10-Q

United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the Quarterly period ended March 31, 2012

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. Identification No.)Employer

14000 Technology Drive, Eden Prairie, MN  55344

(Address of principal executive offices)      (Zip Code)

Registrant’s telephone number: (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.

x  Yes                   o No

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).

x   Yes                 o  No

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. (Check one):

Large accelerated filer  x Accelerated filer   o Non-accelerated filer  o 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):

 o  Yes                    x    No

The number of shares outstanding of the Registrant’s common stock as of May 1, 2012 was 16,076,894 shares.

MTS SYSTEMS CORPORATION

REPORT ON FORM 10-Q

FOR THE THREE AND SIX FISCAL MONTHS ENDED MARCH 31, 2012

INDEX

			Page No.
PART I -	FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Consolidated Balance Sheets as of March 31, 2012 and October 1, 2011	2
		Consolidated Statements of Income for the Three and Six Fiscal Months Ended March 31, 2012 and April 2, 2011	3
		Consolidated Statements of Cash Flows for the Six Fiscal Months Ended March 31, 2012 and April 2, 2011	4
		Condensed Notes to Consolidated Financial Statements	5 - 15
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16 - 31
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31 - 32
PART II –	OTHER INFORMATION
	Item 1.	Legal Proceedings	32
	Item 6.	Exhibits	32 - 33
SIGNATURES			33

1

PART 1 – FINANCIAL INFORMATION

Item 1.  Financial Statements

MTS SYSTEMS CORPORATION

Consolidated Balance Sheets

(unaudited - in thousands, except per share data)

	March 31,		October 1,
	2012		2011
ASSETS
Current Assets:
Cash and cash equivalents	$	123,248	$	104,095
Accounts receivable, net of allowances for doubtful accounts of $2,280 and $1,534, respectively		89,011		82,510
Unbilled accounts receivable		54,976		54,554
Inventories		70,318		65,987
Prepaid expenses and other current assets		9,053		4,354
Deferred income taxes		12,261		12,556
Total current assets		358,867		324,056
Property and equipment, net		58,270		56,252
Goodwill		16,210		16,027
Other intangible assets, net		24,864		25,843
Other assets		4,387		4,568
Deferred income taxes		891		1,113
Total Assets	$	463,489	$	427,859
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings	$	40,282	$	40,285
Accounts payable		28,453		27,794
Accrued payroll and related costs		26,474		33,577
Advance payments from customers		72,857		63,307
Accrued warranty costs		4,468		5,290
Accrued income taxes		5,137		5,453
Deferred income taxes		1,888		2,285
Other accrued liabilities		17,708		17,623
Total current liabilities		197,267		195,614
Deferred income taxes		9,238		9,190
Non-current accrued income taxes		4,637		5,106
Pension benefit plan obligation		2,579		2,691
Other long-term liabilities		4,459		4,410
Total Liabilities		218,180		217,011
Shareholders' Investment:
Common stock, $.25 par; 64,000 shares authorized: 16,028 and 15,632 shares issued and outstanding as of March 31, 2012 and October 1, 2011, respectively		4,007		3,908
Additional paid-in capital		21,129		5,319
Retained earnings		204,092		185,332
Accumulated other comprehensive income		16,081		16,289
Total Shareholders' Investment		245,309		210,848
Total Liabilities and Shareholders' Investment	$	463,489	$	427,859

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						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
Revenue:
Product	$	112,788		$	97,029		$	230,239		$	186,930
Service		16,231			16,032			32,477			32,007
Total revenue		129,019			113,061			262,716			218,937
Cost of sales:
Product		64,648			56,430			131,520			107,329
Service		7,981			7,724			16,093			16,029
Total cost of sales		72,629			64,154			147,613			123,358
Gross profit		56,390			48,907			115,103			95,579
Operating expenses:
Selling and marketing		19,206			17,151			36,215			33,730
General and administrative		13,917			10,329			27,113			18,820
Research and development		6,068			3,558			11,027			6,686
Total operating expenses		39,191			31,038			74,355			59,236
Income from operations		17,199			17,869			40,748			36,343
Interest expense		(296	)		(384	)		(620	)		(854	)
Interest income		84			61			202			104
Other (expense) income, net		(399	)		60			(422	)		117
Income before income taxes		16,588			17,606			39,908			35,710
Provision for income taxes		5,431			5,798			13,212			10,613
Net income	$	11,157		$	11,808		$	26,696		$	25,097
Earnings per share:
Basic-
Earnings per share	$	0.70		$	0.77		$	1.69		$	1.63
Weighted average number of common shares outstanding - basic		15,906			15,430			15,793			15,367
Diluted-
Earnings per share	$	0.69		$	0.75		$	1.67		$	1.60
Weighted average number of common shares outstanding - diluted		16,106			15,838			15,969			15,682
Dividends declared per share	$	0.25		$	0.20		$	0.50		$	0.40

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

3

MTS SYSTEMS CORPORATION

Consolidated Statements of Cash Flows

(unaudited - in thousands)

	Six Fiscal Months Ended
	March 31,			April 2,
	2012			2011
Cash flows from operating activities:
Net income	$	26,696		$	25,097
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		1,818			1,541
Excess tax benefits for stock-based compensation		(648	)		(140	)
Net periodic pension benefit cost		340			354
Depreciation and amortization		6,447			6,418
Deferred income taxes		131			245
Bad debt provision		758			403
Changes in operating assets and liabilities:
Accounts and unbilled contracts receivable		(8,680	)		(8,471	)
Inventories		(4,484	)		(8,466	)
Prepaid expenses		(2,046	)		(1,627	)
Accounts payable		692			3,404
Accrued payroll and related costs		(6,721	)		(6,737	)
Advance payments from customers		9,217			9,292
Accrued warranty costs		(799	)		(1,205	)
Other assets and liabilities		(3,152	)		7,325
Net cash provided by operating activities		19,569			27,433
Cash flows from investing activities:
Purchases of property and equipment		(6,703	)		(4,740	)
Cash flows from financing activities:
Net receipts (repayments) under short-term borrowings		15			(7	)
Excess tax benefits from stock-based compensation		648			140
Cash dividends		(7,950	)		(6,173	)
Proceeds from exercise of stock options and employee stock purchase plan		13,950			10,669
Net cash provided by financing activities		6,663			4,629
Effect of exchange rate on changes in cash		(376	)		1,779
Net increase in cash and cash equivalents		19,153			29,101
Cash and cash equivalents, at beginning of period		104,095			76,611
Cash and cash equivalents, at end of period	$	123,248		$	105,712
Supplemental disclosure of cash flow information:
Cash paid during the period for -
Interest	$	523		$	688
Income taxes	$	17,304		$	444
Non-cash financing activities:
Dividends declared not yet paid	$	3,905		$	-

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

4

MTS SYSTEMS CORPORATION

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 consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished in these consolidated financial statements includes normal recurring adjustments and reflects all adjustments which 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 (“GAAP”), which require 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 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 October 1, 2011 filed with the SEC. Interim results of operations for the three and six-fiscal month periods ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

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.

5

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, determined under the first-in, first-out accounting method. Inventories at March 31, 2012 and October 1, 2011 were as follows:

	March 31, 2012		October 1, 2011
	(expressed in thousands)
Customer projects in various stages of completion	$	24,369	$	19,026
Components, assemblies and parts		45,949		46,961
Total	$	70,318	$	65,987

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. Amortization expense for software development costs for the three-fiscal month periods ended March 31, 2012 and April 2, 2011 was $0.7 million and $0.4 million, respectively. Amortization expense for software development costs for the six-fiscal month periods ended March 31, 2012 and April 2, 2011 was $1.2 million and $0.8 million, respectively. See Note 2 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 market value, 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.

6

Goodwill.  Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is not amortized to income, but instead tested for impairment at least annually, during the fourth quarter of each fiscal year. 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 three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 were as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Beginning balance	$	4,595		$	6,735		$	5,290		$	7,505
Warranty provisions		1,094			1,073			1,483			1,586
Warranty claims		(1,565	)		(1,482	)		(2,583	)		(2,930	)
Adjustments to preexisting warranties		300			(100	)		300			139
Currency translation		44			145			(22	)		71
Ending balance	$	4,468		$	6,371		$	4,468		$	6,371

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 9 in the Condensed Notes to Consolidated Financial Statements for additional information on income taxes.

7

2. Capital Assets

Property and Equipment

Property and equipment at March 31, 2012 and October 1, 2011 consist of the following:

	March 31,			October 1,
	2012			2011
	(expressed in thousands)
Land and improvements	$	1,712		$	1,713
Buildings and improvements		53,316			52,764
Machinery and equipment		111,277			108,143
Total		166,305			162,620
Less accumulated depreciation		(108,035	)		(106,368	)
Property and equipment, net	$	58,270		$	56,252

Goodwill

Goodwill at March 31, 2012 and October 1, 2011 was $16.2 million and $16.0 million, respectively. The increase in goodwill during the six-fiscal month period ended March 31, 2012 was due to currency translation.

Other Intangible Assets

Other intangible assets at March 31, 2012 and October 1, 2011 consist of the following:

	March 31, 2012
								Weighted
								Average
	Gross Carrying		Accumulated			Net Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
	(expressed in thousands)
Software development costs	$	15,848	$	(4,744	)	$	11,104		5.7
Patents		10,034		(2,501	)		7,533		15.3
Trademarks and trade names		5,997		(922	)		5,075		30.2
Land-use rights		1,236		(84	)		1,152		47.8
Total	$	33,115	$	(8,251	)	$	24,864		14.3

	October 1, 2011
								Weighted
								Average
	Gross Carrying		Accumulated			Net Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
	(expressed in thousands)
Software development costs	$	15,370	$	(3,574	)	$	11,796		5.8
Patents		9,903		(2,114	)		7,789		15.3
Trademarks and trade names		5,924		(815	)		5,109		30.2
Non-compete agreements		2,596		(2,596	)		-		3.0
Land-use rights		1,219		(70	)		1,149		47.8
Total	$	35,012	$	(9,169	)	$	25,843		13.6

Amortization expense recognized during the three-fiscal month periods ended March 31, 2012 and April 2, 2011 was $0.9 million and $0.8 million, respectively. Amortization expense recognized during each of the six-fiscal month periods ended March 31, 2012 and April 2, 2011 was $1.6 million.

8

3. 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 options and grants, 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 and 0.3 million weighted average common shares have been excluded from diluted weighted average shares outstanding for the three-fiscal month periods ended March 31, 2012 and April 2, 2011, respectively. Stock options to acquire 0.4 million and 0.5 million weighted average common shares have been excluded from diluted weighted average shares outstanding for the six-month fiscal periods ended March 31, 2012 and April 2, 2011, 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				Six Fiscal Months Ended
	March 31,		April 2,		March 31,		April 2,
	2012		2011		2012		2011
	(expressed in thousands, except per share data)
Net income	$	11,157	$	11,808	$	26,696	$	25,097
Weighted average common shares outstanding		15,906		15,430		15,793		15,367
Dilutive potential common shares		200		408		176		315
Total diluted weighted average shares outstanding		16,106		15,838		15,969		15,682
Earnings per share:
Basic	$	0.70	$	0.77	$	1.69	$	1.63
Diluted	$	0.69	$	0.75	$	1.67	$	1.60

4. Business Segment Information

The Company’s Chief Executive Officer and management regularly review financial information for the Company’s three discrete operating segments. Based on similarities in the economic characteristics, nature of products and services, production processes, type or class of customer served, method of distribution and regulatory environments, the operating segments have been aggregated for financial statement purposes and categorized into two reportable segments, “Test” and “Sensors.” The Test segment provides testing equipment, systems, and services to the ground vehicles, materials and structures markets. The Sensors segment 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 October 1, 2011. 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 three and six-month fiscal periods ended March 31, 2012 and April 2, 2011 was as follows:

	Three Fiscal Months Ended				Six Fiscal Months Ended
	March 31,		April 2,		March 31,		April 2,
	2012		2011		2012		2011
	(expressed in thousands)
Revenue by Segment:
Test	$	102,913	$	86,761	$	211,541	$	169,303
Sensors		26,106		26,300		51,175		49,634
Total revenue	$	129,019	$	113,061	$	262,716	$	218,937
Income from Operations by Segment:
Test	$	10,694	$	9,842	$	28,467	$	22,595
Sensors		6,505		8,027		12,281		13,748
Total income from operations	$	17,199	$	17,869	$	40,748	$	36,343

9

5. Derivative Instruments and Hedging Activities

The Company’s results of operations could be materially impacted by changes in foreign currency exchange rates, as well as 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 bank 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. As of March 31, 2012, the Company does not have any foreign exchange contracts with credit-risk related contingent features.

The Company’s currency exchange and interest rate swaps are designated as cash flow hedges and qualify as hedging instruments pursuant to ASC 815. The Company also has derivatives which are accounted for and reported under the guidance of ASC 830-20-10. Regardless of 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 March 31, 2012 and October 1, 2011 Consolidated Balance Sheet as follows:

	March 31, 2012
	Prepaid Expenses
	and Other		Other Accrued
	Current Assets		Liabilities
	(expressed in thousands)
Designated hedge derivatives:
Foreign exchange cash flow hedges	$	285	$	358
Interest rate swaps		-		282
Total designated hedge derivatives		285		640
Derivatives not designated as hedges:
Foreign exchange balance sheet derivatives		-		19
Total hedge and other derivatives	$	285	$	659

	October 1, 2011
	Prepaid Expenses
	and Other		Other Accrued
	Current Assets		Liabilities
	(expressed in thousands)
Designated hedge derivatives:
Foreign exchange cash flow hedges	$	746	$	1,041
Interest rate swaps		-		617
Total designated hedge derivatives		746		1,658
Derivatives not designated as hedges:
Foreign exchange balance sheet derivatives		222		-
Total hedge and other derivatives	$	968	$	1,658

10

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, as that is the same line item upon which the underlying hedged transaction is reported.

At March 31, 2012 and April 2, 2011, the Company had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $37.0 million and $25.9 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 were $34.9 million and $22.2 million at March 31, 2012 and April 2, 2011, respectively. At March 31, 2012 the net market value of the foreign currency exchange contracts was a net liability of $0.1 million, consisting of $0.3 million in assets and $0.4 million in liabilities. At April 2, 2011 the net market value of the foreign currency exchange contracts was a net liability of $0.7 million, consisting of $0.1 million in assets and $0.8 million in liabilities.

The pretax amounts recognized in AOCI on currency exchange contracts for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011, 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						Six Fiscal Months Ended
	March, 31			April, 2			March, 31			April, 2
	2012			2011			2012			2011
	(expressed in thousands)
Beginning unrealized net (loss) gain in AOCI	$	414		$	(269	)	$	(365	)	$	(384	)
Net loss reclassified into Revenue (effective portion)		(273	)		250			129			409
Net loss reclassified into Revenue upon the removal of a hedge designation on an underlying foreign currency transaction that was cancelled		-			-			-			7
Net (loss) gain recognized in OCI (effective portion)		(153	)		(616	)		224			(667	)
Ending unrealized net (loss) gain in AOCI	$	(12	)	$	(635	)	$	(12	)	$	(635	)

The amount recognized in Revenue as a result of the ineffectiveness of cash flow hedges was less than $0.1 million in each of the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011. At March 31, 2012 and April 2, 2011, the amount projected to be reclassified from AOCI into Revenue in the next 12 months was a net loss of $0.1 million and $0.4 million, respectively. The maximum remaining maturity of any forward or optional contract at March 31, 2012 and April 2, 2011 was 2.3 years and 3.3 years, respectively.

