Table of Contents





United States
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549



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FORM 10-Q



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|  |                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------
|x | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
 Exchange Act of 1934 for the Quarterly period ended December 27, 2008       
|  |                                                                                                                                                  
|  | 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



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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)

Registrants telephone number: (952) 937-4000



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

|  |     |  |   |   
|- | --- |  | - | --
|x | Yes |  | o | No

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):

|                           |                      |                          |                             
|-------------------------- | -------------------- | ------------------------ | ----------------------------
|Large
 accelerated filer x | Accelerated
 filer o | Non-accelerated
 filer o | Smaller
 Reporting Company o

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

|  |     |  |   |   
|- | --- |  | - | --
|o | Yes |  | x | No

The number of
shares outstanding of the Registrants common stock as of January 30, 2009 was 16,851,687 shares.





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MTS SYSTEMS CORPORATION

REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED December 27, 2008

INDEX

|                               |         |                                                                                                             |         
|------------------------------ | ------- | ----------------------------------------------------------------------------------------------------------- | --------
|                               |         |                                                                                                             | Page No.
|                               |         |                                                                                                             |         
|                               |         |                                                                                                             |         
|PART I - FINANCIAL INFORMATION |        
|                               |         |                                                                                                             |         
|                               | Item 1. | Financial Statements (unaudited)                                                                            |         
|                               |         |                                                                                                             |         
|                               |         | Consolidated Balance Sheets as of 
 December 27, 2008 and September 27, 2008                                | 2       
|                               |         |                                                                                                             |         
|                               |         | Consolidated Statements of Income for the 
 Three Months Ended December 27, 2008 and December 29, 2007      | 3       
|                               |         |                                                                                                             |         
|                               |         | Consolidated Statements of Cash Flows for
 the 
 Three Months Ended December 27, 2008 and December 29, 2007 | 4       
|                               |         |                                                                                                             |         
|                               |         | Condensed Notes to Consolidated Financial
 Statements                                                       | 5 - 17  
|                               |         |                                                                                                             |         
|                               | Item 2. | Managements Discussion and Analysis of Financial 
 Condition and Results of Operations                     | 18 - 28 
|                               |         |                                                                                                             |         
|                               | Item 3. | Quantitative and Qualitative Disclosures About 
 Market Risk                                                | 29      
|                               |         |                                                                                                             |         
|                               | Item 4. | Controls and Procedures                                                                                     | 29      
|                               |         |                                                                                                             |         
|PART II  OTHER INFORMATION    |        
|                               |         |                                                                                                             |         
|                               | Item 2. | Unregistered Sales of Equity Securities and
 Use of Proceeds                                                | 29 - 30 
|                               |         |                                                                                                             |         
|                               | Item 6. | Exhibits                                                                                                    | 30      
|                               |         |                                                                                                             |         
|SIGNATURES                     | 31     

1

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Table of Contents

PART 1  FINANCIAL INFORMATIONItem 1. Financial Statements

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

|                                                                                              |  |                    |         |                     |   |         | 
|--------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------- | - | ------- | 
|                                                                                              |  | December 27,
 2008 |         | September 27,
 2008 |  
|ASSETS                                                                                        |  |                    |         |                     |   |         | 
|                                                                                              |  |                    |         |                     |   |         | 
|Current Assets:                                                                               |  |                    |         |                     |   |         | 
|Cash and cash equivalents                                                                     |  | $                  | 104,786 |                     | $ | 114,099 | 
|Accounts receivable, net of allowances for
 doubtful accounts of $997 and $1,008 respectively |  |                    | 99,070  |                     |   | 101,331 | 
|Unbilled accounts receivable                                                                  |  |                    | 38,472  |                     |   | 43,022  | 
|Inventories                                                                                   |  |                    | 56,246  |                     |   | 46,135  | 
|Prepaid expenses and other current assets                                                     |  |                    | 4,734   |                     |   | 6,205   | 
|Current deferred tax assets                                                                   |  |                    | 13,045  |                     |   | 11,825  | 
|Assets of discontinued operations                                                             |  |                    | 156     |                     |   | 380     | 
|Total current assets                                                                          |  |                    | 316,509 |                     |   | 322,997 | 
|                                                                                              |  |                    |         |                     |   |         | 
|Property and equipment, net                                                                   |  |                    | 57,743  |                     |   | 50,534  | 
|Goodwill                                                                                      |  |                    | 15,787  |                     |   | 1,668   | 
|Other intangible assets, net                                                                  |  |                    | 21,707  |                     |   | 4,363   | 
|Other assets                                                                                  |  |                    | 4,092   |                     |   | 17,283  | 
|Non-current deferred tax assets                                                               |  |                    | 2,327   |                     |   | 2,312   | 
|Total Assets                                                                                  |  | $                  | 418,165 |                     | $ | 399,157 | 
|                                                                                              |  |                    |         |                     |   |         | 
|LIABILITIES AND SHAREHOLDERS INVESTMENT                                                      |  |                    |         |                     |   |         | 
|                                                                                              |  |                    |         |                     |   |         | 
|Current Liabilities:                                                                          |  |                    |         |                     |   |         | 
|Short-term borrowings                                                                         |  | $                  | 40,384  |                     | $ | 24,338  | 
|Current maturities of long-term debt                                                          |  |                    | 2,308   |                     |   | 2,308   | 
|Accounts payable                                                                              |  |                    | 24,509  |                     |   | 28,567  | 
|Accrued payroll and related costs                                                             |  |                    | 25,353  |                     |   | 33,819  | 
|Advance payments from customers                                                               |  |                    | 63,693  |                     |   | 64,979  | 
|Accrued warranty costs                                                                        |  |                    | 6,233   |                     |   | 6,107   | 
|Accrued income taxes                                                                          |  |                    | 4,119   |                     |   | 4,510   | 
|Current deferred income taxes                                                                 |  |                    | 3,564   |                     |   | 3,723   | 
|Other accrued liabilities                                                                     |  |                    | 34,406  |                     |   | 17,042  | 
|Liabilities of discontinued operations                                                        |  |                    | 177     |                     |   | 177     | 
|Total current liabilities                                                                     |  |                    | 204,746 |                     |   | 185,570 | 
|                                                                                              |  |                    |         |                     |   |         | 
|Deferred income taxes                                                                         |  |                    | 1,364   |                     |   | 1,354   | 
|Non-current accrued income taxes                                                              |  |                    | 4,418   |                     |   | 4,009   | 
|Pension benefit plan                                                                          |  |                    | 86      |                     |   | 245     | 
|Other long-term liabilities                                                                   |  |                    | 2,928   |                     |   | 3,037   | 
|Total Liabilities                                                                             |  |                    | 213,542 |                     |   | 194,215 | 
|                                                                                              |  |                    |         |                     |   |         | 
|Shareholders Investment:                                                                     |  |                    |         |                     |   |         | 
|Common stock, $.25 par; 64,000 shares
 authorized:                                            |  |                    |         |                     |   |         | 
|16,860 and 16,976 shares issued and
outstanding                                               |  |                    | 4,215   |                     |   | 4,244   | 
|Retained earnings                                                                             |  |                    | 179,877 |                     |   | 175,216 | 
|Accumulated other comprehensive income                                                        |  |                    | 20,531  |                     |   | 25,482  | 
|Total Shareholders Investment                                                                |  |                    | 204,623 |                     |   | 204,942 | 
|Total Liabilities and Shareholders
 Investment                                               |  | $                  | 418,165 |                     | $ | 399,157 | 

