Table of Contents





United States
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549



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FORM 10-Q



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|  |                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------
|x | Quarterly Report Pursuant
 to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the
 Quarterly period ended March 28, 2009      
|  |                                                                                                                                               
|  | 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 | (I.R.S.
 Employer   
|incorporation
 or organization)  | Identification
 No.)

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).

|  |     |  |   |   
|- | --- |  | - | --
|o | 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, 2009 was 16,753,642shares.





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MTS SYSTEMS CORPORATION

REPORT ON FORM 10-Q 
FOR THE THREE AND SIX MONTHS ENDED MARCH 28, 2009

INDEX

|                               |         |                                                                                                         |         
|------------------------------ | ------- | ------------------------------------------------------------------------------------------------------- | --------
|                               |         |                                                                                                         | Page No.
|                               |         |                                                                                                         |         
|PART I - FINANCIAL INFORMATION |        
|                               |        
|                               | Item 1. | Financial
 Statements (unaudited)                                                                       |         
|                               |         |                                                                                                         |         
|                               |         | Consolidated Balance Sheets as of
 March 28, 2009 and September 27, 2008                                | 2       
|                               |         |                                                                                                         |         
|                               |         | Consolidated Statements of Income for the
 Three and Six Months Ended March 28, 2009 and March 29, 2008 | 3       
|                               |         |                                                                                                         |         
|                               |         | Consolidated Statements of Cash Flows for the
 Six Months Ended March 28, 2009 and March 29, 2008       | 4       
|                               |         |                                                                                                         |         
|                               |         | Condensed Notes to Consolidated Financial
Statements                                                    | 5
 - 18 
|                               |         |                                                                                                         |         
|                               | Item 2. | Managements
 Discussion and Analysis of Financial
 Condition and Results of Operations                 | 19
 - 37
|                               |         |                                                                                                         |         
|                               | Item 3. | Quantitative
 and Qualitative Disclosures About
 Market Risk                                            | 37      
|                               |         |                                                                                                         |         
|                               | Item 4. | Controls
 and Procedures                                                                                | 37      
|                               |         |                                                                                                         |         
|PART II  OTHER INFORMATION    |        
|                               |        
|                               | Item 2. | Unregistered
 Sales of Equity Securities and Use of Proceeds                                            | 38      
|                               |         |                                                                                                         |         
|                               | Item 4. | Submission
 of Matters to a Vote of Security Holders                                                    | 38      
|                               |         |                                                                                                         |         
|                               | Item 6. | Exhibits                                                                                                | 39      
|                               |         |                                                                                                         |         
|SIGNATURES                     | 40     

1

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Table of Contents

PART 1 
FINANCIAL INFORMATION Item 1. Financial Statements

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

|                                                                                                |  |                 |         |                     |   |         | 
|----------------------------------------------------------------------------------------------- |  | --------------- | ------- | ------------------- | - | ------- | 
|                                                                                                |  | March 28,
 2009 |         | September 27,
 2008 |  
|ASSETS                                                                                          |  |                 |         |                     |   |         | 
|                                                                                                |  |                 |         |                     |   |         | 
|Current Assets:                                                                                 |  |                 |         |                     |   |         | 
|Cash and cash equivalents                                                                       |  | $               | 99,349  |                     | $ | 114,099 | 
|Accounts receivable, net of allowances for doubtful accounts of $1,212
 and $1,008 respectively |  |                 | 97,785  |                     |   | 101,331 | 
|Unbilled accounts receivable                                                                    |  |                 | 30,547  |                     |   | 43,022  | 
|Inventories                                                                                     |  |                 | 51,928  |                     |   | 46,135  | 
|Prepaid expenses and other current assets                                                       |  |                 | 4,116   |                     |   | 6,205   | 
|Deferred tax assets                                                                             |  |                 | 12,669  |                     |   | 11,825  | 
|Assets of discontinued operations                                                               |  |                 | 284     |                     |   | 380     | 
|Total current assets                                                                            |  |                 | 296,678 |                     |   | 322,997 | 
|                                                                                                |  |                 |         |                     |   |         | 
|                                                                                                |  |                 |         |                     |   |         | 
|Property and equipment, net                                                                     |  |                 | 57,204  |                     |   | 50,534  | 
|Goodwill                                                                                        |  |                 | 15,791  |                     |   | 1,668   | 
|Other intangible assets, net                                                                    |  |                 | 21,863  |                     |   | 4,363   | 
|Other assets                                                                                    |  |                 | 3,711   |                     |   | 17,283  | 
|Deferred tax assets                                                                             |  |                 | 2,081   |                     |   | 2,312   | 
|Total Assets                                                                                    |  | $               | 397,328 |                     | $ | 399,157 | 
|                                                                                                |  |                 |         |                     |   |         | 
|LIABILITIES AND SHAREHOLDERS INVESTMENT                                                        |  |                 |         |                     |   |         | 
|                                                                                                |  |                 |         |                     |   |         | 
|Current Liabilities:                                                                            |  |                 |         |                     |   |         | 
|Short-term borrowings                                                                           |  | $               | 40,280  |                     | $ | 24,338  | 
|Current maturities of long-term debt                                                            |  |                 | 1,154   |                     |   | 2,308   | 
|Accounts payable                                                                                |  |                 | 21,706  |                     |   | 28,567  | 
|Accrued payroll and related costs                                                               |  |                 | 23,982  |                     |   | 33,819  | 
|Advance payments from customers                                                                 |  |                 | 56,828  |                     |   | 64,979  | 
|Accrued warranty costs                                                                          |  |                 | 8,196   |                     |   | 6,107   | 
|Accrued income taxes                                                                            |  |                 | 1,581   |                     |   | 4,510   | 
|Deferred tax liabilities                                                                        |  |                 | 3,350   |                     |   | 3,723   | 
|Other accrued liabilities                                                                       |  |                 | 29,019  |                     |   | 17,042  | 
|Liabilities of discontinued operations                                                          |  |                 | 174     |                     |   | 177     | 
|Total current liabilities                                                                       |  |                 | 186,270 |                     |   | 185,570 | 
|                                                                                                |  |                 |         |                     |   |         | 
|Deferred tax liabilities                                                                        |  |                 | 1,141   |                     |   | 1,354   | 
|Non-current accrued income taxes                                                                |  |                 | 4,381   |                     |   | 4,009   | 
|Pension benefit plan                                                                            |  |                 | 626     |                     |   | 245     | 
|Other long-term liabilities                                                                     |  |                 | 2,839   |                     |   | 3,037   | 
|Total Liabilities                                                                               |  |                 | 195,257 |                     |   | 194,215 | 
|                                                                                                |  |                 |         |                     |   |         | 
|Shareholders Investment:                                                                       |  |                 |         |                     |   |         | 
|Common stock, $.25 par; 64,000 shares authorized:                                               |  |                 |         |                     |   |         | 
|16,760 and 16,976 shares issued and outstanding                                                 |  |                 | 4,190   |                     |   | 4,244   | 
|Retained earnings                                                                               |  |                 | 183,084 |                     |   | 175,216 | 
|Accumulated other comprehensive income                                                          |  |                 | 14,797  |                     |   | 25,482  | 
|Total Shareholders Investment                                                                  |  |                 | 202,071 |                     |   | 204,942 | 
|Total Liabilities and Shareholders Investment                                                  |  | $               | 397,328 |                     | $ | 399,157 | 

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

2

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Table of Contents

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

|                                                               |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|-------------------------------------------------------------- |  | ------------------ | ------- | ---------------- | - | --------------- | - | --------------- | ------- | - | - | ------- | -
|                                                               |  | Three Months Ended |         | Six Months Ended |  
|                                                               |  | March 28,
 2009    |         | March 29,
 2008  |   | March 28,
 2009 |   | March 29,
 2008 |        
|Revenue:                                                       |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Product                                                        |  | $                  | 94,273  |                  | $ | 94,808          |   | $               | 193,670 |   | $ | 187,748 |  
|Service                                                        |  |                    | 13,379  |                  |   | 17,360          |   |                 | 30,591  |   |   | 31,812  |  
|Total revenue                                                  |  |                    | 107,652 |                  |   | 112,168         |   |                 | 224,261 |   |   | 219,560 |  
|Cost of sales:                                                 |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Product                                                        |  |                    | 57,709  |                  |   | 56,262          |   |                 | 121,159 |   |   | 112,929 |  
|Service                                                        |  |                    | 8,430   |                  |   | 9,832           |   |                 | 17,368  |   |   | 17,335  |  
|Total cost of sales                                            |  |                    | 66,139  |                  |   | 66,094          |   |                 | 138,527 |   |   | 130,264 |  
|Gross profit                                                   |  |                    | 41,513  |                  |   | 46,074          |   |                 | 85,734  |   |   | 89,296  |  
|                                                              
|Operating expenses:                                            |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Selling and marketing                                          |  |                    | 17,868  |                  |   | 19,705          |   |                 | 36,989  |   |   | 38,758  |  
|General and administrative                                     |  |                    | 8,024   |                  |   | 8,463           |   |                 | 17,926  |   |   | 16,574  |  
|Research and development                                       |  |                    | 3,874   |                  |   | 4,050           |   |                 | 7,133   |   |   | 8,028   |  
|Total operating expenses                                       |  |                    | 29,766  |                  |   | 32,218          |   |                 | 62,048  |   |   | 63,360  |  
|                                                               |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Income from operations                                         |  |                    | 11,747  |                  |   | 13,856          |   |                 | 23,686  |   |   | 25,936  |  
|                                                              
|Interest expense                                               |  |                    | (555    | )                |   | (317            | ) |                 | (1,063  | ) |   | (668    | )
|Interest income                                                |  |                    | 303     |                  |   | 960             |   |                 | 820     |   |   | 1,885   |  
|Other (expense) income, net                                    |  |                    | (1,161  | )                |   | 882             |   |                 | (267    | ) |   | 832     |  
|                                                              
|Income before income taxes and discontinued operations         |  |                    | 10,334  |                  |   | 15,381          |   |                 | 23,176  |   |   | 27,985  |  
|Provision for income taxes                                     |  |                    | 2,886   |                  |   | 1,936           |   |                 | 5,977   |   |   | 6,359   |  
|Income before discontinued operations                          |  |                    | 7,448   |                  |   | 13,445          |   |                 | 17,199  |   |   | 21,626  |  
|                                                              
|Discontinued operations:                                       |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Income from discontinued operations, net of tax                |  |                    | 25      |                  |   | 94              |   |                 | 25      |   |   | 269     |  
|Net income                                                     |  | $                  | 7,473   |                  | $ | 13,539          |   | $               | 17,224  |   | $ | 21,895  |  
|                                                              
|Earnings per share:                                            |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Basic-                                                         |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Income before discontinued operations                          |  | $                  | 0.44    |                  | $ | 0.76            |   | $               | 1.02    |   | $ | 1.23    |  
|Income from discontinued operations, net of tax                |  |                    |        |                  |   | 0.01            |   |                 |        |   |   | 0.01    |  
|Earnings per share                                             |  | $                  | 0.44    |                  | $ | 0.77            |   | $               | 1.02    |   | $ | 1.24    |  
|Weighted average number of common shares outstanding -
basic   |  |                    | 16,841  |                  |   | 17,608          |   |                 | 16,888  |   |   | 17,648  |  
|                                                              
|Diluted-                                                       |  |                    |         |                  |   |                 |   |                 |         |   |   |         |  
|Income before discontinued operations                          |  | $                  | 0.44    |                  | $ | 0.76            |   | $               | 1.02    |   | $ | 1.21    |  
|Income from discontinued operations, net of tax                |  |                    |        |                  |   |                |   |                 |        |   |   | 0.01    |  
|Earnings per share                                             |  | $                  | 0.44    |                  | $ | 0.76            |   | $               | 1.02    |   | $ | 1.22    |  
|Weighted average number of common shares outstanding -
diluted |  |                    | 16,881  |                  |   | 17,777          |   |                 | 16,935  |   |   | 17,878  |  

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

3

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Table of Contents

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

|                                                                                       |  |                  |         |                 |   |         |  
|-------------------------------------------------------------------------------------- |  | ---------------- | ------- | --------------- | - | ------- | -
|                                                                                       |  | Six Months Ended |        
|                                                                                       |  | March 28,
 2009  |         | March 29,
 2008 |  
|Cash flows from operating activities:                                                  |  |                  |         |                 |   |         |  
|Net income                                                                             |  | $                | 17,224  |                 | $ | 21,895  |  
|Adjustments to reconcile net income to net cash provided by                            |  |                  |         |                 |   |         |  
|operating activities:                                                                  |  |                  |         |                 |   |         |  
|Income from discontinued operations                                                    |  |                  | (25     | )               |   | (269    | )
|Stock-based compensation                                                               |  |                  | 1,978   |                 |   | 2,145   |  
|Excess tax benefits from stock-based compensation                                      |  |                  | (4      | )               |   | (51     | )
|Charge for fair value mark-up of acquired inventory                                    |  |                  | 1,336   |                 |   |        |  
|Net periodic pension benefit cost                                                      |  |                  | 231     |                 |   | 654     |  
|Depreciation and amortization                                                          |  |                  | 5,842   |                 |   | 4,421   |  
|Deferred income taxes                                                                  |  |                  | (881    | )               |   | (3,299  | )
|Bad debt provision                                                                     |  |                  | 304     |                 |   | 60      |  
|                                                                                       |  |                  |         |                 |   |         |  
|Changes in operating assets and liabilities, excluding the effect of
 the acquisition: |  |                  |         |                 |   |         |  
|Accounts and unbilled contracts receivable                                             |  |                  | 21,408  |                 |   | (8,154  | )
|Inventories                                                                            |  |                  | (516    | )               |   | (2,582  | )
|Prepaid expenses                                                                       |  |                  | (806    | )               |   | (1,011  | )
|Other assets                                                                           |  |                  | (622    | )               |   | (3,763  | )
|Accounts payable                                                                       |  |                  | (10,958 | )               |   | (1,793  | )
|Accrued payroll and related costs                                                      |  |                  | (7,968  | )               |   | 852     |  
|Advance payments from customers                                                        |  |                  | (8,840  | )               |   | 9,127   |  
|Accrued warranty costs                                                                 |  |                  | 2,221   |                 |   | (127    | )
|Other liabilities                                                                      |  |                  | (4,196  | )               |   | 1,074   |  
|Contributions to pension benefit plan                                                  |  |                  | (145    | )               |   | (148    | )
|Operating activities of discontinued operations                                        |  |                  | 118     |                 |   | (689    | )
|Net cash provided by operating activities                                              |  |                  | 15,701  |                 |   | 18,342  |  
|                                                                                       |  |                  |         |                 |   |         |  
|Cash flows from investing activities:                                                  |  |                  |         |                 |   |         |  
|Purchases of property and equipment                                                    |  |                  | (5,867  | )               |   | (4,875  | )
|Purchase of business                                                                   |  |                  | (21,598 | )               |   |        |  
|Proceeds from maturity of short-term investments                                       |  |                  |        |                 |   | 19,050  |  
|Purchases of short-term investments                                                    |  |                  |        |                 |   | (2,000  | )
|Investing activities of discontinued operations                                        |  |                  |        |                 |   | (79     | )
|Net cash (used in) provided by investing activities                                    |  |                  | (27,465 | )               |   | 12,096  |  
|                                                                                       |  |                  |         |                 |   |         |  
|Cash flows from financing activities:                                                  |  |                  |         |                 |   |         |  
|Net proceeds (repayments) under short-term borrowings                                  |  |                  | 15,909  |                 |   | (152    | )
|Payments of long-term debt                                                             |  |                  | (1,154  | )               |   | (1,154  | )
|Excess tax benefits from stock-based compensation                                      |  |                  | 4       |                 |   | 51      |  
|Cash dividends                                                                         |  |                  | (5,082  | )               |   | (5,308  | )
|Proceeds from exercise of stock options and employee stock purchase
 plan              |  |                  | 498     |                 |   | 1,613   |  
|Payments to purchase and retire common stock                                           |  |                  | (6,724  | )               |   | (9,088  | )
|Net cash provided by (used in) financing activities                                    |  |                  | 3,451   |                 |   | (14,038 | )
|                                                                                       |  |                  |         |                 |   |         |  
|Effect of exchange rate on changes in cash                                             |  |                  | (6,437  | )               |   | 8,645   |  
|                                                                                      
|Net (decrease) increase in cash and cash equivalents                                   |  |                  | (14,750 | )               |   | 25,045  |  
|                                                                                       |  |                  |         |                 |   |         |  
|Cash and cash equivalents, at beginning of period                                      |  |                  | 114,099 |                 |   | 104,345 |  
|Cash and cash equivalents, at end of period                                            |  | $                | 99,349  |                 | $ | 129,390 |  
|                                                                                       |  |                  |         |                 |   |         |  
|Supplemental disclosure of cash flow information:                                      |  |                  |         |                 |   |         |  
|Cash paid during the period for -                                                      |  |                  |         |                 |   |         |  
|Interest expense                                                                       |  | $                | 747     |                 | $ | 317     |  
|Income taxes                                                                           |  | $                | 8,258   |                 | $ | 10,672  |  

