Table of Contents





|                                   
|-----------------------------------
|United States                      
|SECURITIES AND EXCHANGE
 COMMISSION
|                                   
|WASHINGTON, D.C. 20549             

| |           | 
| | --------- | 
| |           | 
| | FORM 10-Q | 
| |           | 

|   |                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------
|x  | Quarterly Report Pursuant to Section 13 or 15 (d) of
 the Securities Exchange Act of 1934 for the Quarterly period ended April 3,
 2010           
|   |                                                                                                                                                   
|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.

xYesoNo

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).

oYesoNo

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 o Accelerated filer x Non-accelerated
filer Smallero Reporting Company o

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

oYesxNo

The number of shares outstanding of the Registrants
common stock as of May 4, 2010 was 16,345,100 shares.







MTS SYSTEMS CORPORATION

REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED APRIL 3, 2010

INDEX

|                               |         |                                                                                                              |    |         
|------------------------------ | ------- | ------------------------------------------------------------------------------------------------------------ | -- | --------
|                               |         |                                                                                                              |    | Page No.
|                               |         |                                                                                                              |    |         
|PART I - FINANCIAL INFORMATION |         |                                                                                                             
|                               |         |                                                                                                              |    |         
|                               | Item 1. | Financial Statements (unaudited)                                                                             |    |         
|                               |         |                                                                                                              |    |         
|                               |         | Consolidated
 Balance Sheets as of 
 April 3, 2010 and October 3, 2009                                       |    | 2       
|                               |         |                                                                                                              |    |         
|                               |         | Consolidated
 Statements of Income for the 
 Three and Six Months Ended April 3, 2010 and March 28, 2009     |    | 3       
|                               |         |                                                                                                              |    |         
|                               |         | Consolidated
 Statements of Cash Flows for the 
 Three and Six Months Ended April 3, 2010 and March 28, 2009 |    | 4       
|                               |         |                                                                                                              |    |         
|                               |         | Condensed
 Notes to Consolidated Financial Statements                                                        |    | 5 - 16  
|                               |         |                                                                                                              |    |         
|                               |         |                                                                                                              |    |         
|                               | Item 2. | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                       |    | 17 - 33 
|                               |         |                                                                                                              |    |         
|                               | Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                   |    | 33      
|                               |         |                                                                                                              |    |         
|                               | Item 4. | Controls and Procedures                                                                                      |    | 33 - 34 
|                               |         |                                                                                                              |    |         
|PART II  OTHER INFORMATION    |         |                                                                                                             
|                               |         |                                                                                                              |    |         
|                               | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds                                                  |    | 34      
|                               |         |                                                                                                              |    |         
|                               | Item 5. | Other Information                                                                                            |    | 34 - 35 
|                               |         |                                                                                                              |    |         
|                               | Item 6. | Exhibits                                                                                                     |    | 35      
|                               |         |                                                                                                              |   
|SIGNATURES                     |         |                                                                                                              | 35

1

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Table of Contents

PART 1  FINANCIAL INFORMATION 
Item 1. Financial Statements

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

|                                                                                                |  |                |         |                  |   |         | 
|----------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---------------- | - | ------- | 
|                                                                                                |  | April 3,
 2010 |         | October 3,
 2009 |  
|ASSETS                                                                                          |  |                |         |                  |   |         | 
|                                                                                                |  |                |         |                  |   |         | 
|Current Assets:                                                                                 |  |                |         |                  |   |         | 
|Cash and cash equivalents                                                                       |  | $              | 122,082 |                  | $ | 118,885 | 
|Accounts receivable, net of allowances for doubtful accounts of $1,165
 and $1,410 respectively |  |                | 69,491  |                  |   | 72,553  | 
|Unbilled accounts receivable                                                                    |  |                | 20,149  |                  |   | 27,246  | 
|Inventories                                                                                     |  |                | 45,972  |                  |   | 47,969  | 
|Prepaid expenses and other current assets                                                       |  |                | 8,685   |                  |   | 6,583   | 
|Deferred income taxes                                                                           |  |                | 11,937  |                  |   | 12,322  | 
|Total current assets                                                                            |  |                | 278,316 |                  |   | 285,558 | 
|                                                                                                |  |                |         |                  |   |         | 
|                                                                                                |  |                |         |                  |   |         | 
|Property and equipment, net                                                                     |  |                | 54,943  |                  |   | 56,118  | 
|Goodwill                                                                                        |  |                | 15,097  |                  |   | 15,206  | 
|Other intangible assets, net                                                                    |  |                | 23,901  |                  |   | 23,826  | 
|Other assets                                                                                    |  |                | 3,320   |                  |   | 4,181   | 
|Deferred income taxes                                                                           |  |                | 1,902   |                  |   | 2,025   | 
|Total Assets                                                                                    |  | $              | 377,479 |                  | $ | 386,914 | 
|                                                                                                |  |                |         |                  |   |         | 
|LIABILITIES AND SHAREHOLDERS INVESTMENT                                                        |  |                |         |                  |   |         | 
|                                                                                                |  |                |         |                  |   |         | 
|Current Liabilities:                                                                            |  |                |         |                  |   |         | 
|Short-term borrowings                                                                           |  | $              | 40,254  |                  | $ | 40,182  | 
|Accounts payable                                                                                |  |                | 19,279  |                  |   | 18,630  | 
|Accrued payroll and related costs                                                               |  |                | 23,952  |                  |   | 25,376  | 
|Advance payments from customers                                                                 |  |                | 50,294  |                  |   | 46,739  | 
|Accrued warranty costs                                                                          |  |                | 8,571   |                  |   | 9,774   | 
|Accrued income taxes                                                                            |  |                | 2,493   |                  |   | 1,182   | 
|Deferred income taxes                                                                           |  |                | 939     |                  |   | 960     | 
|Other accrued liabilities                                                                       |  |                | 20,661  |                  |   | 25,149  | 
|Total current liabilities                                                                       |  |                | 166,443 |                  |   | 167,992 | 
|                                                                                                |  |                |         |                  |   |         | 
|Deferred income taxes                                                                           |  |                | 3,755   |                  |   | 3,843   | 
|Non-current accrued income taxes                                                                |  |                | 3,658   |                  |   | 3,591   | 
|Pension benefit plan                                                                            |  |                | 1,883   |                  |   | 1,917   | 
|Other long-term liabilities                                                                     |  |                | 5,264   |                  |   | 5,606   | 
|Total Liabilities                                                                               |  |                | 181,003 |                  |   | 182,949 | 
|                                                                                                |  |                |         |                  |   |         | 
|Shareholders Investment:                                                                       |  |                |         |                  |   |         | 
|Common stock, $.25 par; 64,000 shares authorized:                                               |  |                |         |                  |   |         | 
|16,368 and 16,564 shares issued and outstanding                                                 |  |                | 4,092   |                  |   | 4,141   | 
|Retained earnings                                                                               |  |                | 174,970 |                  |   | 174,301 | 
|Accumulated other comprehensive income                                                          |  |                | 17,414  |                  |   | 25,523  | 
|Total Shareholders Investment                                                                  |  |                | 196,476 |                  |   | 203,965 | 
|Total Liabilities and Shareholders Investment                                                  |  | $              | 377,479 |                  | $ | 386,914 | 

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 |  
|                                                               |  | April 3,
 2010     |        | March 28,
 2009  |   | April 3,
 2010 |   | March 28,
 2009 |        
|                                                               |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Revenue:                                                       |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Product                                                        |  | $                  | 79,256 |                  | $ | 94,273         |   | $               | 154,041 |   | $ | 193,670 |  
|Service                                                        |  |                    | 15,014 |                  |   | 13,379         |   |                 | 29,189  |   |   | 30,591  |  
|Total revenue                                                  |  |                    | 94,270 |                  |   | 107,652        |   |                 | 183,230 |   |   | 224,261 |  
|Cost of sales:                                                 |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Product                                                        |  |                    | 47,762 |                  |   | 57,709         |   |                 | 94,589  |   |   | 121,159 |  
|Service                                                        |  |                    | 7,980  |                  |   | 8,430          |   |                 | 14,931  |   |   | 17,368  |  
|Total cost of sales                                            |  |                    | 55,742 |                  |   | 66,139         |   |                 | 109,520 |   |   | 138,527 |  
|Gross profit                                                   |  |                    | 38,528 |                  |   | 41,513         |   |                 | 73,710  |   |   | 85,734  |  
|                                                              
|Operating expenses:                                            |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Selling and marketing                                          |  |                    | 16,270 |                  |   | 17,868         |   |                 | 32,256  |   |   | 36,989  |  
|General and administrative                                     |  |                    | 8,483  |                  |   | 8,024          |   |                 | 17,881  |   |   | 17,926  |  
|Research and development                                       |  |                    | 3,682  |                  |   | 3,874          |   |                 | 7,052   |   |   | 7,133   |  
|Total operating expenses                                       |  |                    | 28,435 |                  |   | 29,766         |   |                 | 57,189  |   |   | 62,048  |  
|                                                               |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Income from operations                                         |  |                    | 10,093 |                  |   | 11,747         |   |                 | 16,521  |   |   | 23,686  |  
|                                                              
|Interest expense                                               |  |                    | (485   | )                |   | (555           | ) |                 | (956    | ) |   | (1,063  | )
|Interest income                                                |  |                    | 56     |                  |   | 303            |   |                 | 119     |   |   | 820     |  
|Other expense, net                                             |  |                    | (4     | )                |   | (1,136         | ) |                 | (323    | ) |   | (242    | )
|                                                              
|Income before income taxes                                     |  |                    | 9,660  |                  |   | 10,359         |   |                 | 15,361  |   |   | 23,201  |  
|Provision for income taxes                                     |  |                    | 3,486  |                  |   | 2,886          |   |                 | 5,350   |   |   | 5,977   |  
|Net income                                                     |  | $                  | 6,174  |                  | $ | 7,473          |   | $               | 10,011  |   | $ | 17,224  |  
|                                                              
|Earnings per share:                                            |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Basic-                                                         |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Earnings per share                                             |  | $                  | 0.37   |                  | $ | 0.44           |   | $               | 0.61    |   | $ | 1.02    |  
|Weighted average number of common shares outstanding - basic   |  |                    | 16,467 |                  |   | 16,841         |   |                 | 16,523  |   |   | 16,888  |  
|                                                              
|Diluted-                                                       |  |                    |        |                  |   |                |   |                 |         |   |   |         |  
|Earnings per share                                             |  | $                  | 0.37   |                  | $ | 0.44           |   | $               | 0.60    |   | $ | 1.02    |  
|Weighted average number of common shares outstanding - diluted |  |                    | 16,531 |                  |   | 16,881         |   |                 | 16,574  |   |   | 16,935  |  

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 |        
|                                                                                       |  | April 3,
 2010   |         | March 28,
 2009 |  
|                                                                                       |  |                  |         |                 |   |         |  
|Cash flows from operating
 activities:                                                 |  |                  |         |                 |   |         |  
|Net income                                                                             |  | $                | 10,011  |                 | $ | 17,224  |  
|Adjustments to reconcile net income to net cash provided by operating
 activities:     |  |                  |         |                 |   |         |  
|Stock-based compensation                                                               |  |                  | 1,224   |                 |   | 1,978   |  
|Charge for fair value mark-up of acquired inventory                                    |  |                  |        |                 |   | 1,336   |  
|Net periodic pension benefit cost                                                      |  |                  | 211     |                 |   | 231     |  
|Depreciation and amortization                                                          |  |                  | 6,434   |                 |   | 5,842   |  
|Deferred income taxes                                                                  |  |                  | 347     |                 |   | (881    | )
|Bad debt provision                                                                     |  |                  | (203    | )               |   | 304     |  
|                                                                                       |  |                  |         |                 |   |         |  
|Changes in operating assets
 and liabilities, excluding the effect of the acquisition: |  |                  |         |                 |   |         |  
|Accounts and unbilled contracts receivable                                             |  |                  | 7,347   |                 |   | 21,408  |  
|Inventories                                                                            |  |                  | 1,048   |                 |   | (516    | )
|Prepaid expenses                                                                       |  |                  | (1,130  | )               |   | (806    | )
|Other assets                                                                           |  |                  | (2,244  | )               |   | (622    | )
|Accounts payable                                                                       |  |                  | 974     |                 |   | (10,958 | )
|Accrued payroll and related costs                                                      |  |                  | 393     |                 |   | (7,968  | )
|Advance payments from customers                                                        |  |                  | 4,163   |                 |   | (8,840  | )
|Accrued warranty costs                                                                 |  |                  | (998    | )               |   | 2,221   |  
|Other                                                                                  |  |                  | 284     |                 |   | (4,252  | )
|Net cash provided by operating activities                                              |  |                  | 27,861  |                 |   | 15,701  |  
|                                                                                       |  |                  |         |                 |   |         |  
|Cash flows from investing
 activities:                                                 |  |                  |         |                 |   |         |  
|Purchases of property and equipment                                                    |  |                  | (5,008  | )               |   | (5,867  | )
|Purchase of business                                                                   |  |                  | (478    | )               |   | (21,598 | )
|Net cash used in investing activities                                                  |  |                  | (5,486  | )               |   | (27,465 | )
|                                                                                       |  |                  |         |                 |   |         |  
|Cash flows from financing
 activities:                                                 |  |                  |         |                 |   |         |  
|Net receipts under short-term borrowings                                               |  |                  | 84      |                 |   | 15,909  |  
|Payments of long-term debt                                                             |  |                  |        |                 |   | (1,154  | )
|Cash dividends                                                                         |  |                  | (7,373  | )               |   | (5,082  | )
|Proceeds from exercise of stock options and employee stock purchase
 plan              |  |                  | 343     |                 |   | 502     |  
|Payments to purchase and retire common stock                                           |  |                  | (5,913  | )               |   | (6,724  | )
|Net cash (used in) provided by financing activities                                    |  |                  | (12,859 | )               |   | 3,451   |  
|                                                                                       |  |                  |         |                 |   |         |  
|Effect of exchange rate on
 changes in cash                                            |  |                  | (6,319  | )               |   | (6,437  | )
|Net increase (decrease) in cash and cash equivalents                                   |  |                  | 3,197   |                 |   | (14,750 | )
|                                                                                       |  |                  |         |                 |   |         |  
|Cash and cash equivalents, at beginning of period                                      |  |                  | 118,885 |                 |   | 114,099 |  
|Cash and cash equivalents, at end of period                                            |  | $                | 122,082 |                 | $ | 99,349  |  
|                                                                                       |  |                  |         |                 |   |         |  
|Supplemental disclosure of
 cash flow information:                                     |  |                  |         |                 |   |         |  
|Cash paid during the period for -                                                      |  |                  |         |                 |   |         |  
|Interest                                                                               |  | $                | 756     |                 | $ | 747     |  
|Income taxes                                                                           |  | $                | 4,755   |                 | $ | 8,258   |  

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

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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 that affect amounts reported. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with GAAP have
been condensed or omitted pursuant to SEC rules and regulations. The
accompanying financial statements of the Company should be read in conjunction
with the audited consolidated financial statements and notes thereto included
in the Companys Annual Report on Form 10-K for the fiscal year ended October
3, 2009 filed with the SEC. Interim results of operations for the three and
six-month periods ended April 3, 2010 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 protocols 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 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 identifies components of
the arrangement which are considered software-related. 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, based on the cost incurred to-date
relative to estimated total cost of the contract. Elements of an arrangement
that do not separately fall within the scope of the percentage of completion
method (e.g. software maintenance and training) are accounted for as the
service is provided based on fair value as determined by stand-alone 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.