Cash Flow Hedging - Interest Rate Risks

The Company uses floating to fixed interest rate swaps to mitigate its exposure to future changes in interest rates related to its floating rate indebtedness. The Company has designated these interest rate swaps as cash flow hedges. As a result, changes in the fair value of the interest rate swaps are recorded in AOCI within Shareholders’ Investment on the Consolidated Balance Sheets.

At March 31, 2012 and April 2, 2011 the Company had outstanding interest rate swaps with total notional amounts of $40.0 million and $24.0 million, respectively. Every month, the Company pays fixed interest on these interest rate swaps in exchange for interest received at monthly U.S. LIBOR. At March 31, 2012 and April 2, 2011, the weighted-average interest rate payable by the Company under the terms of the credit facility borrowings and outstanding interest rate swaps was 2.09% and 2.47%, respectively. At March 31, 2012 and April 2, 2011, there was a 45 basis-point differential between the variable rate interest paid by the Company on its outstanding credit facility borrowings and the variable rate interest received on the interest rate swaps. As a result of this differential, the overall effective interest rate applicable to outstanding credit facility borrowings, under the terms of the credit facility and interest rate swap agreements, was 2.54% and 2.92%, respectively.

The following table shows the contractual maturities of the interest rate hedging relationships at March 31, 2012:

11

Outstanding Interest Rate Swaps:

		Notional		Reference			Basis
Start Date	End Date	Amount		Rate			Spread
		(in millions)
July 25, 2008	July 25, 2012	$	13.0		4.24	%		0.45	%
December 20, 2011	September 20, 2012		6.0		1.06	%		0.45	%
December 7, 2011	September 7, 2012		11.0		1.02	%		0.45	%
December 29, 2011	September 28, 2012		10.0		1.08	%		0.45	%
	Total	$	40.0

The total market value of interest rate swaps and forward interest rate swaps at March 31, 2012 and April 2, 2011 was a liability of $0.3 million and $0.9 million, respectively. The pretax amounts recognized in AOCI on interest rate swaps and forward interest rate swaps for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 are as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Beginning unrealized net loss in AOCI	$	(427	)	$	(1,101	)	$	(617	)	$	(1,406	)
Net loss reclassified into Interest expense (effective portion)		183			220			359			517
Net loss recognized in OCI (effective portion)		(38	)		(69	)		(24	)		(61	)
Ending unrealized net loss in AOCI	$	(282	)	$	(950	)	$	(282	)	$	(950	)

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) Income, net on the Consolidated Statement of Income in the current period.

At March 31, 2012 and April 2, 2011, the Company had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $38.1 million and $20.1 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 March 31, 2012 and April 2, 2011 was $11.8 million and $5.0 million, respectively. At both March 31, 2012 and April, 2, 2011, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of less than $0.1 million, consisting entirely of liabilities.

The net gains (losses) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 are as follows:

	Three Fiscal Months Ended					Six Fiscal Months Ended
	March 31,		April 2,			March 31,		April 2,
	2012		2011			2012		2011
	(expressed in thousands)
Net gain (loss) recognized in Other (expense) income, net	$	205	$	(629	)	$	199	$	(500	)

6. 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, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate.

ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the fair value hierarchy are as follows:

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Level 1: Inputs are unadjusted quoted prices which are available in active markets for identical assets or liabilities.

Level 2: Inputs are other-than-quoted prices in active markets included in Level 1, which are either directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets, or for identical assets or liabilities in inactive markets. Level 2 includes those financial assets and liabilities that are valued using models or other valuation methodologies. The models used are primarily industry-standard, and consider various assumptions, including quoted forward prices, time value, volatility factors, and current contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of the assumptions used in these valuation models are observable in the marketplace.

Level 3: Inputs are unobservable and reflect the Company’s own assumptions used to measure assets and liabilities at fair value.

The hierarchy gives the highest priority to Level 1, as 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 March 31, 2012 and October 1, 2011, financial assets and liabilities subject to fair value measurements on a recurring basis are as follows:

	March 31, 2012
	Level 1		Level 2		Level 3		Total
	(expressed in thousands)
Assets:
Currency contracts(1)	$	-	$	285	$	-	$	285
Total assets	$	-	$	285	$	-	$	285
Liabilities:
Currency contracts(1)	$	-	$	377	$	-	$	377
Interest rate swaps(2)		-		282		-		282
Total liabilities	$	-	$	659	$	-	$	659

	October 1, 2011
	Level 1		Level 2		Level 3		Total
	(expressed in thousands)
Assets:
Currency contracts(1)	$	-	$	968	$	-	$	968
Total assets	$	-	$	968	$	-	$	968
Liabilities:
Currency contracts(1)	$	-	$	1,041	$	-	$	1,041
Interest rate swaps(2)		-		617		-		617
Total liabilities	$	-	$	1,658	$	-	$	1,658

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

(2) Based on LIBOR and swap rates.

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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.

7. Comprehensive Income

Comprehensive Income, a component of Shareholders’ Investment, consists of net income, pension benefit plan adjustments, derivative instrument gains or losses, and foreign currency translation adjustments.

Comprehensive Income for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 was as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Net income	$	11,157		$	11,808		$	26,696		$	25,097
Change in cumulative translation adjustment		718			4,119			(753	)		2,788
Pension benefit plan adjustments		(55	)		(238	)		113			(564	)
Change in unrealized loss on derivative instruments		(176	)		(134	)		432			127
Comprehensive income	$	11,644		$	15,555		$	26,488		$	27,448

8. Financing

Short-term borrowings at March 31, 2012 and October 1, 2011 consist of the following:

	March 31,		October 1,
	2012		2011
	(expressed in thousands)
Bank line of credit, monthly U.S. LIBOR plus 45 basis points (0.70% rate in effect at March 31, 2012), maturing April 2012, with optional month-to-month term renewal and loan repricing until December 2012	$	40,000	$	40,000
Notes payable, non-interest bearing		282		285
Total short-term borrowings	$	40,282	$	40,285

14

The Company’s credit facility provides for up to $75.0 million for working capital financing, acquisitions, share purchases, or other general corporate purposes and expires in December 2012. At March 31, 2012 and October 1, 2011, outstanding borrowings under the credit facility were $40.0 million. At March 31, 2012, the Company had outstanding letters of credit drawn from the credit facility totaling $7.2 million, leaving approximately $27.8 million of unused borrowing capacity. In order to mitigate its exposure to interest rate increases on certain of its floating rate indebtedness, the Company has entered into floating to fixed interest rate swaps and forward interest rate swaps. At March 31, 2012 and October 1, 2011, the Company had outstanding interest rate swaps with total notional amounts of $40.0 million and $24.0 million, respectively. At March 31, 2012 and October 1, 2011, under the terms of the credit facility borrowings and interest rate swap agreements, the effective weighted average interest rate applicable to outstanding credit facility borrowings was 2.09% and 2.47%, respectively. At March 31, 2012 and October 1, 2011, there was a 45 basis-point differential between the variable rate interest paid by the Company on its outstanding credit facility borrowings and the variable rate interest received on the interest rate swaps. As a result of this differential, the overall effective interest rate applicable to outstanding credit facility borrowings, under the terms of the credit facility and interest rate swap agreements, was 2.54% and 2.92%, respectively. The Company intends to renew each of the applicable outstanding borrowings on the credit facility monthly throughout the entire term of the interest rate swap arrangement directly associated with the borrowing. Subsequent to March 31, 2012, the Company renewed each of the outstanding borrowings on the credit facility for an additional month. See Note 5 in the Condensed Notes to Consolidated Financial Statements for additional information on the interest rate swaps.

9. Income Taxes

As of March 31, 2012, the Company’s liability for unrecognized tax benefits was $4.6 million, of which $1.0 million would favorably affect the Company’s effective tax rate if recognized. As of October 1, 2011, the Company’s liability for unrecognized tax benefits was $5.1 million, of which $1.5 million would favorably affect the Company’s effective tax rate if recognized. As of March 31, 2012, the Company does not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

10. 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.

The cost for the plan for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 included the following components:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Service cost	$	104		$	118		$	211		$	235
Interest cost		211			195			427			389
Expected return on plan assets		(167	)		(173	)		(338	)		(345	)
Net amortization and deferral		20			38			40			75
Net periodic benefit cost	$	168		$	178		$	340		$	354

The weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 was 5.4% and 5.2%, respectively.

11. Legal Matters

As previously reported by the Company, including in its Annual Report on Form 10-K for the fiscal year ended October 1, 2011, filed with the SEC on November 30, 2011 (the “2011 Form 10-K”), in January 2011, the U.S. Department of Commerce (“DOC”) and the U.S. Attorney’s Office for the District of Minnesota (“USAO”) notified the Company that they were investigating why the Company had not disclosed, on the U.S. Government’s Online Representations and Certifications Application (“ORCA Certification”), that the Company had pled guilty in 2008 to two misdemeanors in regard to making false statements related to certain export matters in 2003. On January 12, 2011, the DOC issued to the Company an administrative subpoena requesting, among other items, that the Company preserve, retain and produce to the U.S. Government certain documents related to the Company’s ORCA Certifications. On April 1, 2011, the Company’s Board of Directors authorized its Audit Committee to serve as a special committee to initiate an independent review and to oversee an investigation by independent counsel of the events giving rise to the USAO and DOC investigation. On April 7, 2011, the DOC issued to the Company an additional administrative subpoena requesting further information relating to the Company’s ORCA Certifications and U.S. Government contracting compliance policies, and in July 2011, the USAO expanded the scope of its inquiry to include the Company’s compliance record and practices in areas including export controls and government contracts.

The Company has been responding to information requests from the USAO and DOC, and the USAO has issued grand jury subpoenas to certain third party individuals. The Company is cooperating with the agencies and has conducted its own review of these matters. There have been no material developments in the first six-months of the Company’s fiscal year 2012 with respect to the investigation by the USAO or DOC. The Company’s known costs related to the investigation in the first six-months of fiscal 2012 and 2011 totaled $0.3 million and $0.4 million, respectively. While the Company continues to respond to the government’s requests as appropriate, the Company is presently unable to determine the likely outcome or range of loss, if any, from the investigation or predict with certainty the timeline for the resolution of the investigation.

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

Forward-Looking Statements

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those factors described in Part I, Item 1A, “Risk Factors” of our 2011 Form 10-K. Such important factors include:

· The Company’s business operations may be affected by government contracting risks

· The Company is the subject of an investigation relating to its past government contracting practices

· The Company’s business is significantly international in scope, which poses multiple risks

· Volatility in the global economy could adversely affect results

· The Company’s business is subject to strong competition

· The Company may not achieve its growth plans for the expansion of the business

· The Company may experience difficulties obtaining the services of skilled employees

· The Company may fail to protect its intellectual property effectively, or may infringe upon the intellectual property of others

· The Company’s business could be adversely affected by product liability and commercial litigation

· The Company may experience difficulty obtaining materials or components for its 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 the Company’s products is irregular and may not develop as anticipated

· The Company’s customers are in cyclical industries

· Interest rate fluctuations could adversely affect results

· The Company may be required to recognize impairment charges for long-lived assets

The performance of the Company’s business and its securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our reports on Forms 10-Q and 8-K to be filed by the Company in fiscal year 2012.

About MTS Systems Corporation

MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company’s testing hardware and software solutions help customers accelerate and improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. MTS’ high-performance position sensors provide controls for a variety of industrial and vehicular applications. MTS had 2,003 employees and revenue of $467 million for the fiscal year ended October 1, 2011.

Summary of Financial Results

Three Fiscal Months Ended March 31, 2012 (“Second Quarter of Fiscal 2012”) Compared to Three Fiscal Months Ended April 2, 2011 (“Second Quarter of Fiscal 2011”)

Significant items for the Second Quarter of Fiscal 2012 compared to the Second Quarter of Fiscal 2011 include:

· Orders increased 14.5% to $135.6 million, compared to $118.4 million for the Second Quarter of Fiscal 2011. This increase is comprised of 19.8% growth in the Test segment, primarily in Europe, partially offset by a 3.7% decline in the Sensors segment and an estimated $1.5 million unfavorable impact of currency translation. Orders in the quarter included one large (in excess of $5.0 million) Test segment order of approximately $5 million. There were no large orders in the Second Quarter of Fiscal 2011.

16

· Revenue increased 14.1% to $129.0 million, compared to $113.1 million for the Second Quarter of Fiscal 2011. This increase was driven by 18.5% growth in the Test Segment, resulting primarily from 19.7% higher beginning backlog as well as strong short cycle order growth, partially offset by a 0.8% decline in Sensors.

· Income from operations decreased 3.9% to $17.2 million, compared to $17.9 million for the Second Quarter of Fiscal 2011, as an increase in operating expenses offset higher gross profit. The $8.2 million increase in operating expenses was principally due to planned investments in research and development, as well as strategic, productivity and compliance initiatives. Additionally, higher compensation and benefits, including severance charges of $0.6 million contributed to the increase. Operating expenses in the quarter included $0.1 million related to the U.S. Government matters compared to $0.4 million in the Second Quarter of Fiscal 2011.

· Earnings per diluted share decreased $0.06, or 8.0%, to $0.69, compared to $0.75 for the Second Quarter of Fiscal 2011. This decrease was driven by lower income from operations and $0.7 million of net losses on foreign currency transactions.

Six Fiscal Months Ended March 31, 2012 (“First Half of Fiscal 2012”) Compared to Six Fiscal Months Ended April 2, 2011 (“First Half of Fiscal 2011”)

Significant items for the First Half of Fiscal 2012 compared to the First Half of Fiscal 2011 include:

· Orders increased 4.8% to $270.5 million, compared to $258.1 million for the First Half of Fiscal 2011. Orders in the First Half of Fiscal 2012 included one large Test segment order of approximately $5 million, a decrease of $24 million compared to large Test segment order bookings in the First Half of Fiscal 2011. Excluding the large orders, base (less than $5.0 million) orders increased 15.9%, reflecting 20.9% worldwide growth in the Test segment, primarily in Europe and Asia, partially offset by a 1.6% decline in the Sensors segment.

· Revenue increased 20.0% to $262.7 million, compared to $218.9 million for the First Half of Fiscal 2011. This increase was comprised of 24.9% growth in the Test Segment, resulting primarily from 36.8% higher beginning backlog as well as strong base order growth, and 3.2% growth in Sensors.

· Income from operations increased 12.1% to $40.7 million, compared to $36.3 million for the First Half of Fiscal 2011. This increase was primarily driven by higher gross profit from increased volume and favorable product mix in the Test segment, net of $15.1 million higher operating expenses. The higher operating expenses principally resulted from planned investments in research and development, as well as strategic, productivity and compliance initiatives. Additionally, higher compensation and benefits, including the previously mentioned severance charges of $0.6 million, contributed to the increase. Operating expenses included $0.3 million related to the U.S. Government matters compared to $0.4 million in the First Half of Fiscal 2011.

· The effective tax rate for the First Half of Fiscal 2012 was 33.1%, an increase of 3.4 percentage points compared to a tax rate of 29.7% for the First Half of Fiscal 2011. This increase was primarily due to the enactment of tax legislation in the First Quarter of Fiscal 2011 that extended the United States research and development credits and provided an additional tax benefit of $1.0 million.

· Earnings per diluted share increased $0.07, or 4.4%, to $1.67, compared to $1.60 for the First Half of Fiscal 2011. The increase was driven by higher income from operations, partially offset by a rise in the effective tax rate as well as a $0.6 million increase in net losses on foreign currency transactions.