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

4

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Table of Contents

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 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. 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 financial statements of the Company
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys Annual Report on Form
10-K for the fiscal year ended September 27, 2008 filed with the SEC. Interim
results of operations for the three- and six-month periods ended March 28, 2009
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.
Orders that are manufactured and delivered in less than six months with routine
installations and no special acceptance protocol may involve separable elements
for revenue recognition purposes. Sufficient evidence of fair value of these
elements exists to allow revenue recognition for these systems upon shipment,
less the greater of the fair value associated with installation and training
(if applicable) or the amount of revenue for which payment is deemed contingent
upon delivery of these elements, which amount is deferred until customer
acceptance. Fair value is determined based upon the sale price of similar
products sold individually. In cases where special acceptance protocols exist,
installation and training are not considered to be separable from the other
elements of the arrangement. Accordingly, revenue for these systems is
recognized upon the completion of installation and fulfillment of obligations
specific to the terms of the arrangement.

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,
software, installation services, training and support. In certain arrangements
software may be essential to the functionality of the system deliverable. For
these arrangements the Company considers Emerging Issues Task Force (EITF)
No. 03-05, Applicability of AICPA Statement of Position 97-2 to Non-Software
Deliverables in an Arrangement Containing More-Than-Incidental Software, to
identify components of the arrangement which are considered software-related.
For software and software-related components, the Company applies the
requirements of Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, when recognizing revenue. Contractual arrangements in which
software is essential to system functionality typically include significant
production, modification, and customization. For 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 prescribed by SOP No. 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts, 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 SOP
No. 81-1 (e.g. software maintenance and training) are accounted for as the
service is provided based on fair value as determined by standalone sales.

The Company
enters into long-term contracts for customized equipment sold to its customers.
Under the terms of such 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.

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Table of Contents

Revenue for
services is recognized as the service is performed or ratably over a defined
contractual period for service maintenance contracts.

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 28, 2009 and September 27, 2008 were as follows:

|                                                   |  |                          |        |                    |   |        | 
|-------------------------------------------------- |  | ------------------------ | ------ | ------------------ | - | ------ | 
|                                                   |  | March 28, 2009           |        | September 27, 2008 |  
|                                                   |  | (expressed in thousands) |       
|Customer
 projects in various stages of completion |  | $                        | 16,109 |                    | $ | 14,257 | 
|Components,
 assemblies and parts                  |  |                          | 35,819 |                    |   | 31,878 | 
|Total                                              |  | $                        | 51,928 |                    | $ | 46,135 | 

Impairment of Long-Lived Assets.
In accordance with SFAS No. 144, Accounting for Impairment or Disposal 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 sale 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.

Business Acquisitions.
The Company accounts for acquired businesses using the purchase method of
accounting, which requires that the assets acquired and liabilities assumed be
recorded at the date of acquisition at their respective fair values. The
judgments made in determining the estimated fair value assigned to each class
of assets acquired and liabilities assumed, as well as asset lives, can
materially impact net income. Determining the useful life of an intangible
asset also requires judgment. For example, different types of intangible assets
will have different useful lives and certain assets may even be considered to
have indefinite useful lives. All of these judgments and estimates can
significantly impact net income. See Note 3 in the Condensed Notes to
Consolidated Financial Statements for additional information on business
acquisitions.

Software Development Costs.
The Company capitalizes certain software development costs related to software
to be sold, leased, or otherwise marketed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer 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. The portion of unamortized capitalized
software development costs that are determined to be in excess of net realizable
value will be expensed in the period such a determination is made. The Company
reached technological feasibility for certain software products and began
capitalizing software development costs during the fiscal year ended September
27, 2008. See Note 4 in the Condensed Notes to Consolidated Financial
Statements for additional information on capitalized software development
costs.

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Table of Contents

Warranty Obligations.
Sales of the Companys products and systems are subject to limited warranty
guarantees that are included in customer contracts. For sales that include
installation services, warranty guarantees typically extend for a period of
twelve months from the date of either shipment or acceptance. Product
guarantees 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 warranty
provisions monthly 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. Warranty provisions and claims for the periods ended March 28, 2009
and March 29, 2008 were as follows:

|                     |  |                          |        |                  |   |                 |   |                 |        |   |   |        |  
|-------------------- |  | ------------------------ | ------ | ---------------- | - | --------------- | - | --------------- | ------ | - | - | ------ | -
|                     |  | Three Months Ended       |        | Six Months Ended |  
|                     |  | March 28,
 2009          |        | March 29,
 2008  |   | March 28,
 2009 |   | March 29,
 2008 |       
|                     |  | (expressed in thousands) |       
|Beginning balance    |  | $                        | 6,233  |                  | $ | 6,176           |   | $               | 6,107  |   | $ | 6,205  |  
|Warranty provisions  |  |                          | 4,060  |                  |   | 1,775           |   |                 | 5,985  |   |   | 3,330  |  
|Warranty claims      |  |                          | (1,929 | )                |   | (1,870          | ) |                 | (3,764 | ) |   | (3,527 | )
|Acquisition of SANS  |  |                          |       |                  |   |                |   |                 | 73     |   |   |       |  
|Currency translation |  |                          | (168   | )                |   | 213             |   |                 | (205   | ) |   | 286    |  
|Ending balance       |  | $                        | 8,196  |                  | $ | 6,294           |   | $               | 8,196  |   | $ | 6,294  |  

Stock-Based Compensation.
The Company compensates officers, directors, and employees with stock-based
compensation under four stock plans approved by the Companys shareholders in
1994, 1997, 2002 and 2006. These stock plans are administered under the
supervision of the Companys Board of Directors. The Company has awarded stock
options, employee stock purchase plan shares, and restricted stock under these
plans. At March 28, 2009, a total of 1,793,495 shares were available for future
grant under the 2002 and 2006 plans. Stock-based compensation expense is
determined in accordance with SFAS No. 123R based on the grant-date fair value
and is recognized proportionally over the vesting period of each grant, which
is generally three years. Stock-based compensation expense for the three-month
periods ended March 28, 2009 and March 29, 2008 was $0.9 million and $1.2
million, respectively. Stock-based compensation expense for the six-month
periods ended March 28, 2009 and March 29, 2008 was $2.0 million and $2.1
million, respectively.

For purposes
of determining estimated fair value of stock-based payment awards, the Company
utilizes a Black-Scholes option pricing model, which requires the input of
certain assumptions requiring management judgment. Because the Companys
employee stock option awards have characteristics significantly different from
those of traded options, and because changes in the input assumptions can
materially affect fair value estimates, existing models may not provide a
reliable single measure of the fair value of employee stock options. Management
will continue to assess the assumptions and methodologies used to calculate
estimated fair value of stock-based compensation. Circumstances may change and
additional data may become available over time that could result in changes to
these assumptions and methodologies and thereby materially impact the fair
value determination of future grants of stock-based payment awards. If factors
change and the Company employs different assumptions in the application of SFAS
No. 123R in future periods, the compensation expense recorded under SFAS No.
123R may differ significantly from the stock-based compensation expense
recorded in the current period.

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

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2. Recent Accounting Pronouncements

In December
2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations.
SFAS No. 141R expands the definition of a business combination and requires the
fair value of the purchase price of an acquisition, including the issuance of
equity securities, to be determined on the acquisition date. SFAS No. 141R also
requires that all assets, liabilities, contingent considerations, and
contingencies of an acquired business be recorded at fair value at the
acquisition date. In addition, SFAS No. 141R requires that acquisition costs
generally be expensed as incurred, restructuring costs generally be expensed in
periods subsequent to the acquisition date and changes in accounting for
deferred tax asset valuation allowances and acquired income tax uncertainties
after the measurement period impact income tax expense. SFAS No. 141R is
effective for the Companys fiscal years beginning on or after December 15,
2008, with early adoption prohibited. The Company does not expect the adoption of
SFAS No. 141R to have a material impact on its consolidated financial
statements.

In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51. SFAS No. 160 requires
minority interests to be recharacterized as noncontrolling interests and
reported as a component of equity. In addition, SFAS No. 160 requires that
purchases or sales of equity interests that do not result in a change in
control be accounted for as equity transactions and, upon a loss of control,
requires the interests sold, as well as any interests retained, to be recorded
at fair value with any gain or loss recognized in earnings. SFAS No. 160 is
effective for fiscal years beginning on or after December 15, 2008, with early
adoption prohibited. The Company does not expect the adoption of SFAS No. 160
to have a material impact on its consolidated financial statements.

In April 2008,
the FASB issued Staff Position (FSP) No. FAS 142-3 Determination of the
Useful Life of Intangible Assets. FSP No. 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of intangible assets under SFAS No. 142 Goodwill and Other
Intangible Assets. FSP No. FAS 142-3 is intended to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and
the period of the expected cash flows used to measure the fair value of the
asset under SFAS No. 141R and other GAAP. FSP No. FAS 142-3 is effective for
fiscal years beginning after December 15, 2008, with early adoption prohibited.
The Company does not expect the adoption of FSP No. FAS 142-3 to have a
material impact on its consolidated financial statements.

In June 2008,
the FASB issued FSP No. EITF 03-6-1 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities FSP No. EITF
03-6-1 clarifies that all outstanding unvested share-based payment awards that
contain rights to nonforfeitable dividends participate in undistributed
earnings with common shareholders. Awards of this nature are considered
participating securities and the two-class method of computing basic and
diluted earnings per share must be applied. FSP No. EITF 03-6-1 is effective
for fiscal years beginning after December 15, 2008. The Company does not expect
the adoption of FSP No. EITF 03-6-1 to have a material impact on its
consolidated financial statements.

In June 2008,
the FASB issued EITF No. 07-5, Determining Whether an Instrument (or an
Embedded Feature) Is Indexed to an Entitys Own Stock. EITF No. 07-5 provides
that an entity should use a two step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own stock,
including evaluating the instruments contingent exercise and settlement
provisions. It also clarifies the impact of foreign currency denominated strike
prices and market-based employee stock option valuation instruments on the
evaluation. EITF No. 07-5 is effective for fiscal years beginning after
December 15, 2008. The Company does not expect the adoption of EITF No. 07-5 to
have a material impact on its consolidated financial statements.

In December
2008, the FASB issued FSP FAS 132R-1, Employers Disclosures about
Postretirement Benefit Plan Assets. FSP No. 132R-1 amends SFAS No. 132
(revised 2003), Employers Disclosures about Pensions and Other Postretirement
Benefits, and requires additional disclosures regarding defined benefit plan
assets, including investment policies and strategies, major categories of plan
assets, valuation techniques used to measure the fair value of plan assets and
significant concentrations of risk within plan assets. FSP No. 132R-1 is
effective for fiscal years ending after December 15, 2009. The Company does not
expect the adoption of FSP No. 132R-1 to have a material impact on its
consolidated financial statements.

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Table of Contents

3. Acquisitions and Divestitures

Discontinued Operations.
On June 27, 2008, the Company sold substantially all of the net assets of its
Nano Instruments product line, which was based in Oak Ridge, Tennessee. As a
result of this sale, the Company recorded a gain of $2.4 million, net of tax of
$3.6 million, in the third quarter of fiscal year 2008. The Nano Instruments
product line was historically included in the Companys Test segment for
financial reporting. The results of operations of the Nano Instruments product
line, including the gain on the sale, have been excluded from the results of
operations of the Test segment and are reported as discontinued operations.

The Company
does not allocate interest income or interest expense to discontinued operations.
Operating results of the discontinued operations, included in the Companys
results for the three- and six-month periods ended March 28, 2009 and March 29,
2008, were as follows:

|                                                  |  |                          |     |                  |   |                 |   |                 |     |   |   |       |  
|------------------------------------------------- |  | ------------------------ | --- | ---------------- | - | --------------- | - | --------------- | --- | - | - | ----- | -
|                                                  |  | Three Months Ended       |     | Six Months Ended |  
|                                                  |  | March 28,
 2009          |     | March 29,
 2008  |   | March 28,
 2009 |   | March 29,
 2008 |    
|                                                  |  | (expressed in thousands) |    
|Revenue                                           |  | $                        | 128 |                  | $ | 2,378           |   | $               | 128 |   | $ | 5,040 |  
|Income from discontinued
 operations before taxes |  |                          | 36  |                  |   | 152             |   |                 | 36  |   |   | 394   |  
|Provision for income taxes                        |  |                          | (11 | )                |   | (58             | ) |                 | (11 | ) |   | (125  | )
|Income from discontinued
 operations, net of tax  |  | $                        | 25  |                  | $ | 94              |   | $               | 25  |   | $ | 269   |  

The assets and
liabilities of discontinued operations at March 28, 2009 and September 27, 2008
were as follows:

|                                                              |  |                          |     |                    |   |     | 
|------------------------------------------------------------- |  | ------------------------ | --- | ------------------ | - | --- | 
|                                                              |  | March 28, 2009           |     | September 27, 2008 |  
|                                                              |  | (expressed in thousands) |    
|Accounts receivable, net of
 allowances for doubtful accounts |  | $                        |    |                    | $ | 149 | 
|Unbilled accounts
 receivable                                 |  |                          | 141 |                    |   | 88  | 
|Current deferred tax assets                                   |  |                          | 143 |                    |   | 143 | 
|Total assets of
 discontinued operations                      |  | $                        | 284 |                    | $ | 380 | 
|                                                              |  |                          |     |                    |   |     | 
|Accrued income taxes                                          |  | $                        | 174 |                    | $ | 177 | 
|Total liabilities of
 discontinued operations                 |  | $                        | 174 |                    | $ | 177 | 

Business Acquisition.On
September 28, 2008, the Company acquired substantially all of the assets of
SANS Group (SANS). SANS has manufacturing facilities in both Shenzhen and
Shanghai, China, and is headquartered in Shenzhen. SANS manufactures material
testing solutions and offers a variety of products, including electro-mechanical
and static-hydraulic testing machines. The acquisition accelerates the
Companys China growth strategy while also broadening its product offering
worldwide.