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

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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 April 3, 2010 and October 3, 2009 were as follows:

|                                                   |  |                          |        |                 |   |        | 
|-------------------------------------------------- |  | ------------------------ | ------ | --------------- | - | ------ | 
|                                                   |  | April 3, 2010            |        | October 3, 2009 |  
|                                                   |  | (expressed in thousands) |       
|Customer projects in various stages of
 completion |  | $                        | 14,281 |                 | $ | 15,075 | 
|Components, assemblies and parts                   |  |                          | 31,691 |                 |   | 32,894 | 
|Total                                              |  | $                        | 45,972 |                 | $ | 47,969 | 

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

The Companys
capitalized software development costs are subject to an ongoing assessment of
recoverability, which is impacted by estimates and assumptions of future
revenues and expenses for these software products, as well as other factors
such as changes in product technologies. 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.
Amortization expense for software development costs for the three-month periods
ended April 3, 2010 and March 28, 2009 was 0.3 million and 0.2 million,
respectively. Amortization expense for software development costs for the
six-month periods ended April 3, 2010 and March 28, 2009 was $0.7 million and
$0.2 million, respectively. See Note 3 to the Consolidated Financial Statements
for additional information on capitalized software development costs.

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

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

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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 to twenty-four 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
general warranty provisions based on an estimated warranty expense percentage
applied to current period revenue. The percentage applied reflects historical
warranty claims experience over the preceding twelve-month period. Both the
experience percentage and the warranty liability are evaluated on an ongoing
basis for adequacy. In addition, warranty provisions are also recognized for certain
nonrecurring product claims that are individually significant. Warranty
provisions and claims for the three and six-month periods ended April 3, 2010
and March 28, 2009 were as follows:

|                       |  |                          |        |                  |   |                |   |                 |        |   |   |        |  
|---------------------- |  | ------------------------ | ------ | ---------------- | - | -------------- | - | --------------- | ------ | - | - | ------ | -
|                       |  | Three Months Ended       |        | Six Months Ended |  
|                       |  | April 3,
 2010           |        | March 28,
 2009  |   | April 3,
 2010 |   | March 28,
 2009 |       
|                       |  | (expressed in thousands) |       
|Beginning balance      |  | $                        | 10,001 |                  | $ | 6,233          |   | $               | 9,774  |   | $ | 6,107  |  
|Warranty provisions(1) |  |                          | 742    |                  |   | 4,060          |   |                 | 3,019  |   |   | 5,985  |  
|Warranty claims        |  |                          | (2,018 | )                |   | (1,929         | ) |                 | (4,017 | ) |   | (3,764 | )
|Acquisition of SANS    |  |                          |       |                  |   |               |   |                 |       |   |   | 73     |  
|Currency translation   |  |                          | (154   | )                |   | (168           | ) |                 | (205   | ) |   | (205   | )
|Ending balance         |  | $                        | 8,571  |                  | $ | 8,196          |   | $               | 8,571  |   | $ | 8,196  |  

| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Warranty
 provisions for the three and six-month periods ended April 3, 2010 include a
 $0.8 million favorable impact resulting from the settlement of a specific
 claim.

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

2. Recent Accounting Pronouncements

In January
2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value
Measurements. ASU 2010-06 requires additional disclosures about fair value
measurements. The new disclosure provisions of ASU 2010-06 are effective for
interim and annual reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances and settlements in the
roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The Companys adoption of the
provisions of ASU 2010-06 during the three-month period ended April 3, 2010 did
not have an impact on its consolidated financial statements.

In October
2009, the FASB issued ASU 2009-14, Software (Topic 985)  Certain Revenue
Arrangements that Include Software Elements. ASU 2009-14 changes the
accounting model for revenue arrangements that include both tangible products
and software elements. Specifically, tangible products containing software
components and non-software components that function together to deliver the
tangible products essential functionality are excluded from the software
revenue guidance in Accounting Standards Codification (ASC) Subtopic 985-605,
Software-Revenue Recognition. In addition, ASU 2009-14 requires that hardware
components of a tangible product containing software components be excluded
from the software revenue guidance. The provisions of ASU 2009-14 are effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010 which, for the Company, will
be fiscal year 2011. The Company is currently evaluating the impact of this new
guidance, but does not expect the adoption of ASU 2009-14 to have a material
impact on its consolidated financial statements.

7

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Table of Contents

In October
2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605) -
Multiple-Deliverable Revenue Arrangements. ASU 2009-13 amends the criteria
established in ASC 605-25, Revenue Recognition  Multiple Element
Arrangements, for separating consideration in multiple-deliverable
arrangements. This guidance establishes a selling price hierarchy for
determining the selling price of a deliverable. Specifically, the selling price
used for each deliverable is based on: (a) vendor-specific objective evidence
if available; (b) third-party evidence if vendor-specific objective evidence is
not available; or (c) estimated selling price if neither vendor-specific
objective evidence nor third-party evidence is available. In addition, ASU
2009-13 eliminates the residual method of allocation and requires that
arrangement consideration be allocated at the inception of the arrangement to
all deliverables using the relative selling price method. Also, ASU 2009-13
significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. The provisions of ASU 2009-13 are
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010 which, for the
Company, will be fiscal year 2011. Early adoption is permitted. The Company is
currently evaluating the impact of this new guidance, but does not expect the
adoption of ASU 2009-13 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 as codified by ASC 715-20-65-2. This
standard amends SFAS No. 132 (revised 2003), Employers Disclosures about
Pensions and Other Postretirement Benefits as codified by ASC 715-20 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. ASC 715-20-65-2 is
effective for fiscal years ending after December 15, 2009. The Company believes
the additional disclosures required upon the adoption of ASC 715-20-65-2 will
not impact its consolidated financial condition or results of operations.

3. Capital Assets

|                                                                                      
|--------------------------------------------------------------------------------------
|Property and Equipment                                                                
|Property and
 equipment at April 3, 2010 and October 3, 2009 consist of the following:

|                               |  |                          |         |                  |   |         |  
|------------------------------ |  | ------------------------ | ------- | ---------------- | - | ------- | -
|                               |  | April 3,
 2010           |         | October 3,
 2009 |  
|                               |  | (expressed in thousands) |        
|Land and
 improvements         |  | $                        | 1,713   |                  | $ | 1,716   |  
|Buildings
 and improvements    |  |                          | 51,999  |                  |   | 52,921  |  
|Machinery
 and equipment       |  |                          | 98,995  |                  |   | 96,156  |  
|Total                          |  |                          | 152,707 |                  |   | 150,793 |  
|Less accumulated
 depreciation |  |                          | (97,764 | )                |   | (94,675 | )
|Property and
 equipment, net   |  | $                        | 54,943  |                  | $ | 56,118  |  

|                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------
|Goodwill                                                                                                                          
|The changes
 to the carrying amount of goodwill for the six-month periods ended April 3,
 2010 and March 28, 2009 were as follows:

|                     |  |                                 |        |                                  |   |        |  
|-------------------- |  | ------------------------------- | ------ | -------------------------------- | - | ------ | -
|                     |  | Six Months Ended
 April 3, 2010 |        | Six Months Ended
 March 28, 2009 |  
|                     |  | (expressed in thousands)        |       
|Beginning balance    |  | $                               | 15,174 |                                  | $ | 1,668  |  
|Acquisition of SANS  |  |                                 |       |                                  |   | 14,384 |  
|Currency translation |  |                                 | (77    | )                                |   | (261   | )
|Ending balance       |  | $                               | 15,097 |                                  | $ | 15,791 |  

At April 3,
2010, $13.5 million and $1.6 million of goodwill was associated with the Test
and Sensors segments, respectively. At March 28, 2009, $14.2 million and $1.6
million of goodwill was associated with the Test and Sensors segments,
respectively.

8

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Table of Contents

|                                                                                        
|----------------------------------------------------------------------------------------
|Other Intangible Assets                                                                 
|Other
 intangible assets at April 3, 2010 and October 3, 2009 consist of the
 following:

|                            |  |                        |                          |                           |   |                     |   |                                            |        |  |  |      | 
|--------------------------- |  | ---------------------- | ------------------------ | ------------------------- | - | ------------------- | - | ------------------------------------------ | ------ |  |  | ---- | 
|                            |  | April 3, 2010          |                         
|                            |  |                        |                          |                           |   |                     |   | Weighted
 Average
 Useful Life
 (in Years) |       
|                            |  |                        |                          |                           |   |                     |   |                                           
|                            |  | Gross Carrying
 Amount |                          | Accumulated
 Amortization |   | Net Carrying
 Value |   |                                           
|                            |  |                        | (expressed in thousands) |                           |   |                     |  
|Software
 development costs |  | $                      | 9,658                    |                           | $ | (1,437              | ) | $                                          | 8,221  |  |  | 6.2  | 
|Patents                     |  |                        | 9,271                    |                           |   | (984                | ) |                                            | 8,287  |  |  | 15.3 | 
|Trademarks
 and trade names |  |                        | 5,571                    |                           |   | (503                | ) |                                            | 5,068  |  |  | 30.2 | 
|Non-compete
 agreements     |  |                        | 2,429                    |                           |   | (1,215              | ) |                                            | 1,214  |  |  | 3.0  | 
|Land-use
 rights            |  |                        | 1,141                    |                           |   | (30                 | ) |                                            | 1,111  |  |  | 47.8 | 
|Total                       |  | $                      | 28,070                   |                           | $ | (4,169              | ) | $                                          | 23,901 |  |  | 15.4 | 

|                            |  |                        |                          |                           |   |                     |   |                                            |        |  |  |      | 
|--------------------------- |  | ---------------------- | ------------------------ | ------------------------- | - | ------------------- | - | ------------------------------------------ | ------ |  |  | ---- | 
|                            |  | October 3, 2009        |                         
|                            |  |                        |                          |                           |   |                     |   | Weighted
 Average
 Useful Life
 (in Years) |       
|                            |  |                        |                          |                           |   |                     |   |                                           
|                            |  | Gross Carrying
 Amount |                          | Accumulated
 Amortization |   | Net Carrying
 Value |   |                                           
|                            |  |                        | (expressed in thousands) |                           |   |                     |  
|Software
 development costs |  | $                      | 8,062                    |                           | $ | (729                | ) | $                                          | 7,333  |  |  | 5.0  | 
|Patents                     |  |                        | 9,225                    |                           |   | (652                | ) |                                            | 8,573  |  |  | 15.4 | 
|Trademarks
 and trade names |  |                        | 5,583                    |                           |   | (412                | ) |                                            | 5,171  |  |  | 30.2 | 
|Non-compete
 agreements     |  |                        | 2,435                    |                           |   | (812                | ) |                                            | 1,623  |  |  | 3.0  | 
|Land-use
 rights            |  |                        | 1,144                    |                           |   | (18                 | ) |                                            | 1,126  |  |  | 47.8 | 
|Total                       |  | $                      | 26,449                   |                           | $ | (2,623              | ) | $                                          | 23,826 |  |  | 15.6 | 

Amortization expense
recognized during the three-month periods ended April 3, 2010 and March 28,
2009 was $0.7 million and $0.6 million, respectively. Amortization expense
recognized during the six-month periods ended April 3, 2010 and March 28, 2009
was $1.6 million and $1.0 million, respectively.

4. 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 1.2 million and 1.4 million weighted common shares have been excluded
from diluted weighted shares outstanding for the three and six-month periods
ended April 3, 2010 and March 28, 2009, respectively. The potentially dilutive
effect of common shares issued in connection with outstanding stock options is
determined based on net income. A reconciliation of these amounts is as
follows:

|                                            |  |                                                 |        |                  |   |                |  |                 |        |  |   |        | 
|------------------------------------------- |  | ----------------------------------------------- | ------ | ---------------- | - | -------------- |  | --------------- | ------ |  | - | ------ | 
|                                            |  |                                                 |        |                  |   |                |  |                 |       
|                                            |  | Three Months Ended                              |        | Six Months Ended |  
|                                            |  | April 3,
 2010                                  |        | March 28,
 2009  |   | April 3,
 2010 |  | March 28,
 2009 |       
|                                            |  | (expressed in thousands, except per share data) |       
|Net income                                  |  | $                                               | 6,174  |                  | $ | 7,473          |  | $               | 10,011 |  | $ | 17,224 | 
|Weighted
 average common shares outstanding |  |                                                 | 16,467 |                  |   | 16,841         |  |                 | 16,523 |  |   | 16,888 | 
|Dilutive
 potential common shares           |  |                                                 | 64     |                  |   | 40             |  |                 | 51     |  |   | 47     | 
|Total
 diluted weighted shares outstanding  |  |                                                 | 16,531 |                  |   | 16,881         |  |                 | 16,574 |  |   | 16,935 | 
|Earnings per
 share:                        |  |                                                 |        |                  |   |                |  |                 |        |  |   |        | 
|Basic                                       |  | $                                               | 0.37   |                  | $ | 0.44           |  | $               | 0.61   |  | $ | 1.02   | 
|Diluted                                     |  | $                                               | 0.37   |                  | $ | 0.44           |  | $               | 0.60   |  | $ | 1.02   | 

9

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Table of Contents

5. 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 October 3, 2009. In evaluating each segments
performance, management focuses on income from operations. This measure
excludes interest income and expense, income taxes and other non-operating
items. Corporate expenses, including costs associated with various support
functions such as human resources, information technology, finance and
accounting, and general and administrative costs, are allocated to the
reportable segments primarily on the basis of revenue.