Detailed Financial Results

Orders and Backlog

Second Quarter of Fiscal 2012 Compared to Second Quarter of Fiscal 2011

The following is a comparison of Second Quarter of Fiscal 2012 and Second Quarter of Fiscal 2011 orders, separately identifying the estimated impact of currency translation (in millions):

17

	Three Fiscal							Three Fiscal
	Months Ended		Estimated					Months Ended
	March 31,		Business		Currency			April 2,
	2012		Change		Translation			2011
Orders	$	135.6	$	18.7	$	(1.5	)	$	118.4

Orders totaled $135.6 million, an increase of $17.2 million, or 14.5%, compared to orders of $118.4 million for the Second Quarter of Fiscal 2011. Orders in the Second Quarter of Fiscal 2012 included one large custom Test segment order of approximately $5 million. There were no large orders in the Second Quarter of Fiscal 2011. Excluding the large order, base orders increased 10.1%, reflecting 14.4% worldwide growth in the Test segment, partially offset by a 3.7% decline in Sensors. Orders for the Second Quarter of Fiscal 2012 were reduced by $1.7 million as a result of the cancellation of a custom Test segment order that was booked in the First Quarter of Fiscal 2012. Additionally, orders for the Second Quarter of Fiscal 2012 included an estimated $1.5 million unfavorable impact of currency translation.

Backlog of undelivered orders at the end of the quarter was $294.4 million, an increase of 15.5% from backlog of $254.9 million at the end of the Second Quarter of Fiscal 2011. While the Company’s backlog is subject to order cancellations, the Company seldom experiences order cancellations larger than $1.0 million.

Results of Operations

Second Quarter of Fiscal 2012 Compared to Second Quarter of Fiscal 2011

The following is a comparison of Second Quarter of Fiscal 2012 and Second Quarter of Fiscal 2011 statements of operations (in millions, except per share data):

	Three Fiscal Months Ended
	March 31,			April 2,
	2012			2011			Variance			% Variance
Revenue	$	129.0		$	113.1		$	15.9			14.1	%
Cost of sales		72.6			64.2			8.4			13.1	%
Gross profit		56.4			48.9			7.5			15.3	%
Gross margin		43.7	%		43.3	%		0.4		pts
Operating expenses:
Selling and marketing		19.2			17.1			2.1			12.3	%
General administrative		13.9			10.3			3.6			35.0	%
Research and development		6.1			3.6			2.5			69.4	%
Total operating expenses		39.2			31.0			8.2			26.5	%
Income from operations		17.2			17.9			(0.7	)		-3.9	%
Interest expense		(0.3	)		(0.4	)		0.1			-25.0	%
Interest income		0.1			0.1			-			0.0	%
Other expense, net		(0.4	)		-			(0.4	)	NM
Income before income taxes		16.6			17.6			(1.0	)		-5.7	%
Income tax provision		5.4			5.8			(0.4	)		-6.9	%
Net income	$	11.2		$	11.8		$	(0.6	)		-5.1	%
Diluted earnings per share	$	0.69		$	0.75		$	(0.06	)		-8.0	%

“NM” represents comparisons that are not meaningful to this analysis.

The following is a comparison of Second Quarter of Fiscal 2012 and Second Quarter of Fiscal 2011 results of operations, separately identifying the estimated impact of currency translation (in millions):

18

	Three Fiscal									Three Fiscal
	Months Ended			Estimated						Months Ended
	March 31,			Business			Currency			April 2,
	2012			Change			Translation			2011
Revenue	$	129.0		$	16.5		$	(0.6	)	$	113.1
Cost of sales		72.6			8.7			(0.3	)		64.2
Gross profit		56.4			7.8			(0.3	)		48.9
Gross margin		43.7	%								43.3	%
Operating expenses:
Selling and marketing		19.2			2.3			(0.2	)		17.1
General administrative		13.9			3.6			-			10.3
Research and development		6.1			2.5			-			3.6
Total operating expenses		39.2			8.4			(0.2	)		31.0
Income from operations	$	17.2		$	(0.6	)	$	(0.1	)	$	17.9

Revenue was $129.0 million, an increase of $15.9 million, or 14.1%, compared to revenue of $113.1 million for the Second Quarter of Fiscal 2011. The increase was driven by an 18.0% higher beginning backlog and increased short cycle orders in the Test segment, partially offset by an estimated $0.6 million unfavorable impact of currency translation. Test segment revenue increased 18.5% to $102.9 million, while Sensors segment revenue declined 0.8% to $26.1 million.

Gross profit was $56.4 million, an increase of $7.5 million, or 15.3%, compared to gross profit of $48.9 million for the Second Quarter of Fiscal 2011. Gross profit as a percentage of revenue was 43.7%, an increase of 0.4 percentage points from 43.3% for the Second Quarter of Fiscal 2011, driven by leverage on higher volume and improved productivity in the Test segment, partially offset by the unfavorable impact of the increase in the proportion of Test segment revenue to total Company revenue, as well as higher medical claims. The Test segment accounted for 79.8% of total Company revenue, compared to 76.7% for the Second Quarter of Fiscal 2011.

Selling and marketing expense was $19.2 million, an increase of $2.1 million, or 12.3%, compared to $17.1 million for the Second Quarter of Fiscal 2011. This increase was primarily due to higher compensation and benefits, including the previously mentioned severance charges of $0.6 million, and $0.4 million increased bad debt expense, partially offset by lower sales commissions. Selling and marketing expense as a percentage of revenue was 14.9% on higher volume, compared to 15.1% for the Second Quarter of Fiscal 2011.

General and administrative expense was $13.9 million, an increase of $3.6 million, or 35.0%, compared to $10.3 million for the Second Quarter of Fiscal 2011. This increase is primarily driven by higher investment in strategic, productivity and compliance initiatives, as well as higher compensation and benefits. Legal expenses for the Second Quarter of Fiscal 2012 included $0.1 million of direct cost related to the investigation by the U.S. Department of Commerce and the U.S. Attorney’s Office for the District of Minnesota, compared to $0.4 million in the Second Quarter of Fiscal 2011. General and administrative expense as a percentage of revenue was 10.8%, compared to 9.1% for the Second Quarter of Fiscal 2011.

Research and development expense was $6.1 million, an increase of $2.5 million, or 69.4%, compared to $3.6 million for the Second Quarter of Fiscal 2011, primarily due to a higher level of planned expenditures in both segments. In addition, during the Second Quarter of Fiscal 2011, the Company allocated certain of its Test segment resources towards capitalized software development activities. Total software development costs capitalized during the Second Quarter of Fiscal 2011 were $0.9 million. No software development costs were capitalized during the Second Quarter of Fiscal 2012. Research and development expense as a percentage of revenue was 4.7%, compared to 3.2% for the Second Quarter of Fiscal 2011.

Income from operations was $17.2 million, a decrease of $0.7 million, or 3.9%, compared to income from operations of $17.9 million for the Second Quarter of Fiscal 2011, as increased operating expenses offset higher gross profit. Operating income as a percentage of revenue was 13.3%, compared to 15.8% for the Second Quarter of Fiscal 2011.

Interest expense, net was $0.2 million, relatively flat compared to the Second Quarter of Fiscal 2011.

19

Other expense, net was $0.4 million of net other expense, compared to less than $0.1 million of net other income in the Second Quarter of Fiscal 2011. This increase was primarily due to $0.7 million of net losses on foreign currency transactions, driven by the strengthening of the U.S. dollar against the Japanese Yen during the Second Quarter of Fiscal 2012, partially offset by $0.3 million of royalty income.

Provision for income taxes totaled $5.4 million for the Second Quarter of Fiscal 2012, a decrease of $0.4 million, or 6.9%, compared to $5.8 million for the Second Quarter of Fiscal 2011, primarily due to decreased income before income taxes. The effective tax rate for the Second Quarter of Fiscal 2012 was 32.7%, relatively flat compared to 32.9% for the Second Quarter of Fiscal 2011.

Net income was $11.2 million, a decrease of $0.6 million, or 5.1%, compared to $11.8 million for the Second Quarter of Fiscal 2011. Earnings per diluted share decreased $0.06 to $0.69, compared to $0.75 for the Second Quarter of Fiscal 2011. The decrease was primarily driven by lower income from operations and net losses on foreign currency transactions.

Segment Results

Orders and Backlog

Second Quarter of Fiscal 2012 Compared to Second Quarter of Fiscal 2011

The following is a comparison of Second Quarter of Fiscal 2012 and Second Quarter of Fiscal 2011 orders for the Test segment, separately identifying the estimated impact of currency translation (in millions):

	Three Fiscal Months Ended		Estimated					Three Fiscal Months Ended
	March 31,		Business		Currency			April 2,
	2012		Change		Translation			2011
Orders	$	109.9	$	19.2	$	(1.0	)	$	91.7

Orders totaled $109.9 million, an increase of $18.2 million, or 19.8%, compared to orders of $91.7 million for the Second Quarter of Fiscal 2011. Excluding the previously mentioned $5 million large custom ground vehicles order, base orders increased 14.4%, primarily in the European ground vehicle and structures markets. The previously mentioned $1.7 million custom order cancellation that reduced current quarter orders reflects a customer’s decision to stop a specific spending program. Currency translation unfavorably impacted orders by approximately $1.0 million. The Test segment accounted for 81.0% of total Company orders, compared to 77.4% for the Second Quarter of Fiscal 2011.

Backlog of undelivered orders at the end of the quarter was $278.6 million, an increase of 17.7% from backlog of $236.8 million at the end of the Second Quarter of Fiscal 2011.

Results of Operations

Second Quarter of Fiscal 2012 Compared to Second Quarter of Fiscal 2011

The following is a comparison of Second Quarter of Fiscal 2012 and Second Quarter of Fiscal 2011 results of operations for the Test segment, separately identifying the estimated impact of currency translation (in millions):

20

	Three Fiscal Months Ended			Estimated					Three Fiscal Months Ended
	March 31,			Business		Currency			April 2,
	2012			Change		Translation			2011
Revenue	$	102.9		$	16.3	$	(0.2	)	$	86.8
Cost of sales		61.5			8.5		(0.2	)		53.2
Gross profit		41.4			7.8		-			33.6
Gross margin		40.2	%							38.7	%
Operating expenses:
Selling and marketing		15.4			2.1		(0.1	)		13.4
General administrative		10.5			2.6		0.1			7.8
Research and development		4.8			2.3		-			2.5
Total operating expenses		30.7			7.0		-			23.7
Income from operations	$	10.7		$	0.8	$	-		$	9.9

Revenue was $102.9 million, an increase of $16.1 million, or 18.5%, compared to revenue of $86.8 million for the Second Quarter of Fiscal 2011. The increase was primarily due to a 19.7% higher beginning backlog and base orders growth, partially offset by an estimated $0.2 million unfavorable impact of currency translation.

Gross profit was $41.4 million, an increase of $7.8 million, or 23.2%, compared to gross profit of $33.6 million for the Second Quarter of Fiscal 2011. Gross profit as a percentage of revenue was 40.2%, an increase of 1.5 percentage points from 38.7% for the Second Quarter of Fiscal 2011, primarily due to leverage on higher volume and improved productivity, partially offset by the previously mentioned medical claims.

Selling and marketing expense was $15.4 million, an increase of $2.0 million, or 14.9%, compared to $13.4 million for the Second Quarter of Fiscal 2011. This increase was primarily due to higher compensation and benefits, including the previously mentioned severance charges of $0.6 million, and $0.4 million increased bad debt expense. Selling and marketing expense as a percentage of revenue was 15.0% on higher volume, compared to 15.4% for the Second Quarter of Fiscal 2011.

General and administrative expense was $10.5 million, an increase of $2.7 million, or 34.6%, compared to $7.8 million for the Second Quarter of Fiscal 2011. This increase is primarily driven by higher spending on strategic, productivity and compliance initiatives, as well as higher compensation and benefits. General and administrative expense as a percentage of revenue was 10.2%, compared to 9.0% for the Second Quarter of Fiscal 2011.

Research and development expense was $4.8 million, an increase of $2.3 million, or 92.0%, compared to $2.5 million for the Second Quarter of Fiscal 2011, due to a higher level of planned expenditures. As previously mentioned, $0.9 million of costs associated with software development activities were capitalized in the Second Quarter of Fiscal 2011. No software development costs were capitalized during the Second Quarter of Fiscal 2012. Research and development expense as a percentage of revenue was 4.7%, compared to 2.9% for the Second Quarter of Fiscal 2011.

Income from operations was $10.7 million, an increase of $0.8 million, or 8.1%, compared to income from operations of $9.9 million for the Second Quarter of Fiscal 2011. The increase reflects higher revenue and gross profit, partially offset by increased operating expenses. Operating income as a percentage of revenue was 10.4%, compared to 11.4% for the Second Quarter of Fiscal 2011.

21

Orders and Backlog

Second Quarter of Fiscal 2012 Compared to Second Quarter of Fiscal 2011

The following is a comparison of Second Quarter of Fiscal 2012 and Second Quarter of Fiscal 2011 orders for the Sensors segment, separately identifying the estimated impact of currency translation (in millions):

	Three Fiscal Months Ended		Estimated						Three Fiscal Months Ended
	March 31,		Business			Currency			April 2,
	2012		Change			Translation			2011
Orders	$	25.7	$	(0.5	)	$	(0.5	)	$	26.7

Orders totaled $25.7 million, a decrease of $1.0 million, or 3.7%, compared to orders of $26.7 million for the Second Quarter of Fiscal 2011, primarily due to weaker global demand in the industrial wind, medical and food packaging markets, partially offset by higher demand in the mobile hydraulics market in the Americas. Additionally, currency translation unfavorably impacted orders by an estimated $0.5 million. The Sensors segment accounted for 19% of total Company orders, compared to 22.6% for the Second Quarter of Fiscal 2011.

Backlog of undelivered orders at the end of the quarter was $15.8 million, a decrease of 12.7% from backlog of $18.1 million at the end of the Second Quarter of Fiscal 2011.

Results of Operations

Second Quarter of Fiscal 2012 Compared to Second Quarter of Fiscal 2011

The following is a comparison of Second Quarter of Fiscal 2012 and Second Quarter of Fiscal 2011 results of operations for the Sensors segment, separately identifying the estimated impact of currency translation (in millions):

	Three Fiscal Months Ended			Estimated						Three Fiscal Months Ended
	March 31,			Business			Currency			April 2,
	2012			Change			Translation			2011
Revenue	$	26.1		$	0.2		$	(0.4	)	$	26.3
Cost of sales		11.1			0.2			(0.1	)		11.0
Gross profit		15.0			(0.0	)		(0.3	)		15.3
Gross margin		57.4	%								58.4	%
Operating expenses:
Selling and marketing		3.8			0.2			(0.1	)		3.7
General administrative		3.4			1.0			(0.1	)		2.5
Research and development		1.3			0.2			-			1.1
Total operating expenses		8.5			1.4			(0.2	)		7.3
Income from operations	$	6.5		$	(1.4	)	$	(0.1	)	$	8.0

Revenue was $26.1 million, a decrease of $0.2 million, or 0.8%, compared to revenue of $26.3 million for the Second Quarter of Fiscal 2011. This decrease was primarily driven by an estimated $0.4 million unfavorable impact of currency translation.

Gross profit was $15.0 million, a decrease of $0.3 million, or 2.0%, compared to gross profit of $15.3 million for the Second Quarter of Fiscal 2011. Gross profit as a percentage of revenue was 57.4%, a decrease of 1.0 percentage points from 58.4% for the Second Quarter of Fiscal 2011, primarily due to unfavorable product mix resulting from a relatively higher proportion of sales in the Mobile Hydraulics market compared to the Second Quarter of Fiscal 2011.