The total
purchase price for SANS was $50.0 million, including direct acquisition costs
of $2.9 million. As of March 28, 2009, approximately $38.2 million of the
purchase price was paid. The remaining liability of approximately $11.8 million
is included in Other Accrued Liabilities on the March 28, 2009 Consolidated
Balance Sheet. The results of operations for SANS have been included in the
Companys Consolidated Statements of Income since the date of acquisition, and
are reported in the Companys Test segment. Pro forma results have not been
included, since the impact of the acquisition was not material.

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The purchase
price for SANS has been preliminarily allocated based on the fair values of
assets acquired and liabilities assumed. The final valuation of net assets will
be completed no later than one year from the acquisition date. The following
table summarizes the preliminary allocation of the SANS purchase price,
including acquisition costs, to the fair values of the assets acquired and
liabilities assumed at the date of acquisition:

|                                                          |  |                          |        | 
|--------------------------------------------------------- |  | ------------------------ | ------ | 
|                                                          |  | September 28, 2008       |       
|                                                          |  | (expressed in thousands) |       
|Accounts receivable, inventories and other current assets |  | $                        | 18,417 | 
|Property and equipment                                    |  |                          | 7,741  | 
|Other intangible assets (1)                               |  |                          | 16,747 | 
|Goodwill                                                  |  |                          | 14,384 | 
|Total assets acquired                                     |  |                          | 57,289 | 
|Current liabilities assumed                               |  |                          | 7,318  | 
|Net assets acquired                                       |  | $                        | 49,971 | 

(1) Intangible
assets include patents, trade names and non-compete agreements in the amounts
of $9.2 million, $5.1 million and $2.4 million, respectively. See Note 4 in the
Condensed Notes to Consolidated Financial Statements for additional information
on intangible assets.

4. Capital Assets

Property and Equipment

Property and
equipment at March 28, 2009 and September 27, 2008 consist of the following:

|                               |  |                          |         |                     |   |         |  
|------------------------------ |  | ------------------------ | ------- | ------------------- | - | ------- | -
|                               |  | March 28,
 2009          |         | September 27,
 2008 |  
|                               |  | (expressed in thousands) |        
|Land                           |  | $                        | 2,805   |                     | $ | 1,668   |  
|Buildings
 and improvements    |  |                          | 50,644  |                     |   | 45,700  |  
|Machinery
 and equipment       |  |                          | 93,026  |                     |   | 91,851  |  
|                               |  |                          | 146,475 |                     |   | 139,219 |  
|Less
 accumulated depreciation |  |                          | (89,271 | )                   |   | (88,685 | )
|Property and
 equipment, net   |  | $                        | 57,204  |                     | $ | 50,534  |  

Goodwill

The changes to
the carrying amount of goodwill for the three- and six-month periods ended
March 28, 2009 and March 29, 2008 were as follows:

|                      |  |                          |        |                  |   |                 |  |                 |        |   |   |       | 
|--------------------- |  | ------------------------ | ------ | ---------------- | - | --------------- |  | --------------- | ------ | - | - | ----- | 
|                      |  | Three Months Ended       |        | Six Months Ended |  
|                      |  | March 28,
 2009          |        | March 29,
 2008  |   | March 28,
 2009 |  | March 29,
 2008 |       
|                      |  | (expressed in thousands) |       
|Beginning
 balance    |  | $                        | 15,787 |                  | $ | 1,677           |  | $               | 1,668  |   | $ | 1,642 | 
|Acquisition
 of SANS  |  |                          |       |                  |   |                |  |                 | 14,384 |   |   |      | 
|Currency
 translation |  |                          | 4      |                  |   | 71              |  |                 | (261   | ) |   | 106   | 
|Ending
 balance       |  | $                        | 15,791 |                  | $ | 1,748           |  | $               | 15,791 |   | $ | 1,748 | 

At March 28,
2009, $14.2 million and $1.6 million of goodwill was associated with the Test
and Sensors segments, respectively. At March 29, 2008, goodwill of $1.7 million
was associated entirely with the Sensors segment.

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Other Intangible Assets

Other
intangible assets at March 28, 2009 and September 27, 2008 consist of the
following:

|                            |  |                          |        |                           |   |                     |   |                                            |        |  |  |      | 
|--------------------------- |  | ------------------------ | ------ | ------------------------- | - | ------------------- | - | ------------------------------------------ | ------ |  |  | ---- | 
|                            |  | March 28, 2009           |       
|                            |  | Gross Carrying
 Amount   |        | Accumulated
 Amortization |   | Net Carrying
 Value |   | Weighted
 Average
 Useful Life
 (in Years) |       
|                            |  | (expressed in thousands) |       
|Software
 development costs |  | $                        | 5,898  |                           | $ | (215                | ) | $                                          | 5,683  |  |  | 5.0  | 
|Patents                     |  |                          | 9,218  |                           |   | (326                | ) |                                            | 8,892  |  |  | 15.4 | 
|Trademarks
 and trade names |  |                          | 5,579  |                           |   | (319                | ) |                                            | 5,260  |  |  | 30.2 | 
|Non-compete
 agreements     |  |                          | 2,433  |                           |   | (405                | ) |                                            | 2,028  |  |  | 3.0  | 
|                            |  | $                        | 23,128 |                           | $ | (1,265              | ) | $                                          | 21,863 |  |  | 15.0 | 

|                            |  |                          |       |                           |   |                     |   |                                             |       |  |  |      | 
|--------------------------- |  | ------------------------ | ----- | ------------------------- | - | ------------------- | - | ------------------------------------------- | ----- |  |  | ---- | 
|                            |  | September 27, 2008       |      
|                            |  | Gross Carrying
 Amount   |       | Accumulated
 Amortization |   | Net Carrying
 Value |   | Weighted
 Average
 Useful Lives
 (in Years) |      
|                            |  | (expressed in thousands) |      
|Software
 development costs |  | $                        | 4,155 |                           | $ |                    |   | $                                           | 4,155 |  |  | 5.0  | 
|Trademarks
 and trade names |  |                          | 435   |                           |   | (227                | ) |                                             | 208   |  |  | 33.0 | 
|                            |  | $                        | 4,590 |                           | $ | (227                | ) | $                                           | 4,363 |  |  | 7.7  | 

Amortization
expense recognized during the three-month periods ended March 28, 2009 and
March 29, 2008 was $0.6 million and less than $0.1 million, respectively.
Amortization expense recognized during the six-month periods ended March 28,
2009 and March 29, 2008 was $1.0 million and less than $0.1 million,
respectively. The estimated future amortization expense related to other
intangible assets for the next five fiscal years is as follows:

|                   |  |                          |       | 
|------------------ |  | ------------------------ | ----- | 
|Fiscal Year        |  | Amortization Expense     |      
|                   |  | (expressed in thousands) |      
|Remainder of
 2009 |  | $                        | 1,338 | 
|2010               |  | $                        | 2,677 | 
|2011               |  | $                        | 2,677 | 
|2012               |  | $                        | 1,866 | 
|2013               |  | $                        | 1,866 | 

Future
amortization amounts presented above are estimates. Actual future amortization
expense may be different, due to future acquisitions, impairments, changes in
amortization periods, or other factors.

5. Earnings Per Common Share

Basic earnings per share are
computed by dividing net earnings by the daily weighted average number of
common shares outstanding during the applicable periods. Diluted earnings per
share include the potentially dilutive effect of common shares issued in
connection with outstanding stock-based compensation 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 1.4 million and 1.1 million weighted common shares have been excluded
from diluted weighted shares outstanding for the three-month periods ended
March 28, 2009 and March 29, 2008, respectively. Stock options to acquire 1.4
million and 0.8 million weighted common shares have been excluded from diluted
weighted shares outstanding for the six-month periods ended March 28, 2009 and
March 29, 2008, respectively. The potentially dilutive effect of common shares
issued in connection with outstanding stock options is determined based on
income before discontinued operations. A reconciliation of these amounts is as
follows:

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|                                                 |  |                                                 |        |                  |   |                 |  |                 |        |  |   |        | 
|------------------------------------------------ |  | ----------------------------------------------- | ------ | ---------------- | - | --------------- |  | --------------- | ------ |  | - | ------ | 
|                                                 |  | Three Months Ended                              |        | Six Months Ended |  
|                                                 |  | March 28,
 2009                                 |        | March 29,
 2008  |   | March 28,
 2009 |  | March 29,
 2008 |       
|                                                 |  | (expressed in thousands, except per share data) |       
|                                                 |  |                                                 |       
|Income before discontinued operations            |  | $                                               | 7,448  |                  | $ | 13,445          |  | $               | 17,199 |  | $ | 21,626 | 
|Income from discontinued operations, net of
 tax |  |                                                 | 25     |                  |   | 94              |  |                 | 25     |  |   | 269    | 
|Net income                                       |  | $                                               | 7,473  |                  | $ | 13,539          |  | $               | 17,224 |  | $ | 21,895 | 
|                                                 |  |                                                 |        |                  |   |                 |  |                 |        |  |   |        | 
|Weighted average common shares outstanding       |  |                                                 | 16,841 |                  |   | 17,608          |  |                 | 16,888 |  |   | 17,648 | 
|Dilutive potential common shares                 |  |                                                 | 40     |                  |   | 169             |  |                 | 47     |  |   | 230    | 
|Total diluted weighted shares outstanding        |  |                                                 | 16,881 |                  |   | 17,777          |  |                 | 16,935 |  |   | 17,878 | 
|                                                 |  |                                                 |        |                  |   |                 |  |                 |        |  |   |        | 
|Earnings per share:                              |  |                                                 |        |                  |   |                 |  |                 |        |  |   |        | 
|Basic-                                           |  |                                                 |        |                  |   |                 |  |                 |        |  |   |        | 
|Income before discontinued operations            |  | $                                               | 0.44   |                  | $ | 0.76            |  | $               | 1.02   |  | $ | 1.23   | 
|Income from discontinued operations, net of
 tax |  |                                                 |       |                  |   | 0.01            |  |                 |       |  |   | 0.01   | 
|Earnings per share                               |  | $                                               | 0.44   |                  | $ | 0.77            |  | $               | 1.02   |  | $ | 1.24   | 
|                                                 |  |                                                 |        |                  |   |                 |  |                 |        |  |   |        | 
|Diluted -                                        |  |                                                 |        |                  |   |                 |  |                 |        |  |   |        | 
|Income before discontinued operations            |  | $                                               | 0.44   |                  | $ | 0.76            |  | $               | 1.02   |  | $ | 1.21   | 
|Income from discontinued operations, net of
 tax |  |                                                 |       |                  |   |                |  |                 |       |  |   | 0.01   | 
|Earnings per share                               |  | $                                               | 0.44   |                  | $ | 0.76            |  | $               | 1.02   |  | $ | 1.22   | 

6. Business Segment Information

The Companys Chief
Executive Officer and management regularly review financial information for the
Companys three discrete operating units. 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 units 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, aerospace, and infrastructure markets. The Sensors segment provides
high-performance position sensors for a variety of industrial and vehicular applications.

The accounting policies of
the reportable segments are the same as those described in Note 1 to the
Consolidated Financial Statements found in the Companys Annual Report on Form
10-K for the fiscal year ended September 27, 2008. 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 periods ended March 28, 2009 and March 29, 2008 was
as follows:

|                                   |  |                          |         |                          |   |                 |  |                 |         |  |   |         | 
|---------------------------------- |  | ------------------------ | ------- | ------------------------ | - | --------------- |  | --------------- | ------- |  | - | ------- | 
|                                   |  | Three Months Ended       |         | Six Months Ended         |  
|                                   |  | March 28,
 2009          |         | March 29,
 2008          |   | March 28,
 2009 |  | March 29,
 2008 |        
|                                   |  | (expressed in thousands) |         | (expressed in thousands) |  
|Revenue by Segment:                |  |                          |         |                          |   |                 |  |                 |         |  |   |         | 
|Test                               |  | $                        | 90,929  |                          | $ | 87,786          |  | $               | 188,137 |  | $ | 171,995 | 
|Sensors                            |  |                          | 16,723  |                          |   | 24,382          |  |                 | 36,124  |  |   | 47,565  | 
|Total revenue                      |  | $                        | 107,652 |                          | $ | 112,168         |  | $               | 224,261 |  | $ | 219,560 | 
|                                   |  |                          |         |                          |   |                 |  |                 |         |  |   |         | 
|Income from Operations by Segment: |  |                          |         |                          |   |                 |  |                 |         |  |   |         | 
|Test                               |  | $                        | 9,271   |                          | $ | 8,389           |  | $               | 18,311  |  | $ | 15,316  | 
|Sensors                            |  |                          | 2,476   |                          |   | 5,467           |  |                 | 5,375   |  |   | 10,620  | 
|Total income from operations       |  | $                        | 11,747  |                          | $ | 13,856          |  | $               | 23,686  |  | $ | 25,936  | 

12

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Total assets by reportable
segment at March 28, 2009 and September 27, 2008 were as follows:

|                                |  |                          |         |                    |   |         | 
|------------------------------- |  | ------------------------ | ------- | ------------------ | - | ------- | 
|                                |  | March 28,
 2009          |         | September
 27,2008 |  
|                                |  | (expressed in thousands) |        
|Identifiable Assets by Segment: |  |                          |         |                    |   |         | 
|Test                            |  | $                        | 305,513 |                    | $ | 301,346 | 
|Sensors                         |  |                          | 91,531  |                    |   | 97,431  | 
|Discontinued Operations         |  |                          | 284     |                    |   | 380     | 
|Total assets                    |  | $                        | 397,328 |                    | $ | 399,157 | 

7. Derivative Instruments and Hedging Activities

Effective December 28, 2009,
the Company adopted the provisions of SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment to SFAS No. 133. SFAS No. 161
amends and enhances the disclosure requirements of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, and requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements.

The Companys results of
operations are 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 and 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 has made an accounting
policy decision to not offset fair value amounts recognized on these derivative
instruments. As of March 28, 2009, the Company does not have any foreign
exchange contracts with credit-risk related contingent features.

The Companys foreign
exchange cash flow hedges and interest rate swaps are designated and qualify as
hedging instruments pursuant to SFAS No. 133. The Companys balance sheet
hedges are accounted for and reported under the guidance of SFAS No. 52,
Foreign Currency Translation. The fair value of the Companys designated and
undesignated outstanding hedge derivative assets and liabilities were reported
in the March 28, 2009 Consolidated Balance Sheet as follows:

|                                                       |  |                                             |     |                            |   |       | 
|------------------------------------------------------ |  | ------------------------------------------- | --- | -------------------------- | - | ----- | 
|                                                       |  | March 28, 2009                              |    
|                                                       |  | Prepaid Expenses
 and Other
 Current Assets |     | Other Accrued
 Liabilities |  
|                                                       |  | (expressed in thousands)                    |    
|Hedge derivatives designated under SFAS No.
 133:      |  |                                             |     |                            |   |       | 
|Foreign exchange cash flow hedges                      |  | $                                           | 471 |                            | $ | 492   | 
|Interest rate swaps                                    |  |                                             |    |                            |   | 2,154 | 
|Total hedge derivatives designated under
 SFAS No. 133 |  |                                             | 471 |                            |   | 2,646 | 
|                                                       |  |                                             |     |                            |   |       | 
|Hedge derivatives not designated under SFAS
 No. 133:  |  |                                             |     |                            |   |       | 
|Foreign exchange balance sheet hedges                  |  |                                             |    |                            |   | 797   | 
|Total hedge derivatives                                |  | $                                           | 471 |                            | $ | 3,443 | 

13

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Table of Contents

Foreign Currency Cash Flow Hedging

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 in 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. The Company
periodically 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.