Financial information by
reportable segment for the three and six-month periods ended April 3, 2010 and
March 28, 2009 was as follows:

|                                    |  |                          |        |                  |   |                |  |                 |         |  |   |         | 
|----------------------------------- |  | ------------------------ | ------ | ---------------- | - | -------------- |  | --------------- | ------- |  | - | ------- | 
|                                    |  | Three Months Ended       |        | Six Months Ended |  
|                                    |  | April 3,
 2010           |        | March 28,
 2009  |   | April 3,
 2010 |  | March 28,
 2009 |        
|                                    |  | (expressed in thousands) |       
|Revenue
 by Segment:                |  |                          |        |                  |   |                |  |                 |         |  |   |         | 
|Test                                |  | $                        | 75,331 |                  | $ | 90,929         |  | $               | 147,204 |  | $ | 188,137 | 
|Sensors                             |  |                          | 18,939 |                  |   | 16,723         |  |                 | 36,026  |  |   | 36,124  | 
|Total revenue                       |  | $                        | 94,270 |                  | $ | 107,652        |  | $               | 183,230 |  | $ | 224,261 | 
|                                    |  |                          |        |                  |   |                |  |                 |         |  |   |         | 
|Income
 from Operations by Segment: |  |                          |        |                  |   |                |  |                 |         |  |   |         | 
|Test                                |  | $                        | 6,283  |                  | $ | 9,271          |  | $               | 9,520   |  | $ | 18,311  | 
|Sensors                             |  |                          | 3,810  |                  |   | 2,476          |  |                 | 7,001   |  |   | 5,375   | 
|Total income from operations        |  | $                        | 10,093 |                  | $ | 11,747         |  | $               | 16,521  |  | $ | 23,686  | 

6. Derivative Instruments and Hedging Activities

The Companys results of
operations could be materially impacted by changes in foreign currency exchange
rates, as well as interest rates on its floating rate indebtedness. In an
effort to manage exposure to these risks, the Company periodically enters into
forward and option currency exchange contracts 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 does not offset fair value
amounts recognized on these derivative instruments. As of April 3, 2010, the
Company does not have any foreign exchange contracts with credit-risk related
contingent features.

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Table of Contents

The Companys foreign
exchange cash flow hedges and interest rate swaps are designated and qualify as
hedging instruments pursuant to ASC 815. The Companys balance sheet
derivatives are accounted for and reported under the guidance of ASC 830-20-10.
Regardless of designation for accounting purposes, the Company believes that
all of its derivative instruments are economic hedges of risk exposures. The
fair value of the Companys outstanding designated hedge derivative and
undesignated derivative assets and liabilities were reported in the April 3,
2010 and October 3, 2009 Consolidated Balance Sheet as follows:

|                                           |  |                                             |                            |  |   |       | 
|------------------------------------------ |  | ------------------------------------------- | -------------------------- |  | - | ----- | 
|                                           |  | April 3, 2010                               |                           
|                                           |  | Prepaid Expenses
 and Other
 Current Assets |                            |  |  
|                                           |  |                                             | Other Accrued
 Liabilities | 
|                                           |  | (expressed in thousands)                    |                           
|Designated
 hedge derivatives:             |  |                                             |                            |  |   |       | 
|Foreign exchange cash flow hedges          |  | $                                           | 323                        |  | $ | 29    | 
|Interest rate swaps                        |  |                                             |                           |  |   | 1,622 | 
|Total designated hedge derivatives         |  |                                             | 323                        |  |   | 1,651 | 
|                                           |  |                                             |                            |  |   |       | 
|Derivatives
 not designated as hedges:     |  |                                             |                            |  |   |       | 
|Foreign exchange balance sheet derivatives |  |                                             | 296                        |  |   | 576   | 
|Total hedge
 and other derivatives         |  | $                                           | 619                        |  | $ | 2,227 | 

|                                           |  |                                             |                            |  |   |       | 
|------------------------------------------ |  | ------------------------------------------- | -------------------------- |  | - | ----- | 
|                                           |  | October 3, 2009                             |                           
|                                           |  | Prepaid Expenses
 and Other
 Current Assets |                            |  |  
|                                           |  |                                             | Other Accrued
 Liabilities | 
|                                           |  | (expressed in thousands)                    |                           
|Designated
 hedge derivatives:             |  |                                             |                            |  |   |       | 
|Foreign exchange cash flow hedges          |  | $                                           | 234                        |  | $ | 470   | 
|Interest rate swaps                        |  |                                             |                           |  |   | 1,894 | 
|Total designated hedge derivatives         |  |                                             | 234                        |  |   | 2,364 | 
|                                           |  |                                             |                            |  |   |       | 
|Derivatives
 not designated as hedges:     |  |                                             |                            |  |   |       | 
|Foreign exchange balance sheet derivatives |  |                                             |                           |  |   | 729   | 
|Total hedge
 and other derivatives         |  | $                                           | 234                        |  | $ | 3,093 | 

Foreign Currency Cash Flow HedgingCurrency 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 April 3, 2010 and March
28, 2009, the Company had outstanding cash flow hedge currency exchange
contracts with gross notional U.S. dollar equivalent amounts of $9.2 million
and $30.4 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 $8.1 million and $24.2 million
at April 3, 2010 and March 28, 2009, respectively. At April 3, 2010 the net
market value of the foreign currency exchange contracts was a net asset of $0.3
million, consisting of $0.3 million in assets and less than $0.1 million in
offsetting liabilities. At March 28, 2009, the net market value of 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.

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Table of Contents

The pretax amounts
recognized in AOCI on currency exchange contracts for the three and six-month
periods ended April 3, 2010 and 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       |     | Six Months Ended |  
|                                                                                                                                              |  | April, 3
 2010           |     | March, 28
 2009  |   | April, 3
 2010 |   | March, 28
 2009 |     
|                                                                                                                                              |  | (expressed in thousands) |    
|Beginning
 unrealized net gain (loss) in AOCI                                                                                                 |  | $                        | 8   |                  | $ | (1,277         | ) | $               | (519 | ) | $ | 108    |  
|Net loss
 reclassified into Revenue (effective portion)                                                                                       |  |                          | 81  |                  |   | 81             |   |                 | 435  |   |   | 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 gain
 (loss) recognized in OCI (effective portion)                                                                                        |  |                          | 170 |                  |   | 1,098          |   |                 | 343  |   |   | (1,278 | )
|Ending
 unrealized net gain in AOCI                                                                                                           |  | $                        | 259 |                  | $ | 71             |   | $               | 259  |   | $ | 71     |  

The amount recognized in
earnings as a result of the ineffectiveness of cash flow hedges was less than
$0.1 million in each of the three and six-month periods ended April 3, 2010 and
March 28, 2009. At April 3, 2010 and March 28, 2009, the amount projected to be
reclassified from AOCI into earnings in the next 12 months was a net gain of
$0.2 million and $0.1 million, respectively. The maximum remaining maturity of
any forward or optional contract at April 3, 2010 and March 28, 2009 was 0.9
years and 0.7 years, respectively.

Interest Rate SwapsThe 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 April 3, 2010 and 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 those dates. Every month, the Company pays fixed
interest on these interest rate swaps in exchange for interest received at
monthly U.S. LIBOR. At April 3, 2010 and 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 April 3, 2010 and 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
April 3, 2010 and March 28, 2009 was a liability of $1.6 million and $2.2
million, respectively.

The pretax amounts
recognized in AOCI on interest rate swaps for the three and six-month periods
ended April 3, 2010 and March 28, 2009 are as follows:

|                                                                |  |                          |        |                  |   |                |   |                 |        |   |   |        |  
|--------------------------------------------------------------- |  | ------------------------ | ------ | ---------------- | - | -------------- | - | --------------- | ------ | - | - | ------ | -
|                                                                |  | Three Months Ended       |        | Six Months Ended |  
|                                                                |  | April, 3
 2010           |        | March, 28
 2009  |   | April, 3
 2010 |   | March, 28
 2009 |       
|                                                                |  | (expressed in thousands) |       
|Beginning unrealized net
 loss in AOCI                          |  | $                        | (1,646 | )                | $ | (2,111         | ) | $               | (1,894 | ) | $ | (199   | )
|Net loss reclassified into Interest expense (effective portion) |  |                          | 306    |                  |   | 282            |   |                 | 617    |   |   | 358    |  
|Net loss recognized in OCI
 (effective portion)                 |  |                          | (282   | )                |   | (325           | ) |                 | (345   | ) |   | (2,313 | )
|Ending unrealized net loss
 in AOCI                             |  | $                        | (1,622 | )                | $ | (2,154         | ) | $               | (1,622 | ) | $ | (2,154 | )

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

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At April 3, 2010 and March
28, 2009, the Company had outstanding balance sheet currency exchange
derivative contracts with gross notional U.S. dollar equivalent amounts of
$34.4 million and $74.2 million, respectively. Upon netting
offsetting contracts by counterparty banks to sell foreign currencies against
contracts to purchase foreign currencies, irrespective of contract maturity
dates, the net notional U.S. dollar equivalent amount of contracts outstanding
at April 3, 2010 and March 28, 2009 was $1.0 million and $13.8 million,
respectively. At April 3, 2010, the net market value of the balance sheet
foreign currency exchange derivative contracts was a net asset of $0.3 million,
consisting entirely of assets. At March 28, 2009, the net market value of the
balance sheet foreign currency exchange derivative contracts was a net
liability of $0.8 million, consisting entirely of liabilities.

The net gains
(losses) recognized in the Consolidated Statements of Income on balance sheet
currency exchange derivative contracts for the three and six-month periods
ended April 3, 2010 and March 28, 2009 are as follows:

|                                                  |  |                          |     |                  |   |                |   |                 |    |  |   |      |  
|------------------------------------------------- |  | ------------------------ | --- | ---------------- | - | -------------- | - | --------------- | -- |  | - | ---- | -
|                                                  |  | Three Months Ended       |     | Six Months Ended |  
|                                                  |  | April, 3
 2010           |     | March, 28
 2009  |   | April, 3
 2010 |   | March, 28
 2009 |   
|                                                  |  | (expressed in thousands) |    
|Net (loss) gain recognized
 in Other expense, net |  | $                        | (21 | )                | $ | (150           | ) | $               | 76 |  | $ | (953 | )

7. Fair Value Measurements

ASC 820-10 AdoptionEffective September 28, 2008, the Company adopted
certain of the provisions of SFAS No. 157, Fair Value Measurements
as codified by ASC 820-10. In February 2008, the FASB issued FSP 157-2 as
codified by ASC 820-10-15-1A. ASC 820-10-15-1A delays the effective date of ASC
820-10 to fiscal years beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The Company elected the partial deferral of ASC 820-10 under
the provisions of ASC 820-10-15-1A related to its application when evaluating
goodwill, other intangible assets and other long-lived assets for impairment.
The Companys adoption of the deferred portions of ASC 820-10 on October 4,
2009 did not have an impact on its consolidated financial condition or results
of operations.

In determining
the fair value of financial assets and liabilities, the Company currently
utilizes market data or other assumptions that it believes market participants
would use in pricing the asset or liability, and adjusts for non-performance
and/or other risk associated with the Company as well as counterparties, as
appropriate.

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

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

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

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

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

13

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Table of Contents

Financial Instruments Measured at Fair Value
on a Recurring BasisAs of April 3, 2010 and October 3, 2009, financial
assets and liabilities subject to fair value measurements on a recurring basis
are as follows:

|                       |  |                          |   |         |   |         |  |       |   |  |   |       | 
|---------------------- |  | ------------------------ | - | ------- | - | ------- |  | ----- | - |  | - | ----- | 
|                       |  | April 3, 2010            |  
|                       |  | Level 1                  |   | Level 2 |   | Level 3 |  | Total |  
|                       |  | (expressed in thousands) |  
|Assets:                |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Currency contracts(1)  |  | $                        |  |         | $ | 619     |  | $     |  |  | $ | 619   | 
|Total assets           |  | $                        |  |         | $ | 619     |  | $     |  |  | $ | 619   | 
|                       |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Liabilities:           |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Currency contracts(1)  |  | $                        |  |         | $ | 605     |  | $     |  |  | $ | 605   | 
|Interest rate swaps(2) |  |                          |   |         |   | 1,622   |  |       |  |  |   | 1,622 | 
|Total liabilities      |  | $                        |  |         | $ | 2,227   |  | $     |  |  | $ | 2,227 | 

|                       |  |                          |   |         |   |         |  |       |   |  |   |       | 
|---------------------- |  | ------------------------ | - | ------- | - | ------- |  | ----- | - |  | - | ----- | 
|                       |  | October 3, 2009          |  
|                       |  | Level 1                  |   | Level 2 |   | Level 3 |  | Total |  
|                       |  | (expressed in thousands) |  
|Assets:                |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Currency contracts(1)  |  | $                        |  |         | $ | 234     |  | $     |  |  | $ | 234   | 
|Total assets           |  | $                        |  |         | $ | 234     |  | $     |  |  | $ | 234   | 
|                       |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Liabilities:           |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Currency contracts(1)  |  | $                        |  |         | $ | 1,199   |  | $     |  |  | $ | 1,199 | 
|Interest rate swaps(2) |  |                          |   |         |   | 1,894   |  |       |  |  |   | 1,894 | 
|Total liabilities      |  | $                        |  |         | $ | 3,093   |  | $     |  |  | $ | 3,093 | 

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

Nonfinancial Assets Measured at Fair Value on
a Nonrecurring BasisThe Companys goodwill, intangible assets and other
long-lived assets are nonfinancial assets that were acquired either as part of
a business combination, individually or with a group of other assets. These
nonfinancial assets were initially, and are currently, measured and recognized
at amounts equal to the fair value determined as of the date of acquisition.
Periodically, these nonfinancial assets are tested for impairment, by comparing
their respective carrying values to the estimated fair value of the reporting
unit or operating segment upon which they reside. In the event any of these
nonfinancial assets were to become impaired, the Company would recognize an
impairment loss equal to the amount by which the carrying value of the impaired
asset or asset group exceeds its estimated fair value. Fair value measurements
of reporting units or operating segments are estimated using an income approach
involving discounted or undiscounted cash flow models that contain certain
Level 3 inputs requiring management judgment, including projections of economic
conditions and customer demand, revenue and margins, changes in competition,
operating costs, working capital requirements, and new product introductions.
Fair value measurements of the reporting units associated with the Companys
goodwill balances are estimated at least annually in the fourth quarter of each
fiscal year for purposes of impairment testing. Fair value measurements of the
operating segments associated with the Companys intangible assets and other long-lived
assets are estimated when events or changes in circumstances such as market
value, asset utilization, physical change, legal factors, or other matters
indicate that the carrying value may not be recoverable.