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

2

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Table of Contents

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

|                                                                |  |                    |         |                    |   |         |  
|--------------------------------------------------------------- |  | ------------------ | ------- | ------------------ | - | ------- | -
|                                                                |  | Three Months Ended |        
|                                                                |  | December 27,
 2008 |         | December 29,
 2007 |  
|Revenue:                                                        |  |                    |         |                    |   |         |  
|Product                                                         |  | $                  | 99,397  |                    | $ | 92,940  |  
|Service                                                         |  |                    | 17,212  |                    |   | 14,452  |  
|Total revenue                                                   |  |                    | 116,609 |                    |   | 107,392 |  
|Cost of sales:                                                  |  |                    |         |                    |   |         |  
|Product                                                         |  |                    | 63,450  |                    |   | 56,667  |  
|Service                                                         |  |                    | 8,938   |                    |   | 7,503   |  
|Total cost of sales                                             |  |                    | 72,388  |                    |   | 64,170  |  
|Gross profit                                                    |  |                    | 44,221  |                    |   | 43,222  |  
|                                                                |  |                    |         |                    |   |         |  
|Operating expenses:                                             |  |                    |         |                    |   |         |  
|Selling and marketing                                           |  |                    | 19,121  |                    |   | 19,053  |  
|General and administrative                                      |  |                    | 9,902   |                    |   | 8,111   |  
|Research and development                                        |  |                    | 3,259   |                    |   | 3,978   |  
|Total operating expenses                                        |  |                    | 32,282  |                    |   | 31,142  |  
|                                                                |  |                    |         |                    |   |         |  
|Income from operations                                          |  |                    | 11,939  |                    |   | 12,080  |  
|                                                                |  |                    |         |                    |   |         |  
|Interest expense                                                |  |                    | (508    | )                  |   | (351    | )
|Interest income                                                 |  |                    | 517     |                    |   | 925     |  
|Other income (expense), net                                     |  |                    | 894     |                    |   | (50     | )
|                                                                |  |                    |         |                    |   |         |  
|Income before income taxes and discontinued
 operations         |  |                    | 12,842  |                    |   | 12,604  |  
|Provision for income taxes                                      |  |                    | 3,091   |                    |   | 4,423   |  
|Income before discontinued operations                           |  |                    | 9,751   |                    |   | 8,181   |  
|                                                                |  |                    |         |                    |   |         |  
|Income from discontinued operations, net of
 tax                |  |                    |        |                    |   | 175     |  
|Net income                                                      |  | $                  | 9,751   |                    | $ | 8,356   |  
|                                                                |  |                    |         |                    |   |         |  
|Earnings per share:                                             |  |                    |         |                    |   |         |  
|Basic-                                                          |  |                    |         |                    |   |         |  
|Income before discontinued operations                           |  | $                  | 0.58    |                    | $ | 0.46    |  
|Income from discontinued operations, net of
 tax                |  |                    |        |                    |   | 0.01    |  
|Earnings per share                                              |  | $                  | 0.58    |                    | $ | 0.47    |  
|Weighted average number of common shares
 outstanding - basic   |  |                    | 16,936  |                    |   | 17,693  |  
|                                                                |  |                    |         |                    |   |         |  
|Diluted-                                                        |  |                    |         |                    |   |         |  
|Income before discontinued operations                           |  | $                  | 0.57    |                    | $ | 0.46    |  
|Income from discontinued operations, net of
 tax                |  |                    |        |                    |   | 0.01    |  
|Earnings per share                                              |  | $                  | 0.57    |                    | $ | 0.47    |  
|Weighted average number of common shares
 outstanding - diluted |  |                    | 16,989  |                    |   | 17,948  |  

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

3

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Table of Contents

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

|                                                                                             |  |                    |         |                    |   |         |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------ | - | ------- | -
|                                                                                             |  | Three Months Ended |        
|                                                                                             |  | December 27,
 2008 |         | December 29,
 2007 |  
|                                                                                             |  |                    |         |                    |   |         |  
|Cash flows from operating activities:                                                        |  |                    |         |                    |   |         |  
|Net income                                                                                   |  | $                  | 9,751   |                    | $ | 8,356   |  
|Adjustments to reconcile net income to net
 cash provided by (used in) operating activities: |  |                    |         |                    |   |         |  
|Income from discontinued operations                                                          |  |                    |        |                    |   | (175    | )
|Stock-based compensation                                                                     |  |                    | 1,091   |                    |   | 956     |  
|Excess tax benefits from stock-based
 compensation                                           |  |                    | (3      | )                  |   | (62     | )
|Charge for fair value mark-up of acquired
 inventory                                         |  |                    | 844     |                    |   |        |  
|Net periodic pension benefit cost                                                            |  |                    | 116     |                    |   | 320     |  
|Depreciation and amortization                                                                |  |                    | 2,874   |                    |   | 2,161   |  
|Deferred income taxes                                                                        |  |                    | (1,183  | )                  |   | (3,039  | )
|Bad debt provision                                                                           |  |                    | 24      |                    |   | 110     |  
|                                                                                             |  |                    |         |                    |   |         |  
|Changes in operating assets and liabilities,
 excluding the effects of the acquisition:      |  |                    |         |                    |   |         |  
|Accounts and unbilled contracts receivable                                                   |  |                    | 15,824  |                    |   | (8,538  | )
|Inventories                                                                                  |  |                    | (3,159  | )                  |   | (2,079  | )
|Prepaid expenses                                                                             |  |                    | (1,395  | )                  |   | (1,651  | )
|Other assets                                                                                 |  |                    | (432    | )                  |   | (942    | )
|Accounts payable                                                                             |  |                    | (8,427  | )                  |   | (4,001  | )
|Accrued payroll and related costs                                                            |  |                    | (9,009  | )                  |   | (4,446  | )
|Advance payments from customers                                                              |  |                    | (2,900  | )                  |   | 7,722   |  
|Accrued warranty costs                                                                       |  |                    | 120     |                    |   | (95     | )
|Other current liabilities                                                                    |  |                    | 1,253   |                    |   | 4,595   |  
|Contributions to pension benefit plan                                                        |  |                    | (73     | )                  |   | (72     | )
|Operating activities of discontinued
 operations                                             |  |                    | 225     |                    |   | (775    | )
|Net cash provided by (used in) operating
 activities                                         |  |                    | 5,541   |                    |   | (1,655  | )
|                                                                                             |  |                    |         |                    |   |         |  
|Cash flows from investing activities:                                                        |  |                    |         |                    |   |         |  
|Purchases of property and equipment                                                          |  |                    | (3,022  | )                  |   | (2,413  | )
|Purchase of business                                                                         |  |                    | (18,946 | )                  |   |        |  
|Proceeds from maturity of short-term
 investments                                            |  |                    |        |                    |   | 19,050  |  
|Purchases of short-term investments                                                          |  |                    |        |                    |   | (2,000  | )
|Investing activities of discontinued
 operations                                             |  |                    |        |                    |   | (72     | )
|Net cash (used in) provided by investing
 activities                                         |  |                    | (21,968 | )                  |   | 14,565  |  
|                                                                                             |  |                    |         |                    |   |         |  
|Cash flows from financing activities:                                                        |  |                    |         |                    |   |         |  
|Net proceeds (repayments) under short-term
 borrowings                                       |  |                    | 15,988  |                    |   | (164    | )
|Excess tax benefits from stock-based
 compensation                                           |  |                    | 3       |                    |   | 62      |  
|Cash dividends                                                                               |  |                    | (2,547  | )                  |   | (2,661  | )
|Proceeds from exercise of stock options and
 employee stock purchase plan                    |  |                    | 36      |                    |   | 705     |  
|Payments to purchase and retire common
 stock                                                |  |                    | (3,613  | )                  |   | (4,603  | )
|Net cash provided by (used in) financing
 activities                                         |  |                    | 9,867   |                    |   | (6,661  | )
|                                                                                             |  |                    |         |                    |   |         |  
|Effect of exchange rate on changes in cash                                                   |  |                    | (2,753  | )                  |   | 2,592   |  
|Net (decrease) increase in cash and cash
 equivalents                                        |  |                    | (9,313  | )                  |   | 8,841   |  
|                                                                                             |  |                    |         |                    |   |         |  
|Cash and cash equivalents, at beginning of
 period                                           |  |                    | 114,099 |                    |   | 104,345 |  
|Cash and cash equivalents, at end of
period                                                  |  | $                  | 104,786 |                    | $ | 113,186 |  
|                                                                                             |  |                    |         |                    |   |         |  
|Supplemental disclosure of cash flow
 information:                                           |  |                    |         |                    |   |         |  
|Cash paid during the period for -                                                            |  |                    |         |                    |   |         |  
|Interest expense                                                                             |  | $                  | 277     |                    | $ | 164     |  
|Income taxes                                                                                 |  | $                  | 3,269   |                    | $ | 3,935   |  

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

4

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Table of Contents

MTS SYSTEMS CORPORATIONCONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

1. Basis of Presentation

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

The interim
consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). The information furnished in these
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments which are, in the opinion of management, necessary for
a fair presentation of such financial statements. The consolidated financial
statements are prepared in accordance with U.S. generally accepted accounting
principles (GAAP), which require the Company to make estimates and
assumptions in certain circumstances that affect amounts reported. In preparing
these financial statements, management has made its best estimates and
judgments of certain amounts, giving due consideration to materiality. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to SEC
rules and regulations. The accompanying financial statements of the Company
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Companys Annual Report on Form 10-K for the
fiscal year ended September 27, 2008 filed with the SEC. Interim results of
operations for the three-month period ended December 27, 2008 are not
necessarily indicative of the results to be expected for the full year.