At March 28, 2009 and March
29, 2008, the Company had outstanding cash flow hedge currency exchange
contracts with gross notional U.S. dollar equivalent amounts of $30.4 million
and $62.9 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 $24.2 million and $34.1 million
at March 28, 2009 and March 29, 2008, respectively. At March 28, 2009 the net
market value of the foreign currency exchange contracts was a net liability of
less than $0.1 million, consisting of $0.5 million in liabilities and $0.5
million in offsetting assets. At March 29, 2008, the net market value of
foreign currency exchange contracts was a net liability of $1.8 million,
consisting of $2.2 million in liabilities and $0.4 million in offsetting
assets.

The pretax amounts
recognized in AOCI on currency exchange contracts for the three- and six-month
periods ended March 28, 2009, 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 Months
 Ended
 March, 28
 2009 |        | Six Months
 Ended
 March, 28
 2009 |  
|                                                                                                                                              |  | (expressed in thousands)             |       
|Beginning unrealized net (loss) gain in
 AOCI                                                                                                 |  | $                                    | (1,277 | )                                  | $ | 108    |  
|Net loss reclassified into Revenue
 (effective portion)                                                                                       |  |                                      | 81     |                                    |   | 1,072  |  
|Net loss reclassified into Revenue upon the
 removal of a hedge designation on an underlying foreign currency transaction
 that was cancelled |  |                                      | 169    |                                    |   | 169    |  
|Net loss (gain) recognized in OCI
 (effective portion)                                                                                        |  |                                      | 1,098  |                                    |   | (1,278 | )
|Ending unrealized net gain in AOCI                                                                                                            |  | $                                    | 71     |                                    | $ | 71     |  

The amount recognized in
earnings as a result of the ineffectiveness of cash flow hedges was less than
$0.1 million in the three- and six-month periods ended March 28, 2009 and March
29, 2008. At March 28, 2009 and March 29, 2008, the amount projected to be
reclassified from AOCI into earnings in the next 12 months was a net gain of
$0.1 million and a net loss of $1.4 million, respectively. The maximum
remaining maturity of any forward or optional contract at March 28, 2009 and
March 29, 2008 was 0.7 years and 1.1 years, respectively.

Interest Rate Swaps

The Company also uses
floating to fixed interest rate swaps to mitigate its exposure to changes in
interest rates related to a portion of 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 swap are recorded in AOCI within
Shareholders Investment on the Consolidated Balance Sheets.

At March 28, 2009, the
Company had outstanding interest rate swaps with total notional amounts of
$40.0 million, which equals the amount of outstanding credit facility
borrowings as of that date. Every month, the Company pays fixed interest on
these interest rate swaps in exchange for interest received at monthly U.S.
LIBOR. At March 28, 2009, the weighted-average fixed interest rate payable by
the Company under the terms of the interest rate swap arrangements was 3.31%.
Because there is 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, the overall
effective interest rate applicable to outstanding credit facility borrowings at
March 28, 2009, under the terms of the credit facility borrowings and interest
rate swap agreements, was 3.76%. The total market value of the interest rate
swaps at March 28, 2009 was a liability of $2.2 million.

14

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Table of Contents

The pretax amounts
recognized in AOCI on interest rate swaps for the three- and six-month periods
ended March 28, 2009 are as follows:

|                                                |  |                                      |        |                                    |   |        |  
|----------------------------------------------- |  | ------------------------------------ | ------ | ---------------------------------- | - | ------ | -
|                                                |  | Three Months
 Ended
 March, 28
 2009 |        | Six Months
 Ended
 March, 28
 2009 |  
|                                                |  | (expressed in thousands)             |       
|Beginning
 unrealized net loss in AOCI          |  | $                                    | (2,111 | )                                  | $ | (199   | )
|Net gain
 recognized in OCI (effective portion) |  |                                      | (43    | )                                  |   | (1,955 | )
|Ending
 unrealized net loss in AOCI             |  | $                                    | (2,154 | )                                  | $ | (2,154 | )

Foreign Currency Balance Sheet Hedging

The Company also uses
currency exchange contracts to hedge 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 contracts
are included in other income, net on the Consolidated Statement of Income in
the current period.

At March 28, 2009 and March
29, 2008, the Company had outstanding balance sheet hedge currency exchange
contracts with gross notional U.S. dollar equivalent amounts of $74.2 million
and $50.9 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 was $13.8 million at
March 28, 2009 and $13.6 million at March 29, 2008. At March 28, 2009, the net
market value of the balance sheet foreign currency exchange contracts was a net
liability of $0.8 million, consisting entirely of liabilities. On March 29,
2008, the net market value of the balance sheet forward exchange contracts was
a liability of $0.2 million, consisting of $0.2 million in liabilities with
less than $0.1 million in offsetting assets.

The net losses recognized in
the Consolidated Statements of Income on balance sheet hedge currency exchange
contracts for the three- and six-month periods ended March 28, 2009 are as
follows:

|                                                    |  |                                      |      |                                    |   |      |  
|--------------------------------------------------- |  | ------------------------------------ | ---- | ---------------------------------- | - | ---- | -
|                                                    |  | Three Months
 Ended
 March, 28
 2009 |      | Six Months
 Ended
 March, 28
 2009 |  
|                                                    |  | (expressed in thousands)             |     
|Net loss
 recognized in Other (expense) income, net |  | $                                    | (150 | )                                  | $ | (953 | )

8. Fair Value Measurements

SFAS No. 157 Adoption

Effective September 28,
2008, the Company adopted the provisions of SFAS No. 157, Fair Value
Measurements. SFAS No. 157 provides a framework for measuring fair value under
GAAP, and defines fair value as the price that would be received to sell an
asset, or paid to transfer a liability, in an orderly transaction between
market participants at the measurement date (exit price). SFAS 157 clarifies
that a fair value measurement should include an adjustment for risk, if market
participants would include a risk adjustment in pricing the related asset or
liability. 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, as appropriate.

SFAS No. 157 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 28, 2009,
financial assets and liabilities subject to fair value measurements on a
recurring basis are as follows:

|                        |  |                          |   |         |   |         |  |       |   |  |   |       | 
|----------------------- |  | ------------------------ | - | ------- | - | ------- |  | ----- | - |  | - | ----- | 
|                        |  | Level 1                  |   | Level 2 |   | Level 3 |  | Total |  
|                        |  | (expressed in thousands) |  
|Assets:                 |  |                          |  
|Derivative contracts(1) |  | $                        |  |         | $ | 471     |  | $     |  |  | $ | 471   | 
|Total assets            |  | $                        |  |         | $ | 471     |  | $     |  |  | $ | 471   | 
|                        |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Liabilities:            |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Derivative contracts(1) |  | $                        |  |         | $ | 1,289   |  | $     |  |  | $ | 1,289 | 
|Interest rate swaps(2)  |  |                          |   |         |   | 2,154   |  |       |  |  |   | 2,154 | 
|Total liabilities       |  | $                        |  |         | $ | 3,443   |  | $     |  |  | $ | 3,443 | 

| |     |                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------
| | (1) | Based on observable market
 transactions of spot currency rates and forward currency rates of equivalently-termed instruments.
| |     |                                                                                                                               
| | (2) | Based on LIBOR and swap
 rates.                                                                                               

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. The Company believes that the fair value of its fixed-rate
long-term debt at March 28, 2009 approximates its carrying value, based on
consideration of the Companys current borrowing rates as well as the
short-term nature of its maturity.

9. 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
periods ended March 28, 2009 and March 29, 2008 was as follows:

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|                                                                  |  |                          |        |                  |   |                 |   |                 |        |   |   |        |  
|----------------------------------------------------------------- |  | ------------------------ | ------ | ---------------- | - | --------------- | - | --------------- | ------ | - | - | ------ | -
|                                                                  |  | Three Months Ended       |        | Six Months Ended |  
|                                                                  |  | March 28,
 2009          |        | March 29,
 2008  |   | March 28,
 2009 |   | March 29,
 2008 |       
|                                                                  |  | (expressed in thousands) |       
|                                                                  |  |                          |        |                  |   |                 |   |                 |        |   |   |        |  
|Net income                                                        |  | $                        | 7,473  |                  | $ | 13,539          |   | $               | 17,224 |   | $ | 21,895 |  
|Change in cumulative translation
 adjustment                      |  |                          | (6,215 | )                |   | 9,645           |   |                 | (9,226 | ) |   | 12,829 |  
|Pension benefit plan
 adjustments                                 |  |                          | (365   | )                |   | 6               |   |                 | (227   | ) |   | 12     |  
|Increase (decrease) in
 unrealized loss on derivative instruments |  |                          | 846    |                  |   | (385            | ) |                 | (1,232 | ) |   | (486   | )
|Comprehensive income                                              |  | $                        | 1,739  |                  | $ | 22,805          |   | $               | 6,539  |   | $ | 34,250 |  

10. Financing

At March 28,
2009, outstanding borrowings under the credit facility were $40.0 million. In
order to mitigate its exposure to interest rate increases on its floating rate
indebtedness, the Company has entered into floating to fixed interest rate swap
agreements. At March 28, 2009, under the terms of the credit facility
borrowings and interest rate swap agreements, the effective weighted average
fixed interest rate applicable to outstanding credit facility borrowings was
3.76%. See Note 7 in the Condensed Notes to Consolidated Financial Statements
for additional information on the interest rate swaps.

Short-term
borrowings at March 28, 2009 and September 27, 2008 consist of the following:

|                                                                                                                                                                                                      |  |                          |        |                     |   |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ------------------- | - | ------ | 
|                                                                                                                                                                                                      |  | March 28,
 2009          |        | September 27,
 2008 |  
|                                                                                                                                                                                                      |  | (expressed in thousands) |       
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (1.01%
 rate in effect at March 28, 2009), maturing April 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  | $                        | 11,000 |                     | $ | 11,000 | 
|                                                                                                                                                                                                     
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (1.01%
 rate in effect at March 28, 2009), maturing April 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                          | 13,000 |                     |   | 13,000 | 
|                                                                                                                                                                                                     
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (1.01%
 rate in effect at March 28, 2009), maturing April 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                          | 6,000  |                     |   |       | 
|                                                                                                                                                                                                     
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (0.95%
 rate in effect at March 28, 2009), maturing April 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                          | 10,000 |                     |   |       | 
|                                                                                                                                                                                                     
|Notes payable, non-interest bearing                                                                                                                                                                   |  |                          | 280    |                     |   | 338    | 
|Total short-term borrowings                                                                                                                                                                           |  | $                        | 40,280 |                     | $ | 24,338 | 

11. Income Taxes

At September
27, 2008, the Companys liability for unrecognized tax benefits was $4.0
million, of which $1.3 million would favorably affect the Companys effective
tax rate if recognized. As of March 28, 2009, the Companys liability for
unrecognized tax benefits was $4.4 million, of which $1.7 million would
favorably affect the Companys effective tax rate if recognized. As of March
28, 2009, the Company does not expect significant changes in the amount of
unrecognized tax benefits during the next twelve months.

Legislation was enacted in October of fiscal year 2009 that extended United States R&D credits, with an effective
date that is retroactive to January 1, 2008. As a result of this legislation, the Company recognized a tax benefit of approximately $1.0 million
during the three-month period ended December 27, 2008.

12. Retirement Benefit Plan

One of the
Companys German subsidiaries has a non-contributory, defined benefit
retirement plan for eligible employees. This plan provides benefits based on
the employees years of service and compensation during the years immediately
preceding retirement, early retirement, termination, disability, or death, as
defined in the plan. The Company uses a September 30 measurement date for this
defined benefit retirement plan.

17

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Table of Contents

The cost for
the plan for the periods ended March 28, 2009 and March 29, 2008 included the
following components:

|                                |  |                          |      |                          |   |                 |  |                 |      |   |   |     | 
|------------------------------- |  | ------------------------ | ---- | ------------------------ | - | --------------- |  | --------------- | ---- | - | - | --- | 
|                                |  | Three Months Ended       |      | Six Months Ended         |  
|                                |  | March 28,
 2009          |      | March 29,
 2008          |   | March 28,
 2009 |  | March 29,
 2008 |     
|                                |  | (expressed in thousands) |      | (expressed in thousands) |  
|                               
|Service cost                    |  | $                        | 96   |                          | $ | 139             |  | $               | 194  |   | $ | 272 | 
|Interest cost                   |  |                          | 183  |                          |   | 186             |  |                 | 370  |   |   | 365 | 
|Expected return on plan
 assets |  |                          | (168 | )                        |   |                |  |                 | (340 | ) |   |    | 
|Net amortization and
 deferral  |  |                          | 4    |                          |   | 9               |  |                 | 7    |   |   | 17  | 
|Net periodic benefit cost       |  | $                        | 115  |                          | $ | 334             |  | $               | 231  |   | $ | 654 | 

13. Severance Costs

In February
2009, the Company announced and initiated a workforce reduction in
order to align the Companys operating cost structure with changing market
conditions. In connection with the workforce reduction, the Company incurred severance and
benefit costs totaling $2.8 million of which $2.7 million and $0.1 million was
reported in the Test and Sensors segments, respectively. At March 28, 2009, the
remaining severance liability was $2.5 million, substantially all of which will
be paid over the next twelve months.