Selling and marketing expense was $3.8 million, an increase of $0.1 million, or 2.7%, compared to $3.7 million for the Second Quarter of Fiscal 2011. The increase was primarily due to higher compensation and benefits. Selling and marketing expense as a percentage of revenue was 14.6% on higher volume, compared to 14.1% for the Second Quarter of Fiscal 2011.

22

General and administrative expense was $3.4 million, an increase of $0.9 million, or 36.0%, compared to $2.5 million for the Second Quarter of Fiscal 2011. This increase is primarily driven by higher spending on strategic and compliance initiatives. General and administrative expense as a percentage of revenue was 13.0%, compared to 9.5% for the Second Quarter of Fiscal 2011.

Research and development expense was $1.3 million, an increase of $0.2 million, or 18.2%, compared to $1.1 million for the Second Quarter of Fiscal 2011, due to a higher level of planned expenditures. Research and development expense as a percentage of revenue was 5.0%, compared to 4.2% for the Second Quarter of Fiscal 2011.

Income from operations was $6.5 million, a decrease of $1.5 million, or 18.8%, compared to income from operations of $8.0 million for the Second Quarter of Fiscal 2011, due to lower gross profit and higher operating expenses. Operating income as a percentage of revenue was 24.9%, compared to 30.4% for the Second Quarter of Fiscal 2011.

Detailed Financial Results

Orders and Backlog

First Half of Fiscal 2012 Compared to First Half of Fiscal 2011

The following is a comparison of First Half of Fiscal 2012 and First Half of Fiscal 2011 orders, separately identifying the estimated impact of currency translation (in millions):

	Six Fiscal Months Ended		Estimated					Six Fiscal Months Ended
	March 31,		Business		Currency			April 2,
	2012		Change		Translation			2011
Orders	$	270.5	$	13.3	$	(0.9	)	$	258.1

Orders totaled $270.5 million, an increase of $12.4 million, or 4.8%, compared to orders of $258.1 million for the First Half of Fiscal 2011. Orders in the First Half of Fiscal 2012 included one large custom Test segment order of approximately $5 million, a decrease of $24 million compared to large Test segment order bookings in the First Half of Fiscal 2011. Excluding the large orders, base orders increased 15.9%, reflecting 20.8% worldwide growth in the Test segment, partially offset by a 1.6% decline in the Sensors segment.

Backlog of undelivered orders at the end of the Second Quarter of Fiscal 2012 was $294.4 million, compared to $254.9 million at the end of the Second Quarter of Fiscal 2011.

Results of Operations

First Half of Fiscal 2012 Compared to First Half of Fiscal 2011

The following is a comparison of First Half of Fiscal 2012 and First Half of Fiscal 2011 statements of operations (in millions, except per share data):

23

	Six Fiscal Months Ended
	March 31,			April 2,
	2012			2011			Variance			% Variance
Revenue	$	262.7		$	218.9		$	43.8			20.0	%
Cost of sales		147.6			123.3			24.3			19.7	%
Gross profit		115.1			95.6			19.5			20.4	%
Gross margin		43.8	%		43.7	%		0.1		pts
Operating expenses:
Selling and marketing		36.2			33.8			2.4			7.1	%
General administrative		27.1			18.8			8.3			44.1	%
Research and development		11.1			6.7			4.4			65.7	%
Total operating expenses		74.4			59.3			15.1			25.5	%
Income from operations		40.7			36.3			4.4			12.1	%
Interest expense		(0.6	)		(0.8	)		0.2			-25.0	%
Interest income		0.2			0.1			0.1			100.0	%
Other expense, net		(0.4	)		0.1			(0.5	)		-500.0	%
Income before income taxes		39.9			35.7			4.2			11.8	%
Provision for income taxes		13.2			10.6			2.6			24.5	%
Net income	$	26.7		$	25.1		$	1.6			6.4	%
Diluted earnings per share	$	1.67		$	1.60		$	0.07			4.4	%

The following is a comparison of First Half of Fiscal 2012 and First Half of Fiscal 2011 results of operations, separately identifying the estimated impact of currency translation (in millions):

	Six Fiscal Months Ended			Estimated					Six Fiscal Months Ended
	March 31,			Business		Currency			April 2,
	2012			Change		Translation			2011
Revenue	$	262.7		$	43.5	$	0.3		$	218.9
Cost of sales		147.6			24.0		0.3			123.3
Gross profit		115.1			19.5		-			95.6
Gross margin		43.8	%							43.7	%
Operating expenses:
Selling and marketing		36.2			2.5		(0.1	)		33.8
General administrative		27.1			8.2		0.1			18.8
Research and development		11.1			4.4		-			6.7
Total operating expenses		74.4			15.1		-			59.3
Income from operations	$	40.7		$	4.4	$	-		$	36.3

Revenue was $262.7 million, an increase of $43.8 million, or 2.0%, compared to revenue of $218.9 million for the First Half of Fiscal 2011. This increase was driven by a 34.4% higher opening backlog as well as increased base-order volume in the Test segment, and an estimated $0.3 million favorable impact of currency translation.

Gross profit was $115.1 million, an increase of $19.5 million, or 20.4%, compared to gross profit of $95.6 million for the First Half of Fiscal 2011. Gross profit as a percentage of revenue was 43.8%, relatively flat compared to 43.7% for the First Half of Fiscal 2011, as leverage on higher volume and improved productivity in the Test segment was largely offset by the unfavorable impact of the increase in the proportion of Test segment revenue to total Company revenue.

24

Selling and marketing expense was $36.2 million, an increase of $2.4 million, or 7.1%, compared to $33.8 million for the First Half of Fiscal 2011. This increase was primarily due to higher compensation and benefits, including the previously mentioned severance charges of $0.6 million, as well as $0.4 million increased bad debt expense. Selling and marketing expense as a percentage of revenue was 13.8% on higher volume, compared to 15.4% for the First Half of Fiscal 2011.

General and administrative expense was $27.1 million, an increase of $8.3 million, or 44.1%, compared to $18.8 million for the First Half of Fiscal 2011. This increase is primarily driven by higher spending on strategic, productivity and compliance initiatives, increased compensation and benefits, and executive recruiting fees. General and administrative expense as a percentage of revenue was 10.3%, compared to 8.6% for the First Half of Fiscal 2011.

Research and development expense was $11.1 million, an increase of $4.4 million, or 65.7%, compared to the First Half of Fiscal 2011, driven by a higher level of planned expenditures in both segments. In addition, the Company allocated certain of its resources towards capitalized software development activities during both the First Half of Fiscal 2012 and 2011. Total software development costs capitalized during the First Half of Fiscal 2012 and 2011 were $0.5 million and $1.6 million, respectively. Research and development expense as a percentage of revenue was 4.2%, compared to 3.1% for the First Half of Fiscal 2011.

Income from operations was $40.7 million, an increase of $4.4 million, or 12.1%, compared to income from operations of $36.3 million for the First Half of Fiscal 2011. This increase was primarily driven by higher gross profit, partially offset by increased operating expenses. Operating income as a percentage of revenue was 15.5%, compared to 16.6% for the First Half of Fiscal 2011.

Interest expense, net was $0.4 million, a decrease of $0.3 million, compared to $0.7 million in the First Half of Fiscal 2011, driven by lower interest expense incurred on short-term borrowings.

Other (expense) income, net was $0.4 million of net other expense, an increase of $0.5 million, compared to $0.1 million of net other income in the First Half of Fiscal 2011. This increase was primarily due to a $0.6 million increase in net losses on foreign currency transactions compared to the First Half of Fiscal 2011.

Provision for income taxes totaled $13.2 million for the First Half of Fiscal 2012, an increase of $2.6 million, or 24.5%, compared to $10.6 million for the First Half of Fiscal 2011 primarily due to increased income before income taxes and a higher effective tax rate.  The effective tax rate for the First Half of Fiscal 2012 was 33.1%, an increase of 3.4 percentage points compared to a tax rate of 29.7% for the First Half of Fiscal 2011. This increase was primarily due to the enactment of legislation in the First Quarter of Fiscal 2011 that retroactively extended the United States research and development tax credits and provided a tax benefit of $1.0 million. This legislation expired as of the end of the First Quarter of Fiscal 2012.

Net income was $26.7 million, an increase of $1.6 million, compared to $25.1 million for the First Half of Fiscal 2011. Earnings per diluted share increased $0.07 to $1.67, compared to $1.60 for the First Half of Fiscal 2011. The increase was primarily driven by higher income from operations, partially offset by a rise in the effective tax rate and increased net losses on foreign currency transactions.

Segment Results

Orders and Backlog

First Half of Fiscal 2012 Compared to First Half of Fiscal 2011

The following is a comparison of First Half of Fiscal 2012 and First Half of Fiscal 2011 orders for the Test segment, separately identifying the estimated impact of currency translation (in millions):

25

	Six Fiscal Months Ended		Estimated					Six Fiscal Months Ended
	March 31,		Business		Currency			April 2,
	2012		Change		Translation			2011
Orders	$	220.7	$	13.7	$	(0.5	)	$	207.5

Orders totaled $220.7 million, an increase of $13.2 million, or 6.4%, compared to orders of $207.5 million for the First Half of Fiscal 2011. Excluding the previously mentioned $24 million decrease in large custom orders, base orders increased 20.8%, reflecting strong growth in the ground vehicles, materials and structures markets. The Test segment accounted for 81.6% of total Company orders, compared to 80.4% for the First Half of Fiscal 2011.

Backlog of undelivered orders at the end of the Second Quarter of Fiscal 2012 was $278.6 million, compared to $236.8 million at the end of the Second Quarter of Fiscal 2011.

Results of Operations

First Half of Fiscal 2012 Compared to First Half of Fiscal 2011

The following is a comparison of First Half of Fiscal 2012 and First Half of Fiscal 2011 results of operations for the Test segment, separately identifying the estimated impact of currency translation (in millions):

	Six Fiscal Months Ended			Estimated					Six Fiscal Months Ended
	March 31,			Business		Currency			April 2,
	2012			Change		Translation			2011
Revenue	$	211.5		$	41.7	$	0.5		$	169.3
Cost of sales		125.4			22.9		0.3			102.2
Gross profit		86.1			18.8		0.2			67.1
Gross margin		40.7	%							39.6	%
Operating expenses:
Selling and marketing		28.6			2.7		(0.1	)		26.0
General administrative		20.6			6.5		0.2			13.9
Research and development		8.5			3.9		-			4.6
Total operating expenses		57.7			13.1		0.1			44.5
Income from operations	$	28.4		$	5.7	$	0.1		$	22.6

Revenue was $211.5 million, an increase of $42.2 million, or 24.9%, compared to revenue of $169.3 million for the First Half of Fiscal 2011. The increase was driven by a 36.8% higher beginning backlog, strong base-orders, and an estimated $0.5 million favorable impact of currency translation.

Gross profit was $86.1 million, an increase of $19.0 million, or 28.3%, compared to gross profit of $67.1 million for the First Half of Fiscal 2011. Gross profit as a percentage of revenue was 40.7%, an increase of 1.1 percentage points from 39.6% for the First Half of Fiscal 2011. This increase was primarily due to leverage on higher volume and improved productivity, as well as a favorable standard product mix.

Selling and marketing expense was $28.6 million, an increase of $2.6 million, or 10.0%, compared to $26.0 million for the First Half of Fiscal 2011. This increase was primarily due to increased compensation and benefits, including severance charges of $0.6 million, and $0.4 million higher bad debt expense. Selling and marketing expense as a percentage of revenue was 13.5% on higher volume, compared to 15.4% for the First Half of Fiscal 2011.

General and administrative expense was $20.6 million, an increase of $6.7 million, or 48.2%, compared to the First Half of Fiscal 2011. This increase is primarily driven by higher spending on strategic, productivity and compliance initiatives, increased compensation and benefits, and executive recruiting fees. General and administrative expense as a percentage of revenue was 9.7%, compared to 8.2% for the First Half of Fiscal 2011.

26

Research and development expense was $8.5 million, an increase of $3.9 million, or 84.8%, compared to $4.6 million for the First Half of Fiscal 2011, due to a higher level of planned expenditures. As previously mentioned, $0.5 million and $1.6 million of costs associated with software development activities were capitalized in the First Half of Fiscal 2012 and 2011, respectively. Research and development expense as a percentage of revenue was 4.0%, compared to 2.7% for the First Half of Fiscal 2011.

Income from operations was $28.4 million, an increase of $5.8 million, or 25.7%, compared to income from operations of $22.6 million for the First Half of Fiscal 2011. The increase reflects higher revenue and gross profit, partially offset by increased operating expenses. Operating income as a percentage of revenue was 13.4%, compared to 13.3% for the First Half of Fiscal 2011.

Orders and Backlog

First Half of Fiscal 2012 Compared to First Half of Fiscal 2011

The following is a comparison of First Half of Fiscal 2012 and First Half of Fiscal 2011 orders for the Sensors segment, separately identifying the estimated impact of currency translation (in millions):

	Six Fiscal Months Ended		Estimated						Six Fiscal Months Ended
	March 31,		Business			Currency			April 2,
	2012		Change			Translation			2011
Orders	$	49.8	$	(0.4	)	$	(0.4	)	$	50.6

Orders totaled $49.8 million, a decrease of $0.8 million, or 1.6%, compared to orders of $50.6 million for the First Half of Fiscal 2011, primarily due to weaker global demand in the industrial wind, medical and food packaging markets, partially offset by higher demand in the mobile hydraulics market in the Americas. Additionally, currency translation unfavorably impacted orders by an estimated $0.4 million. The Sensors segment accounted for 18.4% of total Company orders, compared to 19.6% for the First Half of Fiscal 2011.

Backlog of undelivered orders at the end of the Second Quarter of Fiscal 2012 was $15.8 million, compared to $18.1 million at the end of the Second Quarter of Fiscal 2011.

Results of Operations

First Half of Fiscal 2012 Compared to First Half of Fiscal 2011

The following is a comparison of First Half of Fiscal 2012 and First Half of Fiscal 2011 results of operations for the Sensors segment, separately identifying the estimated impact of currency translation (in millions):

	Six Fiscal Months Ended			Estimated						Six Fiscal Months Ended
	March 31,			Business			Currency			April 2,
	2012			Change			Translation			2011
Revenue	$	51.2		$	1.8		$	(0.2	)	$	49.6
Cost of sales		22.2			1.1			-			21.1
Gross profit		29.0			0.7			(0.2	)		28.5
Gross margin		56.7	%								57.3	%
Operating expenses:
Selling and marketing		7.6			(0.2	)		-			7.8
General administrative		6.5			1.7			(0.1	)		4.9
Research and development		2.6			0.5			-			2.1
Total operating expenses		16.7			2.0			(0.1	)		14.8
Income from operations	$	12.3		$	(1.3	)	$	(0.1	)	$	13.7

27

Revenue was $51.2 million, an increase of $1.6 million, or 3.2% compared to $49.6 million for the First Half of Fiscal 2011. This increase was primarily driven by a 4.7% higher beginning backlog and reflects increased volume in the Americas and Europe, partially offset by an estimated $0.2 million unfavorable impact of currency translation.

Gross profit was $29.0 million, an increase of $0.5 million, or 1.8%, compared to gross profit of $28.5 million for the First Half of Fiscal 2011. Gross profit as a percentage of revenue was 56.7%, a decrease of 0.6 percentage points from 57.3% for the First Half of Fiscal 2011, primarily due to unfavorable product mix resulting from a relatively higher proportion of sales in the Mobile Hydraulics market compared to the First Half of Fiscal 2011.

Selling and marketing expense was $7.6 million, a decrease of $0.2 million, or 2.6%, compared to $7.8 million for the First Half of Fiscal 2011. The decrease is primarily due to decreased expenditures on selling and marketing initiatives. Selling and marketing expense as a percentage of revenue was 14.8% on higher volume, compared to 15.7% for the First Half of Fiscal 2011.