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

8. 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.

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Comprehensive
Income for the three and six-month periods ended April 3, 2010 and March 28,
2009 was as follows:

|                                                                              |  |                          |        |                  |   |                |   |                 |        |   |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------ | ---------------- | - | -------------- | - | --------------- | ------ | - | - | ------ | -
|                                                                              |  | Three Months Ended       |        | Six Months Ended |  
|                                                                              |  | April 3,
 2010           |        | March 28,
 2009  |   | April 3,
 2010 |   | March 28,
 2009 |       
|                                                                              |  | (expressed in thousands) |       
|                                                                             
|Net income                                                                    |  | $                        | 6,174  |                  | $ | 7,473          |   | $               | 10,011 |   | $ | 17,224 |  
|                                                                              |  |                          |        |                  |   |                |   |                 |        |   |   |        |  
|Change in cumulative translation adjustment                                   |  |                          | (6,512 | )                |   | (6,215         | ) |                 | (8,712 | ) |   | (9,226 | )
|Pension benefit plan adjustments                                              |  |                          | (111   | )                |   | (365           | ) |                 | (54    | ) |   | (227   | )
|Increase (decrease) in unrealized gains and
 losses on derivative instruments |  |                          | 173    |                  |   | 846            |   |                 | 657    |   |   | (1,232 | )
|Comprehensive income                                                          |  | $                        | (276   | )                | $ | 1,739          |   | $               | 1,902  |   | $ | 6,539  |  

9. Financing

Short-term
borrowings at April 3, 2010 and October 3, 2009 consist of the following:

|                                                                                                                                                                                                     |  |                           |        |                   |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ----------------- | - | ------ | 
|                                                                                                                                                                                                     |  | April
 3,
 2010           |        | October
 3,
 2009 |  
|                                                                                                                                                                                                     |  | (expressed
 in thousands) |       
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (0.75%
 rate in effect at April 3, 2010), maturing April 2010, 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 (0.75%
 rate in effect at April 3, 2010), maturing April 2010, 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 (0.75%
 rate in effect at April 3, 2010), maturing April 2010, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                           | 6,000  |                   |   | 6,000  | 
|                                                                                                                                                                                                     |  |                           |        |                   |   |        | 
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (0.75%
 rate in effect at April 3, 2010), maturing April 2010, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                           | 10,000 |                   |   | 10,000 | 
|Notes payable, non-interest bearing                                                                                                                                                                  |  |                           | 254    |                   |   | 182    | 
|Total short-term borrowings                                                                                                                                                                          |  | $                         | 40,254 |                   | $ | 40,182 | 

The Companys
credit facility provides for up to $75.0 million for working capital financing,
acquisitions, share purchases, or other general corporate purposes and expires
in December 2012. At April 3, 2010 and October 3, 2009, outstanding borrowings
under the credit facility were $40.0 million. At April 3, 2010, the Company had
outstanding letters of credit drawn from the credit facility totaling $7.8
million, leaving approximately $27.2 million of unused borrowing capacity. 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
swaps. Subsequent to April 3, 2010, the Company renewed each of the outstanding
borrowings on the credit facility for an additional month. The Company intends
to continue to renew each of the outstanding borrowings on the credit facility
monthly throughout the entire term of the interest rate swap arrangement
directly associated with the borrowing. At April 3, 2010, 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 6 in the Condensed Notes to Consolidated
Financial Statements for additional information on the interest rate swaps.

10. Income Taxes

As of April 3,
2010, the Companys liability for unrecognized tax benefits was $3.7 million,
of which $1.8 million would favorably affect the Companys effective tax rate
if recognized.

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11. 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 net
periodic benefit cost for the plan for the three and six-month periods ended
April 3, 2010 and March 28, 2009 included the following components:

|                                |  |                          |      |                  |   |                |   |                 |      |   |   |      |  
|------------------------------- |  | ------------------------ | ---- | ---------------- | - | -------------- | - | --------------- | ---- | - | - | ---- | -
|                                |  | Three Months Ended       |      | Six Months Ended |  
|                                |  | April 3,
 2010           |      | March 28,
 2009  |   | April 3,
 2010 |   | March 28,
 2009 |     
|                                |  | (expressed in thousands) |     
|                                |  |                          |      |                  |   |                |   |                 |      |   |   |      |  
|Service cost                    |  | $                        | 88   |                  | $ | 96             |   | $               | 183  |   | $ | 194  |  
|Interest
 cost                  |  |                          | 199  |                  |   | 183            |   |                 | 412  |   |   | 370  |  
|Expected
 return on plan assets |  |                          | (190 | )                |   | (168           | ) |                 | (393 | ) |   | (340 | )
|Net
 amortization and deferral  |  |                          | 5    |                  |   | 4              |   |                 | 9    |   |   | 7    |  
|Net periodic
 benefit cost      |  | $                        | 102  |                  | $ | 115            |   | $               | 211  |   | $ | 231  |  

The weighted
average expected long-term rate of return on plan assets used to determine the
net periodic benefit cost for the three and six-month periods ended April 3,
2010 and March 28, 2009 was 5.9%.

12. 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.

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

13. Subsequent Events

The Company
has evaluated subsequent events for the period beginning April 4, 2010 through
the date the Companys quarterly financial statements were issued, and
concluded there were no other events or transactions occurring during this
period that required recognition or additional disclosure in the financial
statements.

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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
October 3, 2009. Such important factors include:

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

The
performance of the Companys business and its securities may be adversely
affected by these factors and by other factors common to other businesses and
investments, or to the general economy. Forward-looking statements are
qualified by some or all of these risk factors. Therefore, you should consider
these risk factors with caution and form your own critical and independent
conclusions about the likely effect of these risk factors on our future
performance. Forward-looking statements speak only as of the date on which such
statements are made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events
or circumstances. Readers should carefully review the disclosures and the risk
factors described in this and other documents we file from time to time with
the SEC, including our reports on Forms 10-Q and 8-K to be filed by the Company
in fiscal year 2010.

About MTS Systems Corporation

MTS Systems
Corporation is a leading global supplier of test systems and industrial
position sensors. The Companys testing hardware and software solutions help
customers accelerate and improve their design, development, and manufacturing
processes and are used for determining the mechanical behavior of materials,
products, and structures. MTS high-performance position sensors provide
controls for a variety of industrial and vehicular applications. MTS had 2,015
employees and revenue of $409 million for the fiscal year ended October 3,
2009.

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Table of Contents

Summary of Financial Results

Three Months Ended April 3, 2010 (Second
Quarter of Fiscal 2010) Compared to Three Months Ended January 2, 2010 (First
Quarter of Fiscal 2010)

|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-------------------------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Highlights
 for the Second Quarter of Fiscal 2010 compared to the First Quarter of Fiscal
 2010 include:
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                         |  | Orders
 decreased 13.3% to $93.4 million, compared to $107.7 million for the First
 Quarter of Fiscal 2010. First Quarter of Fiscal 2010 orders included two
 large, in excess of $5.0 million, Test segment orders totaling approximately
 $20.0 million. There were no large orders in excess of $5.0 million in the
 Second Quarter of Fiscal 2010. Excluding the large orders, base orders
 increased 6.5% from increased worldwide demand. Backlog of undelivered orders
 was $180.7 million, a decrease of 2.0% from backlog of $184.3 million at
 January 2, 2010.
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                         |  | Revenue
 increased 6.0% to $94.3 million, compared to $89.0 million for the First
 Quarter of Fiscal 2010. This increase was primarily due to a 9.8% increase in
 opening backlog and increased order volume in the Sensors segment, partially
 offset by an estimated 2% unfavorable impact of currency translation.                                                                                                                                                                                                                                                    
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                         |  | Earnings per
 diluted share increased $0.14, or 60.9%, to $0.37, compared to $0.23 for the
 First Quarter of Fiscal 2010, driven by higher revenue volume and lower
 warranty expense resulting from the favorable impact of the settlement of a
 specific claim in the Second Quarter of Fiscal 2010.                                                                                                                                                                                                                                                                   

Second Quarter of Fiscal 2010 Compared to
Three Months Ended March 28, 2009 (Second Quarter of Fiscal 2009)

|                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--------------------------------------------------------------------------------------------------------- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Highlights
 for the Second Quarter of Fiscal 2010 compared to the Second Quarter of
 Fiscal 2009 include:
|                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                          |  | Orders
 increased 35.0% to $93.4 million, compared to $69.2 million for the Second
 Quarter of Fiscal 2009. This increase was driven by increased volume across
 all geographies in both segments, and an estimated 3% favorable impact of
 currency translation. Backlog of undelivered orders was $180.7 million, an
 increase of 3.0% compared to $175.4 million at the end of the Second Quarter
 of Fiscal 2009.                                                                                                                                                                                                              
|                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                          |  | Revenue
 decreased 12.4% to $94.3 million, compared to $107.7 million for the Second
 Quarter of Fiscal 2009. This decrease was primarily due to a 15.6% decline in
 opening backlog, partially offset by increased order volume in the Sensors
 segment, and an estimated 2% favorable impact of currency translation.                                                                                                                                                                                                                                                                                                            
|                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                          |  | During the
 Second Quarter of Fiscal 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 13.7% to $10.1 million, compared to $11.7 million for
 the Second Quarter of Fiscal 2009. This decrease was primarily driven by
 lower revenue volume and increased variable compensation, partially offset by
 lower warranty expense, driven by the favorable impact of the previously
 mentioned settlement of a specific claim, and lower operating expenses in the
 Second Quarter of Fiscal 2010. Additionally, income from operations for the
 Second Quarter of Fiscal 2009 included $2.8 million of the previously
 mentioned severance charges.                                        
|                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                          |  | Earnings per
 diluted share decreased $0.07, or 15.9%, to $0.37, compared to $0.44 for the
 Second Quarter of Fiscal 2009, primarily due to lower income from operations
 and a higher effective tax rate, partially offset by reductions in currency
 related losses. The effective tax rate for the Second Quarter of Fiscal 2010
 rose to 36.1%, compared to 27.9% for the Second Quarter of Fiscal 2009
 primarily due to the enactment of legislation in the Fiscal 2009 that
 retroactively extended the United States (U.S.) R&D tax credits. This
 legislation expired as of the end of the First Quarter of Fiscal 2010.
|                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                          |  | Cash and
 cash equivalents at the end of the second quarter totaled $122.1 million,
 compared to $113.7 million at the end of First Quarter of Fiscal 2010. Cash
 flows from operations generated $26.2 million, primarily driven by earnings
 and lower working capital utilization. During the quarter, the Company paid
 $4.9 million in dividends, purchased approximately 158,800 shares of its
 common stock for $4.5 million, and invested $3.2 million in capital
 expenditures.                                                                                                                                           

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Table of Contents

Six Months Ended April 3, 2010 (First Half
of Fiscal 2010) Compared to Six Months Ended March 28, 2009 (First Half of
Fiscal 2009)

|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------------------------------------------------------ | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Highlights
 for the First Half of Fiscal 2010 include:
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                       |  | Orders
 increased 22.2% to $201.1 million, compared to $164.6 million for the First
 Half of Fiscal 2009. This increase was driven by increased volume across all
 geographies in both segments, including the previously mentioned large custom
 orders in the Test segment totaling approximately $20 million, and an
 estimated 3% favorable impact of currency translation.                                                                                                                                                                                                                                                                         
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                       |  | Revenue
 decreased 18.3% to $183.2 million, compared to $224.3 million for the First
 Half of Fiscal 2009. This decrease was primarily due to a 28.5% decline in
 opening backlog, partially offset by an estimated 3% favorable impact of
 currency translation.                                                                                                                                                                                                                                                                                                                                                                                       
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                       |  | Income from
 operations decreased 30.4% to $16.5 million, compared to $23.7 million for
 the First Half of Fiscal 2009. This decrease was primarily driven by lower
 revenue volume in the Test segment and increased variable compensation. These
 decreases were partially offset by lower warranty and operating expenses in
 the First Half of Fiscal 2010. As previously mentioned, warranty expense for
 the First Half of Fiscal 2010 was favorably impacted by the settlement of a
 specific claim. Additionally, income from operations in the First Half of
 Fiscal 2009 included $2.8 million of the previously mentioned severance
 charges.
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                       |  | Earnings per
 diluted share decreased $0.42, or 41.2%, to $0.60, compared to $1.02 for the
 First Half of Fiscal 2009, primarily due to lower income from operations and
 a higher effective tax rate. The effective tax rate for the First Half of
 Fiscal 2010 rose to 34.8%, compared to 25.8% for the First Half of Fiscal
 2009, primarily due to the previously mentioned enactment of legislation in
 the First Half of Fiscal 2009 that retroactively extended the U.S. R&D
 tax credits. This legislation expired at the end of the First Quarter of
 Fiscal 2010.                                                                             
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                       |  | Cash and
 cash equivalents at April 3, 2010 totaled $122.1 million, compared to $118.9
 million at the end of Fiscal 2009. Cash flows from operations generated $27.9
 million, primarily driven by earnings and lower working capital utilization.
 During the First Half of Fiscal 2010, the Company paid $7.4 million in
 dividends, purchased approximately 211,500 shares of its common stock for
 $5.9 million, and invested $5.0 million in capital expenditures.                                                                                                                                                                                

Detailed Financial Results

|              
|--------------
|Total
 Company

Orders and Backlog

Second Quarter of Fiscal 2010 Compared to
Second Quarter of Fiscal 2009

The following
is a comparison of Second Quarter of Fiscal 2010 and Second Quarter of Fiscal
2009 orders, separately identifying the estimated impact of currency translation (in
millions):

|       |  |                               |                    |           |                         |                                |  |   |     |  |   |      | 
|------ |  | ----------------------------- | ------------------ | --------- | ----------------------- | ------------------------------ |  | - | --- |  | - | ---- | 
|       |  | Three MonthsEndedApril 3,2010 |                    | Estimated |                         | Three MonthsEndedMarch 28,2009 | 
|       |  |                               | Business
 
 Change |           | Currency
 
 Translation |                                | 
|Orders |  | $                             | 93.4               |           | $                       | 22.0                           |  | $ | 2.2 |  | $ | 69.2 | 

Orders totaled
$93.4 million, an increase of $24.2 million, or 35.0%, compared to orders of
$69.2 million for the Second Quarter of Fiscal 2009. This increase was
primarily due to higher order volume in both segments across all geographies,
and an estimated $2.2 million favorable impact of currency translation.