Summary of Significant Accounting Policies

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

Revenue Recognition.
Orders that are manufactured and delivered in less than six months with routine
installations and no special acceptance protocol may involve separable elements
for revenue recognition purposes. Sufficient evidence of fair value of these
elements exists to allow revenue recognition for these systems upon shipment,
less the greater of the fair value associated with installation and training
(if applicable) or the amount of revenue for which payment is deemed contingent
upon delivery of these elements, which amount is deferred until customer
acceptance. Fair value is determined based upon the sale price of similar
products sold individually. In cases where special acceptance protocols exist,
installation and training are not considered to be separable from the other
elements of the arrangement. Accordingly, revenue for these systems is
recognized upon the completion of installation and fulfillment of obligations
specific to the terms of the arrangement.

Certain
contractual arrangements require longer production periods, generally longer
than six months (long-term contracts), and may contain non-routine
installations and special acceptance protocols. These arrangements often
include hardware, software, installation services, training and support. In
certain arrangements software may be essential to the functionality of the
system deliverable. For these arrangements the Company considers Emerging
Issues Task Force (EITF) No. 03-05, Applicability of AICPA Statement of
Position 97-2 to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software, to identify components of the arrangement which
are considered software-related. For software and software-related components,
the Company applies the requirements of Statement of Position (SOP) No. 97-2,
Software Revenue Recognition, when recognizing revenue. Contractual
arrangements in which software is essential to system functionality typically
include significant production, modification, and customization. For
arrangements with essential software and all other long-term arrangements with
complex installations and/or unusual acceptance protocols, revenue is
recognized using the percentage-of-completion method prescribed by SOP No.
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, based on the cost incurred to-date relative to
estimated total cost of the contract. Elements of an arrangement that do not
separately fall within the scope of SOP No. 81-1 (e.g. software maintenance and
training) are accounted for as the service is provided based on fair value as
determined by standalone sales.

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

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Table of Contents

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

Inventories.
Inventories consist of material, labor and overhead costs and are stated at the
lower of cost or market, determined under the first-in, first-out accounting
method. Inventories at December 27, 2008 and September 27, 2008 were as
follows:

|                                                   |  |                          |        |                    |   |        | 
|-------------------------------------------------- |  | ------------------------ | ------ | ------------------ | - | ------ | 
|                                                   |  | December 27, 2008        |        | September 27, 2008 |  
|                                                   |  | (expressed in thousands) |       
|Customer projects in various stages of
 completion |  | $                        | 18,476 |                    | $ | 14,257 | 
|Components, assemblies and parts                   |  |                          | 37,770 |                    |   | 31,878 | 
|Total                                              |  | $                        | 56,246 |                    | $ | 46,135 | 

Impairment of Long-Lived Assets.
In accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets, the Company reviews the carrying value of long-lived assets
or asset groups, such as property and equipment and intangibles subject to
amortization, when events or changes in circumstances such as market value,
asset utilization, physical change, legal factors, or other matters indicate
that the carrying value may not be recoverable. When this review indicates the
carrying value of an asset or asset group exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual sale of the asset or
asset group, the Company recognizes an asset impairment charge against
operations. The amount of the impairment loss recorded is the amount by which
the carrying value of the impaired asset or asset group exceeds its fair value.

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

Software Development Costs.
The Company capitalizes certain software development costs related to software
to be sold, leased, or otherwise marketed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed. Capitalized
software development costs include purchased materials and services, salary and
benefits of the Companys development and technical support staff, and other
costs associated with the development of new products and services. Software
development costs are expensed as incurred until technological feasibility has
been established, at which time future costs incurred are capitalized until the
product is available for general release to the public. Based on the Companys
product development process, technological feasibility is generally established
once product and detailed program designs have been completed, uncertainties
related to high-risk development issues have been resolved through coding and
testing, and the Company has established that the necessary skills, hardware,
and software technology are available for production of the product. Once a
software product is available for general release to the public, capitalized
development costs associated with that product will begin to be amortized to
cost of sales over the products estimated economic life, using a method that
results in cost recognition in future periods that is consistent with the
anticipated timing of product revenue recognition.

The Companys
capitalized software development costs are subject to an ongoing assessment of
recoverability, which is impacted by estimates and assumptions of future
revenues and expenses for these software products, as well as other factors
such as changes in product technologies. The portion of unamortized capitalized
software development costs that are determined to be in excess of net realizable
value will be expensed in the period such a determination is made. The Company
reached technological feasibility for certain software products and began
capitalizing software development costs during the fiscal year ended September
27, 2008. See Note 4 in the Condensed Notes to Consolidated Financial
Statements for additional information on capitalized software development
costs.

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Warranty Obligations.
Sales of the Companys products and systems are subject to limited warranty
guarantees that are included in customer contracts. For sales that include
installation services, warranty guarantees typically extend for a period of
twelve months from the date of either shipment or acceptance. Product
guarantees typically extend for a period of twelve to twenty-four months from
the date of purchase. Under the terms of these warranties, the Company is
obligated to repair or replace any components or assemblies it deems defective
due to workmanship or materials. The Company reserves the right to reject warranty
claims where it determines that failure is due to normal wear, customer
modifications, improper maintenance, or misuse. The Company records warranty
provisions monthly based on an estimated warranty expense percentage applied to
current period revenue. The percentage applied reflects historical warranty
claims experience over the preceding twelve-month period. Both the experience
percentage and the warranty liability are evaluated on an ongoing basis for
adequacy. Warranty provisions and claims for the periods ended December 27,
2008 and December 29, 2007 were as follows:

|                     |  |                          |        |                    |   |        |  
|-------------------- |  | ------------------------ | ------ | ------------------ | - | ------ | -
|                     |  | Three Months Ended       |       
|                     |  | December 27,
 2008       |        | December 29,
 2007 |  
|                     |  | (expressed in thousands) |       
|Beginning balance    |  | $                        | 6,107  |                    | $ | 6,205  |  
|Warranty provisions  |  |                          | 1,925  |                    |   | 1,555  |  
|Warranty claims      |  |                          | (1,762 | )                  |   | (1,657 | )
|Currency translation |  |                          | (37    | )                  |   | 73     |  
|Ending balance       |  | $                        | 6,233  |                    | $ | 6,176  |  

Stock-Based Compensation.
The Company compensates officers, directors, and employees with stock-based
compensation under four stock plans approved by the Companys shareholders in
1994, 1997, 2002 and 2006. These stock plans are administered under the
supervision of the Companys Board of Directors. The Company has awarded stock
options, employee stock purchase plan shares, and restricted stock under these
plans. At December 27, 2008, a total of 1,827,043 shares were available for
future grant under the 2002 and 2006 plans. Stock-based compensation expense is
determined in accordance with SFAS No. 123R based on the grant-date fair value
and is recognized proportionally over the vesting period of each grant, which
is generally three years. Stock-based compensation expense for the three-month
periods ended December 27, 2008 and December 29, 2007 was $1.1 million and $1.0
million, respectively.

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

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

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2. Recent Accounting Pronouncements

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

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

In March 2008,
the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an Amendment to SFAS No. 133. SFAS No. 161 requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. The Company does not
expect the adoption of SFAS No. 161 to have a material impact on its
consolidated financial statements.

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

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

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

In May 2008,
the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts-and interpretation of FASB Statement No. 60. SFAS No. 163 clarifies
how SFAS No. 60, Accounting and Reporting by Insurance Enterprises, applies
to financial guarantee insurance contracts issued by insurance enterprises,
including the recognition and measurement of premium revenue and claims
liabilities. This statement also requires expanded disclosures about financial
guarantee insurance contracts. SFAS No. 163 is effective for fiscal years
beginning on or after December
15, 2008, and interim periods within those years. The Company does not expect
the adoption of SFAS No. 163 to have any impact on its consolidated financial
statements.