General and administrative expense was $6.5 million, an increase of $1.6 million, or 32.7%, compared to $4.9 million for the First Half of Fiscal 2011. This increase was primarily driven by higher spending on strategic and compliance initiatives, as well as higher compensation and benefits. General and administrative expense as a percentage of revenue was 12.7%, compared to 9.9% for the First Half of Fiscal 2011.

Research and development expense was $2.6 million, an increase of $0.5 million, or 23.8% compared to $2.1 million for the First Half of Fiscal 2011, due to a higher level of planned expenditures. Research and development expense as a percentage of revenue was 5.1%, compared to 4.2% for the First Half of Fiscal 2011.

Income from operations was $12.3 million, a decrease of $1.4 million, or 10.2%, compared to income from operations of $13.7 million for the First Half of Fiscal 2011. This increase was primarily due to higher gross profit, partially offset by increased operating expenses. Operating income as a percentage of revenue was 24.0% compared to 27.6% for the First Half of Fiscal 2011.

Capital Resources and Liquidity

The Company had cash and cash equivalents of $123.2 million at the end of the Second Quarter of Fiscal 2011. Of this amount, $59.9 million was located in North America, $44.7 million in Europe, and $18.6 million in Asia. The North American balance was primarily invested in money market funds and bank deposits. In Europe, the balances were primarily invested in Euro money market funds and bank deposits. In Asia, the balances were primarily invested in Chinese Renminbi and Japanese Yen money market funds and bank deposits. In accordance with its investment policy, the Company places cash equivalent investments with issuers who have high-quality investment credit ratings. In addition, the Company limits the amount of investment exposure it has with any particular issuer. The Company’s investment objectives are to preserve principal, maintain liquidity, and achieve the best available return consistent with its primary objectives of safety and liquidity. At the end of the Second Quarter of Fiscal 2012, the Company held no short-term investments.

Total cash and cash equivalents increased $19.2 million in the First Half of Fiscal 2012, primarily due to earnings and proceeds from the exercise of stock options, partially offset by dividend payments, investment in property and equipment, employee incentives and related benefit payments. Total cash and cash equivalents increased $29.1 million in the First Half of Fiscal 2011, primarily due to earnings and proceeds from the exercise of stock options, partially offset by employee incentives and related benefit payments, dividend payments, and investment in property and equipment. The Company believes that its liquidity, represented by funds available from cash, cash equivalents, credit facility, and anticipated cash from operations are adequate to fund ongoing operations, internal growth opportunities, capital expenditures, Company dividends and share purchases, as well as to fund strategic acquisitions. The Company's current credit facility matures in December 2012. Prior to its maturity, the Company plans on entering into a new financing arrangement that provides for a similar type of credit facility.

28

Cash flows from operating activities provided cash totaling $19.6 million for the First Half of Fiscal 2012, compared to cash provided of $27.4 million for the First Half of Fiscal 2011. Cash provided for the First Half of Fiscal 2012 was primarily due to earnings, $9.2 million increased advance payments received from customers driven by higher orders, partially offset by $8.7 million increased accounts and unbilled receivables resulting from higher revenue volume and the general timing of billing and collections, $4.5 million increased inventories to support future revenue, and $6.7 million net employee incentives and related benefit payments. Cash provided for the First Half of Fiscal 2011 was primarily due to earnings, $9.3 million increased advance payments received from customers driven by higher custom orders, and $3.4 million increased accounts payable resulting from general timing of purchases and payments, partially offset by $8.5 million increased accounts and unbilled receivables resulting from higher revenue volume and the general timing of billing and collections, $8.5 million increased inventories to support future revenue, and $6.7 million net employee incentives and related benefit payments.

Cash flows from investing activities required the use of cash totaling $6.7 million for the First Half of Fiscal 2012, compared to the use of cash totaling $4.7 million for the First Half of Fiscal 2011, each of which reflects investment in property and equipment.

Cash flows from financing activitiesprovided cash totaling $6.7 million for the First Half of Fiscal 2012, compared to cash provided totaling $4.6 million for the First Half of Fiscal 2011. The cash provided for the First Half of Fiscal 2012 was primarily due to $14.0 million received in connection with stock option exercises, partially offset by payment of cash dividends of $8.0 million. The cash provided for the First Half of Fiscal 2011 was primarily due to the $10.7 million received in connection with stock option exercises, partially offset by payment of cash dividends of $6.2 million.

Under the terms of its borrowing agreements, the Company has agreed to certain financial covenants. At the end of the Second Quarter of Fiscal 2012, the Company was in compliance with the financial terms and conditions of those agreements.

Off-Balance Sheet Arrangements

As of March 31, 2012, the Company had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s 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 U.S. generally accepted accounting principles, which require the Company to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. 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, 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. Further information is provided in Note 1 in the Condensed Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Revenue Recognition. The Company is 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. The Company develops cost estimates that include materials, component parts, labor and overhead costs. Detailed costs 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. The Company maintains a material amount of inventory to support its engineering and manufacturing operations. This inventory is stated at the lower of cost or market. On a regular basis, the Company reviews its inventory and identifies 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 the Company’s products and the Company does not adjust its manufacturing production accordingly.

29

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. The Company tests 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.

The Company has three discrete reporting units, two of which are assigned goodwill. At March 31, 2012, one reporting unit in the Test segment was assigned $14.6 million of goodwill while another in the Sensors segment was assigned $1.6 million. The fair value of a reporting unit is estimated using a discounted cash flow model that requires input of certain estimates and assumptions requiring management judgment, including projections of economic conditions and customer demand, revenue and margins, changes in competition, operating costs, and new product introductions. At the end of the prior fiscal year, the estimated fair value of the reporting unit assigned $1.6 million of goodwill was substantially in excess of its carrying value, while the estimated fair value of the reporting unit assigned $14.6 million of goodwill exceeded its carrying value by approximately 13%. While the Company believes the estimates and assumptions used in determining the fair value of its reporting units are reasonable, significant changes in estimates of future cash flows, such as those caused by unforeseen events or changes in market conditions could materially impact the fair value of a reporting unit which could result in the recognition of a goodwill impairment charge.

Software Development Costs. The Company incurs 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, the Company compares 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. The Company is subject to warranty obligations on sales of its products. 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. 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.

30

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” This ASU amends Topic 220, “Comprehensive Income,” to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ investment. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of ASU No. 2011-05 should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 which, for the Company, will be the beginning of fiscal year 2013. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance, but does not expect the adoption of ASU No. 2011-05 to have a material impact on its consolidated financial statements.

Other Matters

The Company's 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. The Company's dividend practice is to target over time a payout ratio of approximately 40% of net earnings per share.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s investment portfolio at March 31, 2012 included $123.2 million of cash and cash equivalents. The cash equivalent portion of the Company’s 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 $0.5 million for the six-fiscal month period ended March 31, 2012.

The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates. The Company manages exposure to changes in foreign currency exchange rates through its regular operating and financing activities and through the use of foreign currency exchange contracts. These contracts are used to manage the Company's overall exposure to exchange rate fluctuations, as the gains and losses on these contracts are intended to offset gains and losses on the Company’s 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 $11.7 million in revenue for the six-month fiscal period ended March 31, 2012.

At March 31, 2012, the Company’s short-term borrowings outstanding consisted of $40.0 million utilization of the revolving credit facility and $0.3 million in non-interest bearing notes payable to vendors. This utilization of the credit facility involves interest payments calculated at a floating rate. In order to mitigate the Company’s exposure to interest rate increases, the Company has entered into floating to fixed interest rate swap agreements. The notes payable to vendors are non-interest bearing and, therefore, are not impacted by the effect of increases or decreases in market interest rates.

Item 4. Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “1934 Act”)) as of March 31, 2012. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

31

There have been no changes in internal control over financial reporting during the fiscal quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II ------ OTHER INFORMATION

Item 1.  Legal Proceedings

Government Investigation

As previously reported by the Company, including in its 2011 Form 10-K, in January 2011, the U.S. Department of Commerce (“DOC”) and the U.S. Attorney’s Office for the District of Minnesota (“USAO”) began an investigation into the Company’s past disclosures on the Government’s Online Representations and Certifications Application (“ORCA Certification”) and later expanded the scope of its inquiries to include the Company’s ORCA Certifications and Government contracting compliance policies and general compliance record and practices in areas including export controls and government contracts. There were no material developments in the first six-months of the Company’s fiscal year 2012 related to this matter. For a more detailed discussion of this investigation by the DOC and USAO and related matters, please refer to Note 11 to Part I, Item 1. Financial Statements of this Form 10-Q.

Other Matters

As previously reported, the Company is investigating certain gift, travel, entertainment and other expenses that may have been improperly incurred in connection with some of the Company’s operations in the Asia Pacific region. The investigation has focused on possible violations of Company policy, corresponding internal control issues and any possible violations of applicable law, including the Foreign Corrupt Practices Act. Though the investigation is not complete, the Company has taken remedial actions, including changes to internal control procedures and removing certain persons formerly employed in its Korea office. The Company believes, however, that the amount of the expenses in question is not material to its reported consolidated financial statements. The Company has voluntarily disclosed this matter to the U.S. Department of Justice and the SEC. Additionally, the Company has disclosed this matter to the U.S. Air Force pursuant to its Administrative Agreement. The Company cannot predict the outcome of this matter at this time or whether it will have a materially adverse impact on its business prospects, financial condition, operating results or cash flows.

From time to time, the Company is subject to various claims, legal actions, and complaints arising in the ordinary course of business. Management currently believes the final resolution of legal matters outstanding as of March 31, 2012 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 6.  Exhibits

Exhibit Number Description

10.1 Consulting Agreement, effective as of January 9, 2012, by and between MTS Systems Corporation and Kathleen M. Staby (incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K filed on January 10, 2012).

10.2 Letter Agreement, dated March 31, 2012, by and between MTS Systems Corporation and Jeffrey A. Graves (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 9, 2012).

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

32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (filed herewith).

32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (filed herewith).

101.INS**  XBRL Instance Document (filed herewith).

101.SCH** XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF** XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB** XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document (filed 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.

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:  May 3, 2012	/s/ WILLIAM V. MURRAY
	William V. Murray
	Interim Chief Executive Officer
Dated:  May 3, 2012	/s/ SUSAN E. KNIGHT
	Susan E. Knight
	Senior Vice President and Chief Financial Officer

33

EXHIBIT INDEX TO FORM 10-Q

10.1 Consulting Agreement, effective as of January 9, 2012, by and between MTS Systems Corporation and Kathleen M. Staby (incorporated by reference).

10.2 Letter Agreement, dated March 31, 2012, by and between MTS Systems Corporation and Jeffrey A. Graves (incorporated by reference).

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (filed herewith).

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (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) (filed herewith).

32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (filed herewith).

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William V. Murray, 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 fiscal quarter (the registrant’s fourth fiscal 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: May 3, 2012
	/s/ WILLIAM V. MURRAY
	William V. Murray
	Interim Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Susan E. Knight, 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 fiscal quarter (the registrant’s fourth fiscal 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: May 3, 2012
	/s/ SUSAN E. KNIGHT
	Susan E. Knight
	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, William V. Murray, the Interim 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 March 31, 2012 (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.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date: May 3, 2012
	/s/ WILLIAM V. MURRAY
	William V. Murray
	Interim Chief Executive Officer

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, Susan E. Knight, 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 March 31, 2012 (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.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date: May 3, 2012
	/s/ SUSAN E. KNIGHT
	Susan E. Knight
	Senior Vice President and Chief Financial Officer

XML

Income Taxes (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Apr. 02, 2011
Income Taxes [Abstract]
Unrecognized tax benefits	$ 4.6	$ 5.1
Unrecognized tax benefits that would favorably impact the effective tax rate on continuing operations	$ 1.0	$ 1.5

XML

Retirement Benefit Plan (Tables)

6 Months Ended

Mar. 31, 2012

Retirement Benefit Plan [Abstract]

Net periodic benefit cost for the Company's defined benefit retirement plan

The cost for the plan for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 included the following components:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Service cost	$	104		$	118		$	211		$	235
Interest cost		211			195			427			389
Expected return on plan assets		(167	)		(173	)		(338	)		(345	)
Net amortization and deferral		20			38			40			75
Net periodic benefit cost	$	168		$	178		$	340		$	354

XML

Business Segment Information

6 Months Ended

Mar. 31, 2012

Business Segment Information [Abstract]

Business Segment Information

4. Business Segment Information

The Company's Chief Executive Officer and management regularly review financial information for the Company's three discrete operating segments. Based on similarities in the economic characteristics, nature of products and services, production processes, type or class of customer served, method of distribution and regulatory environments, the operating segments have been aggregated for financial statement purposes and categorized into two reportable segments, "Test" and "Sensors." The Test segment provides testing equipment, systems, and services to the ground vehicles, materials and structures markets. The Sensors segment 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 October 1, 2011. 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 three and six-month fiscal periods ended March 31, 2012 and April 2, 2011 was as follows:

	Three Fiscal Months Ended				Six Fiscal Months Ended
	March 31,		April 2,		March 31,		April 2,
	2012		2011		2012		2011
	(expressed in thousands)
Revenue by Segment:
Test	$	102,913	$	86,761	$	211,541	$	169,303
Sensors		26,106		26,300		51,175		49,634
Total revenue	$	129,019	$	113,061	$	262,716	$	218,937
Income from Operations by Segment:
Test	$	10,694	$	9,842	$	28,467	$	22,595
Sensors		6,505		8,027		12,281		13,748
Total income from operations	$	17,199	$	17,869	$	40,748	$	36,343