On a
sequential basis, backlog of undelivered orders at April 3, 2010 was $180.7
million, a decrease of 2.0% from backlog of $184.3 million at January 2, 2010.
On a year-over-year basis, backlog increased 3.0% from backlog of $175.4
million at the end of the Second Quarter of Fiscal 2009. 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.

19

---



Table of Contents

Results of Operations

Second Quarter of Fiscal 2010 Compared to Second
Quarter of Fiscal 2009

The following
is a comparison of Second Quarter of Fiscal 2010 and Second Quarter of Fiscal
2009 statements of operations (in millions, except per share data):

|                           |  |                     |      |                  |   |          |   |             |       |   |  |       |  
|-------------------------- |  | ------------------- | ---- | ---------------- | - | -------- | - | ----------- | ----- | - |  | ----- | -
|                           |  | Three
 Months Ended |      |                  |   |          |  
|                           |  | April
 3,
 2010     |      | March
 28,
 2009 |   | Variance |   | %
 Variance |      
|Revenue                    |  | $                   | 94.3 |                  | $ | 107.7    |   | $           | (13.4 | ) |  | -12.4 | %
|Cost of sales              |  |                     | 55.8 |                  |   | 66.2     |   |             | (10.4 | ) |  | -15.7 | %
|Gross profit               |  |                     | 38.5 |                  |   | 41.5     |   |             | (3.0  | ) |  | -7.2  | %
|Gross margin               |  |                     | 40.9 | %                |   | 38.6     | % |             | 2.3   | % |  |       |  
|Operating expenses:        |  |                     |      |                  |   |          |   |             |       |   |  |       |  
|Selling and marketing      |  |                     | 16.2 |                  |   | 17.9     |   |             | (1.7  | ) |  | -9.5  | %
|General administrative     |  |                     | 8.5  |                  |   | 8.0      |   |             | 0.5   |   |  | 6.3   | %
|Research and development   |  |                     | 3.7  |                  |   | 3.9      |   |             | (0.2  | ) |  | -5.1  | %
|Total operating expenses   |  |                     | 28.4 |                  |   | 29.8     |   |             | (1.4  | ) |  | -4.7  | %
|                           |  |                     |      |                  |   |          |   |             |       |   |  |       |  
|Income from operations     |  |                     | 10.1 |                  |   | 11.7     |   |             | (1.6  | ) |  | -13.7 | %
|                           |  |                     |      |                  |   |          |   |             |       |   |  |       |  
|Interest expense           |  |                     | (0.5 | )                |   | (0.5     | ) |             |      |   |  | 0.0   | %
|Interest income            |  |                     | 0.1  |                  |   | 0.3      |   |             | (0.2  | ) |  | -66.7 | %
|Other expense, net         |  |                     |     |                  |   | (1.1     | ) |             | 1.1   |   |  | NM    |  
|                          
|Income before income taxes |  |                     | 9.7  |                  |   | 10.4     |   |             | (0.7  | ) |  | -6.7  | %
|Provision for income taxes |  |                     | 3.5  |                  |   | 2.9      |   |             | 0.6   |   |  | 20.7  | %
|Net income                 |  | $                   | 6.2  |                  | $ | 7.5      |   | $           | (1.3  | ) |  | -17.3 | %
|                          
|Diluted earnings per share |  | $                   | 0.37 |                  | $ | 0.44     |   | $           | (0.07 | ) |  | -15.9 | %

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

The following
is a comparison of Second Quarter of Fiscal 2010 and Second Quarter of Fiscal
2009 results of operations, separately identifying the estimated impact of currency
translation (in millions):

|                              |  |                                        |                    |           |                         |                                         |   |   |     |  |   |       |  
|----------------------------- |  | -------------------------------------- | ------------------ | --------- | ----------------------- | --------------------------------------- | - | - | --- |  | - | ----- | -
|                              |  | Three
 Months 
 Ended 
 April 3,
 2010 |                    | Estimated |                         | Three
 Months 
 Ended 
 March 28,
 2009 |  
|                              |  |                                        | Business
 
 Change |           | Currency
 
 Translation |                                         |  
|Revenue                       |  | $                                      | 94.3               |           | $                       | (15.4                                   | ) | $ | 2.0 |  | $ | 107.7 |  
|Cost of sales                 |  |                                        | 55.8               |           |                         | (11.7                                   | ) |   | 1.3 |  |   | 66.2  |  
|Gross profit                  |  |                                        | 38.5               |           |                         | (3.7                                    | ) |   | 0.7 |  |   | 41.5  |  
|Gross margin                  |  |                                        | 40.9               | %         |                         |                                         |   |   |     |  |   | 38.6  | %
|Operating expenses:           |  |                                        |                    |           |                         |                                         |   |   |     |  |   |       |  
|Selling and marketing         |  |                                        | 16.2               |           |                         | (2.1                                    | ) |   | 0.4 |  |   | 17.9  |  
|General administrative        |  |                                        | 8.5                |           |                         | 0.4                                     |   |   | 0.1 |  |   | 8.0   |  
|Research and development      |  |                                        | 3.7                |           |                         | (0.2                                    | ) |   |    |  |   | 3.9   |  
|Total operating expenses      |  |                                        | 28.4               |           |                         | (1.9                                    | ) |   | 0.5 |  |   | 29.8  |  
|                              |  |                                        |                    |           |                         |                                         |   |   |     |  |   |       |  
|Income (loss) from operations |  | $                                      | 10.1               |           | $                       | (1.8                                    | ) | $ | 0.2 |  | $ | 11.7  |  

20

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Table of Contents

Revenue was $94.3
million, a decrease of $13.4 million, or 12.4%, compared to revenue of $107.7
million for the Second Quarter of Fiscal 2009. This decrease was primarily due
to lower opening backlog in the Test segment, partially offset by higher order
volume in the Sensors segment and an estimated $2.0 million favorable impact of
currency translation.

Gross profit was
$38.5 million, a decrease of $3.0 million, or 7.2%, compared to gross profit of
$41.5 million for the Second Quarter of Fiscal 2009. Gross profit as a
percentage of revenue was 40.9%, an increase of 2.3 percentage points from
38.6% for the Second Quarter of Fiscal 2009. This increase was driven by lower
warranty expense in the Test segment, driven by a favorable impact of the
previously mentioned settlement of a specific claim, and severance charges of
$1.2 million recognized in the Second Quarter of Fiscal 2009 as a result of a
workforce reduction, partially offset by a $2.0 million increase in variable
compensation expense.

Selling and marketing expense
was $16.2 million, a decrease of $1.7 million, or 9.5%, compared to $17.9
million for the Second Quarter of Fiscal 2009. This decrease was primarily due
to severance charges of $1.4 million recognized in the Second Quarter of Fiscal
2009, lower compensation and benefits, resulting from a workforce reduction in
the prior year, and reduced discretionary spending in both segments, partially
offset by $0.9 million increased variable compensation expense. Selling and
marketing expense as a percentage of revenue was 17.2% on lower volume,
compared to 16.6% for the Second Quarter of Fiscal 2009.

General and administrative expense
was $8.5 million, an increase of $0.5 million, or 6.3%, compared to $8.0
million for the Second Quarter of Fiscal 2009. This increase was primarily due
to $1.2 million increase in variable compensation expense, partially offset by
integration costs of $0.6 million associated with the acquisition of SANS that
were recognized in the Second Quarter of Fiscal 2009. General and administrative
expense as a percentage of revenue was 9.0% on lower volume, compared to 7.4%
for the Second Quarter of Fiscal 2009.

Research and development expense
was $3.7 million, a decrease of $0.2 million, or 5.1% compared to $3.9 million
for the Second Quarter of Fiscal 2009, due to a lower level of planned
expenditures. Research and development expense as a percentage of revenue was
3.9% on lower volume, compared to 3.6% for the Second Quarter of Fiscal 2009.

Income from operations
was $10.1 million, a decrease of $1.6 million, or 13.7%, compared to income
from operations of $11.7 million for the Second Quarter of Fiscal 2009. This
decrease was primarily driven by lower gross profit, partially offset by a $1.4
million reduction in operating expenses. Income from operations for the Second
Quarter of Fiscal 2009 included severance costs of $2.8 million. Operating
income as a percentage of revenue was 10.7% on lower volume, compared to 10.9%
for the Second Quarter of Fiscal 2009.

Interest expensewas
$0.5 million, flat compared to the Second Quarter of Fiscal 2009.

Interest income was
$0.1 million, a decrease of $0.2 million, compared to $0.3 million for the
Second Quarter of Fiscal 2009, due to lower interest rates, primarily in
Europe.

Other expense, net
was less than $0.1 million of net other expense, a decrease of $1.1 million,
compared to $1.1 million of net other expense in the Second Quarter of Fiscal
2009. This decrease was primarily due to a reduction of net losses on foreign
currency transactions compared to the Second Quarter of Fiscal 2009.

Provision for income taxes
totaled $3.5 million for the Second Quarter of Fiscal 2010, an increase of $0.6
million, or 20.7%, compared to $2.9 million for the Second Quarter of Fiscal
2009, primarily due to decreased income before income taxes and a higher
effective tax. The effective tax rate for the Second Quarter of Fiscal 2010 was
36.1%, an increase of 8.2 percentage points compared to a tax rate of 27.9% for
the Second Quarter of Fiscal 2009, primarily due to the expiration of the U.S.
R&D credit legislation as of the end of the First Quarter of Fiscal 2010.

Net income was $6.2
million, a decrease of $1.3 million, or 17.3%, compared to $7.5 million for the
Second Quarter of Fiscal 2009. The decrease was primarily driven by lower
income from operations and a higher effective tax rate, partially offset by
reductions in currency related losses. Earnings per diluted share decreased
$0.07, or 15.9%, to $0.37, compared to $0.44 for the Second Quarter of Fiscal
2009

21

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Table of Contents

Segment Results

|             
|-------------
|Test
 Segment

Orders and Backlog

Second Quarter of Fiscal 2010 Compared to
Second Quarter of Fiscal 2009

The following
is a comparison of Second Quarter of Fiscal 2010 and Second Quarter of Fiscal
2009 orders for the Test segment, separately identifying the estimated impact of currency
translation (in millions):

|       |  |                                     |                  |           |                       |                                      |  |   |     |  |   |      | 
|------ |  | ----------------------------------- | ---------------- | --------- | --------------------- | ------------------------------------ |  | - | --- |  | - | ---- | 
|       |  | Three Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Three Months
 Ended
 March 28,
 2009 | 
|       |  |                                     | Business
 Change |           | Currency
 Translation |                                      | 
|Orders |  | $                                   | 72.4             |           | $                     | 17.3                                 |  | $ | 1.6 |  | $ | 53.5 | 

Orders totaled $72.4
million, an increase of $18.9 million, or 35.3%, compared to orders of $53.5
million for the Second Quarter of Fiscal 2009, primarily due to increased
demand across all geographies, as well as an estimated $1.6 million favorable
impact of currency translation. The Test segment accounted for 77.5% of total
Company orders, compared to 77.3% for the Second Quarter of Fiscal 2009.

Backlog of
undelivered orders at the end of the quarter was $167.4 million, a sequential
decrease of 3.0% from backlog of $172.6 million at January 2, 2010. On a
year-over-year basis, backlog was relatively flat compared to $166.3 million at
the end of the Second Quarter of Fiscal 2009.

Results of Operations

Second Quarter of Fiscal 2010 Compared to
Second Quarter of Fiscal 2009

The following
is a comparison of Second Quarter of Fiscal 2010 and Second Quarter of Fiscal
2009 results of operations for the Test segment, separately identifying the estimated
impact of currency translation (in millions):

|                              |  |                                     |                  |           |                       |                                      |   |   |     |  |   |      |  
|----------------------------- |  | ----------------------------------- | ---------------- | --------- | --------------------- | ------------------------------------ | - | - | --- |  | - | ---- | -
|                              |  | Three Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Three Months
 Ended
 March 28,
 2009 |  
|                              |  |                                     | Business
 Change |           | Currency
 Translation |                                      |  
|Revenue                       |  | $                                   | 75.3             |           | $                     | (17.2                                | ) | $ | 1.5 |  | $ | 91.0 |  
|Cost of sales                 |  |                                     | 46.9             |           |                       | (12.7                                | ) |   | 1.1 |  |   | 58.5 |  
|Gross profit                  |  |                                     | 28.4             |           |                       | (4.5                                 | ) |   | 0.4 |  |   | 32.5 |  
|Gross margin                  |  |                                     | 37.8             | %         |                       |                                      |   |   |     |  |   | 35.7 | %
|                              |  |                                     |                  |           |                       |                                      |   |   |     |  |   |      |  
|Operating expenses:           |  |                                     |                  |           |                       |                                      |   |   |     |  |   |      |  
|Selling and marketing         |  |                                     | 12.9             |           |                       | (1.8                                 | ) |   | 0.3 |  |   | 14.4 |  
|General administrative        |  |                                     | 6.4              |           |                       | 0.5                                  |   |   |    |  |   | 5.9  |  
|Research and development      |  |                                     | 2.8              |           |                       | (0.2                                 | ) |   |    |  |   | 3.0  |  
|Total operating expenses      |  |                                     | 22.1             |           |                       | (1.5                                 | ) |   | 0.3 |  |   | 23.3 |  
|                              |  |                                     |                  |           |                       |                                      |   |   |     |  |   |      |  
|Income (loss) from operations |  | $                                   | 6.3              |           | $                     | (3.0                                 | ) | $ | 0.1 |  | $ | 9.2  |  

Revenue was $75.3
million, a decrease of $15.7 million, or 17.3%, compared to revenue of $91.0
million for the Second Quarter of Fiscal 2009. The decrease was primarily due
to a 17.0% decline in opening backlog, partially offset by an estimated $1.5
million favorable impact of currency translation.

