014

Basis of Presentation [Abstract]

Revenue Recognition

Revenue Recognition.  The Company recognizes revenue on a sales arrangement when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery and title transfer has occurred or services have been rendered; the sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled.

Orders that are manufactured and delivered in less than six months with routine installations and no special acceptance protocols may contain multiple elements for revenue recognition purposes. The Company considers each deliverable that provides value to the customer, on a standalone basis, a separable element. Separable elements in these arrangements may include the design and manufacture of hardware and essential software, installation services, training and/or post contract software maintenance and support. The Company initially allocates consideration to each separable element using the relative selling price method. Selling prices are determined by the Company based on either vendor-specific objective evidence (“VSOE”) (the actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, the Company’s best estimate of the selling price. Factors considered by the Company in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by the Company to provide the deliverable, as well as the Company’s historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training are not considered separable. Accordingly, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.

Certain contractual arrangements require longer production periods, generally longer than six months (long-term contracts), and may contain non-routine installations and special acceptance protocols. These arrangements often include hardware and essential software, installation services, training and support. Long-term contractual arrangements involving essential software typically include significant production, modification, and customization. For long-term arrangements with essential software and all other long-term arrangements with complex installations and/or unusual acceptance protocols, revenue is recognized using the percentage-of-completion method, based on the cost incurred to-date relative to estimated total cost of the contract.

Elements of an arrangement that do not separately fall within the scope of the percentage-of-completion method (e.g., training and post-contract software maintenance and support) are recognized as the service is provided in amounts determined based on VSOE, or in the absence of VSOE, the Company’s best estimate of the selling price.

Under the terms of the Company’s long-term contracts, revenue recognized using the percentage-of-completion method may not, in certain circumstances, be invoiced until completion of contractual milestones, upon shipment of the equipment, or upon installation and acceptance by the customer. Unbilled amounts for these contracts appear in the Consolidated Balance Sheets as Unbilled Accounts Receivable.

Revenue from arrangements for services such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts. Revenue from post contract software maintenance and support services is recognized ratably over the defined contractual period of the maintenance agreement.

The Company’s sales arrangements typically do not include specific performance-, cancellation-, termination-, or refund-type provisions. In the event a customer cancels a contractual arrangement, the Company would typically be entitled to receive reimbursement from the customer for actual costs incurred under the arrangement plus a reasonable margin.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

Inventories

Inventories.  Inventories consist of material, labor and overhead costs and are stated at the lower of cost or market value, determined under the first-in, first-out accounting method. Inventories at December 27, 2014 and September 27, 2014 were as follows:

	December 27,		September 27,
	2014		2014
		(expressed in thousands)
Customer projects in various stages of completion	$	23,606	$	22,559
Components, assemblies and parts		66,037		60,998
Total	$	89,643	$	83,557

Software Development Costs

Software Development Costs.The Company capitalizes certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials and services, salary and benefits of the Company’s development and technical support staff, and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on the Company’s product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and the Company has established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the product’s estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

The Company’s capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. The Company capitalized $0.6 million of software development costs for the first quarter ended December 27, 2014.  There were no software development costs for the first quarter ended December 28, 2013. Amortization expense for software development costs for thefirst quarter ended December 27, 2014 and December 28,  2013 was $0.6 million and $0.7 million, respectively.  See Note 4 in the Condensed Notes to Consolidated Financial Statements for additional information on capitalized software development costs.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets.  The Company reviews the carrying value of long-lived assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances such as asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, the Company recognizes an asset impairment charge against operations. The amount of the impairment loss recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value.

Goodwill

Goodwill.Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is not amortized, but instead tested at least annually for impairment. Goodwill is also tested for impairment as changes in circumstances occur indicating that the carrying value may not be recoverable. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.

Warranty Obligations

Warranty Obligations.  Sales of the Company’s products and systems are subject to limited warranty obligations that are included in customer contracts. For sales that include installation services, warranty obligations typically extend for a period of twelve to twenty-four months from the date of either shipment or acceptance. Product obligations typically extend for a period of twelve to twenty-four months from the date of purchase. Under the terms of these warranties, the Company is obligated to repair or replace any components or assemblies it deems defective due to workmanship or materials. The Company reserves the right to reject warranty claims where it determines that failure is due to normal wear, customer modifications, improper maintenance, or misuse. The Company records general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects historical warranty claims experience over the preceding twelve-month period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. In addition, warranty provisions are also recognized for certain nonrecurring product claims that are individually significant. Warranty provisions and claims for the first quarter ended December 27, 2014 and December 28, 2013 were as follows:

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Beginning balance	$	4,286	$	4,694
Warranty provisions		2,135		2,163
Warranty claims		(1,496)		(1,567)
Adjustments to preexisting warranties		279		-
Currency translation		(16)		18
Ending balance	$	5,188	$	5,308

Income Taxes

Income Taxes.  The Company records a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of its deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results. See Note 11 in the Condensed Notes to Consolidated Financial Statements for additional information on income taxes.