XML

Derivative Instruments and Hedging Activities (Details) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Apr. 02, 2011	Oct. 01, 2011
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	$ 285,000		$ 285,000		$ 968,000
Derivative liability, fair value	659,000		659,000		1,658,000
Derivative [Line Items]
Gross notional amount of foreign exchange derivatives outstanding	37,000,000	25,900,000	37,000,000	25,900,000
Net notional amount of foreign exchange derivatives	34,900,000	22,200,000	34,900,000	22,200,000
Net market value of the foreign currency exchange contracts	100,000	700,000	100,000	700,000
Net market value of the foreign currency exchange contracts, Liabilities	400,000	800,000	400,000	800,000
Net market value of the foreign currency exchange contracts, Assets	300,000	100,000	300,000	100,000
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Maximum remaining maturity of any forward or optional contract derivatives (in years)	2 years 3 months 18 days	3 years 3 months 18 days
Effective interest rate on credit facility borrowings (in hundredths)	2.54%	2.92%	2.54%	2.92%
Net (loss) gain recognized in other (expense) income, net [Abstract]
Net gain (loss) recognized in Other (expense) income, net	205,000	(629,000)	199,000	(500,000)
Foreign Exchange Cash Flow Hedges [Member]
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Unrealized net (loss) gain in AOCI, pretax	414,000	(269,000)	(365,000)	(384,000)
Net loss reclassified into Revenue (effective portion)	(273,000)	250,000	129,000	409,000
Net loss reclassified into Revenue upon the removal of a hedge designation on an underlying foreign currency transaction that was cancelled	0	0	0	7,000
Net gain (loss) recognized in OCI (effective portion)	(153,000)	(616,000)	224,000	(667,000)
Unrealized net (loss) gain in AOCI, pretax	(12,000)	(635,000)	(12,000)	(635,000)
Recognized in earnings as a result of the ineffectiveness of cash flow hedges	100,000	100,000	100,000	100,000
Amount projected to be reclassified from Accumulated Other Comprehensive Income into earnings	100,000	400,000
Foreign Exchange Balance Sheet Derivative Contracts [Member]
Derivative [Line Items]
Gross notional amount of foreign exchange derivatives outstanding	38,100,000	20,100,000	38,100,000	20,100,000
Net notional amount of foreign exchange derivatives	11,800,000	5,000,000	11,800,000	5,000,000
Net market value of the foreign currency exchange contracts, Liabilities	100,000	100,000	100,000	100,000
Interest Rate Swap [Member]
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Notional amount of interest rate swaps derivatives outstanding	40,000,000	24,000,000	40,000,000	24,000,000
Weighted average interest rate (in hundredths)	2.09%	2.47%	2.09%	2.47%
Interest Rate Swap 1 [Member]
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Notional amount of interest rate swaps derivatives outstanding	13,000,000		13,000,000
Reference Rate (in hundredths)	4.24%		4.24%
Basis Spread on variable rate (in hundredths)	0.45%		0.45%
Start Date		Jul. 25, 2008
End Date		Jul. 25, 2012
Interest Rate Swap 2 [Member]
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Notional amount of interest rate swaps derivatives outstanding	6,000,000		6,000,000
Reference Rate (in hundredths)	1.06%		1.06%
Basis Spread on variable rate (in hundredths)	0.45%		0.45%
Start Date		Dec. 20, 2011
End Date		Sep. 20, 2012
Interest Rate Swap 3 [Member]
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Notional amount of interest rate swaps derivatives outstanding	11,000,000		11,000,000
Reference Rate (in hundredths)	1.02%		1.02%
Basis Spread on variable rate (in hundredths)	0.45%		0.45%
Start Date		Dec. 07, 2011
End Date		Sep. 07, 2012
Interest Rate Swap 4 [Member]
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Notional amount of interest rate swaps derivatives outstanding	10,000,000		10,000,000
Reference Rate (in hundredths)	1.08%		1.08%
Basis Spread on variable rate (in hundredths)	0.45%		0.45%
Start Date		Dec. 29, 2011
End Date		Sep. 28, 2012
Interest Rate Swaps and Forward Interest Rate Swaps [Member]
Pretax amounts recognized in accumulated other comprehensive income [Roll Forward]
Unrealized net (loss) gain in AOCI, pretax	(427,000)	(1,101,000)	(617,000)	(1,406,000)
Net gain (loss) recognized in OCI (effective portion)	(38,000)	(69,000)	(24,000)	(61,000)
Unrealized net (loss) gain in AOCI, pretax	(282,000)	(950,000)	(282,000)	(950,000)
Net loss reclassified into interest expense (effective portion)	183,000	220,000	359,000	517,000
Designated as Hedging Instrument [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	285,000		285,000		746,000
Derivative liability, fair value	640,000		640,000		1,658,000
Designated as Hedging Instrument [Member] | Foreign Exchange Cash Flow Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	285,000		285,000		746,000
Derivative liability, fair value	358,000		358,000		1,041,000
Designated as Hedging Instrument [Member] | Interest Rate Swap [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	0		0		0
Derivative liability, fair value	282,000		282,000		617,000
Not Designated as Hedging Instrument [Member] | Foreign Exchange Balance Sheet Derivative Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	0		0		222,000
Derivative liability, fair value	$ 19,000		$ 19,000		$ 0

XML

Business Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Apr. 02, 2011
Business Segment Information [Abstract]
Number of operating segments			3
Number of reportable segments			2
Segment Reporting, Reconciliation of Financial Information from Segments to Consolidated[Line Items]
Revenue	$ 129,019	$ 113,061	$ 262,716	$ 218,937
Income from operations	17,199	17,869	40,748	36,343
Test [Member]
Segment Reporting, Reconciliation of Financial Information from Segments to Consolidated[Line Items]
Revenue	102,913	86,761	211,541	169,303
Income from operations	10,694	9,842	28,467	22,595
Sensors [Member]
Segment Reporting, Reconciliation of Financial Information from Segments to Consolidated[Line Items]
Revenue	26,106	26,300	51,175	49,634
Income from operations	$ 6,505	$ 8,027	$ 12,281	$ 13,748

XML

Fair Value Measurements (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2012		Oct. 01, 2011
Assets:
Currency contracts	$ 285	[1]	$ 968	[1]
Total assets	285		968
Liabilities:
Currency contracts	377	[1]	1,041	[1]
Interest rate swaps	282	[2]	617	[2]
Total liabilities	659		1,658
Fair Value, Inputs, Level 1 [Member]
Assets:
Currency contracts	0	[1]	0	[1]
Total assets	0		0
Liabilities:
Currency contracts	0	[1]	0	[1]
Interest rate swaps	0	[2]	0	[2]
Total liabilities	0		0
Fair Value, Inputs, Level 2 [Member]
Assets:
Currency contracts	285	[1]	968	[1]
Total assets	285		968
Liabilities:
Currency contracts	377	[1]	1,041	[1]
Interest rate swaps	282	[2]	617	[2]
Total liabilities	659		1,658
Fair Value, Inputs, Level 3 [Member]
Assets:
Currency contracts	0	[1]	0	[1]
Total assets	0		0
Liabilities:
Currency contracts	0	[1]	0	[1]
Interest rate swaps	0	[2]	0	[2]
Total liabilities	$ 0		$ 0

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

[2] Based on LIBOR and swap rates.

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Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Apr. 02, 2011
Comprehensive Income [Abstract]
Net income	$ 11,157	$ 11,808	$ 26,696	$ 25,097
Change in cumulative translation adjustment	718	4,119	(753)	2,788
Pension benefit plan adjustments	(55)	(238)	113	(564)
Change in unrealized loss on derivative instruments	(176)	(134)	432	127
Comprehensive income	$ 11,644	$ 15,555	$ 26,488	$ 27,448

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Earnings Per Common Share

6 Months Ended

Mar. 31, 2012

Earnings Per Common Share [Abstract]

Earnings Per Common Share

3. 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 options and grants, 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 and 0.3 million weighted average common shares have been excluded from diluted weighted average shares outstanding for the three-fiscal month periods ended March 31, 2012 and April 2, 2011, respectively. Stock options to acquire 0.4 million and 0.5 million weighted average common shares have been excluded from diluted weighted average shares outstanding for the six-month fiscal periods ended March 31, 2012 and April 2, 2011, 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				Six Fiscal Months Ended
	March 31,		April 2,		March 31,		April 2,
	2012		2011		2012		2011
	(expressed in thousands, except per share data)
Net income	$	11,157	$	11,808	$	26,696	$	25,097
Weighted average common shares outstanding		15,906		15,430		15,793		15,367
Dilutive potential common shares		200		408		176		315
Total diluted weighted average shares outstanding		16,106		15,838		15,969		15,682
Earnings per share:
Basic	$	0.70	$	0.77	$	1.69	$	1.63
Diluted	$	0.69	$	0.75	$	1.67	$	1.60

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Financing (Details) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Oct. 01, 2011
Short-term borrowings [Abstract]
Notes payable, non-interest bearing	$ 282,000		$ 282,000	$ 285,000
Total short-term borrowings	40,282,000		40,282,000	40,285,000
Line of Credit Facility [Abstract]
Line of credit facility, borrowing capacity	75,000,000		75,000,000
Unsecured Line of Credit Facility [Member]
Line of Credit Facility [Abstract]
Line of credit facility, interest rate description			U.S. LIBOR plus 45 basis points
Line of credit facility, interest rate at period end (in hundredths)	0.70%		0.70%
Maturity date of line of credit			Apr. 30, 2012
Line of credit facility, amount outstanding	40,000,000		40,000,000	40,000,000
Line of credit facility, remaining borrowing capacity	27,800,000		27,800,000
Notional amounts of outstanding interest rate swaps	40,000,000	24,000,000	40,000,000
Weighted average fixed interest rate payable (in hundredths)	2.09%	2.47%	2.09%
Basis-point differential between the variable rate interest paid on outstanding credit facility borrowings and the variable rate interest received on the interest rate swaps	45		45	45
Effective interest rate applicable to outstanding credit facility (in hundredths)	2.54%	2.92%
Letters of Credit and Guarantees [Member]
Line of Credit Facility [Abstract]
Letters of credit outstanding, amount	$ 7,200,000		$ 7,200,000

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Consolidated Balance Sheets (unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Oct. 01, 2011
Current Assets:
Cash and cash equivalents	$ 123,248	$ 104,095
Accounts receivable, net of allowances for doubtful accounts of $2,280 and $1,534, respectively	89,011	82,510
Unbilled accounts receivable	54,976	54,554
Inventories	70,318	65,987
Prepaid expenses and other current assets	9,053	4,354
Deferred income taxes	12,261	12,556
Total current assets	358,867	324,056
Property and equipment, net	58,270	56,252
Goodwill	16,210	16,027
Other intangible assets, net	24,864	25,843
Other assets	4,387	4,568
Deferred income taxes	891	1,113
Total Assets	463,489	427,859
Current Liabilities:
Short-term borrowings	40,282	40,285
Accounts payable	28,453	27,794
Accrued payroll and related costs	26,474	33,577
Advance payments from customers	72,857	63,307
Accrued warranty costs	4,468	5,290
Accrued income taxes	5,137	5,453
Deferred income taxes	1,888	2,285
Other accrued liabilities	17,708	17,623
Total current liabilities	197,267	195,614
Deferred income taxes	9,238	9,190
Non-current accrued income taxes	4,637	5,106
Pension benefit plan obligation	2,579	2,691
Other long-term liabilities	4,459	4,410
Total Liabilities	218,180	217,011
Shareholders' Investment:
Common stock, $.25 par; 64,000 shares authorized: 16,028 and 15,632 shares issued and outstanding as of March 31, 2012 and October 1, 2011, respectively	4,007	3,908
Additional paid-in capital	21,129	5,319
Retained earnings	204,092	185,332
Accumulated other comprehensive income	16,081	16,289
Total Shareholders' Investment	245,309	210,848
Total Liabilities and Shareholders' Investment	$ 463,489	$ 427,859

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Basis of Presentation

6 Months Ended

Mar. 31, 2012

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 consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The information furnished in these consolidated financial statements includes normal recurring adjustments and reflects all adjustments which 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 ("GAAP"), which require 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 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 October 1, 2011 filed with the SEC. Interim results of operations for the three and six-fiscal month periods ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

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, determined under the first-in, first-out accounting method. Inventories at March 31, 2012 and October 1, 2011 were as follows:

	March 31, 2012		October 1, 2011
	(expressed in thousands)
Customer projects in various stages of completion	$	24,369	$	19,026
Components, assemblies and parts		45,949		46,961
Total	$	70,318	$	65,987

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. Amortization expense for software development costs for the three-fiscal month periods ended March 31, 2012 and April 2, 2011 was $0.7 million and $0.4 million, respectively. Amortization expense for software development costs for the six-fiscal month periods ended March 31, 2012 and April 2, 2011 was $1.2 million and $0.8 million, respectively. See Note 2 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 market value, 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 to income, but instead tested for impairment at least annually, during the fourth quarter of each fiscal year. 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 three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 were as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Beginning balance	$	4,595		$	6,735		$	5,290		$	7,505
Warranty provisions		1,094			1,073			1,483			1,586
Warranty claims		(1,565	)		(1,482	)		(2,583	)		(2,930	)
Adjustments to preexisting warranties		300			(100	)		300			139
Currency translation		44			145			(22	)		71
Ending balance	$	4,468		$	6,371		$	4,468		$	6,371

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 9 in the Condensed Notes to Consolidated Financial Statements for additional information on income taxes.

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Legal Matters (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011
Government investigations [Abstract]
Costs related to investigations	$ 0.3	$ 0.4

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Fair Value Measurements (Tables)

6 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Financial assets and liabilities subject to fair value measurements on a recurring basis

As of March 31, 2012 and October 1, 2011, financial assets and liabilities subject to fair value measurements on a recurring basis are as follows:

	March 31, 2012
	Level 1		Level 2		Level 3		Total
	(expressed in thousands)
Assets:
Currency contracts(1)	$	-	$	285	$	-	$	285
Total assets	$	-	$	285	$	-	$	285
Liabilities:
Currency contracts(1)	$	-	$	377	$	-	$	377
Interest rate swaps(2)		-		282		-		282
Total liabilities	$	-	$	659	$	-	$	659

	October 1, 2011
	Level 1		Level 2		Level 3		Total
	(expressed in thousands)
Assets:
Currency contracts(1)	$	-	$	968	$	-	$	968
Total assets	$	-	$	968	$	-	$	968
Liabilities:
Currency contracts(1)	$	-	$	1,041	$	-	$	1,041
Interest rate swaps(2)		-		617		-		617
Total liabilities	$	-	$	1,658	$	-	$	1,658

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

(2) Based on LIBOR and swap rates.

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Financing (Tables)

6 Months Ended

Mar. 31, 2012

Financing [Abstract]

Short-term borrowings

Short-term borrowings at March 31, 2012 and October 1, 2011 consist of the following:

	March 31,		October 1,
	2012		2011
	(expressed in thousands)
Bank line of credit, monthly U.S. LIBOR plus 45 basis points (0.70% rate in effect at March 31, 2012), maturing April 2012, with optional month-to-month term renewal and loan repricing until December 2012	$	40,000	$	40,000
Notes payable, non-interest bearing		282		285
Total short-term borrowings	$	40,282	$	40,285

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Capital Assets

6 Months Ended

Mar. 31, 2012

Capital Assets [Abstract]

Capital Assets

2. Capital Assets

Property and Equipment

Property and equipment at March 31, 2012 and October 1, 2011 consist of the following:

	March 31,			October 1,
	2012			2011
	(expressed in thousands)
Land and improvements	$	1,712		$	1,713
Buildings and improvements		53,316			52,764
Machinery and equipment		111,277			108,143
Total		166,305			162,620
Less accumulated depreciation		(108,035	)		(106,368	)
Property and equipment, net	$	58,270		$	56,252

Goodwill

Goodwill at March 31, 2012 and October 1, 2011 was $16.2 million and $16.0 million, respectively. The increase in goodwill during the six-fiscal month period ended March 31, 2012 was due to currency translation.

Other Intangible Assets

Other intangible assets at March 31, 2012 and October 1, 2011 consist of the following:

	March 31, 2012
								Weighted
								Average
	Gross Carrying		Accumulated			Net Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
	(expressed in thousands)
Software development costs	$	15,848	$	(4,744	)	$	11,104		5.7
Patents		10,034		(2,501	)		7,533		15.3
Trademarks and trade names		5,997		(922	)		5,075		30.2
Land-use rights		1,236		(84	)		1,152		47.8
Total	$	33,115	$	(8,251	)	$	24,864		14.3

	October 1, 2011
								Weighted
								Average
	Gross Carrying		Accumulated			Net Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
	(expressed in thousands)
Software development costs	$	15,370	$	(3,574	)	$	11,796		5.8
Patents		9,903		(2,114	)		7,789		15.3
Trademarks and trade names		5,924		(815	)		5,109		30.2
Non-compete agreements		2,596		(2,596	)		-		3.0
Land-use rights		1,219		(70	)		1,149		47.8
Total	$	35,012	$	(9,169	)	$	25,843		13.6

Amortization expense recognized during the three-fiscal month periods ended March 31, 2012 and April 2, 2011 was $0.9 million and $0.8 million, respectively. Amortization expense recognized during each of the six-fiscal month periods ended March 31, 2012 and April 2, 2011 was $1.6 million.