22

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Table of Contents

Gross profit was $28.4 million, a decrease of
$4.1 million, or 12.6%, compared to gross profit of $32.5 million for the
Second Quarter of Fiscal 2009. Gross profit as a percentage of revenue was
37.8%, an increase of 2.1 percentage points from 35.7% for the Second Quarter
of Fiscal 2009. This increase was driven by lower warranty expense in the
Second Quarter of Fiscal 2010, driven by a $0.8 million favorable impact of the
previously mentioned settlement of a specific

claim, and
severance charges of $1.1 million recognized in the Second Quarter of Fiscal
2009 as a result of the previously mentioned workforce reduction, partially
offset by a $1.8 million increase in variable compensation expense. In
addition, gross profit for the Second Quarter of Fiscal 2009 included $0.5
million of costs that were recognized upon the sale of inventory that was
written up to fair value as part of the acquisition of SANS.

Selling and marketing expense
was $12.9 million, a decrease of $1.5 million, or 10.4%, compared to $14.4
million for the Second Quarter of Fiscal 2009. This decrease was primarily due
to severance charges of $1.4 million recognized in the Second Quarter of Fiscal
2009, lower compensation and benefits, resulting from a reduction in employees
in the prior year, and reduced discretionary spending, partially offset by $0.7
million increased variable compensation expense. Selling and marketing expense
as a percentage of revenue was 17.1% on lower volume, compared to 15.8% for the
Second Quarter of Fiscal 2009.

General and administrative expense
was $6.4 million, an increase of $0.5 million, or 8.5%, compared to $5.9
million for the Second Quarter of Fiscal 2009. This increase was primarily due
to a $0.9 million increase in variable compensation, partially offset by
integration costs of $0.6 million recognized in the Second Quarter of Fiscal
2009 associated with the acquisition of SANS. General and administrative
expense as a percentage of revenue was 8.5% on lower volume, compared to 6.5%
for the Second Quarter of Fiscal 2009.

Research and development expense
was $2.8 million, a decrease of $0.2 million, or 6.7%, compared to $3.0 million
for the Second Quarter of Fiscal 2009, due to lower level of planned
expenditures. Research and development expense as a percentage of revenue was
3.7% on lower volume, compared to 3.3% for the Second Quarter of Fiscal 2009.

Income from operations
was $6.3 million, a decrease of $2.9 million, or 31.5%, compared to income from
operations of $9.2 million for the Second Quarter of Fiscal 2009. The decrease
was primarily due to lower gross profit, partially offset by reduced operating
expenses. Income from operations for the Second Quarter of Fiscal 2009 included
severance costs of $2.7 million. Operating income as a percentage of revenue
was 8.4% on lower volume, compared to 10.1% for the Second Quarter of Fiscal
2009.

|                 | 
|---------------- | 
|Sensors
 Segment | 

Orders and Backlog

Second Quarter of Fiscal 2010 Compared to
Second Quarter of Fiscal 2009

The following
is a comparison of Second Quarter of Fiscal 2010 and Second Quarter of Fiscal
2009 orders for the Sensors segment, separately identifying the estimated impact of
currency translation (in millions):

|       |  |                                     |                  |           |                       |                                      |  |   |     |  |   |      | 
|------ |  | ----------------------------------- | ---------------- | --------- | --------------------- | ------------------------------------ |  | - | --- |  | - | ---- | 
|       |  | Three Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Three Months
 Ended
 March 28,
 2009 | 
|       |  |                                     | Business
 Change |           | Currency
 Translation |                                      | 
|Orders |  | $                                   | 21.0             |           | $                     | 4.7                                  |  | $ | 0.6 |  | $ | 15.7 | 

Orders totaled $21.0
million, an increase of $5.3 million, or 33.8%, compared to orders of $15.7
million for the Second Quarter of Fiscal 2009, primarily due to higher volume
across all geographies. The Sensors segment accounted for 22.5% of total
Company orders, compared to 22.7% for the Second Quarter of Fiscal 2009.

Backlog of
undelivered orders at the end of the quarter was $13.3 million, a sequential
increase of 13.7% from backlog of $11.7 million at January 2, 2010. On a
year-over-year basis, backlog increased 46.2% from backlog of $9.1 million at
the end of the Second Quarter of Fiscal 2009.

23

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Table of Contents

Results of Operations

Second Quarter of Fiscal 2010 Compared to
Second Quarter of Fiscal 2009

The following
is a comparison of Second Quarter of Fiscal 2010 and Second Quarter of Fiscal
2009 results of operations for the Sensors segment, separately identifying the estimated
impact of currency translation (in millions):

|                         |  |                                     |                  |           |                       |                                      |   |   |     |  |   |      |  
|------------------------ |  | ----------------------------------- | ---------------- | --------- | --------------------- | ------------------------------------ | - | - | --- |  | - | ---- | -
|                         |  | Three Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Three Months
 Ended
 March 28,
 2009 |  
|                         |  |                                     | Business
 Change |           | Currency
 Translation |                                      |  
|Revenue                  |  | $                                   | 19.0             |           | $                     | 1.8                                  |   | $ | 0.5 |  | $ | 16.7 |  
|Cost of sales            |  |                                     | 8.9              |           |                       | 1.0                                  |   |   | 0.2 |  |   | 7.7  |  
|Gross profit             |  |                                     | 10.1             |           |                       | 0.8                                  |   |   | 0.3 |  |   | 9.0  |  
|Gross margin             |  |                                     | 53.2             | %         |                       |                                      |   |   |     |  |   | 54.0 | %
|Operating expenses:      |  |                                     |                  |           |                       |                                      |   |   |     |  |   |      |  
|Selling and marketing    |  |                                     | 3.3              |           |                       | (0.3                                 | ) |   | 0.1 |  |   | 3.5  |  
|General administrative   |  |                                     | 2.1              |           |                       | (0.1                                 | ) |   | 0.1 |  |   | 2.1  |  
|Research and development |  |                                     | 0.9              |           |                       |                                     |   |   |    |  |   | 0.9  |  
|Total operating expenses |  |                                     | 6.3              |           |                       | (0.4                                 | ) |   | 0.2 |  |   | 6.5  |  
|                         |  |                                     |                  |           |                       |                                      |   |   |     |  |   |      |  
|Income from operations   |  | $                                   | 3.8              |           | $                     | 1.2                                  |   | $ | 0.1 |  | $ | 2.5  |  

Revenue was $19.0
million, an increase of $2.3 million, or 13.8%, compared to revenue of $16.7
million for the Second Quarter of Fiscal 2009. This increase was primarily
driven by increased worldwide order volume and an estimated $0.5 million
favorable impact of currency translation. The revenue increase was less than
order growth primarily due to order timing.

Gross profit was
$10.1 million, an increase of $1.1 million, or 12.2%, compared to gross profit
of $9.0 million for the Second Quarter of Fiscal 2009. Gross profit as a
percentage of revenue was 53.2%, a decrease of 0.8 percentage points from 54.0%
for the Second Quarter of Fiscal 2009, primarily due to a $0.2 million
write-off of inventory and $0.2 million increased variable compensation
expense.

Selling and marketing expense
was $3.3 million, a decrease of $0.2 million, or 5.7%, compared to $3.5 million
for the Second Quarter of Fiscal 2009. The decrease is primarily due to lower
compensation and benefits, resulting from a reduction in employees in the prior
year, and reduced discretionary spending, partially offset by $0.2 million increased
variable compensation expense. Selling and marketing expense as a percentage of
revenue was 17.4% compared to 21.0% for the Second Quarter of Fiscal 2009.

General and administrative expense
was $2.1 million, flat compared to the Second Quarter of Fiscal 2009, as lower
compensation and benefits, resulting from prior year workforce reduction
actions, and reduced discretionary spending were offset by $0.3 million
increased variable compensation expense. General and administrative expense as
a percentage of revenue was 11.1% compared to 12.6% for the Second Quarter of
Fiscal 2009.

Research and development expense
was $0.9 million, flat compared to the Second Quarter of Fiscal 2009. Research
and development expense as a percentage of revenue was 4.7% compared to 5.4%
for the Second Quarter of Fiscal 2009.

Income from operations
was $3.8 million, an increase of $1.3 million, or 52.0%, compared to income
from operations of $2.5 million for the Second Quarter of Fiscal 2009. This
increase was due to higher gross profit and reduced operating expense.
Operating income as a percentage of revenue was 20.0% compared to 15.0% for the
Second Quarter of Fiscal 2009.

24

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Table of Contents

Detailed Financial Results

|               | 
|-------------- | 
|Total
 Company | 

Orders and Backlog

First Half of Fiscal 2010 Compared to First
Half of Fiscal 2009

The following
is a comparison of First Half of Fiscal 2010 and First Half of Fiscal 2009
orders, separately identifying the estimated impact of currency translation (in
millions):

|       |  |                                    |                  |           |                       |                                     |  |   |     |  |   |       | 
|------ |  | ---------------------------------- | ---------------- | --------- | --------------------- | ----------------------------------- |  | - | --- |  | - | ----- | 
|       |  | Six
 Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Six
 Months
 Ended
 March 28,
 2009 | 
|       |  |                                    | Business
 Change |           | Currency
 Translation |                                     | 
|Orders |  | $                                  | 201.1            |           | $                     | 30.9                                |  | $ | 5.6 |  | $ | 164.6 | 

Orders totaled
$201.1 million, an increase of $36.5 million, or 22.2%, compared to orders of
$164.6 million for the First Half of Fiscal 2009. This increase was primarily
due to higher order volume in both segments across all geographies, including
the previously mentioned large custom orders in the Test segment totaling $20.0
million, and an estimated $5.6 million favorable impact of currency translation.

Backlog of
undelivered orders at the end of the Second quarter of Fiscal 2010 was $180.7
million, an increase of 7.8% from backlog of $167.7 million at October 3, 2009.
Backlog at the end of the Second Quarter of Fiscal 2009 was $175.4 million.

Results of Operations

First Half of Fiscal 2010 Compared to First
Half of Fiscal 2009

The following
is a comparison of First Half of Fiscal 2010 and First Half of Fiscal 2009
statements of operations (in millions, except per share data):

|                            |  |                   |       |                  |   |          |   |             |       |   |  |       |  
|--------------------------- |  | ----------------- | ----- | ---------------- | - | -------- | - | ----------- | ----- | - |  | ----- | -
|                            |  | Six
 Months Ended |       |                  |   |          |  
|                            |  | April
 3,
 2010   |       | March
 28,
 2009 |   | Variance |   | %
 Variance |      
|                            |  |                   |       |                  |   |          |   |             |       |   |  |       |  
|Revenue                     |  | $                 | 183.2 |                  | $ | 224.3    |   | $           | (41.1 | ) |  | -18.3 | %
|Cost of
 sales              |  |                   | 109.5 |                  |   | 138.6    |   |             | (29.1 | ) |  | -21.0 | %
|Gross profit                |  |                   | 73.7  |                  |   | 85.7     |   |             | (12.0 | ) |  | -14.0 | %
|Gross margin                |  |                   | 40.2  | %                |   | 38.2     | % |             | 2.0   | % |  |       |  
|                           
|Operating
 expenses:        |  |                   |       |                  |   |          |   |             |       |   |  |       |  
|Selling and marketing       |  |                   | 32.2  |                  |   | 37.0     |   |             | (4.8  | ) |  | -13.0 | %
|General administrative      |  |                   | 17.9  |                  |   | 17.9     |   |             |      |   |  | 0.0   | %
|Research and development    |  |                   | 7.1   |                  |   | 7.1      |   |             |      |   |  | 0.0   | %
|Total operating expenses    |  |                   | 57.2  |                  |   | 62.0     |   |             | (4.8  | ) |  | -7.7  | %
|                            |  |                   |       |                  |   |          |   |             |       |   |  |       |  
|Income from
 operations     |  |                   | 16.5  |                  |   | 23.7     |   |             | (7.2  | ) |  | -30.4 | %
|                            |  |                   |       |                  |   |          |   |             |       |   |  |       |  
|Interest expense            |  |                   | (0.9  | )                |   | (1.0     | ) |             | 0.1   |   |  | -10.0 | %
|Interest
 income            |  |                   | 0.1   |                  |   | 0.8      |   |             | (0.7  | ) |  | -87.5 | %
|Other
 expense, net         |  |                   | (0.3  | )                |   | (0.3     | ) |             |      |   |  | 0.0   | %
|                           
|Income
 before income taxes |  |                   | 15.4  |                  |   | 23.2     |   |             | (7.8  | ) |  | -33.6 | %
|Provision
 for income taxes |  |                   | 5.4   |                  |   | 6.0      |   |             | (0.6  | ) |  | -10.0 | %
|Net income                  |  | $                 | 10.0  |                  | $ | 17.2     |   | $           | (7.2  | ) |  | -41.9 | %
|                           
|Diluted
 earnings per share |  | $                 | 0.60  |                  | $ | 1.02     |   | $           | (0.42 | ) |  | -41.2 | %

25

---



Table of Contents

The following
is a comparison of First Half of Fiscal 2010 and First Half of Fiscal 2009
results of operations, separately identifying the estimated impact of currency
translation (in millions):

|                               |  |                                    |                  |           |                       |                                     |   |   |     |  |   |       |  
|------------------------------ |  | ---------------------------------- | ---------------- | --------- | --------------------- | ----------------------------------- | - | - | --- |  | - | ----- | -
|                               |  | Six
 Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Six
 Months
 Ended
 March 28,
 2009 |  
|                               |  |                                    | Business
 Change |           | Currency
 Translation |                                     |  
|Revenue                        |  | $                                  | 183.2            |           | $                     | (46.8                               | ) | $ | 5.7 |  | $ | 224.3 |  
|Cost of
 sales                 |  |                                    | 109.5            |           |                       | (32.9                               | ) |   | 3.8 |  |   | 138.6 |  
|Gross profit                   |  |                                    | 73.7             |           |                       | (13.9                               | ) |   | 1.9 |  |   | 85.7  |  
|Gross margin                   |  |                                    | 40.2             | %         |                       |                                     |   |   |     |  |   | 38.2  | %
|Operating expenses:            |  |                                    |                  |           |                       |                                     |   |   |     |  |   |       |  
|Selling and marketing          |  |                                    | 32.2             |           |                       | (5.8                                | ) |   | 1.0 |  |   | 37.0  |  
|General administrative         |  |                                    | 17.9             |           |                       | (0.3                                | ) |   | 0.3 |  |   | 17.9  |  
|Research and development       |  |                                    | 7.1              |           |                       | (0.1                                | ) |   | 0.1 |  |   | 7.1   |  
|Total operating expenses       |  |                                    | 57.2             |           |                       | (6.2                                | ) |   | 1.4 |  |   | 62.0  |  
|                               |  |                                    |                  |           |                       |                                     |   |   |     |  |   |       |  
|Income
 (loss) from operations |  | $                                  | 16.5             |           | $                     | (7.7                                | ) | $ | 0.5 |  | $ | 23.7  |  

Revenue was $183.2
million, a decrease of $41.1 million, or 18.3%, compared to revenue of $224.3
million for the First Half of Fiscal 2009. This decrease was primarily due to a
28.5% decline in opening lower opening backlog, partially offset by an
estimated $5.7 million favorable impact of currency translation.