The following
table summarizes the severance charges included in the Companys Consolidated
Statement of Income for the three- and six-month periods ended March 28, 2009:

|                           |  |                                      |       |                                    |   |       | 
|-------------------------- |  | ------------------------------------ | ----- | ---------------------------------- | - | ----- | 
|                           |  | Three Months
 Ended
 March 28,
 2009 |       | Six Months
 Ended
 March 28,
 2009 |  
|                           |  | (expressed in thousands)             |      
|Cost of
 sales             |  | $                                    | 1,183 |                                    | $ | 1,183 | 
|Selling and
 marketing     |  |                                      | 1,408 |                                    |   | 1,408 | 
|General and administrative |  |                                      | 225   |                                    |   | 225   | 
|Total
 severance costs     |  | $                                    | 2,816 |                                    | $ | 2,816 | 

18

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Table of Contents

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

Forward-Looking Statements

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

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

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

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

About MTS Systems Corporation

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

19

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Table of Contents

Summary of Financial Results

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

Highlights for
the Second Quarter of Fiscal 2009 include:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Orders
 decreased 46.7% to $69.2 million, compared to $129.9 million for the Second
 Quarter of Fiscal 2008, as sharply lower demand in worldwide capital spending
 in the Companys markets had a negative impact on both the Test and Sensors
 segments. Backlog of undelivered orders was $175.4 million, including $12.7
 million from SANS, a decrease of 19.7% from backlog of $218.4 million at
 December 27, 2008. Backlog at the end of the Second Quarter of Fiscal 2008
 was $246.1 million.                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Revenue
 decreased 4.0% to $107.7 million, compared to $112.2 million in the Second
 Quarter of Fiscal 2008. This decrease was primarily driven by a 27.2% decline
 in the Sensors segment, partially offset by a 4.2% benefit from SANS. Revenue
 volume in the organic Test business was relatively flat (where organic as
 used throughout Item 2. is defined as without the SANS acquisition).                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | In February
 2009, the Company announced and initiated a workforce reduction in
 order to align the Companys operating cost structure with changing market
 conditions. In connection with the workforce reduction, the Company incurred severance and
 benefit costs totaling $2.8 million, of which $2.7 million and $0.1 million
 was reported in the Test and Sensors segments, respectively. Of the $2.8
 million total costs, $1.2 million, $1.4 million, and $0.2 million were
 reported in Cost of Sales, Selling and Marketing, and General and
 Administrative expense, respectively.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Income from
 operations decreased 15.8% to $11.7 million, compared to $13.9 million for
 the Second Quarter of Fiscal 2008, as the unfavorable impact of the volume
 decline in the Sensors segment, severance and benefit costs associated with
 the previously mentioned workforce reduction, as well as a $1.2 million operating loss from
 SANS, more than offset reduced variable compensation and other operating
 expenses in both the organic Test business and the Sensors segment.                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | The
 effective tax rate was 27.9%, an increase of 15.3 percentage points compared
 to a tax rate of 12.6% for the Second Quarter of Fiscal 2008. This increase
 was primarily due to a $3.7 million tax benefit from the repatriation of
 earnings from Japanese affiliates in the Second Quarter of Fiscal 2008.                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Earnings per
 diluted share decreased $0.32, or 42.1%, to $0.44, compared to $0.76 for the
 Second Quarter of Fiscal 2008. A higher tax rate, lower income from operations
 and currency related losses negatively impacted earnings per diluted share by
 $0.10, $0.09 and $0.09, respectively.                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Cash and
 cash equivalents at the end of the quarter totaled $99.3 million, compared to
 $104.8 million at the end of the prior quarter. Cash flows from operations generated
 $10.2 million. During the quarter, the Company invested $2.8 million in
 capital expenditures, paid $2.5 million in dividends, and purchased 125,400
 shares of common stock for $3.1 million.                                                                                                                                                                                                                   

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

Highlights for
the First Half of Fiscal 2009 include:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On September
 28, 2008 the Company acquired substantially all of the assets of SANS Group (SANS)
 for $50.0 million. SANS has manufacturing facilities in both Shenzhen and
 Shanghai, China, and is headquartered in Shenzhen. SANS manufactures material
 testing solutions and offers a variety of products, including
 electromechanical and static-hydraulic testing machines. The results of
 operations for SANS have been included in the Companys results of operations
 since the date of the acquisition, and are reported in the Companys Test
 segment. Orders for SANS for the First Half of Fiscal 2009 were $12.0
 million. SANS reported a $3.5 million loss from operations during the First
 Half of Fiscal 2009, on $8.0 million of revenue, driven by lower gross profit
 and increased operating expenses associated with acquisition-related items.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Orders decreased
 35.0% to $164.6 million, compared to $253.4 million for the First Half of
 Fiscal 2008, as sharply lower demand in worldwide capital spending in the
 Companys markets had a negative impact on both the Test and Sensors
 segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Revenue
 increased 2.1% to $224.3 million, compared to $219.6 million in the First
 Half of Fiscal 2008. This increase was primarily due to a 7.9% increase in
 the organic Test business, driven by higher opening backlog, partially offset
 by a 20.9% decline in the Sensors segment. SANS provided a 3.6% benefit for
 the First Half of Fiscal 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

20

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Table of Contents

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | As
 previously mentioned, the Company announced and initiated a workforce reduction during the
 First Half of Fiscal Year 2009. As a result, the Company incurred severance
 and benefit arrangement costs totaling $2.8 million, of which $2.7 million
 and $0.1 million was reported in the Test and Sensors segments, respectively.
 Of the $2.8 million total costs, $1.2 million, $1.4 million, and $0.2 million
 were reported in Cost of Sales, Selling and Marketing, and General and
 Administrative expense, respectively.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Income from
 operations decreased 8.5% to $23.7 million, compared to $25.9 million for the
 First Half of Fiscal 2008, as the unfavorable impact of the volume decline in
 the Sensors segment, severance and benefit costs associated with the workforce reduction, as
 well as a $3.5 million operating loss from SANS, more than offset reduced
 variable compensation and other operating expenses in both the organic Test
 business and the Sensors segment.                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | The
 effective tax rate was 25.8%, an increase of 3.1 percentage points compared
 to a tax rate of 22.7% for the First Quarter of Fiscal 2008. This increase
 was primarily due to a $3.7 million tax benefit from the repatriation of
 earnings from Japanese affiliates in the First Half of Fiscal 2008, partially
 offset by a $1.0 million tax benefit from the retroactive extension of U.S.
 R&D credits in the First Half of Fiscal 2009.                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Earnings per
 diluted share decreased $0.20, or 16.4%, to $1.02, compared to $1.22 for the
 First Half of Fiscal 2008, primarily due to decreased net income. This
 decrease was primarily driven by lower income from operations, increased net
 interest expense, and unfavorable losses on foreign currency transactions,
 which unfavorably impacted earnings per diluted share by $0.09, $0.06 and
 $0.04, respectively.                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Cash and
 cash equivalents at March 28, 2009 totaled $99.3 million, compared to $114.1
 million at the end of Fiscal 2008. Cash flows from operations generated $15.7
 million. During the First Half of Fiscal 2009, the Company borrowed $16.0
 million from its credit facility, paid an additional $21.6 million for the
 acquisition of SANS, invested $5.9 million in capital expenditures, and
 purchased 245,500 shares of common stock for $6.7 million.                                                                   

Detailed Financial Results

Total Company

Orders and Backlog

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

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

|       |  |                                      |       |                           |   |                   |   |                       |     |                                      |   |      |   |   |      | 
|------ |  | ------------------------------------ | ----- | ------------------------- | - | ----------------- | - | --------------------- | --- | ------------------------------------ | - | ---- | - | - | ---- | 
|       |  | Three Months
 Ended
 March 29,
 2008 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |     | Three Months
 Ended
 March 28,
 2009 |  
|Orders |  | $                                    | 129.9 |                           | $ | (63.9             | ) | $                     | 6.5 |                                      | $ | (3.3 | ) | $ | 69.2 | 

Orders totaled
$69.2 million, a decrease of $60.7 million, or 46.7%, compared to orders of
$129.9 million for the Second Quarter of Fiscal 2008. This decrease is
primarily due to lower order volume in both the organic Test business and
Sensors segment across all geographies, partially offset by a $6.5 million
increase from SANS. Orders from international customers for the Second Quarter of
Fiscal 2009 represented 66.9% of total orders, compared to 66.6% for the Second
Quarter of Fiscal 2008.

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

21

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Table of Contents

Results of Operations

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

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

|                                                        |  |                    |       |                 |   |          |   |            |       |   |       |    | 
|------------------------------------------------------- |  | ------------------ | ----- | --------------- | - | -------- | - | ---------- | ----- | - | ----- | -- | 
|                                                        |  | Three Months Ended |       |                 |   |          |  
|                                                        |  | March 28,
 2009    |       | March 29,
 2008 |   | Variance |   | % Variance |      
|Revenue                                                 |  | $                  | 107.7 |                 | $ | 112.2    |   | $          | (4.5  | ) | -4.0  | %  | 
|Cost of sales                                           |  |                    | 66.2  |                 |   | 66.1     |   |            | 0.1   |   | 0.2   | %  | 
|Gross profit                                            |  |                    | 41.5  |                 |   | 46.1     |   |            | (4.6  | ) | -10.0 | %  | 
|Gross margin                                            |  |                    | 38.6  | %               |   | 41.1     | % |            | -2.5  | % |       |    | 
|Operating expenses:                                     |  |                    |       |                 |   |          |   |            |       |   |       |    | 
|Selling and marketing                                   |  |                    | 17.9  |                 |   | 19.7     |   |            | (1.8  | ) | -9.1  | %  | 
|General administrative                                  |  |                    | 8.0   |                 |   | 8.5      |   |            | (0.5  | ) | -5.9  | %  | 
|Research and development                                |  |                    | 3.9   |                 |   | 4.0      |   |            | (0.1  | ) | -2.5  | %  | 
|Total operating expenses                                |  |                    | 29.8  |                 |   | 32.2     |   |            | (2.4  | ) | -7.5  | %  | 
|                                                        |  |                    |       |                 |   |          |   |            |       |   |       |    | 
|Income from operations                                  |  |                    | 11.7  |                 |   | 13.9     |   |            | (2.2  | ) | -15.8 | %  | 
|                                                        |  |                    |       |                 |   |          |   |            |       |   |       |    | 
|Interest expense                                        |  |                    | (0.5  | )               |   | (0.3     | ) |            | (0.2  | ) | 66.7  | %  | 
|Interest income                                         |  |                    | 0.3   |                 |   | 0.9      |   |            | (0.6  | ) | -66.7 | %  | 
|Other (expense) income, net                             |  |                    | (1.1  | )               |   | 0.8      |   |            | (1.9  | ) |       | NM | 
|Income before income taxes
 and discontinued operations |  |                    | 10.4  |                 |   | 15.3     |   |            | (4.9  | ) | -32.0 | %  | 
|Provision for income taxes                              |  |                    | 2.9   |                 |   | 1.9      |   |            | 1.0   |   | 52.6  | %  | 
|Income before discontinued
 operations                  |  |                    | 7.5   |                 |   | 13.4     |   |            | (5.9  | ) | -44.0 | %  | 
|                                                        |  |                    |       |                 |   |          |   |            |       |   |       |    | 
|Income from discontinued
 operations, net of tax        |  |                    |      |                 |   | 0.1      |   |            | (0.1  | ) |       | NM | 
|Net income                                              |  | $                  | 7.5   |                 | $ | 13.5     |   | $          | (6.0  | ) | -44.4 | %  | 
|Diluted earnings per share                              |  | $                  | 0.44  |                 | $ | 0.76     |   |            | (0.32 | ) | -42.1 | %  | 

NM
represents comparisons that are not meaningful to this analysis.

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

22

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Table of Contents

|                               |  |                                      |       |                           |   |                   |   |                       |      |                                      |   |      |   |   |       |  
|------------------------------ |  | ------------------------------------ | ----- | ------------------------- | - | ----------------- | - | --------------------- | ---- | ------------------------------------ | - | ---- | - | - | ----- | -
|                               |  | Three Months
 Ended
 March 29,
 2008 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Three Months
 Ended
 March 28,
 2009 |  
|Revenue                        |  | $                                    | 112.2 |                           | $ | (6.0              | ) | $                     | 4.7  |                                      | $ | (3.2 | ) | $ | 107.7 |  
|Cost of sales                  |  |                                      | 66.1  |                           |   | (0.9              | ) |                       | 2.7  |                                      |   | (1.7 | ) |   | 66.2  |  
|Gross profit                   |  |                                      | 46.1  |                           |   | (5.1              | ) |                       | 2.0  |                                      |   | (1.5 | ) |   | 41.5  |  
|                               |  |                                      | 41.1  | %                         |   |                   |   |                       | 42.6 | %                                    |   |      |   |   | 38.6  | %
|Operating expenses:            |  |                                      |       |                           |   |                   |   |                       |      |                                      |   |      |   |   |       |  
|Selling and marketing          |  |                                      | 19.7  |                           |   | (2.5              | ) |                       | 1.2  |                                      |   | (0.5 | ) |   | 17.9  |  
|General administrative         |  |                                      | 8.5   |                           |   | (2.3              | ) |                       | 2.0  |                                      |   | (0.2 | ) |   | 8.0   |  
|Research and development       |  |                                      | 4.0   |                           |   |                  |   |                       |     |                                      |   | (0.1 | ) |   | 3.9   |  
|Total operating expenses       |  |                                      | 32.2  |                           |   | (4.8              | ) |                       | 3.2  |                                      |   | (0.8 | ) |   | 29.8  |  
|                               |  |                                      |       |                           |   |                   |   |                       |      |                                      |   |      |   |   |       |  
|Income (loss) from
 operations |  | $                                    | 13.9  |                           | $ | (0.3              | ) | $                     | (1.2 | )                                    | $ | (0.7 | ) | $ | 11.7  |  

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

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

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

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

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

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

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

23

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Table of Contents

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

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

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

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

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

Segment Results

Test Segment

Orders and Backlog

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

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

|       |  |                                      |       |                           |   |                   |   |                       |     |                                      |   |      |   |   |      | 
|------ |  | ------------------------------------ | ----- | ------------------------- | - | ----------------- | - | --------------------- | --- | ------------------------------------ | - | ---- | - | - | ---- | 
|       |  | Three Months
 Ended
 March 29,
 2008 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |     | Three Months
 Ended
 March 28,
 2009 |  
|Orders |  | $                                    | 104.9 |                           | $ | (55.3             | ) | $                     | 6.5 |                                      | $ | (2.6 | ) | $ | 53.5 | 

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

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

24

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Table of Contents

Results of Operations

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

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

|                               |  |                                      |      |                           |   |                   |   |                       |      |                                      |   |      |   |   |      |  
|------------------------------ |  | ------------------------------------ | ---- | ------------------------- | - | ----------------- | - | --------------------- | ---- | ------------------------------------ | - | ---- | - | - | ---- | -
|                               |  | Three Months
 Ended
 March 29,
 2008 |      | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Three Months
 Ended
 March 28,
 2009 |  
|Revenue                        |  | $                                    | 87.8 |                           | $ | 0.7               |   | $                     | 4.7  |                                      | $ | (2.2 | ) | $ | 91.0 |  
|Cost of sales                  |  |                                      | 55.5 |                           |   | 1.6               |   |                       | 2.7  |                                      |   | (1.3 | ) |   | 58.5 |  
|Gross profit                   |  |                                      | 32.3 |                           |   | (0.9              | ) |                       | 2.0  |                                      |   | (0.9 | ) |   | 32.5 |  
|                               |  |                                      | 36.8 | %                         |   |                   |   |                       | 42.6 | %                                    |   |      |   |   | 35.7 | %
|Operating expenses:            |  |                                      |      |                           |   |                   |   |                       |      |                                      |   |      |   |   |      |  
|Selling and marketing          |  |                                      | 15.4 |                           |   | (1.8              | ) |                       | 1.2  |                                      |   | (0.4 | ) |   | 14.4 |  
|General administrative         |  |                                      | 5.6  |                           |   | (1.6              | ) |                       | 2.0  |                                      |   | (0.1 | ) |   | 5.9  |  
|Research and development       |  |                                      | 2.9  |                           |   | 0.1               |   |                       |     |                                      |   |     |   |   | 3.0  |  
|Total operating expenses       |  |                                      | 23.9 |                           |   | (3.3              | ) |                       | 3.2  |                                      |   | (0.5 | ) |   | 23.3 |  
|                               |  |                                      |      |                           |   |                   |   |                       |      |                                      |   |      |   |   |      |  
|Income (loss) from
 operations |  | $                                    | 8.4  |                           | $ | 2.4               |   | $                     | (1.2 | )                                    | $ | (0.4 | ) | $ | 9.2  |  

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

Gross profit was $32.5
million, relatively flat compared to the Second Quarter of Fiscal 2008. Gross
profit as a percentage of revenue was 35.7%, a decrease of 1.1 percentage
points from 36.8% for the Second Quarter of Fiscal 2008. The organic business
decreased 1.4 percentage points, primarily due to $1.1 million severance and
benefit costs associated with the previously mentioned workforce reduction, as well as
increased warranty expense, partially offset by favorable product mix and a
$1.8 million reduction in variable compensation. In addition, SANS positively
impacted gross profit by 0.3 percentage points in the quarter.