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Consolidated Balance Sheets (unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Oct. 01, 2011
ASSETS
Accounts receivable, allowances for doubtful accounts	$ 2,280	$ 1,534
Shareholders' Investment:
Common stock, par value (in dollars per share)	$ 0.25	$ 0.25
Common stock, shares authorized (in shares)	64,000	64,000
Common stock, shares issued (in shares)	16,028	15,632
Common stock, shares outstanding (in shares)	16,028	15,632

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Basis of Presentation (Policies)

6 Months Ended

Mar. 31, 2012

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, determined under the first-in, first-out accounting method. Inventories at March 31, 2012 and October 1, 2011 were as follows:

	March 31, 2012		October 1, 2011
	(expressed in thousands)
Customer projects in various stages of completion	$	24,369	$	19,026
Components, assemblies and parts		45,949		46,961
Total	$	70,318	$	65,987

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. Amortization expense for software development costs for the three-fiscal month periods ended March 31, 2012 and April 2, 2011 was $0.7 million and $0.4 million, respectively. Amortization expense for software development costs for the six-fiscal month periods ended March 31, 2012 and April 2, 2011 was $1.2 million and $0.8 million, respectively. See Note 2 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 market value, 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 to income, but instead tested for impairment at least annually, during the fourth quarter of each fiscal year. 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 three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 were as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Beginning balance	$	4,595		$	6,735		$	5,290		$	7,505
Warranty provisions		1,094			1,073			1,483			1,586
Warranty claims		(1,565	)		(1,482	)		(2,583	)		(2,930	)
Adjustments to preexisting warranties		300			(100	)		300			139
Currency translation		44			145			(22	)		71
Ending balance	$	4,468		$	6,371		$	4,468		$	6,371

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 9 in the Condensed Notes to Consolidated Financial Statements for additional information on income taxes.

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Document and Entity Information	6 Months Ended
	Mar. 31, 2012	May 01, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	MTS SYSTEMS CORP
Entity Central Index Key	0000068709
Current Fiscal Year End Date	--09-29
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		16,076,894.00
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012

XML

Basis of Presentation (Tables)

6 Months Ended

Mar. 31, 2012

Basis of Presentation [Abstract]

Inventories

Inventories.  Inventories consist of material, labor and overhead costs and are stated at the lower of cost or market, determined under the first-in, first-out accounting method. Inventories at March 31, 2012 and October 1, 2011 were as follows:

	March 31, 2012		October 1, 2011
	(expressed in thousands)
Customer projects in various stages of completion	$	24,369	$	19,026
Components, assemblies and parts		45,949		46,961
Total	$	70,318	$	65,987

Warranty liability

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 three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 were as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Beginning balance	$	4,595		$	6,735		$	5,290		$	7,505
Warranty provisions		1,094			1,073			1,483			1,586
Warranty claims		(1,565	)		(1,482	)		(2,583	)		(2,930	)
Adjustments to preexisting warranties		300			(100	)		300			139
Currency translation		44			145			(22	)		71
Ending balance	$	4,468		$	6,371		$	4,468		$	6,371

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Consolidated Statements of Income (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Apr. 02, 2011
Revenue:
Product	$ 112,788	$ 97,029	$ 230,239	$ 186,930
Service	16,231	16,032	32,477	32,007
Total revenue	129,019	113,061	262,716	218,937
Cost of sales:
Product	64,648	56,430	131,520	107,329
Service	7,981	7,724	16,093	16,029
Total cost of sales	72,629	64,154	147,613	123,358
Gross profit	56,390	48,907	115,103	95,579
Operating expenses:
Selling and marketing	19,206	17,151	36,215	33,730
General and administrative	13,917	10,329	27,113	18,820
Research and development	6,068	3,558	11,027	6,686
Total operating expenses	39,191	31,038	74,355	59,236
Income from operations	17,199	17,869	40,748	36,343
Interest expense	(296)	(384)	(620)	(854)
Interest income	84	61	202	104
Other (expense) income, net	(399)	60	(422)	117
Income before income taxes	16,588	17,606	39,908	35,710
Provision for income taxes	5,431	5,798	13,212	10,613
Net income	$ 11,157	$ 11,808	$ 26,696	$ 25,097
Basic-
Earnings per share (in dollars per share)	$ 0.70	$ 0.77	$ 1.69	$ 1.63
Weighted average number of common shares outstanding - basic (in shares)	15,906	15,430	15,793	15,367
Diluted-
Earnings per share (in dollars per share)	$ 0.69	$ 0.75	$ 1.67	$ 1.60
Weighted average number of common shares outstanding - diluted (in shares)	16,106	15,838	15,969	15,682
Dividends declared per share (in dollars per share)	$ 0.25	$ 0.20	$ 0.50	$ 0.40

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Comprehensive Income

6 Months Ended

Mar. 31, 2012

Comprehensive Income [Abstract]

Comprehensive Income

7. Comprehensive Income

Comprehensive Income, a component of Shareholders' Investment, consists of net income, pension benefit plan adjustments, derivative instrument gains or losses, and foreign currency translation adjustments.

Comprehensive Income for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 was as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Net income	$	11,157		$	11,808		$	26,696		$	25,097
Change in cumulative translation adjustment		718			4,119			(753	)		2,788
Pension benefit plan adjustments		(55	)		(238	)		113			(564	)
Change in unrealized loss on derivative instruments		(176	)		(134	)		432			127
Comprehensive income	$	11,644		$	15,555		$	26,488		$	27,448

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Fair Value Measurements

6 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

6. 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, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate.

ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the fair value hierarchy are as follows:

Level 1: Inputs are unadjusted quoted prices which are available in active markets for identical assets or liabilities.

Level 2: Inputs are other-than-quoted prices in active markets included in Level 1, which are either directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets, or for identical assets or liabilities in inactive markets. Level 2 includes those financial assets and liabilities that are valued using models or other valuation methodologies. The models used are primarily industry-standard, and consider various assumptions, including quoted forward prices, time value, volatility factors, and current contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of the assumptions used in these valuation models are observable in the marketplace.

Level 3: Inputs are unobservable and reflect the Company's own assumptions used to measure assets and liabilities at fair value.

The hierarchy gives the highest priority to Level 1, as 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 March 31, 2012 and October 1, 2011, financial assets and liabilities subject to fair value measurements on a recurring basis are as follows:

	March 31, 2012
	Level 1		Level 2		Level 3		Total
	(expressed in thousands)
Assets:
Currency contracts(1)	$	-	$	285	$	-	$	285
Total assets	$	-	$	285	$	-	$	285
Liabilities:
Currency contracts(1)	$	-	$	377	$	-	$	377
Interest rate swaps(2)		-		282		-		282
Total liabilities	$	-	$	659	$	-	$	659

	October 1, 2011
	Level 1		Level 2		Level 3		Total
	(expressed in thousands)
Assets:
Currency contracts(1)	$	-	$	968	$	-	$	968
Total assets	$	-	$	968	$	-	$	968
Liabilities:
Currency contracts(1)	$	-	$	1,041	$	-	$	1,041
Interest rate swaps(2)		-		617		-		617
Total liabilities	$	-	$	1,658	$	-	$	1,658

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

(2) Based on LIBOR and swap rates.

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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Comprehensive Income (Tables)

6 Months Ended

Mar. 31, 2012

Comprehensive Income [Abstract]

Comprehensive income

Comprehensive Income for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 was as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Net income	$	11,157		$	11,808		$	26,696		$	25,097
Change in cumulative translation adjustment		718			4,119			(753	)		2,788
Pension benefit plan adjustments		(55	)		(238	)		113			(564	)
Change in unrealized loss on derivative instruments		(176	)		(134	)		432			127
Comprehensive income	$	11,644		$	15,555		$	26,488		$	27,448

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Capital Assets (Tables)

6 Months Ended

Mar. 31, 2012

Capital Assets [Abstract]

Property and equipment

Property and equipment at March 31, 2012 and October 1, 2011 consist of the following:

	March 31,			October 1,
	2012			2011
	(expressed in thousands)
Land and improvements	$	1,712		$	1,713
Buildings and improvements		53,316			52,764
Machinery and equipment		111,277			108,143
Total		166,305			162,620
Less accumulated depreciation		(108,035	)		(106,368	)
Property and equipment, net	$	58,270		$	56,252

Other intangible assets

Other intangible assets at March 31, 2012 and October 1, 2011 consist of the following:

	March 31, 2012
								Weighted
								Average
	Gross Carrying		Accumulated			Net Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
	(expressed in thousands)
Software development costs	$	15,848	$	(4,744	)	$	11,104		5.7
Patents		10,034		(2,501	)		7,533		15.3
Trademarks and trade names		5,997		(922	)		5,075		30.2
Land-use rights		1,236		(84	)		1,152		47.8
Total	$	33,115	$	(8,251	)	$	24,864		14.3

	October 1, 2011
								Weighted
								Average
	Gross Carrying		Accumulated			Net Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
	(expressed in thousands)
Software development costs	$	15,370	$	(3,574	)	$	11,796		5.8
Patents		9,903		(2,114	)		7,789		15.3
Trademarks and trade names		5,924		(815	)		5,109		30.2
Non-compete agreements		2,596		(2,596	)		-		3.0
Land-use rights		1,219		(70	)		1,149		47.8
Total	$	35,012	$	(9,169	)	$	25,843		13.6

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Retirement Benefit Plan

6 Months Ended

Mar. 31, 2012

Retirement Benefit Plan [Abstract]

Retirement Benefit Plan

10. 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.

The cost for the plan for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 included the following components:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Service cost	$	104		$	118		$	211		$	235
Interest cost		211			195			427			389
Expected return on plan assets		(167	)		(173	)		(338	)		(345	)
Net amortization and deferral		20			38			40			75
Net periodic benefit cost	$	168		$	178		$	340		$	354

The weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 was 5.4% and 5.2%, respectively.

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Financing

6 Months Ended

Mar. 31, 2012

Financing [Abstract]

Financing

8. Financing

Short-term borrowings at March 31, 2012 and October 1, 2011 consist of the following:

	March 31,		October 1,
	2012		2011
	(expressed in thousands)
Bank line of credit, monthly U.S. LIBOR plus 45 basis points (0.70% rate in effect at March 31, 2012), maturing April 2012, with optional month-to-month term renewal and loan repricing until December 2012	$	40,000	$	40,000
Notes payable, non-interest bearing		282		285
Total short-term borrowings	$	40,282	$	40,285

The Company's credit facility provides for up to $75.0 million for working capital financing, acquisitions, share purchases, or other general corporate purposes and expires in December 2012. At March 31, 2012 and October 1, 2011, outstanding borrowings under the credit facility were $40.0 million. At March 31, 2012, the Company had outstanding letters of credit drawn from the credit facility totaling $7.2 million, leaving approximately $27.8 million of unused borrowing capacity. In order to mitigate its exposure to interest rate increases on certain of its floating rate indebtedness, the Company has entered into floating to fixed interest rate swaps and forward interest rate swaps. At March 31, 2012 and October 1, 2011, the Company had outstanding interest rate swaps with total notional amounts of $40.0 million and $24.0 million, respectively. At March 31, 2012 and October 1, 2011, under the terms of the credit facility borrowings and interest rate swap agreements, the effective weighted average interest rate applicable to outstanding credit facility borrowings was 2.09% and 2.47%, respectively. At March 31, 2012 and October 1, 2011, there was a 45 basis-point differential between the variable rate interest paid by the Company on its outstanding credit facility borrowings and the variable rate interest received on the interest rate swaps. As a result of this differential, the overall effective interest rate applicable to outstanding credit facility borrowings, under the terms of the credit facility and interest rate swap agreements, was 2.54% and 2.92%, respectively. The Company intends to renew each of the applicable outstanding borrowings on the credit facility monthly throughout the entire term of the interest rate swap arrangement directly associated with the borrowing. Subsequent to March 31, 2012, the Company renewed each of the outstanding borrowings on the credit facility for an additional month. See Note 5 in the Condensed Notes to Consolidated Financial Statements for additional information on the interest rate swaps.

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Income Taxes

6 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes

9. Income Taxes

As of March 31, 2012, the Company's liability for unrecognized tax benefits was $4.6 million, of which $1.0 million would favorably affect the Company's effective tax rate if recognized. As of October 1, 2011, the Company's liability for unrecognized tax benefits was $5.1 million, of which $1.5 million would favorably affect the Company's effective tax rate if recognized. As of March 31, 2012, the Company does not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

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Legal Matters

6 Months Ended

Mar. 31, 2012

Legal Matters [Abstract]

Legal Matters

11. Legal Matters

As previously reported by the Company, including in its Annual Report on Form 10-K for the fiscal year ended October 1, 2011, filed with the SEC on November 30, 2011 (the "2011 Form 10-K"), in January 2011, the U.S. Department of Commerce ("DOC") and the U.S. Attorney's Office for the District of Minnesota ("USAO") notified the Company that they were investigating why the Company had not disclosed, on the U.S. Government's Online Representations and Certifications Application ("ORCA Certification"), that the Company had pled guilty in 2008 to two misdemeanors in regard to making false statements related to certain export matters in 2003. On January 12, 2011, the DOC issued to the Company an administrative subpoena requesting, among other items, that the Company preserve, retain and produce to the U.S. Government certain documents related to the Company's ORCA Certifications. On April 1, 2011, the Company's Board of Directors authorized its Audit Committee to serve as a special committee to initiate an independent review and to oversee an investigation by independent counsel of the events giving rise to the USAO and DOC investigation. On April 7, 2011, the DOC issued to the Company an additional administrative subpoena requesting further information relating to the Company's ORCA Certifications and U.S. Government contracting compliance policies, and in July 2011, the USAO expanded the scope of its inquiry to include the Company's compliance record and practices in areas including export controls and government contracts.

The Company has been responding to information requests from the USAO and DOC, and the USAO has issued grand jury subpoenas to certain third party individuals. The Company is cooperating with the agencies and has conducted its own review of these matters. There have been no material developments in the first six-months of the Company's fiscal year 2012 with respect to the investigation by the USAO or DOC. The Company's known costs related to the investigation in the first six-months of fiscal 2012 and 2011 totaled $0.3 million and $0.4 million, respectively. While the Company continues to respond to the government's requests as appropriate, the Company is presently unable to determine the likely outcome or range of loss, if any, from the investigation or predict with certainty the timeline for the resolution of the investigation.