Gross profit was
$73.7 million, a decrease of $12.0 million, or 14.0%, compared to gross profit
of $85.7 million for the First Half of Fiscal 2009. Gross profit as a
percentage of revenue was 40.2%, an increase of 2.0 percentage points from
38.2% for the First Half of Fiscal 2009. This increase was driven by lower warranty
expense and favorable product mix in the Test segment in the First Half of
Fiscal 2010, and severance charges of $1.1 million recognized in the First Half
of Fiscal 2009 as a result of the previously mentioned workforce reduction,
partially offset by a $1.8 million increase in variable compensation expense.
Warranty expense for the First Half of Fiscal 2010 included the favorable
impact of the previously mentioned settlement of a specific claim. In addition,
gross profit for the First Half of Fiscal 2009 included $1.3 million of costs
that were recognized upon the sale of inventory that was written up to fair
value as part of the acquisition of SANS.

Selling and marketing expense
was $32.2 million, a decrease of $4.8 million, or 13.0%, compared to $37.0
million for the First Half of Fiscal 2009. This decrease was primarily due to
lower compensation and benefits, resulting from a reduction in employees in the
prior year, reduced discretionary spending in both segments, and severance
charges of $1.4 million recognized in the First Half of Fiscal 2009, partially
offset by $0.9 million increased variable compensation expense. Selling and
marketing expense as a percentage of revenue was 17.6% on lower volume,
compared to 16.5% for the First Half of Fiscal 2009.

General and administrative expense
was $17.9 million, flat compared to the First Half of Fiscal 2009, as $0.9
million increased variable compensation expense and $0.8 million increased
legal and other professional fees were offset by integration costs of $1.2
million recognized in the Second Quarter of Fiscal 2009 associated with the
acquisition of SANS, as well as reduced discretionary spending. General and
administrative expense as a percentage of revenue was 9.8% on lower volume,
compared to 8.0% for the First Half of Fiscal 2009.

Research and development expense
was $7.1 million, flat compared to the First Half of Fiscal 2009. Research and
development expense as a percentage of revenue was 3.9% on lower volume,
compared to 3.2% for the First Half of Fiscal 2009.

Income from operations
was $16.5 million, a decrease of $7.2 million, or 30.4%, compared to income
from operations of $23.7 million for the First Half of Fiscal 2009. This
decrease was primarily driven by lower gross profit, partially offset by
reduced operating expenses. Income from operations in the First Half of Fiscal
2009 included $2.8 million of severance charges. Operating income as a
percentage of revenue was 9.0% on lower volume, compared to 10.6% for the First
Half of Fiscal 2009.

Interest expensewas
$0.9 million, relatively flat compared to $1.0 million for the First Half of
Fiscal 2009.

26

---



Table of Contents

Interest income was
$0.1 million, a decrease of $0.7 million, compared to $0.8 million for the
First Half of Fiscal 2009, due to lower interest rates, primarily in Europe.

Other expense, net
was $0.3 million of net other expense, flat compared to the First Half of
Fiscal 2009.

Provision for income taxes
totaled $5.4 million for the First Half of Fiscal 2010, a decrease of $0.6
million, or 10.0%, compared to $6.0 million for the First Half of Fiscal 2009,
primarily due to decreased income before income taxes, partially offset by a
higher effective tax. The effective tax rate for the First Half of Fiscal 2010
was 34.8%, an increase of 9.0 percentage points compared to a tax rate of 25.8%
for the First Half of Fiscal 2009, primarily due to the enactment of
legislation in the First Quarter of Fiscal 2009 that retroactively extended the
U.S. R&D tax credits and provided a tax benefit of $1.0 million. This
legislation expired at the end of the First Quarter of Fiscal 2010.

Net income was $10.0
million, a decrease of $7.2 million, or 41.9%, compared to $17.2 million for
the First Half of Fiscal 2009. The decrease was primarily driven by lower income
from operations and a higher effective tax rate. Earnings per diluted share
decreased $0.42, or 41.2%, to $0.60, compared to $1.02 for the First Half of
Fiscal 2009.

Segment Results

|             | 
|------------ | 
|Test Segment | 

Orders and Backlog

First Half of Fiscal 2010 Compared to First
Half of Fiscal 2009

The following
is a comparison of First Half of Fiscal 2010 and First Half of Fiscal 2009
orders for the Test segment, separately identifying the estimated impact of currency
translation (in millions):

|       |  |                                    |                  |           |                       |                                     |  |   |     |  |   |       | 
|------ |  | ---------------------------------- | ---------------- | --------- | --------------------- | ----------------------------------- |  | - | --- |  | - | ----- | 
|       |  | Six
 Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Six
 Months
 Ended
 March 28,
 2009 | 
|       |  |                                    | Business
 Change |           | Currency
 Translation |                                     | 
|Orders |  | $                                  | 162.5            |           | $                     | 28.1                                |  | $ | 3.9 |  | $ | 130.5 | 

Orders totaled
$162.5 million, an increase of $32.0 million, or 24.5%, compared to orders of $130.5
million for the First Half of Fiscal 2009, primarily due to higher volume
across all geographies, including the previously mentioned two large custom
orders totaling approximately $20 million, as well as an estimated $3.9 million
favorable impact of currency translation. There were no large orders in the
First Half of Fiscal 2009. The Test segment accounted for 80.8% of total
Company orders, compared to 79.3% for the First Half of Fiscal 2009.

Backlog of
undelivered orders at the end of the Second quarter of Fiscal 2010 was $167.4
million, an increase of 7.0% from backlog of $156.4 million at October 3, 2009.
Backlog at the end of the Second Quarter of Fiscal 2009 was $166.3 million.

27

---



Table of Contents

Results of Operations

First Half of Fiscal 2010 Compared to First
Half of Fiscal 2009

The following
is a comparison of First Half of Fiscal 2010 and First Half of Fiscal 2009
results of operations for the Test segment, separately identifying the estimated impact
of currency translation (in millions):

|                               |  |                                   |                  |           |                       |                                     |   |   |     |  |   |       |  
|------------------------------ |  | --------------------------------- | ---------------- | --------- | --------------------- | ----------------------------------- | - | - | --- |  | - | ----- | -
|                               |  | Six Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Six
 Months
 Ended
 March 28,
 2009 |  
|                               |  |                                   | Business
 Change |           | Currency
 Translation |                                     |  
|Revenue                        |  | $                                 | 147.2            |           | $                     | (45.2                               | ) | $ | 4.2 |  | $ | 188.2 |  
|Cost of
 sales                 |  |                                   | 92.9             |           |                       | (32.6                               | ) |   | 3.1 |  |   | 122.4 |  
|Gross profit                   |  |                                   | 54.3             |           |                       | (12.6                               | ) |   | 1.1 |  |   | 65.8  |  
|Gross margin                   |  |                                   | 36.9             | %         |                       |                                     |   |   |     |  |   | 35.0  | %
|Operating
 expenses:           |  |                                   |                  |           |                       |                                     |   |   |     |  |   |       |  
|Selling and marketing          |  |                                   | 25.7             |           |                       | (4.2                                | ) |   | 0.8 |  |   | 29.1  |  
|General administrative         |  |                                   | 13.8             |           |                       | 0.5                                 |   |   | 0.1 |  |   | 13.2  |  
|Research and development       |  |                                   | 5.3              |           |                       | 0.1                                 |   |   |    |  |   | 5.2   |  
|Total operating expenses       |  |                                   | 44.8             |           |                       | (3.6                                | ) |   | 0.9 |  |   | 47.5  |  
|                               |  |                                   |                  |           |                       |                                     |   |   |     |  |   |       |  
|Income
 (loss) from operations |  | $                                 | 9.5              |           | $                     | (9.0                                | ) | $ | 0.2 |  | $ | 18.3  |  

Revenue was $147.2
million, a decrease of $41.0 million, or 21.8%, compared to revenue of $188.2
million for the First Half of Fiscal 2009. The decrease was primarily due to a
29.8% decline in opening backlog, partially offset by an estimated $4.2 million
favorable impact of currency translation.

Gross profit was
$54.3 million, a decrease of $11.5 million, or 17.5%, compared to gross profit
of $65.8 million for the First Half of Fiscal 2009. Gross profit as a
percentage of revenue was 36.9%, an increase of 1.9 percentage points from
35.0% for the First Half of Fiscal 2009. This increase was driven by lower
warranty expense, driven by a $0.8 million favorable impact of the previously
mentioned settlement of a specific claim, favorable product mix, and severance
charges of $1.1 million recognized in the First Half of Fiscal 2009 as a result
of the previously mentioned workforce reduction, partially offset by a $1.7
million increase in variable compensation expense. In addition, gross profit
for the First Half of Fiscal 2009 included $1.3 million of costs that were
recognized upon the sale of inventory that was written up to fair value as part
of the acquisition of SANS.

Selling and marketing expense
was $25.7 million, a decrease of $3.4 million, or 11.7%, compared to $29.1
million for the First Half of Fiscal 2009. This decrease was primarily due to
lower compensation and benefits, resulting from a reduction in employees in the
prior year, reduced discretionary spending, and severance charges of $1.4
million recognized in the First Half of Fiscal 2009, partially offset by $0.8
million increased variable compensation expense. Selling and marketing expense
as a percentage of revenue was 17.5% on lower volume, compared to 15.5% for the
First Half of Fiscal 2009.

General and administrative expense
was $13.8 million, an increase of $0.6 million, or 4.5%, compared to $13.2
million for the First Half of Fiscal 2009. This increase was primarily due to
$0.8 million increased legal and other professional fees and $0.7 million
increased variable compensation, partially offset by integration costs of $1.2
million recognized in the Second Quarter of Fiscal 2009 associated with the
acquisition of SANS, as well as reduced discretionary spending. General and
administrative expense as a percentage of revenue was 9.4% on lower volume,
compared to 7.0% for the First Half of Fiscal 2009.

Research and development expense
was $5.3 million, relatively flat compared to $5.2 million for the First Half
of Fiscal 2009. Research and development expense as a percentage of revenue was
3.6% on lower volume, compared to 2.8% for the First Half of Fiscal 2009.

Income from operations
was $9.5 million, a decrease of $8.8 million, or 48.1%, compared to income from
operations of $18.3 million for the First Half of Fiscal 2009. The decrease was
primarily driven by lower gross profit, partially offset by reduced operating
expenses. Income from operations in the First Half of Fiscal 2009 included $2.7
million of severance charges. Operating income as a percentage of revenue was
6.5% on lower volume, compared to 9.7% for the First Half of Fiscal 2009.

28

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Table of Contents

|                | 
|--------------- | 
|Sensors Segment | 

Orders and Backlog

First Half of Fiscal 2010 Compared to First
Half of Fiscal 2009

The following
is a comparison of First Half of Fiscal 2010 and First Half of Fiscal 2009
orders for the Sensors segment, separately identifying the estimated impact of currency
translation (in millions):

|       |  |                                    |                  |           |                       |                                     |  |   |     |  |   |      | 
|------ |  | ---------------------------------- | ---------------- | --------- | --------------------- | ----------------------------------- |  | - | --- |  | - | ---- | 
|       |  | Six
 Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Six
 Months
 Ended
 March 28,
 2009 | 
|       |  |                                    | Business
 Change |           | Currency
 Translation |                                     | 
|Orders |  | $                                  | 38.6             |           | $                     | 2.8                                 |  | $ | 1.7 |  | $ | 34.1 | 

Orders totaled $38.6
million, an increase of $4.5 million, or 13.2%, compared to orders of $34.1
million for the First Half of Fiscal 2009, primarily due to higher volume
across all geographies as well as an estimated $1.7 million favorable impact of
currency translation. The Sensors segment accounted for 19.2% of total Company
orders, compared to 20.7% for the First Half of Fiscal 2009.

Backlog of
undelivered orders at the end of the quarter was $13.3 million, an increase of
17.7% from backlog of $11.3 million at October 3, 2009. Backlog at the end of
the Second Quarter of Fiscal 2009 was $9.1 million.

Results of Operations

First Half of Fiscal 2010 Compared to First
Half of Fiscal 2009

The following
is a comparison of First Half of Fiscal 2010 and First Half of Fiscal 2009
results of operations for the Sensors segment, separately identifying the estimated
impact of currency translation (in millions):

|                         |  |                                    |                  |           |                       |                                     |   |   |     |  |   |      |  
|------------------------ |  | ---------------------------------- | ---------------- | --------- | --------------------- | ----------------------------------- | - | - | --- |  | - | ---- | -
|                         |  | Six
 Months
 Ended
 April 3,
 2010 |                  | Estimated |                       | Six
 Months
 Ended
 March 28,
 2009 |  
|                         |  |                                    | Business
 Change |           | Currency
 Translation |                                     |  
|Revenue                  |  | $                                  | 36.0             |           | $                     | (1.6                                | ) | $ | 1.5 |  | $ | 36.1 |  
|Cost of
 sales           |  |                                    | 16.6             |           |                       | (0.3                                | ) |   | 0.7 |  |   | 16.2 |  
|Gross profit             |  |                                    | 19.4             |           |                       | (1.3                                | ) |   | 0.8 |  |   | 19.9 |  
|Gross margin             |  |                                    | 54.0             | %         |                       |                                     |   |   |     |  |   | 55.3 | %
|Operating
 expenses:     |  |                                    |                  |           |                       |                                     |   |   |     |  |   |      |  
|Selling and marketing    |  |                                    | 6.5              |           |                       | (1.6                                | ) |   | 0.2 |  |   | 7.9  |  
|General administrative   |  |                                    | 4.1              |           |                       | (0.8                                | ) |   | 0.2 |  |   | 4.7  |  
|Research and development |  |                                    | 1.8              |           |                       | (0.2                                | ) |   | 0.1 |  |   | 1.9  |  
|Total operating expenses |  |                                    | 12.4             |           |                       | (2.6                                | ) |   | 0.5 |  |   | 14.5 |  
|                         |  |                                    |                  |           |                       |                                     |   |   |     |  |   |      |  
|Income from
 operations  |  | $                                  | 7.0              |           | $                     | 1.3                                 |   | $ | 0.3 |  | $ | 5.4  |  

Revenue was $36.0
million, relatively flat compared to $36.1 million for the First Half of Fiscal
2009. The slight decrease was primarily driven order timing, partially offset
by an estimated $1.5 million favorable impact of currency translation.