Derivative Financial Instruments

Derivative Financial Instruments.  The Company’s results of operations could be materially impacted by changes in foreign currency exchange rates, as well as changes in interest rates on its floating rate indebtedness. In an effort to manage exposure to these risks, the Company periodically enters into forward and option currency exchange contracts, interest rate swaps and forward interest rate swaps. Because the market value of these hedging contracts is derived from current market rates, they are classified as derivative financial instruments. The Company does not use derivatives for speculative or trading purposes. The derivative contracts contain credit risk to the extent that the Company’s counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality. For derivative instruments executed under master netting arrangements, the Company has the contractual right to offset fair value amounts recognized for the right to reclaim cash collateral with obligations to return cash collateral. The Company does not offset fair value amounts recognized on these derivative instruments. At both December 27, 2014 and December 28, 2013, the Company did not have any foreign exchange contracts with credit-risk related contingent features. See Note 7 in the Condensed Notes to Consolidated Financial Statements for additional information on derivatives and hedging activities.

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Business Segment Information (Tables)

3 Months Ended

Dec. 27, 2014

Business Segment Information [Abstract]

Financial Information By Reportable Segment

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Revenue by Segment:
Test	$	118,085	$	113,523
Sensors		24,499		24,887
Total revenue	$	142,584	$	138,410
Income from Operations by Segment:
Test	$	11,976	$	9,841
Sensors		3,835		4,306
Total income from operations	$	15,811	$	14,147

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Other Comprehensive Income (Schedule Of Other Comprehensive Income (Loss)) Allocated To Each Component Of Other Comprehensive Income (Loss)) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Other Comprehensive Income [Abstract]
Foreign currency translation adjustments, Pretax Amount	$ (4,812)	$ 960
Unrealized net gain, Pretax Amount	2,262	41
Net gain (loss) reclassified to earnings, Pretax Amount	(1,698)	503
Unrealized net loss, Pretax Amount	553	620
Net loss reclassified to earnings, Pretax Amount	136	116
Currency exchange rate change, Pretax Amount	318	(86)
Other comprehensive income (loss), Pretax Amount	(3,241)	2,154
Unrealized net gain, Tax (Expense) or Benefit	(818)	(14)
Net gain reclassified to earnings, Tax (Expense) or Benefit	616	(184)
Unrealized net (loss) gain, Tax (Expense) or Benefit	(167)	(187)
Net loss reclassified to earnings, Tax (Expense) or Benefit	(41)	(35)
Other comprehensive income (loss), Tax (Expense) or Benefit	(410)	(420)
Foreign currency translation adjustments, Net of Tax Amount	(4,812)	960
Unrealized net gain, Net of Tax Amount	1,444	27
Net loss reclassified to earnings, Net of Tax Amount	(1,082)	319
Unrealized net loss, Net of Tax Amount	386	433
Net loss reclassified to earnings, Net of Tax Amount	95	81
Currency exchange rate change, Net of Tax Amount	318	(86)
Other comprehensive (loss) income	$ (3,651)	$ 1,734

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Earnings Per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Earnings Per Common Share [Abstract]
Net income	$ 13,786	$ 9,145
Weighted average common shares outstanding	15,108,000	15,352,000
Dilutive potential common shares	162,000	187,000
Total diluted weighted average shares outstanding	15,270,000	15,539,000
Earnings Per Share, Basic	$ 0.91	$ 0.60
Earnings Per Share, Diluted	$ 0.90	$ 0.59
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	100,000	100,000

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 27, 2014	Dec. 28, 2013
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 13,786	$ 9,145
Other comprehensive loss, net of tax:
Foreign currency translation adjustments	(4,812)	960
Derivative instruments:
Unrealized net (loss) gain	1,444	27
Net (gain) loss reclassified to earnings	(1,082)	319
Defined benefit pension plan:
Unrealized net gain	386	433
Net loss reclassified to earnings	95	81
Currency exchange rate change	318	(86)
Other comprehensive (loss) income	(3,651)	1,734
Comprehensive income	$ 10,135	$ 10,879