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Retirement Benefit Plan (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Apr. 02, 2011
Retirement Benefit Plan [Abstract]
Service cost	$ 104	$ 118	$ 211	$ 235
Interest cost	211	195	427	389
Expected return on plan assets	(167)	(173)	(338)	(345)
Net amortization and deferral	20	38	40	75
Net periodic benefit cost	$ 168	$ 178	$ 340	$ 354
Expected rate of return on plan assets (in hundredths)	5.40%			5.20%

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Derivative Instruments and Hedging Activities (Tables)

6 Months Ended

Mar. 31, 2012

Derivative Instruments and Hedging Activities [Abstract]

Fair value of outstanding designated and undesignated derivative assets and liabilities

The Company's currency exchange and interest rate swaps are designated as cash flow hedges and qualify as hedging instruments pursuant to ASC 815. The Company also has derivatives which are accounted for and reported under the guidance of ASC 830-20-10. Regardless of 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 March 31, 2012 and October 1, 2011 Consolidated Balance Sheet as follows:

	March 31, 2012
	Prepaid Expenses
	and Other		Other Accrued
	Current Assets		Liabilities
	(expressed in thousands)
Designated hedge derivatives:
Foreign exchange cash flow hedges	$	285	$	358
Interest rate swaps		-		282
Total designated hedge derivatives		285		640
Derivatives not designated as hedges:
Foreign exchange balance sheet derivatives		-		19
Total hedge and other derivatives	$	285	$	659

	October 1, 2011
	Prepaid Expenses
	and Other		Other Accrued
	Current Assets		Liabilities
	(expressed in thousands)
Designated hedge derivatives:
Foreign exchange cash flow hedges	$	746	$	1,041
Interest rate swaps		-		617
Total designated hedge derivatives		746		1,658
Derivatives not designated as hedges:
Foreign exchange balance sheet derivatives		222		-
Total hedge and other derivatives	$	968	$	1,658

Pretax amounts recognized in Accumulated Other Comprehensive Income on currency contracts

The pretax amounts recognized in AOCI on currency exchange contracts for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011, 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						Six Fiscal Months Ended
	March, 31			April, 2			March, 31			April, 2
	2012			2011			2012			2011
	(expressed in thousands)
Beginning unrealized net (loss) gain in AOCI	$	414		$	(269	)	$	(365	)	$	(384	)
Net loss reclassified into Revenue (effective portion)		(273	)		250			129			409
Net loss reclassified into Revenue upon the removal of a hedge designation on an underlying foreign currency transaction that was cancelled		-			-			-			7
Net (loss) gain recognized in OCI (effective portion)		(153	)		(616	)		224			(667	)
Ending unrealized net (loss) gain in AOCI	$	(12	)	$	(635	)	$	(12	)	$	(635	)

Contractual maturities of interest rate hedging relationships

The following table shows the contractual maturities of the interest rate hedging relationships at March 31, 2012:

Outstanding Interest Rate Swaps:

		Notional		Reference			Basis
Start Date	End Date	Amount		Rate			Spread
		(in millions)
July 25, 2008	July 25, 2012	$	13.0		4.24	%		0.45	%
December 20, 2011	September 20, 2012		6.0		1.06	%		0.45	%
December 7, 2011	September 7, 2012		11.0		1.02	%		0.45	%
December 29, 2011	September 28, 2012		10.0		1.08	%		0.45	%
	Total	$	40.0

Pre-tax amounts recognized in Accumulated Other Comprehensive Income on interest rate swaps

The total market value of interest rate swaps and forward interest rate swaps at March 31, 2012 and April 2, 2011 was a liability of $0.3 million and $0.9 million, respectively. The pretax amounts recognized in AOCI on interest rate swaps and forward interest rate swaps for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 are as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Beginning unrealized net loss in AOCI	$	(427	)	$	(1,101	)	$	(617	)	$	(1,406	)
Net loss reclassified into Interest expense (effective portion)		183			220			359			517
Net loss recognized in OCI (effective portion)		(38	)		(69	)		(24	)		(61	)
Ending unrealized net loss in AOCI	$	(282	)	$	(950	)	$	(282	)	$	(950	)

Net gains (losses) recognized in income for derivative contracts

The net gains (losses) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 are as follows:

	Three Fiscal Months Ended					Six Fiscal Months Ended
	March 31,		April 2,			March 31,		April 2,
	2012		2011			2012		2011
	(expressed in thousands)
Net gain (loss) recognized in Other (expense) income, net	$	205	$	(629	)	$	199	$	(500	)

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Basis of Presentation (Details) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Apr. 02, 2011	Oct. 01, 2011
Inventory disclosure [Abstract]
Customer projects in various stages of completion	$ 24,369,000		$ 24,369,000		$ 19,026,000
Components, assemblies and parts	45,949,000		45,949,000		46,961,000
Total	70,318,000		70,318,000		65,987,000
Warranty obligations [Abstract]
Life of warranty obligations, minimum (in months)	12		12
Life of warranty obligations for sales, maximum (in months)	24		24
Number of previous months historical warranty claims used to calculate warranty expense percentage (in months)	12		12
Warranty provisions and claims [Roll Forward]
Beginning balance	4,595,000	6,735,000	5,290,000	7,505,000
Warranty provisions	1,094,000	1,073,000	1,483,000	1,586,000
Warranty claims	(1,565,000)	(1,482,000)	(2,583,000)	(2,930,000)
Adjustments to preexisting warranties	300,000	(100,000)	300,000	139,000
Currency translation	44,000	145,000	(22,000)	71,000
Ending balance	4,468,000	6,371,000	4,468,000	6,371,000
Software development costs [Member]
Amortization [Abstract]
Amortization expense on capitalized computer software	$ 700,000	$ 400,000	$ 1,200,000	$ 800,000

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Consolidated Statements of Cash Flows (unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Mar. 31, 2012	Apr. 02, 2011
Cash flows from operating activities:
Net income	$ 26,696	$ 25,097
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	1,818	1,541
Excess tax benefits from stock-based compensation	(648)	(140)
Net periodic pension benefit cost	340	354
Depreciation and amortization	6,447	6,418
Deferred income taxes	131	245
Bad debt provision	758	403
Changes in operating assets and liabilities:
Accounts and unbilled contracts receivable	(8,680)	(8,471)
Inventories	(4,484)	(8,466)
Prepaid expenses	(2,046)	(1,627)
Accounts payable	692	3,404
Accrued payroll and related costs	(6,721)	(6,737)
Advance payments from customers	9,217	9,292
Accrued warranty costs	(799)	(1,205)
Other assets and liabilities	(3,152)	7,325
Net cash provided by operating activities	19,569	27,433
Cash flows from investing activities:
Purchases of property and equipment	(6,703)	(4,740)
Cash flows from financing activities:
Net receipts (repayments) under short-term borrowings	15	(7)
Excess tax benefits from stock-based compensation	648	140
Cash dividends	(7,950)	(6,173)
Proceeds from exercise of stock options and employee stock purchase plan	13,950	10,669
Net cash provided by financing activities	6,663	4,629
Effect of exchange rate on changes in cash	(376)	1,779
Net increase in cash and cash equivalents	19,153	29,101
Cash and cash equivalents, at beginning of period	104,095	76,611
Cash and cash equivalents, at end of period	123,248	105,712
Cash paid during the period for -
Interest	523	688
Income taxes	17,304	444
Non-cash financing activities:
Dividends declared not yet paid	$ 3,905	$ 0

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Derivative Instruments and Hedging Activities

6 Months Ended

Mar. 31, 2012

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

5. Derivative Instruments and Hedging Activities

The Company's results of operations could be materially impacted by changes in foreign currency exchange rates, as well as 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 bank 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. As of March 31, 2012, the Company does not have any foreign exchange contracts with credit-risk related contingent features.

The Company's currency exchange and interest rate swaps are designated as cash flow hedges and qualify as hedging instruments pursuant to ASC 815. The Company also has derivatives which are accounted for and reported under the guidance of ASC 830-20-10. Regardless of 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 March 31, 2012 and October 1, 2011 Consolidated Balance Sheet as follows:

	March 31, 2012
	Prepaid Expenses
	and Other		Other Accrued
	Current Assets		Liabilities
	(expressed in thousands)
Designated hedge derivatives:
Foreign exchange cash flow hedges	$	285	$	358
Interest rate swaps		-		282
Total designated hedge derivatives		285		640
Derivatives not designated as hedges:
Foreign exchange balance sheet derivatives		-		19
Total hedge and other derivatives	$	285	$	659

	October 1, 2011
	Prepaid Expenses
	and Other		Other Accrued
	Current Assets		Liabilities
	(expressed in thousands)
Designated hedge derivatives:
Foreign exchange cash flow hedges	$	746	$	1,041
Interest rate swaps		-		617
Total designated hedge derivatives		746		1,658
Derivatives not designated as hedges:
Foreign exchange balance sheet derivatives		222		-
Total hedge and other derivatives	$	968	$	1,658

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, as that is the same line item upon which the underlying hedged transaction is reported.

At March 31, 2012 and April 2, 2011, the Company had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $37.0 million and $25.9 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 were $34.9 million and $22.2 million at March 31, 2012 and April 2, 2011, respectively. At March 31, 2012 the net market value of the foreign currency exchange contracts was a net liability of $0.1 million, consisting of $0.3 million in assets and $0.4 million in liabilities. At April 2, 2011 the net market value of the foreign currency exchange contracts was a net liability of $0.7 million, consisting of $0.1 million in assets and $0.8 million in liabilities.

The pretax amounts recognized in AOCI on currency exchange contracts for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011, 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						Six Fiscal Months Ended
	March, 31			April, 2			March, 31			April, 2
	2012			2011			2012			2011
	(expressed in thousands)
Beginning unrealized net (loss) gain in AOCI	$	414		$	(269	)	$	(365	)	$	(384	)
Net loss reclassified into Revenue (effective portion)		(273	)		250			129			409
Net loss reclassified into Revenue upon the removal of a hedge designation on an underlying foreign currency transaction that was cancelled		-			-			-			7
Net (loss) gain recognized in OCI (effective portion)		(153	)		(616	)		224			(667	)
Ending unrealized net (loss) gain in AOCI	$	(12	)	$	(635	)	$	(12	)	$	(635	)

The amount recognized in Revenue as a result of the ineffectiveness of cash flow hedges was less than $0.1 million in each of the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011. At March 31, 2012 and April 2, 2011, the amount projected to be reclassified from AOCI into Revenue in the next 12 months was a net loss of $0.1 million and $0.4 million, respectively. The maximum remaining maturity of any forward or optional contract at March 31, 2012 and April 2, 2011 was 2.3 years and 3.3 years, respectively.

Cash Flow Hedging - Interest Rate Risks

The Company uses floating to fixed interest rate swaps to mitigate its exposure to future changes in interest rates related to its floating rate indebtedness. The Company has designated these interest rate swaps as cash flow hedges. As a result, changes in the fair value of the interest rate swaps are recorded in AOCI within Shareholders' Investment on the Consolidated Balance Sheets.

At March 31, 2012 and April 2, 2011 the Company had outstanding interest rate swaps with total notional amounts of $40.0 million and $24.0 million, respectively. Every month, the Company pays fixed interest on these interest rate swaps in exchange for interest received at monthly U.S. LIBOR. At March 31, 2012 and April 2, 2011, the weighted-average interest rate payable by the Company under the terms of the credit facility borrowings and outstanding interest rate swaps was 2.09% and 2.47%, respectively. At March 31, 2012 and April 2, 2011, there was a 45 basis-point differential between the variable rate interest paid by the Company on its outstanding credit facility borrowings and the variable rate interest received on the interest rate swaps. As a result of this differential, the overall effective interest rate applicable to outstanding credit facility borrowings, under the terms of the credit facility and interest rate swap agreements, was 2.54% and 2.92%, respectively.

The following table shows the contractual maturities of the interest rate hedging relationships at March 31, 2012:

Outstanding Interest Rate Swaps:

		Notional		Reference			Basis
Start Date	End Date	Amount		Rate			Spread
		(in millions)
July 25, 2008	July 25, 2012	$	13.0		4.24	%		0.45	%
December 20, 2011	September 20, 2012		6.0		1.06	%		0.45	%
December 7, 2011	September 7, 2012		11.0		1.02	%		0.45	%
December 29, 2011	September 28, 2012		10.0		1.08	%		0.45	%
	Total	$	40.0

The total market value of interest rate swaps and forward interest rate swaps at March 31, 2012 and April 2, 2011 was a liability of $0.3 million and $0.9 million, respectively. The pretax amounts recognized in AOCI on interest rate swaps and forward interest rate swaps for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 are as follows:

	Three Fiscal Months Ended						Six Fiscal Months Ended
	March 31,			April 2,			March 31,			April 2,
	2012			2011			2012			2011
	(expressed in thousands)
Beginning unrealized net loss in AOCI	$	(427	)	$	(1,101	)	$	(617	)	$	(1,406	)
Net loss reclassified into Interest expense (effective portion)		183			220			359			517
Net loss recognized in OCI (effective portion)		(38	)		(69	)		(24	)		(61	)
Ending unrealized net loss in AOCI	$	(282	)	$	(950	)	$	(282	)	$	(950	)

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) Income, net on the Consolidated Statement of Income in the current period.

At March 31, 2012 and April 2, 2011, the Company had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $38.1 million and $20.1 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 March 31, 2012 and April 2, 2011 was $11.8 million and $5.0 million, respectively. At both March 31, 2012 and April, 2, 2011, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of less than $0.1 million, consisting entirely of liabilities.

The net gains (losses) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the three and six-fiscal month periods ended March 31, 2012 and April 2, 2011 are as follows:

	Three Fiscal Months Ended					Six Fiscal Months Ended
	March 31,		April 2,			March 31,		April 2,
	2012		2011			2012		2011
	(expressed in thousands)
Net gain (loss) recognized in Other (expense) income, net	$	205	$	(629	)	$	199	$	(500	)

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Capital Assets (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 31, 2012	Apr. 02, 2011	Mar. 31, 2012	Apr. 02, 2011	Oct. 01, 2011
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 166,305,000		$ 166,305,000		$ 162,620,000
Less accumulated depreciation	(108,035,000)		(108,035,000)		(106,368,000)
Property and equipment, net	58,270,000		58,270,000		56,252,000
Goodwill	16,210,000		16,210,000		16,027,000
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	33,115,000		33,115,000		35,012,000
Accumulated Amortization	(8,251,000)		(8,251,000)		(9,169,000)
Net Carrying Value	24,864,000		24,864,000		25,843,000
Weighted average useful life (in years)	14 years 2 months 12 days				13 years 7 months 6 days
Amortization expense	900,000	800,000	1,600,000	1,600,000
Software development costs [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	15,848,000		15,848,000		15,370,000
Accumulated Amortization	(4,744,000)		(4,744,000)		(3,574,000)
Net Carrying Value	11,104,000		11,104,000		11,796,000
Weighted average useful life (in years)	5 years 8 months 13 days				5 years 9 months 18 days
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	10,034,000		10,034,000		9,903,000
Accumulated Amortization	(2,501,000)		(2,501,000)		(2,114,000)
Net Carrying Value	7,533,000		7,533,000		7,789,000
Weighted average useful life (in years)	15 years 3 months 18 days				15 years 3 months 18 days
Trademarks and trade names [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	5,997,000		5,997,000		5,924,000
Accumulated Amortization	(922,000)		(922,000)		(815,000)
Net Carrying Value	5,075,000		5,075,000		5,109,000
Weighted average useful life (in years)	30 years 2 months 12 days				30 years 2 months 12 days
Non-compete agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount					2,596,000
Accumulated Amortization					(2,596,000)
Net Carrying Value					0
Weighted average useful life (in years)					3 years 0 months 0 days
Land-use rights [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,236,000		1,236,000		1,219,000
Accumulated Amortization	(84,000)		(84,000)		(70,000)
Net Carrying Value	1,152,000		1,152,000		1,149,000
Weighted average useful life (in years)	47 years 9 months 11 days				47 years 9 months 11 days
Land and improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,712,000		1,712,000		1,713,000
Building and improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	53,316,000		53,316,000		52,764,000
Machinery and equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 111,277,000		$ 111,277,000		$ 108,143,000

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Business Segment Information (Tables)

6 Months Ended

Mar. 31, 2012

Business Segment Information [Abstract]

Financial information by reportable segment

Financial information by reportable segment for the three and six-month fiscal periods ended March 31, 2012 and April 2, 2011 was as follows:

	Three Fiscal Months Ended				Six Fiscal Months Ended
	March 31,		April 2,		March 31,		April 2,
	2012		2011		2012		2011
	(expressed in thousands)
Revenue by Segment:
Test	$	102,913	$	86,761	$	211,541	$	169,303
Sensors		26,106		26,300		51,175		49,634
Total revenue	$	129,019	$	113,061	$	262,716	$	218,937
Income from Operations by Segment:
Test	$	10,694	$	9,842	$	28,467	$	22,595
Sensors		6,505		8,027		12,281		13,748
Total income from operations	$	17,199	$	17,869	$	40,748	$	36,343