ex99_1.htm

“We are pleased with MTS’ fourth quarter improvement in orders, backlog, revenue and earnings compared with third quarter,” said Laura B. Hamilton, chief executive officer and chair. “Both businesses performed very well. During the period, MTS benefited from a number of factors including solid execution, improved order levels and favorable business mix in Test and continued outstanding performance in Sensors.”

Orders were $128.7 million, a 37 percent increase compared to third quarter 2010. Test orders were up 47 percent and Sensors orders rose 4 percent. The results for both quarters included one large Test order of approximately $6 million. The increase in base orders was led by strength in the Test ground vehicles market, wind energy growth in the structures market and a broad based increase in the materials market. Backlog increased 14 percent to $214 million.

Revenue was $105.9 million, an increase of 25 percent compared to the previous quarter, including a 31 percent gain in Test and a 5 percent increase in Sensors, both primarily from improved conversion of backlog into revenue. Test had experienced some resource constraints in the late spring and summer, which MTS resolved in the fourth quarter, enabling the company to convert backlog to revenue. Gross profit was $44.8 million, up 35 percent compared to the prior quarter. The gross margin rate was 42.3 percent, up 3.2 percentage points, driven primarily by favorable product mix and increased leverage resulting from higher volume in Test. This was partially offset by $1.4 million of severance charges associated with the elimination of approximately 50 U.S. positions in Test.

Income from operations was $13.3 million, compared to a loss of $1.5 million in the prior quarter. The change from net loss to net income reflected higher revenue and margin, as well as $3.3 million lower operating expenses due to a $6.3 million pre-tax legal settlement charge, or $0.24 per share, in the prior quarter. Net earnings were $0.54 per share compared to $0.00 per share last quarter.

Cash and cash equivalents at the end of the fourth quarter totaled $76.6 million, compared to $104.7 million at the end of the third quarter. Working capital requirements largely offset cash from earnings. Additionally, the Company invested $2.8 million in capital expenditures, paid $2.3 million in dividends and purchased approximately 992,500 shares of its common stock for $27.5 million during the quarter.

Orders were $106.1 million, up 47 percent compared to the prior quarter, due to an increase in worldwide base orders and a 3 percent favorable impact of currency translation. Approximately half or $17 million of the growth was in the ground vehicle market as demand for durability and tire equipment increased in the quarter. As noted above, orders in both the current and prior quarters included one large custom order of approximately $6 million. Backlog increased 14 percent to $198 million. Revenue was $84.4 million, up 31 percent. Currency translation favorably impacted revenue by 2 percent.

Gross profit was $32.7 million, an increase of $11.2 million, or 52 percent, and the gross margin rate was 38.7 percent, a gain of 5.4 percentage points. This resulted from favorable product mix and increased leverage from higher volume, partially offset by the previously mentioned severance charges.

Income from operations was $8.4 million, compared to a loss from operations of $6.7 million in the prior quarter. The change from operating loss to income reflects higher revenue and gross profit rate, and lower operating expenses resulting from the previously mentioned legal settlement charge in the prior quarter.

Orders were $22.6 million, a 4 percent increase compared to the prior quarter, primarily due to a favorable impact of currency translation. Backlog was up 13 percent to $16 million. Revenue increased 5 percent to $21.5 million from higher beginning backlog in the quarter and a favorable impact of currency translation. Gross profit was $12.1 million, up $0.4 million or 4 percent. The gross margin rate was 56.6 percent, a decrease of 1.1 percentage points.

Hamilton said, “We’re very pleased that orders were up 24 percent year over year, reflecting the improvement in the economy and progress in our growth initiatives. As a long cycle company, revenue was expected to lag orders but we managed to hold the decline to 9 percent. EPS on a reported basis was up 11 percent, with both years including significant non-operating costs. We managed costs to minimize the volume impact this year.”

Hamilton continued, “In the context of a year in which economic conditions were – and remain – capable of producing varying degrees of upside opportunity and downside risk, our second half fiscal 2010 results demonstrate our performance strengths and establishes a good starting point for fiscal 2011.

The work we have done over the past year to further position MTS in high-opportunity geographies and applications was instrumental in helping us navigate this initial stretch of economic recovery and enables us to meet the challenges ahead.”

In a stable economic environment, the company’s long-term performance goals are to achieve a 5-year compounded annual revenue growth in the range of 6 to 9 percent with bottom line growth exceeding top line growth. In addition, the expectation for return on invested capital (ROIC) is to achieve rates which are greater than or equal to 20%. If economic conditions remain steady through 2011, the company expects to achieve its revenue and earnings performance goals and make measurable progress toward historical profitability and ROIC rates.

Hamilton concluded, “Global economic recovery is expected to be a long process which requires flexibility, responsiveness and vision. As we enter 2011, uncertainty remains regarding the world economy but our investments in growth geographies, like China, and in key end markets such as wind and mobile hydraulics, combined with our technology leadership and commitment to cost competitiveness, position us to capture opportunities as they arise and be successful in 2011 and over the long term.”

A conference call will be held on November 19, 2010, at 10 a.m. EDT (9 a.m. CDT). Call +1-719-325-4878 (Toll Free: +1-877-857-6161); and reference the conference pass code “3828436.” Telephone re-play will be available until 12 p.m. CDT, November 26, 2010. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference pass code “3828436”.

MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company’s testing hardware and software solutions help customers accelerate and improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. MTS’ high-performance position sensors provide controls for a variety of industrial and vehicular applications. MTS had 1,948 employees and revenue of $374 million for the fiscal year ended October 2, 2010. Additional information on MTS can be found on the worldwide web at http://www.mts.com.