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3. Acquisitions and Divestitures

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

The Company
does not allocate interest income or interest expense to discontinued
operations. There were no operating results of discontinued operations included
in the Companys results for the three-month period ended December 27, 2008.
Operating results of the discontinued operations, included in the Companys
results for the three-month period ended December 29, 2007, were as follows:

|                                                  |  |                                       |       |  
|------------------------------------------------- |  | ------------------------------------- | ----- | -
|                                                  |  | Three Months Ended
 December 29, 2007 |      
|                                                  |  | (expressed in thousands)              |      
|Revenue                                           |  | $                                     | 2,662 |  
|Income from discontinued
 operations before taxes |  |                                       | 242   |  
|Provision for income taxes                        |  |                                       | (67   | )
|Income from discontinued
 operations, net of tax  |  | $                                     | 175   |  

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

|                                                              |  |                          |     |                    |   |     | 
|------------------------------------------------------------- |  | ------------------------ | --- | ------------------ | - | --- | 
|                                                              |  | December 27, 2008        |     | September 27, 2008 |  
|                                                              |  | (expressed in thousands) |    
|Accounts receivable, net of
 allowances for doubtful accounts |  | $                        | 2   |                    | $ | 149 | 
|Unbilled accounts
 receivable                                 |  |                          | 11  |                    |   | 88  | 
|Current deferred tax assets                                   |  |                          | 143 |                    |   | 143 | 
|Total assets of
 discontinued operations                      |  | $                        | 156 |                    | $ | 380 | 
|                                                              |  |                          |     |                    |   |     | 
|Accrued income taxes                                          |  | $                        | 177 |                    | $ | 177 | 
|Total liabilities of
 discontinued operations                 |  | $                        | 177 |                    | $ | 177 | 

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

The total
purchase price for SANS was $50.0 million, including direct acquisition costs
of $2.9 million. As of December 27, 2008, approximately $35.6 million of the
purchase price was paid. The remaining liability of approximately $14.4 million
is included in Other Accrued Liabilities on the December 27, 2008 Consolidated
Balance Sheet. The acquisition was accounted for under the purchase method of
accounting. The results of operations for SANS have been included in the
Companys Consolidated Statements of Income since the date of acquisition, and
are reported in the Companys Test segment. Pro forma results have not been
included, since the impact of the acquisition was not material.

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

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

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

4. Capital Assets

Property and Equipment

Property and
equipment at December 27, 2008 and September 27, 2008 consist of the following:

|                               |  |                          |         |                     |   |         |  
|------------------------------ |  | ------------------------ | ------- | ------------------- | - | ------- | -
|                               |  | December 27,
 2008       |         | September 27,
 2008 |  
|                               |  | (expressed in thousands) |        
|Land                           |  | $                        | 2,808   |                     | $ | 1,668   |  
|Buildings
 and improvements    |  |                          | 51,129  |                     |   | 45,700  |  
|Machinery
 and equipment       |  |                          | 92,067  |                     |   | 91,851  |  
|                               |  |                          | 146,004 |                     |   | 139,219 |  
|Less
 accumulated depreciation |  |                          | (88,261 | )                   |   | (88,685 | )
|Property and
 equipment, net   |  | $                        | 57,743  |                     | $ | 50,534  |  

Goodwill

The changes to
the carrying amount of goodwill for the three-month periods ended December 27,
2008 and December 29, 2007 were as follows:

|                     |  |                          |        |                    |   |       | 
|-------------------- |  | ------------------------ | ------ | ------------------ | - | ----- | 
|                     |  | Three Months Ended       |       
|                     |  | December 27,
 2008       |        | December 29,
 2007 |  
|                     |  | (expressed in thousands) |       
|Beginning balance    |  | $                        | 1,668  |                    | $ | 1,642 | 
|Acquisition of SANS  |  |                          | 14,384 |                    |   |      | 
|Currency translation |  |                          | (265   | )                  |   | 35    | 
|Ending balance       |  | $                        | 15,787 |                    | $ | 1,677 | 

At December
27, 2008, $14.2 million and $1.6 million of goodwill was associated with the
Test and Sensors segments, respectively. At December 29, 2007, goodwill of $1.7
million was associated entirely with the Sensors segment.

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Other Intangible Assets

Other
intangible assets at December 27, 2008 and September 27, 2008 consist of the
following:

|                           |  |                          |        |                           |   |                     |   |                                            |        |  |  |      | 
|-------------------------- |  | ------------------------ | ------ | ------------------------- | - | ------------------- | - | ------------------------------------------ | ------ |  |  | ---- | 
|                           |  | December 27, 2008        |       
|                           |  | Gross Carrying
 Amount   |        | Accumulated
 Amortization |   | Net Carrying
 Value |   | Weighted
 Average
 Useful Life
 (in Years) |       
|                           |  | (expressed in thousands) |        |                           |   |                    
|Software development costs |  | $                        | 5,158  |                           | $ |                    |   | $                                          | 5,158  |  |  | 5.0  | 
|Patents                    |  |                          | 9,195  |                           |   | (163                | ) |                                            | 9,032  |  |  | 15.4 | 
|Trademarks and trade names |  |                          | 5,566  |                           |   | (273                | ) |                                            | 5,293  |  |  | 30.2 | 
|Non-compete agreements     |  |                          | 2,426  |                           |   | (202                | ) |                                            | 2,224  |  |  | 3.0  | 
|                           |  | $                        | 22,345 |                           | $ | (638                | ) | $                                          | 21,707 |  |  | 15.3 | 

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

Amortization
expense recognized during the three-month periods ended December 27, 2008 and
December 29, 2007 was $0.4 million and less than $0.1 million, respectively.
The estimated future amortization expense related to other intangible assets
for the next five fiscal years is as follows:

|                   |  |                          |        | 
|------------------ |  | ------------------------ | ------ | 
|Fiscal Year        |  | Amortization Expense     |       
|                   |  | (expressed in thousands) |       
|Remainder
 of 2009 |  | $                        | 2,007  | 
|2010               |  |                          | 2,675  | 
|2011               |  |                          | 2,675  | 
|2012               |  |                          | 1,865  | 
|2013               |  |                          | 1,865  | 
|                   |  | $                        | 11,087 | 

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

5. Earnings Per Common Share

Basic earnings
per share are computed by dividing net earnings by the daily weighted average
number of common shares outstanding during the applicable periods. Diluted
earnings per share include the potentially dilutive effect of common shares
issued in connection with outstanding stock-based compensation options and
grants, using the treasury stock method. Under the treasury stock method,
shares associated with certain stock options have been excluded from the
diluted weighted average shares outstanding calculation because the exercise of
those options would lead to a net reduction in common shares outstanding. As a
result, stock options to acquire 1.4 million and 0.4 million weighted common
shares have been excluded from diluted weighted shares outstanding for the
three-month periods ended December 27, 2008 and December 29, 2007,
respectively. The potentially dilutive effect of common shares issued in connection
with outstanding stock options is determined based on income before
discontinued operations. A reconciliation of these amounts is as follows:

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Table of Contents

|                                                 |  |                                                 |        |                    |   |        | 
|------------------------------------------------ |  | ----------------------------------------------- | ------ | ------------------ | - | ------ | 
|                                                 |  | Three Months Ended                              |       
|                                                 |  | December 27,
 2008                              |        | December 29,
 2007 |  
|                                                 |  | (expressed in thousands, except per share data) |       
|                                                 |  |                                                 |        |                    |   |        | 
|Income
 before discontinued operations           |  | $                                               | 9,751  |                    | $ | 8,181  | 
|Income from
 discontinued operations, net of tax |  |                                                 |       |                    |   | 175    | 
|Net income                                       |  | $                                               | 9,751  |                    | $ | 8,356  | 
|                                                 |  |                                                 |        |                    |   |        | 
|Weighted
 average common shares outstanding      |  |                                                 | 16,936 |                    |   | 17,693 | 
|Dilutive
 potential common shares                |  |                                                 | 53     |                    |   | 255    | 
|Total
 diluted weighted shares outstanding       |  |                                                 | 16,989 |                    |   | 17,948 | 
|                                                 |  |                                                 |        |                    |   |        | 
|Earnings per
 share:                             |  |                                                 |        |                    |   |        | 
|Basic-                                           |  |                                                 |        |                    |   |        | 
|Income before discontinued operations            |  | $                                               | 0.58   |                    | $ | 0.46   | 
|Income from discontinued operations, net of
 tax |  |                                                 |       |                    |   | 0.01   | 
|Earnings per share                               |  | $                                               | 0.58   |                    | $ | 0.47   | 
|                                                 |  |                                                 |        |                    |   |        | 
|Diluted -                                        |  |                                                 |        |                    |   |        | 
|Income before discontinued operations            |  | $                                               | 0.57   |                    | $ | 0.46   | 
|Income from discontinued operations, net of
 tax |  |                                                 |       |                    |   | 0.01   | 
|Earnings per share                               |  | $                                               | 0.57   |                    | $ | 0.47   | 

6. Business Segment Information

The Companys Chief
Executive Officer and management regularly review financial information for the
Companys three discrete operating units. Based on similarities in the economic
characteristics, nature of products and services, production processes, type or
class of customer served, method of distribution and regulatory environments,
the operating units have been aggregated for financial statement purposes and
categorized into two reportable segments: Test and Sensors. The Test
segment provides testing equipment, systems, and services to the ground
vehicles, aerospace, and infrastructure markets. The Sensors segment provides
high-performance position sensors for a variety of industrial and vehicular
applications.