Selling and marketing expense
was $14.4 million, a decrease of $1.0 million, or 6.5%, compared to $15.4
million for the Second Quarter of Fiscal 2008. This decrease was primarily due
to lower commissions and sales incentives, reduced spending, as well as a $0.6
million reduction in variable compensation expense in the organic business,
partially offset by $1.4 million severance and benefit costs associated with
the previously mentioned workforce reduction, and $1.2 million increase from SANS. Selling and
marketing expense as a percentage of revenue was 15.8%, compared to 17.5% for
the Second Quarter of Fiscal 2008.

General and administrative expense
was $5.9 million, an increase of $0.3 million, or 5.4%, compared to $5.6
million for the Second Quarter of Fiscal 2008. This increase was primarily due
to SANS and $0.2 million severance and benefit costs associated with the
previously mentioned workforce reduction, partially offset by a $1.0 million reduction in
variable compensation expense and lower legal expense in the organic business.
General and administrative expense as a percentage of revenue was 6.5%,
compared to 6.4% for the Second Quarter of Fiscal 2008.

Research and development expense
was $3.0 million, relatively flat compared to the Second Quarter of Fiscal
2008. Research and development expense as a percentage of revenue was 3.3%,
flat compared to the Second Quarter of Fiscal 2008.

25

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Income from operations
was $9.2 million, an increase of $0.8 million, or 9.5%, compared to income from
operations of $8.4 million for the Second Quarter of Fiscal 2008. This increase
was primarily due to a reduction in variable compensation and other operating
expenses in the organic Test business, partially offset by higher warranty
expense,  severance and
benefit costs, and a $1.2 million operating loss from SANS. Operating income as
a percentage of revenue was 10.1%, compared to 9.6% for the Second Quarter of
Fiscal 2008.

SANS Acquisition

Orders and
revenue were $6.5 million and $4.7 million, respectively. Gross profit as a
percentage of revenue was 42.6%. Gross profit includes a $0.5 million reduction
associated with the sale of inventory that was written up to fair value as part
of the acquisition, which negatively impacted the gross margin rate by 10.6
percentage points. Loss from operations was $1.2 million, driven by reduced
gross profit and increased operating expenses associated with integration
costs.

Sensors Segment

Orders and Backlog

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

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

|       |  |                                      |      |                           |   |                       |   |                                      |      |   |   |      | 
|------ |  | ------------------------------------ | ---- | ------------------------- | - | --------------------- | - | ------------------------------------ | ---- | - | - | ---- | 
|       |  | Three Months
 Ended
 March 29,
 2008 |      | Organic
 Business
 Change |   | Currency
 Translation |   | Three Months
 Ended
 March 28,
 2009 |     
|Orders |  | $                                    | 25.0 |                           | $ | (8.6                  | ) | $                                    | (0.7 | ) | $ | 15.7 | 

Orders totaled $15.7
million, a decrease of $9.3 million, or 37.2%, compared to orders of $25.0
million for the Second Quarter of Fiscal 2008, primarily due to lower volume
across all geographies resulting from sharply lower demand in worldwide
industrial capital spending and a reduction in customer inventory levels. The
Sensors segment accounted for 22.7% of total Company orders, compared to 19.2%
for the Second Quarter of Fiscal 2008. Orders from international customers
represented 65.8% of total orders, compared to 72.5% for the Second Quarter of
Fiscal 2008.

Backlog of
undelivered orders at the end of the quarter was $9.1 million, a decrease of
13.3% from backlog of $10.5 million at December 27, 2008. Backlog at the end of
the Second Quarter of Fiscal Year 2008 was $12.6 million.

Results of Operations

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

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

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|                               |  |                                      |      |                           |   |                       |   |                                      |      |   |   |      |  
|------------------------------ |  | ------------------------------------ | ---- | ------------------------- | - | --------------------- | - | ------------------------------------ | ---- | - | - | ---- | -
|                               |  | Three Months
 Ended
 March 29,
 2008 |      | Organic
 Business
 Change |   | Currency
 Translation |   | Three Months
 Ended
 March 28,
 2009 |     
|Revenue                        |  | $                                    | 24.4 |                           | $ | (6.7                  | ) | $                                    | (1.0 | ) | $ | 16.7 |  
|Cost of sales                  |  |                                      | 10.6 |                           |   | (2.5                  | ) |                                      | (0.4 | ) |   | 7.7  |  
|Gross profit                   |  |                                      | 13.8 |                           |   | (4.2                  | ) |                                      | (0.6 | ) |   | 9.0  |  
|                               |  |                                      | 56.4 | %                         |   |                       |   |                                      |      |   |   | 54.0 | %
|Operating expenses:            |  |                                      |      |                           |   |                       |   |                                      |      |   |   |      |  
|Selling and marketing          |  |                                      | 4.3  |                           |   | (0.7                  | ) |                                      | (0.1 | ) |   | 3.5  |  
|General administrative         |  |                                      | 2.9  |                           |   | (0.7                  | ) |                                      | (0.1 | ) |   | 2.1  |  
|Research and development       |  |                                      | 1.1  |                           |   | (0.1                  | ) |                                      | (0.1 | ) |   | 0.9  |  
|Total operating expenses       |  |                                      | 8.3  |                           |   | (1.5                  | ) |                                      | (0.3 | ) |   | 6.5  |  
|                               |  |                                      |      |                           |   |                       |   |                                      |      |   |   |      |  
|Income (loss) from
 operations |  | $                                    | 5.5  |                           | $ | (2.7                  | ) | $                                    | (0.3 | ) | $ | 2.5  |  

Revenue was $16.7 million, a decrease of $7.7 million, or 31.6%, compared to
revenue of $24.4 million for the Second Quarter of Fiscal 2008. This decrease
was primarily driven by reduced worldwide volume. Revenue from international
customers represented 71.4% of total revenue, compared to 72.8% for the Second
Quarter of Fiscal 2008.

Gross profit was $9.0 million, a decrease of $4.8 million, or 34.8%, compared to
gross profit of $13.8 million for the Second Quarter of Fiscal 2008. Gross
profit as a percentage of revenue was 54.0%, a decrease of 2.4 percentage
points from 56.4% for the Second Quarter of Fiscal 2008. This decrease was
primarily due to reduced volume.

Selling and marketing expense was $3.5 million, a decrease of $0.8
million, or 18.6%, compared to $4.3 million for the Second Quarter of Fiscal
2008. The decrease is primarily due to reduced spending, lower commission
expense, and $0.2 million reduced variable compensation expense. Selling and
marketing expense as a percentage of revenue was 21.0%, compared to 17.6% for
the Second Quarter of Fiscal 2008.

General and administrative expense was $2.1 million, a decrease of $0.8
million, or 27.6%, compared to $2.9 million for the Second Quarter of Fiscal
2008, primarily due to reduced compensation and benefits expense, including a
$0.2 million reduction in variable compensation. General and administrative
expense as a percentage of revenue was 12.6%, compared to 11.9% for the Second
Quarter of Fiscal 2008.

Research and development expense was $0.9 million, a decrease of $0.2
million, or 18.2%, compared to $1.1 million for the Second Quarter of Fiscal
2008. The decrease was due to reduced spending. Research and development
expense as a percentage of revenue was 5.4%, compared to 4.5% for the Second
Quarter of Fiscal 2008.

Income from operations was $2.5 million, a decrease of $3.0
million, or 54.5%, compared to income from operations of $5.5 million for the
Second Quarter of Fiscal 2008, primarily due to lower gross profit. Operating
income as a percentage of revenue was 15.0%, compared to 22.5% for the Second
Quarter of Fiscal 2008.

Total Company

Orders and Backlog

First Half of Fiscal 2009 Compared to First Half of Fiscal
2008

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

27

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Table of Contents

|       |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       | 
|------ |  | ---------------------------------- | ----- | ------------------------- | - | ----------------- | - | --------------------- | ---- | ---------------------------------- | - | ---- | - | - | ----- | 
|       |  | Six Months
 Ended
 March 29,
 2008 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Six Months
 Ended
 March 28,
 2009 |  
|Orders |  | $                                  | 253.4 |                           | $ | (95.7             | ) | $                     | 12.0 |                                    | $ | (5.1 | ) | $ | 164.6 | 

Orders totaled $164.6
million, a decrease of $88.8 million, or 35.0%, compared to orders of $253.4
million for the First Half of Fiscal 2008. This decrease is primarily due to
lower order volume in both the organic Test business and Sensors segment across
all geographies, partially offset by a $12.0 million increase from SANS. Orders
from international customers represented 66.1% of total orders, compared to
63.6% for the First Half of Fiscal 2008.

Backlog of undelivered
orders at the end of the Second Quarter of Fiscal 2009, was $175.4 million, a
decrease of 25.3% from backlog of $234.7 million at September 27, 2008. Backlog
included $12.7 million from SANS. Backlog at the end of the Second Quarter of
Fiscal 2008 was $246.1 million. During the First Half of Fiscal 2009, the
Company experienced one order cancellation in the Test segment approximating
$3.0 million. The Company seldom experiences order cancellations larger than
$1.0 million however, current economic conditions could have an adverse impact
on order cancellations in the future.

Results of Operations

First Half of Fiscal 2009 Compared to First Half of Fiscal
2008

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

|                                                       |  |                  |       |                 |   |          |   |            |       |   |       |    | 
|------------------------------------------------------ |  | ---------------- | ----- | --------------- | - | -------- | - | ---------- | ----- | - | ----- | -- | 
|                                                       |  | Six Months Ended |       |                 |   |          |  
|                                                       |  | March 28,
 2009  |       | March 29,
 2008 |   | Variance |   | % Variance |      
|Revenue                                                |  | $                | 224.3 |                 | $ | 219.6    |   | $          | 4.7   |   | 2.1   | %  | 
|Cost of sales                                          |  |                  | 138.6 |                 |   | 130.3    |   |            | 8.3   |   | 6.4   | %  | 
|Gross profit                                           |  |                  | 85.7  |                 |   | 89.3     |   |            | (3.6  | ) | -4.0  | %  | 
|Gross margin                                           |  |                  | 38.2  | %               |   | 40.7     | % |            | -2.5  | % |       |    | 
|                                                       |  |                  |       |                 |   |          |   |            |       |   |       |    | 
|Operating expenses:                                    |  |                  |       |                 |   |          |   |            |       |   |       |    | 
|Selling and marketing                                  |  |                  | 37.0  |                 |   | 38.8     |   |            | (1.8  | ) | -4.6  | %  | 
|General administrative                                 |  |                  | 17.9  |                 |   | 16.6     |   |            | 1.3   |   | 7.8   | %  | 
|Research and development                               |  |                  | 7.1   |                 |   | 8.0      |   |            | (0.9  | ) | -11.3 | %  | 
|Total operating expenses                               |  |                  | 62.0  |                 |   | 63.4     |   |            | (1.4  | ) | -2.2  | %  | 
|                                                       |  |                  |       |                 |   |          |   |            |       |   |       |    | 
|Income from operations                                 |  |                  | 23.7  |                 |   | 25.9     |   |            | (2.2  | ) | -8.5  | %  | 
|                                                       |  |                  |       |                 |   |          |   |            |       |   |       |    | 
|Interest expense                                       |  |                  | (1.0  | )               |   | (0.7     | ) |            | (0.3  | ) | 42.9  | %  | 
|Interest income                                        |  |                  | 0.8   |                 |   | 1.9      |   |            | (1.1  | ) | -57.9 | %  | 
|Other (expense) income, net                            |  |                  | (0.3  | )               |   | 0.8      |   |            | (1.1  | ) |       | NM | 
|Income before income taxes and discontinued operations |  |                  | 23.2  |                 |   | 27.9     |   |            | (4.7  | ) | -16.8 | %  | 
|Provision for income taxes                             |  |                  | 6.0   |                 |   | 6.3      |   |            | (0.3  | ) | -4.8  | %  | 
|Income before discontinued operations                  |  |                  | 17.2  |                 |   | 21.6     |   |            | (4.4  | ) | -20.4 | %  | 
|                                                       |  |                  |       |                 |   |          |   |            |       |   |       |    | 
|Income from discontinued operations, net of tax        |  |                  |      |                 |   | 0.3      |   |            | (0.3  | ) |       | NM | 
|Net income                                             |  | $                | 17.2  |                 | $ | 21.9     |   | $          | (4.7  | ) | -21.5 | %  | 
|Diluted earnings per share                             |  | $                | 1.02  |                 | $ | 1.22     |   | $          | (0.20 | ) | -16.4 | %  | 

NM
represents comparisons that are not meaningful to this analysis.

28

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Table of Contents

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

|                               |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       |  
|------------------------------ |  | ---------------------------------- | ----- | ------------------------- | - | ----------------- | - | --------------------- | ---- | ---------------------------------- | - | ---- | - | - | ----- | -
|                               |  | Six Months
 Ended
 March 29,
 2008 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Six Months
 Ended
 March 28,
 2009 |  
|Revenue                        |  | $                                  | 219.6 |                           | $ | 3.5               |   | $                     | 8.0  |                                    | $ | (6.8 | ) | $ | 224.3 |  
|Cost of sales                  |  |                                    | 130.3 |                           |   | 7.4               |   |                       | 5.3  |                                    |   | (4.4 | ) |   | 138.6 |  
|Gross profit                   |  |                                    | 89.3  |                           |   | (3.9              | ) |                       | 2.7  |                                    |   | (2.4 | ) |   | 85.7  |  
|                               |  |                                    | 40.7  | %                         |   |                   |   |                       | 33.4 | %                                  |   |      |   |   | 38.2  | %
|                               |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       |  
|Operating expenses:            |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       |  
|Selling and marketing          |  |                                    | 38.8  |                           |   | (3.0              | ) |                       | 2.2  |                                    |   | (1.0 | ) |   | 37.0  |  
|General administrative         |  |                                    | 16.6  |                           |   | (2.5              | ) |                       | 4.0  |                                    |   | (0.2 | ) |   | 17.9  |  
|Research and development       |  |                                    | 8.0   |                           |   | (0.8              | ) |                       |     |                                    |   | (0.1 | ) |   | 7.1   |  
|Total operating expenses       |  |                                    | 63.4  |                           |   | (6.3              | ) |                       | 6.2  |                                    |   | (1.3 | ) |   | 62.0  |  
|                               |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       |  
|Income (loss) from
 operations |  | $                                  | 25.9  |                           | $ | 2.4               |   | $                     | (3.5 | )                                  | $ | (1.1 | ) | $ | 23.7  |  

Revenue was $224.3 million, an increase of $4.7 million, or 2.1%, compared to
revenue of $219.6 million for the First Half of Fiscal 2008. This increase was
primarily driven by higher opening backlog in the organic Test business, as
well as $8.0 million from SANS, partially offset by lower volume in the Sensors
segment, and an estimated $6.8 million unfavorable impact of currency
translation. Revenue from international customers represented 63.7% of total
revenue, compared to 64.9% for the First Half of Fiscal 2008.