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Capital Assets

3 Months Ended

Dec. 27, 2014

Capital Assets [Abstract]

Capital Assets

4. Capital Assets

Property and Equipment

Property and equipment at December 27, 2014 and September 27, 2014 consists of the following:

		December 27,		September 27,
		2014		2014
	(expressed in thousands)
Land and improvements	$	1,708	$	1,710
Buildings and improvements		53,606		54,271
Machinery and equipment		153,465		150,917
Total		208,779		206,898
Less accumulated depreciation		(127,912)		(125,323)
Property and equipment, net	$	80,867	$	81,575

Goodwill

Goodwill at December 27, 2014and September 27,  2014 was $27.6 million and $26.1 million, respectively. During the First Quarter of Fiscal year 2015, the Company recognized an adjustment of $1.7 million related to a deferred tax liability as part of the provisional allocation of the Roehrig Engineering, Inc.  (“REI”) purchase price assigned to the assets acquired and liabilities assumed. Refer to footnote 14 for details regarding this acquisition.

Other Intangible Assets

Other intangible assets at December 27,  2014 and September 27, 2014 consist of the following:

	December 27, 2014
							Weighted
							Average
		Gross Carrying		Accumulated		Net Carrying	Useful Life
		Amount		Amortization		Value	(in Years)
	(dollar amounts expressed in thousands)
Software development costs	$	17,312	$	(12,244)	$	5,068	6.4
Patents		12,151		(4,643)		7,508	14.5
Trademarks and trade names		6,303		(1,509)		4,794	29.4
Customer List		2,562		(274)		2,288	8.1
Land-use rights		1,258		(158)		1,100	47.8
Total	$	39,586	$	(18,828)	$	20,758	14.0

	September 27, 2014
							Weighted
							Average
		Gross Carrying		Accumulated		Net Carrying	Useful Life
		Amount		Amortization		Value	(in Years)
	(dollar amounts expressed in thousands)
Software development costs	$	16,713	$	(11,644)	$	5,069	5.7
Patents		12,204		(4,453)		7,751	14.4
Trademarks and trade names		6,349		(1,458)		4,891	29.3
Customer List		2,485		(134)		2,351	8.1
Land-use rights		1,269		(153)		1,116	47.8
Total	$	39,020	$	(17,842)	$	21,178	13.4

Amortization expense recognized during the first quarterended December 27, 2014 and December 28, 2013 was $1.0 million and $0.9 million, respectively.

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Severance And Related Costs (Summary Of Severance Charges On Statement Of Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 28, 2013
Restructuring Cost and Reserve [Line Items]
Total severance and related costs	$ 4,252
Cost of Sales [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and related costs	2,542
Selling and Marketing [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and related costs	810
General and Administrative [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and related costs	$ 900

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Derivative Instruments and Hedging Activities (Tables)

3 Months Ended

Dec. 27, 2014

Derivative Instruments and Hedging Activities [Abstract]

Fair Value Of Outstanding Designated And Undesignated Derivative Assets And Liabilities

	December 27, 2014
		Prepaid Expenses
		and Other		Other Accrued
		Current Assets		Liabilities
Designated hedge derivatives:		(expressed in thousands)
Cash flow hedges	$	2,362	$	238
Total designated hedge derivatives		2,362		238
Derivatives not designated as hedges:
Balance sheet derivatives		63		-
Total hedge and other derivatives	$	2,425	$	238

	September 27, 2014
		Prepaid Expenses
		and Other		Other Accrued
		Current Assets		Liabilities
Designated hedge derivatives:		(expressed in thousands)
Cash flow hedges	$	1,750	$	178
Total designated hedge derivatives		1,750		178
Derivatives not designated as hedges:
Balance sheet derivatives		641		-
Total hedge and other derivatives	$	2,391	$	178

Reconciliation Of The Net Fair Value Of Foreign Exchange Cash Flow Hedge Assets And Liabilities

December 27, 2014

Assets

Liabilities

Gross Amounts not Offset

Gross Amounts not Offset

in the Consolidated

in the Consolidated

Balance Sheet

Balance Sheet

Net

Net

Amount of

Amount of

Gross

Assets

Gross

Liabilities

Gross

Liabilities

Presented

Assets

Presented

Amount

Offset in the

in the

Gross

Offset in the

in the

of

Consolidated

Consolidated

Derivatives

Cash

Amount of

Consolidated

Consolidated

Derivatives

Cash

Recognized

Balance

Balance

Subject to

Collateral

Net

Recognized

Balance

Balance

Subject to

Collateral

Net

Assets

Sheet

Sheet

Offset

Received

Amount (1)