The accounting policies of
the reportable segments are the same as those described in Note 1 to the Consolidated
Financial Statements found in the Companys Annual Report on Form 10-K for the
fiscal year ended September 27, 2008. In evaluating each segments performance,
management focuses on income from operations. This measure excludes interest
income and expense, income taxes and other non-operating items. Corporate
expenses, including costs associated with various support functions such as
human resources, information technology, finance and accounting, and general
and administrative costs, are allocated to the reportable segments primarily on
the basis of revenue.

Financial information by
reportable segment for the periods ended December 27, 2008 and December 29,
2007 was as follows:

|                                    |  |                          |         |                    |   |         | 
|----------------------------------- |  | ------------------------ | ------- | ------------------ | - | ------- | 
|                                    |  | Three Months Ended       |        
|                                    |  | December 27,
 2008       |         | December 29,
 2007 |  
|                                    |  | (expressed in thousands) |        
|Revenue
 by Segment:                |  |                          |         |                    |   |         | 
|Test                                |  | $                        | 97,208  |                    | $ | 84,209  | 
|Sensors                             |  |                          | 19,401  |                    |   | 23,183  | 
|Total revenue                       |  | $                        | 116,609 |                    | $ | 107,392 | 
|                                    |  |                          |         |                    |   |         | 
|Income
 from Operations by Segment: |  |                          |         |                    |   |         | 
|Test                                |  | $                        | 9,040   |                    | $ | 6,927   | 
|Sensors                             |  |                          | 2,899   |                    |   | 5,153   | 
|Total income from operations        |  | $                        | 11,939  |                    | $ | 12,080  | 

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Total assets by reportable
segment at December 27, 2008 and September 27, 2008 were as follows:

|                                 |  |                          |         |                     |   |         | 
|-------------------------------- |  | ------------------------ | ------- | ------------------- | - | ------- | 
|                                 |  | December 27,
 2008       |         | September 27,
 2008 |  
|                                 |  | (expressed in thousands) |        
|Identifiable
 Assets by Segment: |  |                          |         |                     |   |         | 
|Test                             |  | $                        | 324,314 |                     | $ | 301,346 | 
|Sensors                          |  |                          | 93,695  |                     |   | 97,431  | 
|Discontinued Operations          |  |                          | 156     |                     |   | 380     | 
|Total assets                     |  | $                        | 418,165 |                     | $ | 399,157 | 

7. Derivative Instruments and Hedging Activities

The Company uses interest
rate swaps, forward and option currency exchange contracts to manage risks
associated with foreign exchange and interest rate fluctuations. Because the
market value of these 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. Derivative contracts contain
credit risk to the extent that the Companys bank counterparties may be unable
to meet the terms of the agreements. Such risk is minimized by limiting those
counterparties to major financial institutions of high credit quality. For
derivative instruments executed under master netting arrangements, the Company
has the contractual right to offset fair value amounts recognized for the right
to reclaim cash collateral with obligations to return cash collateral. The
Company has made an accounting policy decision to not offset fair value amounts
recognized on these derivative instruments.

Foreign Currency Cash Flow Hedging

Currency exchange contracts
utilized to maintain the functional currency value of expected financial
transactions denominated in foreign currencies are designated as cash flow
hedges. Qualifying gains and losses related to changes in the market value of
the contracts are recorded in Accumulated Other Comprehensive Income within
Shareholders Investment on the Consolidated Balance Sheets until they are
recognized in revenue at the time a gain or loss is recognized on the
underlying expected transaction. The Company periodically assesses whether the
contracts are effective in offsetting the changes in the functional currency
value of the expected transactions. When a contract is no longer effective as a
hedge, the Company discontinues hedge accounting prospectively. Subsequent
changes in the market value of the contract are recognized in revenue on the
Consolidated Statement of Income for the current period.

At December 27, 2008 and
December 29, 2007, the Company had outstanding cash flow hedge currency
exchange contracts with gross notional U.S. dollar equivalent amounts of $46.3
million and $56.4 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 $22.7 million and $38.5 million
at December 27, 2008 and December 29, 2007, respectively. At December 27, 2008
the net market value of the foreign currency exchange contracts was a liability
of $1.9 million, consisting of $0.3 million in assets and $2.2 million in
liabilities. At December 29, 2007, the net market value of foreign currency
exchange contracts was a net liability of $0.4 million, consisting of $0.3
million in assets and $0.7 million in liabilities. 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-month periods ended December 27, 2008 and
December 29, 2007. At December 27, 2008 and December 29, 2007, the amount
projected to be reclassified from Accumulated Other Comprehensive Income into
earnings in the next 12 months was a net loss of $1.0 million and $0.6 million,
respectively. The maximum remaining maturity of any forward or optional
contract at December 27, 2008 and December 29, 2007 was 1.0 years and 1.3
years, respectively.

Foreign Currency Balance Sheet Hedging

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

At December 27, 2008 and
December 29, 2007, the Company had outstanding balance sheet hedge currency
exchange contracts with gross notional U.S. dollar equivalent amounts of $35.3
million and $45.3 million, respectively. Upon netting offsetting contracts by
counterparty banks to sell foreign currencies against contracts to purchase
foreign currencies, irrespective of contract maturity dates, the net notional
U.S. dollar equivalent amount of contracts outstanding was $12.9 million at
December 27, 2008 and $2.3 million at December 29, 2007. At December 27, 2008, the net market value of the
balance sheet foreign currency exchange contracts was a net liability of $0.3
million, consisting of $0.1 million in assets and $0.4 million in liabilities.
On December 29, 2007, the net market value of the balance sheet forward
exchange contracts was a liability of $0.3 million, consisting of $0.3 million
in liabilities with a less than $0.1 million in offsetting assets.

13

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Table of Contents

Interest Rate Swaps

The Company also uses
floating to fixed interest rate swaps to mitigate its exposure to changes in
interest rates related to a portion of its floating rate indebtedness. The
Company has designated these interest rate swaps as cash flow hedges. As a
result, changes in the fair value of the interest rate swap are recorded in
Accumulated Other Comprehensive Income within Shareholders Investment on the
Consolidated Balance Sheets.

At December 27, 2008, the
Company had outstanding interest rate swaps with total notional amounts of
$40.0 million, which equals the amount of outstanding credit facility
borrowings as of that date. Every month, the Company pays fixed interest on
these interest rate swaps in exchange for interest received at monthly U.S.
LIBOR. At December 27, 2008, 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
December 27, 2008, 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 December 27, 2008 was a liability of $2.1 million.

8. Fair Value Measurements

SFAS No. 157 Adoption

Effective September 28, 2008,
the Company adopted the provisions of SFAS No. 157, Fair Value Measurements.
SFAS No. 157 provides a framework for measuring fair value under GAAP, and
defines fair value as the price that would be received to sell an asset, or
paid to transfer a liability, in an orderly transaction between market
participants at the measurement date (exit price). SFAS 157 clarifies that a
fair value measurement should include an adjustment for risk, if market
participants would include a risk adjustment in pricing the related asset or
liability. In determining the fair value of financial assets and liabilities,
the Company currently utilizes market data or other assumptions that it
believes market participants would use in pricing the asset or liability, and
adjusts for non-performance and/or other risk, as appropriate.

SFAS No. 157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value into three broad levels. The three levels of the fair
value hierarchy are as follows:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

14

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Table of Contents

Financial Instruments Measured at Fair Value on a Recurring
Basis

As of December 27, 2008, financial assets and
liabilities subject to fair value measurements on a recurring basis are as
follows:

|                        |  |                          |   |         |   |         |  |       |   |  |   |       | 
|----------------------- |  | ------------------------ | - | ------- | - | ------- |  | ----- | - |  | - | ----- | 
|                        |  | Level 1                  |   | Level 2 |   | Level 3 |  | Total |  
|                        |  | (expressed in thousands) |  
|Assets:                 |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Derivative contracts(1) |  | $                        |  |         | $ | 420     |  | $     |  |  | $ | 420   | 
|Total assets            |  | $                        |  |         | $ | 420     |  | $     |  |  | $ | 420   | 
|                        |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Liabilities:            |  |                          |   |         |   |         |  |       |   |  |   |       | 
|Derivative contracts(1) |  | $                        |  |         | $ | 2,588   |  | $     |  |  | $ | 2,588 | 
|Interest rate swaps(2)  |  |                          |   |         |   | 2,111   |  |       |  |  |   | 2,111 | 
|Total liabilities       |  | $                        |  |         | $ | 4,699   |  | $     |  |  | $ | 4,699 | 

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

Financial Instruments not Measured at Fair Value

Certain of the Companys
financial instruments are not measured at fair value but nevertheless are
recorded at carrying amounts approximating fair value, based on their
short-term nature or variable interest rate. These financial instruments
include cash and cash equivalents, accounts receivable, accounts payable and
short-term borrowings. The Company believes that the fair value of its
fixed-rate long-term debt at December 27, 2008 approximates its carrying value,
based on consideration of the Companys current borrowing rates as well as the
short-term nature of its maturity.