Gross profit was $85.7 million, a decrease of $3.6 million, or 4.0%, compared to
gross profit of $89.3 million for the First Half of Fiscal 2008. Gross profit
as a percentage of revenue was 38.2%, a decrease of 2.5 percentage points from
40.7% for the First Half of Fiscal 2008. This decrease was primarily due to the
volume decline in the Sensors segment, higher warranty expense in the organic
test business and $1.2 million severance and benefit costs associated with the
workforce reduction that was initiated in the Second Quarter of Fiscal 2009, partially offset
by favorable product mix in the organic Test business, and a $1.8 million
reduction in variable compensation. In addition, SANS negatively impacted gross
profit by 0.2 percentage points primarily due to the sale of inventory that was
written up to fair value as part of the acquisition.

Selling and marketing expense was $37.0 million, a decrease of $1.8
million, or 4.6%, compared to $38.8 million for the First Half of Fiscal 2008.
This decrease was primarily due to lower commissions and sales incentives,
reduced spending, as well as a $0.8 million reduction in variable compensation
expense in both the organic Test business and Sensors segment. This decrease
was partially offset by $1.4 million severance and benefit costs associated
with the previously mentioned workforce reduction, and a $2.2 million increase from SANS.
Selling and marketing expense as a percentage of revenue was 16.5%, compared to
17.7% for the First Half of Fiscal 2008.

General and administrative expense was $17.9 million, an increase of $1.3
million, or 7.8%, compared to $16.6 million for the First Half of Fiscal 2008.
This increase was primarily driven by SANS, and $0.2 million severance and
benefit costs associated with the previously mentioned workforce reduction, partially offset by
lower legal expense in organic Test business, as well as reduced spending, and
a $1.3 million reduction in variable compensation expense. General and
administrative expense as a percentage of revenue was 8.0%, compared to 7.6%
for the First Half of Fiscal 2008.

Research and development expense was $7.1 million, a decrease of $0.9
million, or 11.3%, compared to $8.0 million for the First Half of Fiscal 2008.
The decrease was due to a temporary reallocation of resources towards other
operating initiatives in the organic Test business, as well as reduced spending
in the Sensors segment. Research and development expense as a percentage of
revenue was 3.2%, compared to 3.6% for the First Half of Fiscal 2008.

Income from operations was $23.7 million, a decrease of $2.2
million, or 8.5%, compared to income from operations of $25.9 million for the
First Half of Fiscal 2008, as lower gross profit in the Sensors segment, as
well as a $3.5 million operating loss from SANS, more than offset reduced
variable compensation and other operating expenses in both the organic Test
business and Sensors segment. Operating income as a percentage of revenue was
10.6%, compared to 11.8% for the First Half of Fiscal 2008.

29

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Interest expensewas $1.0 million, an increase of $0.3 million compared to $0.7 million
for the First Half of Fiscal 2008, as the interest expense incurred on the
higher level of short-term borrowings was partially offset by a reduction in
fixed-rate long-term debt.

Interest income was $0.8 million, a decrease of $1.1 million compared to $1.9 million
for the First Half of Fiscal 2008, due to lower interest rates applied to lower
average cash and cash equivalent balances compared to the First Half of Fiscal
2008.

Other (expense) income, net was $0.3 million of net other expense, a
decrease of $1.1 million compared to $0.8 million of net other income in the
First Half of Fiscal 2008. This decrease was primarily due to net losses on
foreign currency transactions compared to net gains on foreign currency
transactions in the First Half of Fiscal 2008.

Provision for income taxes totaled $6.0 million, a decrease of $0.3
million, or 4.8%, compared to $6.3 million for the First Half of Fiscal 2008,
primarily due to decreased income before income taxes and discontinued
operations, partially offset by a higher effective tax rate. The effective tax
rate was 25.8%, an increase of 3.1 percentage points compared to a tax rate of
22.7% for the First Half of Fiscal 2008. This increase was primarily due to a
$3.7 million tax benefit from the repatriation of earnings from Japanese
affiliates in the First Half of Fiscal 2008, partially offset by a $1.0 million
tax benefit from the retroactive extension of U.S. R&D credits in the
current fiscal year.

Net income was $17.2 million, a decrease of $4.7 million, or 21.5%, compared to
$21.9 million for the First Half of Fiscal 2008. The decrease in net income was
primarily driven by lower income from operations, increased net interest
expense, unfavorable losses on foreign currency transactions, and a higher
effective tax rate.

The reduction in number of
shares outstanding, resulting from the Companys share purchases, positively
impacted earnings per share by $0.06.

Segment Results

Test Segment

Orders and Backlog

First Half of Fiscal 2009 Compared to First Half of Fiscal
2008

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

|       |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       | 
|------ |  | ---------------------------------- | ----- | ------------------------- | - | ----------------- | - | --------------------- | ---- | ---------------------------------- | - | ---- | - | - | ----- | 
|       |  | Six Months
 Ended
 March 29,
 2008 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Six Months
 Ended
 March 28,
 2009 |  
|Orders |  | $                                  | 206.1 |                           | $ | (83.7             | ) | $                     | 12.0 |                                    | $ | (3.9 | ) | $ | 130.5 | 

Orders totaled $130.5 million, a decrease of $75.6 million, or 36.7%,
compared to orders of $206.1 million for the First Half of Fiscal 2008,
primarily due to lower volume in the organic business across all geographies
resulting from sharply lower demand in worldwide capital spending in the
segments markets, partially offset by $12.0 million from SANS. First Half of
Fiscal 2008 orders included four large orders in excess of $5 million totaling
approximately $36 million. There were no such large orders in the First Half of
Fiscal 2009. The Test segment accounted for 79.3% of total Company orders,
compared to 81.3% for the First Half of Fiscal 2008. Orders from international
customers represented 65.4% of total orders, compared to 61.4% for the First
Half of Fiscal 2008.

30

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Backlog of undelivered orders at the end of the Second Quarter of Fiscal 2009
was $166.3 million, a decrease of 25.4% from backlog of $222.8 million at
September 27, 2008. Backlog included $12.7 million from SANS. Backlog at the
end of the Second Quarter of Fiscal Year 2008 was $233.5 million.

Results of Operations

First Half of Fiscal 2009 Compared to First Half of Fiscal
2008

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

|                               |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       |  
|------------------------------ |  | ---------------------------------- | ----- | ------------------------- | - | ----------------- | - | --------------------- | ---- | ---------------------------------- | - | ---- | - | - | ----- | -
|                               |  | Six Months
 Ended
 March 29,
 2008 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Six Months
 Ended
 March 28,
 2009 |  
|Revenue                        |  | $                                  | 172.0 |                           | $ | 13.5              |   | $                     | 8.0  |                                    | $ | (5.3 | ) | $ | 188.2 |  
|Cost of sales                  |  |                                    | 109.6 |                           |   | 11.3              |   |                       | 5.3  |                                    |   | (3.8 | ) |   | 122.4 |  
|Gross profit                   |  |                                    | 62.4  |                           |   | 2.2               |   |                       | 2.7  |                                    |   | (1.5 | ) |   | 65.8  |  
|                               |  |                                    | 36.3  | %                         |   |                   |   |                       | 33.4 | %                                  |   |      |   |   | 35.0  | %
|Operating expenses:            |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       |  
|Selling and marketing          |  |                                    | 30.3  |                           |   | (2.6              | ) |                       | 2.2  |                                    |   | (0.8 | ) |   | 29.1  |  
|General administrative         |  |                                    | 11.3  |                           |   | (2.0              | ) |                       | 4.0  |                                    |   | (0.1 | ) |   | 13.2  |  
|Research and development       |  |                                    | 5.5   |                           |   | (0.3              | ) |                       |     |                                    |   |     |   |   | 5.2   |  
|Total operating expenses       |  |                                    | 47.1  |                           |   | (4.9              | ) |                       | 6.2  |                                    |   | (0.9 | ) |   | 47.5  |  
|                               |  |                                    |       |                           |   |                   |   |                       |      |                                    |   |      |   |   |       |  
|Income (loss) from
 operations |  | $                                  | 15.3  |                           | $ | 7.1               |   | $                     | (3.5 | )                                  | $ | (0.6 | ) | $ | 18.3  |  

Revenue was $188.2 million, an increase of $16.2 million, or 9.4%, compared to
revenue of $172.0 million for the First Half of Fiscal 2008. This increase was
primarily driven by higher opening backlog in the organic business, as well as
$8.0 million from SANS, partially offset by an estimated $5.3 million
unfavorable impact of currency translation. Revenue from international
customers represented 62.3% of total revenue, compared to 62.7% for the First
Half of Fiscal 2008.

Gross profit was $65.8 million, an increase of $3.4 million, or 5.4%, compared to
gross profit of $62.4 million for the First Half of Fiscal 2008. Gross profit
as a percentage of revenue was 35.0%, a decrease of 1.3 percentage points from
36.3% for the First Half of Fiscal 2008. This decrease was primarily due to
$1.1 million severance and benefit costs associated with the previously
mentioned workforce reduction, as well as increased warranty expense, partially offset by
favorable product mix and a $1.8 million reduction in variable compensation.

Selling and marketing expense was $29.1 million, a decrease of $1.2
million, or 4.0%, compared to $30.3 million for the First Half of Fiscal 2008.
This decrease was primarily due to lower commissions and sales incentives,
reduced spending, as well as a $0.6 million reduction in variable compensation
expense in the organic business, partially offset by $1.4 million severance and
benefit costs associated with the previously mentioned workforce reduction, and $2.2 million
increase from SANS. Selling and marketing expense as a percentage of revenue
was 15.5%, compared to 17.6% for the First Half of Fiscal 2008.

General and administrative expense was $13.2
million, an increase of $1.9 million, or 16.8%, compared to $11.3 million for
the First Half of Fiscal 2008. This increase was primarily driven by SANS, and
$0.2 million severance and benefit costs associated with the previously
mentioned workforce reduction, partially offset by lower legal expense in organic business, as
well as reduced spending, and a $1.0 million reduction in variable compensation
expense. General and administrative expense as a percentage of revenue was
7.0%, compared to 6.6% for the First Half of Fiscal 2008.

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Research and development expense was $5.2
million, a decrease of $0.3 million, or 5.5%, compared to $5.5 million for the
First Half of Fiscal 2008. The decrease was due to a temporary reallocation of
resources towards other operating initiatives. Research and development expense
as a percentage of revenue was 2.8%, compared to 3.2% for the First Half of
Fiscal 2008.

Income from operations was $18.3 million, an increase of $3.0 million, or 19.6%,
compared to income from operations of $15.3 million for the First Half of
Fiscal 2008. This increase was primarily due to reduced variable compensation
and other
operating expenses in the organic business, partially offset by a $3.5 million
operating loss from SANS. Operating income as a percentage of revenue was 9.7%,
compared to 8.9% for the First Quarter of Fiscal 2008.

SANS Acquisition

Orders and
revenue were $12.0 million and $8.0 million, respectively. Gross profit as a
percentage of revenue was 33.4%. Gross profit includes a $1.3 million reduction
associated with the sale of inventory that was written up to fair value as part
of the acquisition, which negatively impacted the gross margin rate by 16.8
percentage points. Loss from operations was $3.5 million, driven by reduced
gross profit and increased operating expenses associated with integration
costs.

Sensors Segment

Orders and Backlog

First Half of Fiscal 2009 Compared to First
Half of Fiscal 2008

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

|       |  |                                    |      |                           |   |                       |   |                                    |      |   |   |      | 
|------ |  | ---------------------------------- | ---- | ------------------------- | - | --------------------- | - | ---------------------------------- | ---- | - | - | ---- | 
|       |  | Six Months
 Ended
 March 29,
 2008 |      | Organic
 Business
 Change |   | Currency
 Translation |   | Six Months
 Ended
 March 28,
 2009 |     
|Orders |  | $                                  | 47.3 |                           | $ | (12.0                 | ) | $                                  | (1.2 | ) | $ | 34.1 | 

Orders totaled $34.1
million, a decrease of $13.2 million, or 27.9%, compared to orders of $47.3
million for the First Half of Fiscal 2008, primarily due to lower volume across
all geographies resulting from sharply lower demand in worldwide industrial
capital spending and a reduction in customer inventory levels. Sensors segment
accounted for 20.7% of total Company orders, compared to 18.7% for the First
Half of Fiscal 2008. Orders from international customers represented 68.6% of
total orders, compared to 73.2% for the First Half of Fiscal 2008.

Backlog of
undelivered orders at the end of the Second Quarter of Fiscal 2009 was $9.1
million, a decrease of 23.5% from backlog of $11.9 million at September 27,
2008. Backlog at the end of the Second Quarter of Fiscal Year 2008 was $12.6
million.

Results of Operations

First Half of Fiscal 2009 Compared to First
Half of Fiscal 2008

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

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|                              |  |                                    |      |                           |   |                       |   |                                    |      |   |   |      |  
|----------------------------- |  | ---------------------------------- | ---- | ------------------------- | - | --------------------- | - | ---------------------------------- | ---- | - | - | ---- | -
|                              |  | Six Months
 Ended
 March 29,
 2008 |      | Organic
 Business
 Change |   | Currency
 Translation |   | Six Months
 Ended
 March 28,
 2009 |     
|                              |  |                                    |      |                           |   |                       |   |                                    |      |   |   |      |  
|Revenue                       |  | $                                  | 47.6 |                           | $ | (10.0                 | ) | $                                  | (1.5 | ) | $ | 36.1 |  
|Cost of sales                 |  |                                    | 20.7 |                           |   | (3.9                  | ) |                                    | (0.6 | ) |   | 16.2 |  
|Gross profit                  |  |                                    | 26.9 |                           |   | (6.1                  | ) |                                    | (0.9 | ) |   | 19.9 |  
|                              |  |                                    | 56.6 | %                         |   |                       |   |                                    |      |   |   | 55.3 | %
|Operating expenses:           |  |                                    |      |                           |   |                       |   |                                    |      |   |   |      |  
|Selling and marketing         |  |                                    | 8.5  |                           |   | (0.4                  | ) |                                    | (0.2 | ) |   | 7.9  |  
|General administrative        |  |                                    | 5.3  |                           |   | (0.5                  | ) |                                    | (0.1 | ) |   | 4.7  |  
|Research and development      |  |                                    | 2.5  |                           |   | (0.5                  | ) |                                    | (0.1 | ) |   | 1.9  |  
|Total operating expenses      |  |                                    | 16.3 |                           |   | (1.4                  | ) |                                    | (0.4 | ) |   | 14.5 |  
|                              |  |                                    |      |                           |   |                       |   |                                    |      |   |   |      |  
|Income (loss) from operations |  | $                                  | 10.6 |                           | $ | (4.7                  | ) | $                                  | (0.5 | ) | $ | 5.4  |  

Revenue was $36.1
million, a decrease of $11.5 million, or 24.2%, compared to revenue of $47.6
million for the First Half of Fiscal 2008. This decrease was primarily driven
by reduced worldwide volume. Revenue from international customers represented
71.0% of total revenue, compared to 72.8% for the First Half of Fiscal 2008.

Gross profit was
$19.9 million, a decrease of $7.0 million, or 26.0%, compared to gross profit
of $26.9 million for the First Half of Fiscal 2008. Gross profit as a
percentage of revenue was 56.6%, a decrease of 1.3 percentage points from 55.3%
for the First Half of Fiscal 2008. This decrease was primarily due to reduced
volume.