Gross profit was
$19.4 million, a decrease of $0.5 million, or 2.5%, compared to gross profit of
$19.9 million for the First Half of Fiscal 2009. Gross profit as a percentage
of revenue was 54.0%, a decrease of 1.3 percentage points from 55.3% for the
First Half of Fiscal 2009, primarily due to a $0.2 million write-off of
inventory and $0.2 million increased variable compensation expense.

29

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Table of Contents

Selling and marketing expense
was $6.5 million, a decrease of $1.4 million, or 17.7%, compared to $7.9
million for the First Half of Fiscal 2009. The decrease is primarily due to
lower compensation and benefits, resulting from a reduction in employees in the
prior year, and reduced discretionary spending. Selling and marketing expense
as a percentage of revenue was 18.1% compared to 21.9% for the First Half of
Fiscal 2009.

General and administrative expense
was $4.1 million, a decrease of $0.6 million, or 12.8%, compared to $4.7
million for the First Half of Fiscal 2009, primarily due to lower compensation
and benefits, resulting from a reduction in employees in the prior year, and
reduced discretionary spending, partially offset by $0.2 million increased
variable compensation expense. General and administrative expense as a
percentage of revenue was 11.4% compared to 13.0% for the First Half of Fiscal
2009.

Research and development expense
was $1.8 million, relatively flat compared to $1.9 million for the First Half
of Fiscal 2009. Research and development expense as a percentage of revenue was
5.0% compared to 5.3% for the First Half of Fiscal 2009.

Income from operations
was $7.0 million, an increase of $1.6 million, or 29.6%, compared to income
from operations of $5.4 million for the First Half of Fiscal 2009. This
increase was primarily due to reduced operating expenses, partially offset by
lower gross profit. Operating income as a percentage of revenue was 19.4%
compared to 15.0% for the First Half of Fiscal 2009.

Capital Resources and Liquidity

The Company
had cash and cash equivalents of $122.1 million at the end of the Second
Quarter of Fiscal 2010. Of this amount, $18.6 million was located in North
America, $84.8 million in Europe, and $18.7 million in Asia. The North American
balance was primarily invested in money market funds and bank deposits. In
Europe, the balances were primarily invested in Euro money market funds and
bank deposits. In Asia, the balances were primarily invested in bank deposits.
In accordance with its investment policy, the Company places cash equivalent
investments with issuers who have high-quality investment credit ratings. In
addition, the Company limits the amount of investment exposure it has with any
particular issuer. The Companys investment objectives are to preserve
principal, maintain liquidity, and achieve the best available return consistent
with its primary objectives of safety and liquidity. At the end of the Second
Quarter of Fiscal 2010, the Company held no short-term investments.

Total cash and
cash equivalents increased $3.2 million in the First Half of Fiscal 2010,
primarily due to earnings and decreased working capital requirements, partially
offset by dividend payments, purchase of company stock, investment in property
and equipment, and an unfavorable impact of currency translation. 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, investment in property and
equipment, dividend payments, and an unfavorable impact of currency
translation, partially offset by earnings. The Company believes that its
liquidity, represented by funds available from cash, cash equivalents, credit
facility, and anticipated cash from operations are adequate to fund ongoing operations,
internal growth opportunities, capital expenditures, Company dividends and
share purchases, as well as to fund strategic acquisitions.

Cash flows from operating activities
provided cash totaling $27.9 million for the First Half of Fiscal 2010,
compared to cash provided of $15.7 million for the First Half of Fiscal 2009.
Cash provided for the First Half of Fiscal 2010 was primarily due to earnings
and $7.3 million decreased accounts and unbilled receivables resulting from the
general timing of billing and collections, and $4.2 million increased advance
payments received from customers driven by higher custom orders. 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 flows from investing activities
required the use of cash totaling $5.5 million for the First Half of Fiscal
2010, compared to the use of cash totaling $27.5 million for the First Half of
Fiscal 2009. The cash usage for the First Half of Fiscal 2010 reflects a $5.0
million investment in property and equipment. 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.

30

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Table of Contents

Cash flows from financing activities
required the use of cash totaling $12.9 million for the First Half of Fiscal
2010, compared to cash provided of $3.5 million for the First Half of Fiscal
2009. The cash usage for the First Half of Fiscal 2010 was primarily due to
payment of cash dividends of $7.4 million, as well as the use of $5.9 million
to purchase approximately 211,500 shares of the Companys common stock. 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.

Under the
terms of its borrowing agreements, the Company has agreed to certain financial
covenants. At the end of the Second Quarter of Fiscal 2010, the Company was in
compliance with the financial terms and conditions of those agreements.

Off-Balance Sheet Arrangements

As of April 3,
2010, the Company had no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Companys financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors.

Critical Accounting Policies

The
Consolidated Financial Statements are prepared in accordance with U.S. generally
accepted accounting principles, which require the Company to make estimates and
assumptions in certain circumstances that affect amounts reported. In preparing
these financial statements, management has made its best estimates and
judgments of certain amounts, giving due consideration to materiality. The
Company believes that of its significant accounting policies, the following are
particularly important to the portrayal of the Companys results of operations
and financial position, may require the application of a higher level of
judgment by the Companys management, and as a result, are subject to an
inherent degree of uncertainty. Further information is provided in Note 1 in
the Condensed Notes to Consolidated Financial Statements in this Quarterly
Report on Form 10-Q.

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

Inventories. The
Company maintains a material amount of inventory to support its engineering and
manufacturing operations. The Company establishes valuation reserves for
excess, slow moving, and obsolete inventory based on inventory levels, expected
product life, and forecasted sales demand. It is possible that an increase in
the Companys inventory reserves may be required in the future if there is a
significant decline in demand for the Companys products and the Company does
not adjust its manufacturing production accordingly.

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

Goodwill.The
Company tests goodwill at least annually for impairment. Goodwill is also
tested for impairment as changes in circumstances occur indicating that the
carrying value may not be recoverable. Goodwill impairment testing first
requires a comparison of the fair value of each reporting unit to the carrying
value. If the carrying value of the reporting unit exceeds fair value, goodwill
is considered impaired. The fair value of a reporting unit is estimated using a
discounted cash flow model that requires input of certain estimates and
assumptions requiring management judgment, including
projections of economic conditions and customer demand, revenue and margins,
changes in competition, operating costs, and new product introductions. The
Company believes the estimates and assumptions used in determining the
projected cash flows of its reporting units are reasonable however, significant
changes in estimates of future cash flows, such as those caused by unforeseen
events or changes in market conditions could materially impact the fair value
of a reporting unit which could result in the recognition of a goodwill impairment
charge.

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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.

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 January
2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value
Measurements. ASU 2010-06 requires additional disclosures about fair value
measurements. The new disclosure provisions of ASU 2010-06 are effective for
interim and annual reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances and settlements in the
roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The Companys adoption of the
provisions of ASU 2010-06 during the three-month period ended April 3, 2010 did
not have an impact on its consolidated financial statements.

In October
2009, the FASB issued ASU 2009-14, Software (Topic 985)  Certain Revenue
Arrangements that Include Software Elements. ASU 2009-14 changes the
accounting model for revenue arrangements that include both tangible products
and software elements. Specifically, tangible products containing software
components and non-software components that function together to deliver the
tangible products essential functionality are excluded from the software
revenue guidance in Accounting Standards Codification (ASC) Subtopic 985-605,
Software-Revenue Recognition. In addition, ASU 2009-14 requires that hardware
components of a tangible product containing software components be excluded
from the software revenue guidance. The provisions of ASU 2009-14 are effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010 which, for the Company, will
be fiscal year 2011. The Company is currently evaluating the impact of this new
guidance, but does not expect the adoption of ASU 2009-14 to have a material
impact on its consolidated financial statements.

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In October
2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605) -
Multiple-Deliverable Revenue Arrangements. ASU 2009-13 amends the criteria
established in ASC 605-25, Revenue Recognition  Multiple Element
Arrangements, for separating consideration in multiple-deliverable
arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable. Specifically, the
selling price used for each deliverable is based on: (a) vendor-specific
objective evidence if available; (b) third-party evidence if vendor-specific
objective evidence is not available; or (c) estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. In
addition, ASU 2009-13 eliminates the residual method of allocation and requires
that arrangement consideration be allocated at the inception of the arrangement
to all deliverables using the relative selling price method. Also, ASU 2009-13
significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. The provisions of ASU 2009-13 are
effective prospectively for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010 which, for the Company,
will be fiscal year 2011. Early adoption is permitted. The Company is currently
evaluating the impact of this new guidance, but does not expect the adoption of
ASU 2009-13 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 as codified by ASC 715-20-65-2. This
standard amends SFAS No. 132 (revised 2003), Employers Disclosures about
Pensions and Other Postretirement Benefits as codified by ASC 715-20 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. ASC 715-20-65-2 is
effective for fiscal years ending after December 15, 2009. The Company believes
the additional disclosures required upon the adoption of ASC 715-20-65-2 will
not impact its consolidated financial condition or results of operations.

Other Matters

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

Item 3.  Quantitative and Qualitative
Disclosures about Market Risk

The Companys
investment portfolio at April 3, 2010 included $122.1 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 $0.6 million for the
six-month period ended April 3, 2010.

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

A hypothetical
10% appreciation or depreciation in foreign currencies against the U.S. dollar,
assuming all other variables were held constant, would have resulted in an
estimated increase or decrease of $8.6 million in revenue for the six-month
period ended April 3, 2010.

At April 3,
2010, the Companys short-term borrowings outstanding consisted of $40.0
million utilization of the revolving credit facility and $0.3 million in
non-interest bearing notes payable to vendors. This utilization of the credit
facility involves interest payments calculated at a floating rate. In order to
mitigate the Companys exposure to interest rate increases, the Company has
entered into floating to fixed interest rate swap agreements. The notes payable
to vendors are non-interest bearing and, therefore, are not impacted by the
effect of increases or decreases in market interest rates.

Item 4.  Controls and Procedures

The Companys
management, including the Chief Executive Officer and Chief Financial Officer,
have conducted an evaluation of the effectiveness of the design and operation
of the Companys disclosure controls and procedures (as defined under Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934
(the 1934 Act)) as of April 3, 2010. Based on that evaluation, the Companys
Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective in ensuring that
information required to be disclosed by the Company in the reports it files or
submits under the 1934 Act is recorded, processed, summarized, and reported
within the time periods specified in the SECs rules and forms, and that such
information required to be disclosed by the Company in the reports that it
files or submits under the 1934 Act is accumulated and communicated to the Companys
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.

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There have
been no changes in internal control over financial reporting during the fiscal
quarter ended April 3, 2010 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial
reporting.

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 |        
|January 3, 2010 - February
 6, 2010 |  |                                    | 62,298  |                                 | $ | 28.52                                                                                   |  |                                                                                       | 62,298  |  |  | 1,888,563 | 
|February 7, 2010 - March
 6, 2010   |  |                                    | 50,400  |                                 | $ | 26.42                                                                                   |  |                                                                                       | 50,400  |  |  | 1,838,163 | 
|March 7, 2010 - April 3,
 2010      |  |                                    | 46,100  |                                 | $ | 29.74                                                                                   |  |                                                                                       | 46,100  |  |  | 1,792,063 | 
|Total                               |  |                                    | 158,798 |                                 | $ | 28.21                                                                                   |  |                                                                                       | 158,798 |  |  |           | 

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

During the
Second Quarter of Fiscal 2010, 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 the authorization has been delegated to management. The share purchase authorization
has no expiration date.

Item 5.Other
Information

| |     |                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The
 Companys Annual Meeting of Shareowners was held on February 10, 2010.                                                                                                      
| |     |                                                                                                                                                                                  
| | (b) | The
 following persons were nominated and elected to continue as directors of the
 Company until the next Annual Meeting of Shareholders. There were 1,907,302
 broker non-votes.

|                    |            |         
|------------------- | ---------- | --------
|                    | Voted For  | Withheld
|                    |            |         
|David J.
 Anderson  | 12,236,598 | 230,722 
|Jean-Lou
 Chameau   | 12,108,358 | 358,961 
|Laura B.
 Hamilton  | 11,926,468 | 540,852 
|Brendan C.
 Hegarty | 12,066,340 | 400,979 
|Barb J.
 Samardzich | 12,239,290 | 228,029 
|Gail P.
 Steinel    | 12,187,113 | 280,207 

| |     |                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | The
 appointment of KPMG, LLP as the Companys independent registered public
 accounting firm for the current fiscal year was approved with 13,957,197
 votes in favor, 397,831 votes against, and 19,593 votes abstained. There were
 no broker non-votes.

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| |     |                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | The
 restatement of the MTS Systems Corporation Executive Variable Compensation
 Plan was approved with 10,831,109 votes in favor, 626,872 votes against, and
 1,009,338 votes abstained. There were 1,907,302 broker non-votes.

Item 6.  Exhibits

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

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
 6, 2010 | /s/ LAURA B.
 HAMILTON                     
|                     | Laura B.
 Hamilton                         
|                     | Chair and
 Chief Executive Officer         
|                     |                                            
|                     |                                            
|Dated:  May
 6, 2010 | /s/ SUSAN E.
 KNIGHT                       
|                     | Susan E.
 Knight                           
|                     | Vice
 President and Chief Financial Officer

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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).

---