SFAS No. 159 Adoption

Effective September 28,
2008, the Company adopted the provisions of SFAS No. 159, The Fair Value
Option for Financial Assts and Financial Liabilities  Including an Amendment
of SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. SFAS No. 159 provides an option to elect fair value as an
alternative measurement for selected financial assets and liabilities not previously
carried at fair value. Upon adoption of SFAS No. 159, the Company evaluated its
existing eligible financial assets and liabilities and determined that the risk
of volatility in earnings, which could result from underlying changes in the
fair values of those assets and liabilities, was not significant. As a result,
the Company did not elect to apply the fair value provisions to any of them.
However, because the election to apply the provisions of SFAS No. 159 is
determined on an instrument-by-instrument basis, the Company may elect the fair
value measurement option on future eligible financial assets and liabilities.

9. Comprehensive Income

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

Comprehensive Income for the
periods ended December 27, 2008 and December 29, 2007 was as follows:

|                                                      |  |                          |        |                    |   |        |  
|----------------------------------------------------- |  | ------------------------ | ------ | ------------------ | - | ------ | -
|                                                      |  | Three Months Ended       |       
|                                                      |  | December 27,
 2008       |        | December 29,
 2007 |  
|                                                      |  | (expressed in thousands) |       
|                                                      |  |                          |        |                    |   |        |  
|Net income                                            |  | $                        | 9,751  |                    | $ | 8,356  |  
|Change in cumulative
 translation adjustment          |  |                          | (3,011 | )                  |   | 3,344  |  
|Pension benefit plan
 adjustments                     |  |                          | 138    |                    |   | (154   | )
|Decrease in unrealized loss on derivative instruments |  |                          | (2,078 | )                  |   | (101   | )
|                                                      |  | $                        | 4,800  |                    | $ | 11,445 |  

15

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Table of Contents

10. Financing

During the
three-month period ended December 27, 2008, the Company borrowed $16.0 million
under its credit facility. At December 27, 2008, outstanding borrowings under
the credit facility were $40.0 million. In order to mitigate its exposure to
interest rate increases on its floating rate indebtedness, the Company has
entered into floating to fixed interest rate swap agreements. At December 27,
2008, under the terms of the credit facility borrowings and interest rate swap
agreements, the effective weighted average fixed interest rate applicable to
outstanding credit facility borrowings was 3.76%. See Note 7 in the Condensed
Notes to Consolidated Financial Statements for additional information on the
interest rate swaps.

Short-term
borrowings at December 27, 2008 and September 27, 2008 consist of the
following:

|                                                                                                                                                                                                           |  |                          |        |                     |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ------------------- | - | ------ | 
|                                                                                                                                                                                                           |  | December 27,
 2008       |        | September 27,
 2008 |  
|                                                                                                                                                                                                           |  | (expressed in thousands) |       
|                                                                                                                                                                                                          
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (2.39%
 rate in effect at December 27, 2008), maturing January 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  | $                        | 11,000 |                     | $ | 11,000 | 
|                                                                                                                                                                                                          
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (1.89%
 rate in effect at December 27, 2008), maturing January 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                          | 13,000 |                     |   | 13,000 | 
|                                                                                                                                                                                                          
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (1.08%
 rate in effect at December 27, 2008), maturing January 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                          | 6,000  |                     |   |       | 
|                                                                                                                                                                                                          
|Bank line of credit, monthly U.S. LIBOR plus 45 basis points (1.89%
 rate in effect at December 27, 2008), maturing January 2009, with optional
 month-to-month term renewal and loan repricing until 2012 |  |                          | 10,000 |                     |   |       | 
|                                                                                                                                                                                                          
|Notes payable, non-interest bearing                                                                                                                                                                        |  |                          | 384    |                     |   | 338    | 
|Total short-term borrowings                                                                                                                                                                                |  | $                        | 40,384 |                     | $ | 24,338 | 

11. Income Taxes

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

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

12. Retirement Benefit Plan

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

16

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Table of Contents

The cost for
the plan for the periods ended December 27, 2008 and December 29, 2007 included
the following components:

|                                |  |                          |      |                    |   |     | 
|------------------------------- |  | ------------------------ | ---- | ------------------ | - | --- | 
|                                |  | Three Months Ended       |     
|                                |  | December 27,
 2008       |      | December 29,
 2007 |  
|                                |  | (expressed in thousands) |     
|                                |  |                          |     
|Service cost                    |  | $                        | 98   |                    | $ | 133 | 
|Interest cost                   |  |                          | 187  |                    |   | 179 | 
|Expected return on plan
 assets |  |                          | (172 | )                  |   |    | 
|Net amortization and
 deferral  |  |                          | 3    |                    |   | 8   | 
|Net periodic benefit cost       |  | $                        | 116  |                    | $ | 320 | 

17

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Table of Contents

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

Forward-Looking Statements

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

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

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

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

About MTS Systems Corporation

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

18

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Table of Contents

Summary of Financial Results

Three Months Ended December 27, 2008 (First
Quarter of Fiscal 2009) Compared to Three Months Ended December 29, 2007
(First Quarter of Fiscal 2008)

Highlights for
the First Quarter of Fiscal 2009 include:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On September
 28, 2008 the Company acquired substantially all of the assets of SANS Group
 (SANS) for $50.0 million. SANS has manufacturing facilities in both
 Shenzhen and Shanghai, China, and is headquartered in Shenzhen. SANS
 manufactures material testing solutions and offers a variety of products,
 including electro-mechanical and static-hydraulic testing machines. The
 results of operations for SANS have been included in the Companys results of
 operations since the date of the acquisition, and are reported in the Companys
 Test segment. Orders for SANS for the First Quarter of Fiscal 2009 were $5.5
 million. SANS reported a $2.3 million loss from operations during the First
 Quarter of Fiscal 2009, on $3.3 million of revenue, driven by reduced gross
 profit and increased operating expenses associated with acquisition-related
 items.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Orders for
 the First Quarter of Fiscal 2009 decreased 22.8% to $95.3 million, compared
 to $123.5 million for the First Quarter of Fiscal 2008, as worldwide economic
 decline had a negative impact on both the Test and Sensors segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Revenue for
 the First Quarter of Fiscal 2009 increased 8.6% to $116.6 million, compared
 to $107.4 million in the First Quarter of Fiscal 2008. This increase was
 primarily due to a 15.3% increase in the organic Test business, driven by
 higher opening backlog, and a 3.0% benefit from SANS, partially offset by a
 14.3% decline in the Sensors segment and a 3.4% unfavorable impact of
 currency translation.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Income from
 operations for the First Quarter of Fiscal 2009 was relatively flat at $11.9
 million, compared to $12.1 million for the First Quarter of Fiscal 2008, as
 the unfavorable impact of the volume decline in the Sensors segment, as well
 as a $2.3 million operating loss from SANS, more than offset increased volume
 and reduced operating expenses in the organic Test business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | The
 effective tax rate for the First Quarter of Fiscal 2009 was 24.1%, a decrease
 of 11.0 percentage points compared to a tax rate of 35.1% for the First
 Quarter of Fiscal 2008. This decrease was primarily due to legislation
 enacted in the First Quarter of Fiscal 2009 that extended U.S. R&D
 credits, with an effective date that is retroactive to January 1, 2008. The
 R&D credits provided a tax benefit of $1.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Earnings per
 diluted share for the First Quarter of Fiscal 2009 increased $0.10, or 21.3%,
 to $0.57, compared to $0.47 for the First Quarter of Fiscal 2008. A lower tax
 rate, as well reduced shares outstanding in the First Quarter of Fiscal 2009
 favorably impacted earnings per diluted share by $0.08 and $0.03,
 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Cash and
 cash equivalents at the end of the First Quarter of Fiscal 2009 totaled
 $104.8 million, compared to $114.1 million at the end of the First Quarter of
 Fiscal 2008. Cash flows from operations generated $5.5 million. During the
 First Quarter of Fiscal 2009, the Company borrowed $16.0 million from its
 credit facility, paid an additional $18.9 million for the acquisition of
 SANS, invested $3.0 million in capital expenditures, and purchased 120,100
 shares of common stock for $3.6 million.                                                                                                                                                                                                                                                                                                                                                                