Liabilities

Sheet

Sheet

Offset

Pledged

Amount (2)

(expressed in thousands)

$

2,362

$

-

$

2,362

$

-

$

-

$

2,362

$

238

$

-

$

238

$

-

$

-

$

238

September 27, 2014

Assets

Liabilities

Gross Amounts not Offset

Gross Amounts not Offset

in the Consolidated

in the Consolidated

Balance Sheet

Balance Sheet

Net

Net

Amount of

Amount of

Gross

Assets

Gross

Liabilities

Gross

Liabilities

Presented

Assets

Presented

Amount

Offset in the

in the

Gross

Offset in the

in the

of

Consolidated

Consolidated

Derivatives

Cash

Amount of

Consolidated

Consolidated

Derivatives

Cash

Recognized

Balance

Balance

Subject to

Collateral

Net

Recognized

Balance

Balance

Subject to

Collateral

Net

Assets

Sheet

Sheet

Offset

Received

Amount (1)

Liabilities

Sheet

Sheet

Offset

Pledged

Amount (2)

(expressed in thousands)

$

1,750

$

-

$

1,750

$

-

$

-

$

1,750

$

178

$

-

$

178

$

-

$

-

$

178

(1) Net fair value of foreign exchange cash flow hedge assets that could have been reported in the Consolidated Balance Sheet.

(2) Net fair value of foreign exchange cash flow liabilities that could have been reported in the Consolidated Balance Sheet.

Pretax Amounts Recognized In Accumulated Other Comprehensive Income On Currency Contracts

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Beginning unrealized net gain in AOCI	$	1,414	$	754
Net (gain) loss reclassified into Revenue (effective portion)		(1,698)		503
Net gain recognized in OCI (effective portion)		2,262		41
Ending unrealized net gain in AOCI	$	1,978	$	1,298

Net Gains (Losses) Recognized In Income For Derivative Contracts

	Three Fiscal Months Ended
		December 27,		December 28,
		2014		2013
	(expressed in thousands)
Net gain (loss) recognized in Other income (expense), net	$	338	$	(140)

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Stock-Based Compensation (Weighted Average Assumptions Used To Determine Fair Value Of Stock Options) (Details)	3 Months Ended
	Dec. 27, 2014
Stock-Based Compensation [Abstract]
Expected life (in years)	3 years 6 months
Risk-free interest rate	1.10%
Expected volatility	27.40%
Dividend yield	1.80%

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Business Acquisition

3 Months Ended

Dec. 27, 2014

Business Acquisition [Abstract]

Business Acquisition

14.  Business Acquisition

On June 17, 2014, the Company acquired Roehrig Engineering, Inc. (“REI”) for a total estimated purchase price of $14.8 million.  REI is a leader in testing systems utilizing electric and electromagnetic actuation technology and is based in Lexington, North Carolina. The acquisition is part of the Company’s continued investment to expand the Company’s technology base and supplement its organic growth initiatives.

The transaction was accounted for under the acquisition method of accounting and the results of operations of the entity are included in the Company’s Consolidated Statements of Income as of and since June 17, 2014 and are reported in the Company’s Test segment. The acquisition of REI’s assets and liabilities does not constitute a material business combination and accordingly, pro forma results have not been included.

During the First Quarter of Fiscal year 2015 the Company recognized an adjustment of $1.7 million related to a deferred tax liability as part of the provisional allocation of the purchase price assigned to the assets acquired and liabilities assumed.

The following table summarizes the preliminary provisional allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of acquisition:

(expressed in thousands) :		Amount
Accounts receivable and inventory	$	1,763
Machinery and equipment		477
Deferred tax liability		(1,445)
Current liabilities		(1,900)
Identifiable intangible assets		4,593
Net Assets acquired		3,488
Goodwill		11,354
Total purchase price	$	14,842

As of December 27, 2014, the Company has not completed its fair value determinations for all of the elements of the REI acquisition due to the timing of the closing date and the time required to complete certain valuations.  The Company expects to complete the valuation in the Second Quarter of Fiscal year 2015. Fair value determinations for all of the elements of the REI acquisition are preliminary. The Company will record any adjustments to the allocation of purchase price, if required, in the subsequent quarter.