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

	Three Months Ended						Year Ended
	October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009

Revenue	$	105,879		$	93,841		$	374,053		$	408,881
Cost of sales		61,044			62,563			222,259			257,265
Gross profit		44,835			31,278			151,794			151,616
Gross margin		42.3	%		33.3	%		40.6	%		37.1	%

Operating expenses:
Selling, general and administrative		27,758			30,188			108,504			110,700
Research and development		3,739			4,990			14,945			16,322
Total operating expenses		31,497			35,178			123,449			127,022

Income (loss) from operations		13,338			(3,900	)		28,345			24,594
Operating margin		12.6	%		-4.2	%		7.6	%		6.0	%

Interest expense, net		(262	)		(226	)		(1,052	)		(916	)
Other income (expense), net		338			333			(81	)		225

Income (loss) before income taxes		13,414			(3,793	)		27,212			23,903
Income tax provision (benefit)		4,854			(814	)		8,636			6,509
Net income (loss)	$	8,560		$	(2,979	)	$	18,576		$	17,394

Earnings (loss) per share:
Basic-
Earnings (loss) per share	$	0.54		$	(0.18	)	$	1.14		$	1.04
Weighted average number of common shares outstanding - basic		15,763			16,656			16,281			16,793

Diluted-
Earnings (loss) per share	$	0.54		$	(0.18	)	$	1.14		$	1.03
Weighted average number of common shares outstanding - diluted		15,863			16,656			16,347			16,831

	October 2, 2010		October 3, 2009
ASSETS

Current Assets:
Cash and cash equivalents	$	76,611	$	118,885
Accounts receivable, net		66,369		72,553
Unbilled accounts receivable		26,389		27,246
Inventories		51,792		47,969
Other current assets		23,541		18,905
Total current assets		244,702		285,558

Property and equipment, net		56,444		56,118

Goodwill		15,429		15,206
Intangibles, net		24,753		23,826
Other assets		5,077		6,206
Total Assets	$	346,405	$	386,914

LIABILITIES AND SHAREHOLDERS' INVESTMENT

Current Liabilities:
Short-term borrowings	$	40,229	$	40,182
Accounts payable		21,818		18,630
Advance payments from customers		44,000		46,739
Other accrued liabilities		55,793		62,441
Total current liabilities		161,840		167,992

Other long-term liabilities		18,459		14,957
Total Liabilities		180,299		182,949

Shareholders' Investment:
Common stock, $.25 par; 64,000 shares authorized:
15,264 and 16,564 shares issued and outstanding		3,816		4,141
Retained earnings		147,609		174,301
Accumulated other comprehensive income		14,681		25,523
Total shareholders' investment		166,106		203,965
Total Liabilities and Shareholders' Investment	$	346,405	$	386,914

	Three Months Ended
Test Segment	October 2, 2010			July 3, 2010			% Variance

Orders	$	106,103		$	72,057			47	%

Revenue	$	84,424		$	64,602			31	%
Cost of Sales		51,733			43,082			20	%
Gross profit		32,691			21,520			52	%
Gross margin		38.7	%		33.3	%

Operating expenses		24,265			28,262			-14	%

Income (loss) from operations	$	8,426		$	(6,742	)		225	%

Sensors Segment

Orders	$	22,594		$	21,684			4	%

Revenue	$	21,455		$	20,342			5	%
Cost of Sales		9,311			8,613			8	%
Gross profit		12,144			11,729			4	%
Gross margin		56.6	%		57.7	%

Operating expenses		7,232			6,501			11	%

Income from operations	$	4,912		$	5,228			-6	%

Total Company

Orders	$	128,697		$	93,741			37	%

Revenue	$	105,879		$	84,944			25	%
Cost of Sales		61,044			51,695			18	%
Gross profit		44,835			33,249			35	%
Gross margin		42.3	%		39.1	%

Operating expenses		31,497			34,763			-9	%

Income (loss) from operations(1)	$	13,338		$	(1,514	)		981	%

	Year Ended
Test Segment	October 2, 2010			October 3, 2009			% Variance

Orders	$	340,691		$	275,041			24	%

Revenue	$	296,230		$	342,595			-14	%
Cost of Sales		187,746			227,389			-17	%
Gross profit		108,484			115,206			-6	%
Gross margin		36.6	%		33.6	%

Operating expenses		97,280			97,712			0	%

Income from operations	$	11,204		$	17,494			-36	%

Sensors Segment

Orders	$	82,834		$	65,798			26	%

Revenue	$	77,823		$	66,286			17	%
Cost of Sales		34,513			29,876			16	%
Gross profit		43,310			36,410			19	%
Gross margin		55.7	%		54.9	%

Operating expenses		26,169			29,310			-11	%

Income from operations	$	17,141		$	7,100			141	%

Total Company

Orders	$	423,525		$	340,839			24	%

Revenue	$	374,053		$	408,881			-9	%
Cost of Sales		222,259			257,265			-14	%
Gross profit		151,794			151,616			0	%
Gross margin		40.6	%		37.1	%

Operating expenses		123,449			127,022			-3	%

Income from operations(1)	$	28,345		$	24,594			15	%

(1)	Income from operations for the year ended October 2, 2010 includes severance charges of $1,624 thousand, of which $1,390 thousand and $234 thousand are reported in Cost of Sales and Operating Expenses, respectively.

Income from operations for the year ended October 3, 2009 includes severance charges of $12,085 thousand, of which $6,770 thousand and $5,315 thousand are reported in Cost of Sales and Operating Expenses, respectively.

	MTS Systems Corporation 14000 Technology Drive Eden Prairie, MN 55344-2290 Telephone 952-937-4000 Fax 952-937-4515