Detailed Financial Results

Orders and Backlog

First Quarter of Fiscal 2009 Compared to
First Quarter of Fiscal 2008

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

|       |  |                                         |       |                           |   |                   |   |                       |     |                                         |   |      |   |   |      | 
|------ |  | --------------------------------------- | ----- | ------------------------- | - | ----------------- | - | --------------------- | --- | --------------------------------------- | - | ---- | - | - | ---- | 
|       |  | Three Months
 Ended
 December 29,
 2007 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |     | Three Months
 Ended
 December 27,
 2008 |  
|Orders |  | $                                       | 123.5 |                           | $ | (31.9             | ) | $                     | 5.5 |                                         | $ | (1.8 | ) | $ | 95.3 | 

19

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Table of Contents

Orders for the
First Quarter of Fiscal 2009 totaled $95.3 million, a decrease of $28.2
million, or 22.8%, compared to orders of $123.5 million for the First Quarter
of Fiscal 2008. This decrease is primarily due to lower order volume in both
the organic Test business and Sensors segment across all geographies, partially
offset by a $5.5 million increase from SANS. Orders from international
customers for the First Quarter of Fiscal 2009 represented 65.5% of total
orders, compared to 60.4% for the First Quarter of Fiscal 2008.

Backlog of
undelivered orders at the end of the First Quarter of Fiscal 2009, was $218.4
million, a decrease of 6.9% from backlog of $234.7 million at September 27,
2008. Backlog at the end of the First Quarter of Fiscal 2009 included $10.8
million from SANS. Backlog at the end of the First Quarter of Fiscal 2008 was
$227.5 million. During the First Quarter of Fiscal 2009, the Company
experienced one order cancellation in the Test segment approximating $3.0
million. The
Company seldom experiences order cancellations larger than $1.0 million,
however, economic conditions could have an adverse impact on future order
cancellations.

Results of Operations

First Quarter of Fiscal 2009 Compared to
First Quarter of Fiscal 2008

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

|                                                        |  |                    |       |                    |   |          |   |            |      |   |       |   | 
|------------------------------------------------------- |  | ------------------ | ----- | ------------------ | - | -------- | - | ---------- | ---- | - | ----- | - | 
|                                                        |  | Three Months Ended |       |                    |   |          |  
|                                                        |  | December 27,
 2008 |       | December 29,
 2007 |   | Variance |   | % Variance |     
|Revenue                                                 |  | $                  | 116.6 |                    | $ | 107.4    |   | $          | 9.2  |   | 8.6   | % | 
|Cost of sales                                           |  |                    | 72.4  |                    |   | 64.2     |   |            | 8.2  |   | 12.8  | % | 
|Gross profit                                            |  |                    | 44.2  |                    |   | 43.2     |   |            | 1.0  |   | 2.3   | % | 
|Gross margin                                            |  |                    | 37.9  | %                  |   | 40.2     | % |            | -2.3 | % |       |   | 
|Operating expenses:                                     |  |                    |       |                    |   |          |   |            |      |   |       |   | 
|Selling and marketing                                   |  |                    | 19.1  |                    |   | 19.0     |   |            | 0.1  |   | 0.5   | % | 
|General administrative                                  |  |                    | 9.9   |                    |   | 8.1      |   |            | 1.8  |   | 22.2  | % | 
|Research and development                                |  |                    | 3.3   |                    |   | 4.0      |   |            | (0.7 | ) | -17.5 | % | 
|Total operating expenses                                |  |                    | 32.3  |                    |   | 31.1     |   |            | 1.2  |   | 3.9   | % | 
|Income from operations                                  |  |                    | 11.9  |                    |   | 12.1     |   |            | (0.2 | ) | -1.7  | % | 
|Interest expense                                        |  |                    | (0.5  | )                  |   | (0.3     | ) |            | (0.2 | ) | 66.7  | % | 
|Interest income                                         |  |                    | 0.5   |                    |   | 0.9      |   |            | (0.4 | ) | -44.4 | % | 
|Other income (expense), net                             |  |                    | 1.0   |                    |   | (0.1     | ) |            | 1.1  |   | NM    |  
|Income before income taxes
 and discontinued operations |  |                    | 12.9  |                    |   | 12.6     |   |            | 0.3  |   | 2.4   | % | 
|Provision for income taxes                              |  |                    | 3.1   |                    |   | 4.4      |   |            | (1.3 | ) | -29.5 | % | 
|Income before discontinued
 operations                  |  |                    | 9.8   |                    |   | 8.2      |   |            | 1.6  |   | 19.5  | % | 
|Income from discontinued
 operations, net of tax        |  |                    |      |                    |   | 0.2      |   |            | (0.2 | ) | NM    |  
|Net income                                              |  | $                  | 9.8   |                    | $ | 8.4      |   | $          | 1.4  |   | 16.7  | % | 
|Diluted earnings per share                              |  | $                  | 0.57  |                    | $ | 0.47     |   |            | 0.10 |   | 21.3  | % | 

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

20

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Table of Contents

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

|                               |  |                                         |       |                           |   |                   |   |                       |      |                                         |   |      |   |   |       |  
|------------------------------ |  | --------------------------------------- | ----- | ------------------------- | - | ----------------- | - | --------------------- | ---- | --------------------------------------- | - | ---- | - | - | ----- | -
|                               |  | Three Months
 Ended
 December 29,
 2007 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Three Months
 Ended
 December 27,
 2008 |  
|Revenue                        |  | $                                       | 107.4 |                           | $ | 9.5               |   | $                     | 3.3  |                                         | $ | (3.6 | ) | $ | 116.6 |  
|Cost of sales                  |  |                                         | 64.2  |                           |   | 8.3               |   |                       | 2.6  |                                         |   | (2.7 | ) |   | 72.4  |  
|Gross profit                   |  |                                         | 43.2  |                           |   | 1.2               |   |                       | 0.7  |                                         |   | (0.9 | ) |   | 44.2  |  
|                               |  |                                         | 40.2  | %                         |   |                   |   |                       | 21.2 | %                                       |   |      |   |   | 37.9  | %
|Operating expenses:            |  |                                         |       |                           |   |                   |   |                       |      |                                         |   |      |   |   |       |  
|Selling and marketing          |  |                                         | 19.0  |                           |   | (0.4              | ) |                       | 1.0  |                                         |   | (0.5 | ) |   | 19.1  |  
|General administrative         |  |                                         | 8.1   |                           |   | (0.2              | ) |                       | 2.0  |                                         |   |     |   |   | 9.9   |  
|Research and development       |  |                                         | 4.0   |                           |   | (0.7              | ) |                       |     |                                         |   |     |   |   | 3.3   |  
|Total operating expenses       |  |                                         | 31.1  |                           |   | (1.3              | ) |                       | 3.0  |                                         |   | (0.5 | ) |   | 32.3  |  
|Income (loss) from
 operations |  | $                                       | 12.1  |                           | $ | 2.5               |   | $                     | (2.3 | )                                       | $ | (0.4 | ) | $ | 11.9  |  

Revenue for the
First Quarter of Fiscal 2009 was $116.6 million, an increase of $9.2 million,
or 8.6%, compared to revenue of $107.4 million for the First Quarter of Fiscal
2008. This increase was primarily driven by higher opening backlog in the
organic Test business, as well as $3.3 million from SANS, partially offset by
lower volume in the Sensors segment, and an estimated $3.6 million unfavorable
impact of currency translation. Revenue from international customers for the
First Quarter of Fiscal 2009 represented 65.1% of total revenue, compared to
65.8% for the First Quarter of Fiscal 2008.

Gross profit for the
First Quarter of Fiscal 2009 was $44.2 million, an increase of $1.0 million, or
2.3%, compared to gross profit of $43.2 million for the First Quarter of Fiscal
2008. Gross profit as a percentage of revenue for the First Quarter of Fiscal
2009 was 37.9%, a decrease of 2.3 percentage points from 40.2% for the First
Quarter of Fiscal 2008. This decrease was primarily due to the volume decline
in the Sensors segment, as well as unfavorable product mix in the organic Test
business. In addition, SANS negatively impacted gross profit by 0.5 percentage
points in the First Quarter of Fiscal 2009, primarily due to the sale of
inventory that was written up to fair value as part of the acquisition.