Selling and marketing expense
was $7.9 million, a decrease of $0.6 million, or 7.1%, compared to $8.5 million
for the First Half of Fiscal 2008. The decrease is primarily due to reduced
spending, lower commission expense, and $0.2 million reduced variable
compensation expense. Selling and marketing expense as a percentage of revenue
was 21.9%, compared to 17.9% for the First Half of Fiscal 2008.

General and administrative expense
was $4.7 million, a decrease of $0.6 million, or 11.3%, compared to $5.3
million for the First Half of Fiscal 2008, primarily due to reduced
compensation and benefits expense, including a $0.2 million reduction in
variable compensation. General and administrative expense as a percentage of revenue
was 13.0%, compared to 11.1% for the First Half of Fiscal 2008.

Research and development expense
was $1.9 million, a decrease of $0.6 million, or 24.0%, compared to $2.5
million for the First Half of Fiscal 2008. The decrease was due to reduced spending.
Research and development expense as a percentage of revenue was 5.3%,
relatively flat compared to the First Half of Fiscal 2008.

Income from operations
was $5.4 million, a decrease of $5.2 million, or 49.1%, compared to income from
operations of $10.6 million for the First Half of Fiscal 2008, primarily due to
lower gross profit. Operating income as a percentage of revenue was 15.0%,
compared to 22.3% for the First Half of Fiscal 2008.

Capital Resources and Liquidity

The Company
had cash and cash equivalents of $99.3 million at the end of the Second Quarter
of Fiscal 2009. Of this amount, $7.1 million was located in North America,
$70.8 million in Europe, and $21.4 million in Asia. 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 2009, the
Company held no short-term investments.

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Total cash and
cash equivalents decreased $14.8 million in the First Half of Fiscal 2009,
primarily due to the acquisition of SANS, employee incentive and related
benefit payments, purchases of company stock, dividend payments, investment in
property and equipment, and an unfavorable impact of currency translation,
partially offset by earnings. Total cash and cash equivalents increased $25.0
million in the First Half of Fiscal 2008, primarily due to earnings, net
proceeds generated from the conversion of short-term investments to cash and
cash equivalents, and a favorable impact of currency translation, partially
offset by purchases of the Companys common stock and dividend payments. The
Company believes that its anticipated operating cash flows, in addition to
funds available from cash, cash equivalents and its credit facility, are
adequate to fund ongoing operations, capital expenditures, and share purchases,
as well as to fund internal growth opportunities or strategic acquisitions.

Cash flows from operating activities
provided cash totaling $15.7 million for the First Half of Fiscal 2009,
compared to cash provided of $18.3 million for the First Half of Fiscal 2008.
Cash provided for the First Half of Fiscal 2009 was primarily due to earnings
and $21.4 million decreased accounts and unbilled receivables driven by lower
order volume. This cash provided was partially offset by $11.0 million
decreased accounts payable resulting from the general timing of purchases and
payments, $8.8 million decrease in advance payments received from customers
driven by decreased orders, and $8.0 million incentive and related benefit
payments. Cash provided for the First Half of Fiscal 2008 primarily resulted
from earnings and a $9.1 million increase in advance payments received from
customers, partially offset by $8.2 million increased accounts and unbilled
receivables, $2.6 million increased inventories, $1.8 million increased
spending on software development activities, and $1.8 million decreased
accounts payable.

Cash flows from investing activities
required the use of cash totaling $27.5 million for the First Half of Fiscal
2009, compared to cash provided of $12.1 million for the First Half of Fiscal
2008. The cash usage for the First Half of 2009 was due $21.6 million payments
associated with the acquisition of SANS, and $5.9 million investment in
property and equipment. The cash provided for the First Half of 2008 was due to
net proceeds from the conversion of short-term investments to cash and cash
equivalents of $17.1 million, partially offset by a $4.9 million investment in
property and equipment.

Cash flows from financing activities
provided cash totaling $3.5 million for the First Half of Fiscal 2009, compared
to a use of cash totaling $14.0 million for the First Half of Fiscal 2008. The
cash provided for the First Half of Fiscal 2009 was primarily due to $15.9
million net proceeds received from short-term borrowings, partially offset by
the use of $6.7 million to purchase 245,500 shares of the Companys common
stock, payment of cash dividends of $5.1 million, and repayment of
interest-bearing debt of $1.2 million. The cash usage for the First Half of
Fiscal 2008 was due to the use of $9.1 million to purchase 234,000 shares of
the Companys common stock, payment of cash dividends of $5.3 million, and
repayment of interest-bearing debt of $1.2 million, partially offset by $1.6
million received in connection with stock option exercises.

Under the
terms of its borrowing agreements, the Company has agreed to certain financial
covenants. At the end of the Second Quarter of Fiscal 2009, the Company was in
compliance with the financial terms and conditions of those agreements.

Off-Balance Sheet Arrangements

As of March
28, 2009, 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.

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Inventories. The
Company maintains a material amount of inventory to support its engineering and
manufacturing operations, and a certain amount of judgment is required in
determining the appropriate level of inventory valuation reserves. While the
Company expects its sales to grow, a reduction in its sales could reduce the
demand for the Companys products, and additional inventory valuation
adjustments may be required.

Impairment of Long-Lived Assets.
In accordance with SFAS No. 144, Accounting for Impairment or Disposal 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 sale 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.

Business Acquisitions.
The Company accounts for acquired businesses using the purchase method of
accounting, which requires that the assets acquired and liabilities assumed be
recorded at the date of acquisition at their respective fair values. The
judgments made in determining the estimated fair value assigned to each class
of assets acquired and liabilities assumed, as well as asset lives, can
materially impact net income. Determining the useful life of an intangible
asset also requires judgment. For example, different types of intangible assets
will have different useful lives and certain assets may even be considered to
have indefinite useful lives. All of these judgments and estimates can
significantly impact net income.

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 guarantees 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.

Stock-Based Compensation.
For purposes of determining estimated fair value of stock-based payment awards
on the date of grant in accordance with Statement of Financial Accounting
Standard (SFAS) No. 123R, Share-Based Payment, the Company utilizes a
Black-Scholes option pricing model for estimating the fair value of stock
option grants, which requires the input of certain assumptions requiring
management judgment. Because the Companys employee stock option awards have
characteristics significantly different from those of traded options, and
because changes in the input assumptions can materially affect fair value
estimates, existing models may not provide a reliable single measure of the
fair value of employee stock options. Management will continue to assess the
assumptions and methodologies used to calculate estimated fair value of stock-based
compensation. Circumstances may change and additional data may become available
over time that could result in changes to these assumptions and methodologies
and thereby materially impact the fair value determination. If factors change
and the Company employs different assumptions in the application of SFAS No.
123R in future periods, the compensation expense recorded under SFAS No. 123R
may differ significantly from the stock-based compensation expense recorded in
the current period.

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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.

Recent Accounting Pronouncements

In December
2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations.
SFAS No. 141R expands the definition of a business combination and requires the
fair value of the purchase price of an acquisition, including the issuance of
equity securities, to be determined on the acquisition date. SFAS No. 141R also
requires that all assets, liabilities, contingent considerations, and
contingencies of an acquired business be recorded at fair value at the
acquisition date. In addition, SFAS No. 141R requires that acquisition costs
generally be expensed as incurred, restructuring costs generally be expensed in
periods subsequent to the acquisition date and changes in accounting for
deferred tax asset valuation allowances and acquired income tax uncertainties
after the measurement period impact income tax expense. SFAS No. 141R is
effective for the Companys fiscal years beginning on or after December 15,
2008, with early adoption prohibited. The Company does not expect the adoption
of SFAS No. 141R to have a material impact on its consolidated financial
statements.

In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51. SFAS No. 160 requires
minority interests to be recharacterized as noncontrolling interests and
reported as a component of equity. In addition, SFAS No. 160 requires that
purchases or sales of equity interests that do not result in a change in
control be accounted for as equity transactions and, upon a loss of control,
requires the interests sold, as well as any interests retained, to be recorded
at fair value with any gain or loss recognized in earnings. SFAS No. 160 is
effective for fiscal years beginning on or after December 15, 2008, with early
adoption prohibited. The Company does not expect the adoption of SFAS No. 160
to have a material impact on its consolidated financial statements.

In April 2008,
the FASB issued Staff Position (FSP) No. FAS 142-3 Determination of the
Useful Life of Intangible Assets. FSP No. 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of intangible assets under SFAS No. 142 Goodwill and Other
Intangible Assets. FSP No. FAS 142-3 is intended to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and
the period of the expected cash flows used to measure the fair value of the
asset under SFAS No. 141R and other GAAP. FSP No. FAS 142-3 is effective for
fiscal years beginning after December 15, 2008, with early adoption prohibited.
The Company does not expect the adoption of FSP No. FAS 142-3 to have a
material impact on its consolidated financial statements.

In June 2008,
the FASB issued FSP No. EITF 03-6-1 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities FSP No. EITF
03-6-1 clarifies that all outstanding unvested share-based payment awards that
contain rights to nonforfeitable dividends participate in undistributed
earnings with common shareholders. Awards of this nature are considered
participating securities and the two-class method of computing basic and
diluted earnings per share must be applied. FSP No. EITF 03-6-1 is effective
for fiscal years beginning after December 15, 2008. The Company does not expect
the adoption of FSP No. EITF 03-6-1 to have a material impact on its
consolidated financial statements.

In June 2008,
the FASB issued EITF No. 07-5, Determining Whether an Instrument (or an
Embedded Feature) Is Indexed to an Entitys Own Stock. EITF No. 07-5 provides
that an entity should use a two step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock, including evaluating the instruments contingent exercise and settlement
provisions. It also clarifies the impact of foreign currency denominated strike
prices and market-based employee stock option valuation instruments on the
evaluation. EITF No. 07-5 is effective for fiscal years beginning after
December 15, 2008. The Company does not expect the adoption of EITF No. 07-5 to
have a material impact on its consolidated financial statements.

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In December
2008, the FASB issued FSP FAS 132R-1, Employers Disclosures about
Postretirement Benefit Plan Assets. FSP No. 132R-1 amends SFAS No. 132
(revised 2003), Employers Disclosures about Pensions and Other Postretirement
Benefits, and requires additional disclosures regarding defined benefit plan
assets, including investment policies and strategies, major categories of plan
assets, valuation techniques used to measure the fair value of plan assets and
significant concentrations of risk within plan assets. FSP No. 132R-1 is
effective for fiscal years ending after December 15, 2009. The Company does not
expect the adoption of FSP No. 132R-1 to have a material impact on its
consolidated financial statements.

Other Matters

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 hedge 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.

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 payout ratio target is
approximately 25% of earnings per share over the long term.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Companys
investment portfolio at March 28, 2009 included $99.3 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-month period ended March 28, 2009.

The Company
operates internationally and is subject to foreign currency exchange rate
fluctuations. 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 $9.6
million in revenue for the six-month period ended March 28, 2009.

At March 28,
2009, 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. The Companys
long-term debt has a fixed rate of interest and, therefore, is not impacted by
changes 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 28, 2009. 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 Exchange 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.

There have
been no changes in internal control over financial reporting during the fiscal
quarter ended March 28, 2009 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial
reporting. As previously announced, the Company acquired substantially all of
the assets of SANS on September 28, 2008. The Company has not fully evaluated
any changes in internal control over financial reporting associated with this
acquisition and, therefore, any material changes that may result from this
acquisition have not been disclosed in this report. The Company intends to
disclose all material changes, if any, resulting from this acquisition within,
or prior to, the time that our first annual assessment of internal control over
financial reporting is required to include SANS. The results of operations of
SANS have been included in the Companys results of operations since the date
of the acquisition.

37

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Table of Contents

PART II  OTHER INFORMATION

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

Purchases of
Company Equity Securities:

|                                      |  |                                    |         |                                 |   |                                                                                         |  |                                                                                       |         |  |  |           | 
|------------------------------------- |  | ---------------------------------- | ------- | ------------------------------- | - | --------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- | ------- |  |  | --------- | 
|Period                                |  | Total Number
 of Shares
 Purchased |         | Average
 Price
 Paid per
 Share |   | Total Number
 of Shares
 Purchased as
 Part of
 Publicly
 Announced
 Plans or
 Programs |  | Maximum
 Number of
 Shares
 that May Yet
 be Purchased
 Under the
 Plans or
 Programs |        
|December 28, 2008 -
 January 31, 2009 |  |                                    | 47,500  |                                 | $ | 26.06                                                                                   |  |                                                                                       | 47,500  |  |  | 2,343,438 | 
|February 1, 2009 -
 February 28, 2009 |  |                                    | 38,000  |                                 | $ | 26.16                                                                                   |  |                                                                                       | 38,000  |  |  | 2,305,438 | 
|March 1, 2009 - March 28,
 2009       |  |                                    | 39,900  |                                 | $ | 22.03                                                                                   |  |                                                                                       | 39,900  |  |  | 2,265,538 | 
|Total                                 |  |                                    | 125,400 |                                 | $ | 24.81                                                                                   |  |                                                                                       | 125,400 |  |  |           | 

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

During the
Second Quarter of Fiscal 2009, Company share purchases were executed under a
3.0 million share purchase authorization approved by the Companys Board of
Directors and announced on August 20, 2007. Authority over pricing and timing
under both authorizations has been delegated to management. The share purchase
authorizations have no expiration date.

Item 4.Submission of Matters to a Vote of Security
Holders

| |     |                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The
 Companys Annual Meeting of Shareowners was held on February 4, 2009.                                                               
| |     |                                                                                                                                          
| | (b) | The
 following persons were nominated and elected to continue as directors of the
 Company until the next Annual Meeting of Shareholders:

|                     |  |            |  |          | 
|-------------------- |  | ---------- |  | -------- | 
|                     |  | Voted For  |  | Withheld | 
|                     |  |            |  |          | 
|Jean-Lou
 Chameau    |  | 15,258,084 |  | 162,390  | 
|Merlin E.
 Dewing    |  | 15,374,571 |  | 45,902   | 
|Laura B.
 Hamilton   |  | 15,241,691 |  | 178,782  | 
|Brendan C.
 Hegarty  |  | 15,243,311 |  | 177,162  | 
|Lois M.
 Martin      |  | 15,336,751 |  | 83,722   | 
|Joseph M.
 ODonnell |  | 15,378,562 |  | 41,911   | 
|Barb J.
 Samardzich  |  | 15,377,688 |  | 42,785   | 

| |     |                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | The
 appointment of KPMG, LLP as the Companys independent registered public
 accounting firm for the current fiscal year was approved with 15,172,671
 votes in favor, 236,167 votes against, and 11,634 votes abstained. There were
 no broker non-votes.

38

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Table of Contents

Item 6.
Exhibits

|                |  |                                                                                                                                        
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 Number |  | Description                                                                                                                            
|               
|31.1            |  | Certification
 of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002 (filed herewith).                 
|               
|31.2            |  | Certification
 of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002 (filed herewith).                 
|               
|32.1            |  | Certification
 of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
 of 2002 (18 U.S.C. 1350) (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).

39

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Table of Contents

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
 4, 2009 | /s/ LAURA B.
 HAMILTON                      | 
|                    | Laura B.
 Hamilton                          | 
|                    | Chair and
 Chief Executive Officer          | 
|                    |                                             | 
|Dated: May
 4, 2009 | /s/ SUSAN E.
 KNIGHT                        | 
|                    | Susan E.
 Knight                            | 
|                    | Vice
 President and Chief Financial Officer | 

40

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Table of Contents

EXHIBIT
INDEX TO FORM 10-Q

|     |                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------
|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). 

---