Selling and marketing expense
for the First Quarter of Fiscal 2009 was $19.1 million, relatively flat
compared to $19.0 million for the First Quarter of Fiscal 2008, as a $1.0
million increase from SANS was substantially offset by reduced commission
payments in the organic Test business. Selling and marketing expense as a
percentage of revenue for the First Quarter of Fiscal 2009 was 16.4%, compared
to 17.7% for the First Quarter of Fiscal 2008.

General and administrative expense
for the First Quarter of Fiscal 2009 was $9.9 million, an increase of $1.8
million, or 22.2%, compared to $8.1 million for the First Quarter of Fiscal
2008. This increase was primarily driven by SANS, as well as increased
compensation and benefit payments in the Sensors segment, partially offset by
net reduced legal and other professional fees in the organic Test business,.
General and administrative expense as a percentage of revenue for the First
Quarter of Fiscal 2009 was 8.5%, compared to 7.5% for the First Quarter of
Fiscal 2008.

Research and development expense
for the First Quarter of Fiscal 2009 was $3.3 million, a decrease of $0.7
million, or 17.5%, compared to $4.0 million for the First Quarter of Fiscal
2008. The decrease was due to a temporary reallocation of resources towards
other operating initiatives in the organic Test business, as well as reduced
spending in the Sensors segment. Research and development expense as a
percentage of revenue for the First Quarter of Fiscal 2009 was 2.8%, compared
to 3.7% for the First Quarter of Fiscal 2008.

Income from operations
for the First Quarter of Fiscal 2009 was $11.9 million, relatively flat
compared to income from operations of $12.1 million for the First Quarter of
Fiscal 2008, as increased gross profit and reduced operating expenses in the
organic Test business were substantially offset by lower gross profit in the
Sensors segment, and a $2.3 million operating loss from SANS. Operating income
as a percentage of revenue for the First Quarter of Fiscal 2009 was 10.2%,
compared to 11.3% for the First Quarter of Fiscal 2008.

Interest expensewas
$0.5 million for the First Quarter of Fiscal 2009, an increase of $0.2 million
compared to $0.3 million for the First Quarter of Fiscal 2008, as the interest
expense incurred on the higher level of short-term borrowings was substantially
offset by a reduction in fixed-rate long-term debt.

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Interest income was
$0.5 million for the First Quarter of Fiscal 2009, a decrease of $0.4 million
compared to $0.9 million for the First Quarter of Fiscal 2008, due to lower
interest rates applied to lower average cash and cash equivalents balances in
the First Quarter of Fiscal 2009 compared to the First Quarter of Fiscal 2008.

Other income (expense), net
was $1.0 million of net other income for the First Quarter of Fiscal 2009, an
increase of $1.1 million compared to $0.1 million of net other expense in the
First Quarter of Fiscal 2008. This increase in net other income was primarily
due to net gains on foreign currency transactions in the First Quarter of
Fiscal 2009.

Provision for income taxes
totaled $3.1 million for the First Quarter of Fiscal 2009, a decrease of $1.3
million, or 29.5%, compared to $4.4 million for the First Quarter of Fiscal
2008, primarily due to a lower effective tax rate. The effective tax rate for
the First Quarter of Fiscal 2009 was 24.1%, a decrease of 11.0 percentage
points compared to a tax rate of 35.1% for the First Quarter of Fiscal 2008.
This decrease was primarily due to legislation enacted in the First Quarter of
Fiscal 2009 that extended U.S. R&D credits, with an effective date that was
retroactive to January 1, 2008.

Net income was $9.8
million for the First Quarter of Fiscal 2009, an increase of $1.4 million, or
16.7%, compared to $8.4 million for the First Quarter of Fiscal 2008. The
increase in net income was primarily driven by a decreased income tax and
favorable gains on foreign currency transactions.

The reduction
in number of shares outstanding, resulting from the Companys share purchases,
positively impacted earnings per share by $0.03 for the First Quarter of Fiscal
2009.

Segment Results

Test Segment

Orders and Backlog

First Quarter of Fiscal 2009 Compared to
First Quarter of Fiscal 2008

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

|       |  |                                         |       |                           |   |                   |   |                       |     |                                         |   |      |   |   |      | 
|------ |  | --------------------------------------- | ----- | ------------------------- | - | ----------------- | - | --------------------- | --- | --------------------------------------- | - | ---- | - | - | ---- | 
|       |  | Three Months
 Ended
 December 29,
 2007 |       | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |     | Three Months
 Ended
 December 27,
 2008 |  
|Orders |  | $                                       | 101.2 |                           | $ | (28.4             | ) | $                     | 5.5 |                                         | $ | (1.3 | ) | $ | 77.0 | 

Orders for the First
Quarter of Fiscal 2009 totaled $77.0 million, a decrease of $24.2 million, or
23.9%, compared to orders of $101.2 million for the First Quarter of Fiscal
2008, primarily due to lower volume in the organic business across all
geographies resulting from an overall weakening of the global economy,
partially offset by $5.5 million from SANS. First Quarter of Fiscal 2008 orders
included one large custom order for approximately $6.6 million. The Test
segment accounted for 80.8% of total Company orders for the First Quarter of
Fiscal 2009, compared to 81.9% for the First Quarter of Fiscal 2008. Orders
from international customers for the First Quarter of Fiscal 2009 represented
64.2% of total orders, compared to 57.4% for the First Quarter of Fiscal 2008.

Backlog of
undelivered orders at the end of the First Quarter of Fiscal 2009 was $207.9
million, a decrease of 6.7% from backlog of $222.8 million at September 27,
2008. Backlog at the end of the First Quarter of Fiscal 2009 included $10.8
million from SANS. Backlog at the end of the First Quarter of Fiscal Year 2008
was $215.8 million.

Results of Operations

First Quarter of Fiscal 2009 Compared to
First Quarter of Fiscal 2008

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

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|                               |  |                                         |      |                           |   |                   |   |                       |      |                                         |   |      |   |   |      |  
|------------------------------ |  | --------------------------------------- | ---- | ------------------------- | - | ----------------- | - | --------------------- | ---- | --------------------------------------- | - | ---- | - | - | ---- | -
|                               |  | Three Months
 Ended
 December 29,
 2007 |      | Organic
 Business
 Change |   | SANS
 Acquisition |   | Currency
 Translation |      | Three Months
 Ended
 December 27,
 2008 |  
|Revenue                        |  | $                                       | 84.2 |                           | $ | 12.8              |   | $                     | 3.3  |                                         | $ | (3.1 | ) | $ | 97.2 |  
|Cost of sales                  |  |                                         | 54.2 |                           |   | 9.6               |   |                       | 2.6  |                                         |   | (2.5 | ) |   | 63.9 |  
|Gross profit                   |  |                                         | 30.0 |                           |   | 3.2               |   |                       | 0.7  |                                         |   | (0.6 | ) |   | 33.3 |  
|                               |  |                                         | 35.6 | %                         |   |                   |   |                       | 21.2 | %                                       |   |      |   |   | 34.3 | %
|Operating expenses:            |  |                                         |      |                           |   |                   |   |                       |      |                                         |   |      |   |   |      |  
|Selling and marketing          |  |                                         | 14.8 |                           |   | (0.6              | ) |                       | 1.0  |                                         |   | (0.4 | ) |   | 14.8 |  
|General administrative         |  |                                         | 5.6  |                           |   | (0.3              | ) |                       | 2.0  |                                         |   |     |   |   | 7.3  |  
|Research and development       |  |                                         | 2.7  |                           |   | (0.5              | ) |                       |     |                                         |   |     |   |   | 2.2  |  
|Total operating expenses       |  |                                         | 23.1 |                           |   | (1.4              | ) |                       | 3.0  |                                         |   | (0.4 | ) |   | 24.3 |  
|Income (loss) from
 operations |  | $                                       | 6.9  |                           | $ | 4.6               |   | $                     | (2.3 | )                                       | $ | (0.2 | ) | $ | 9.0  |  

Revenue for the
First Quarter of Fiscal 2009 was $97.2 million, an increase of $13.0 million,
or 15.4%, compared to revenue of $84.2 million for the First Quarter of Fiscal
2008. This increase was primarily driven by higher opening backlog in the
organic business, as well as $3.3 million from SANS, partially offset by an
estimated $3.1 million unfavorable impact of currency translation. Revenue from
international customers for the First Quarter of Fiscal 2009 represented 64.0%
of total revenue, compared to 63.9% for the First Quarter of Fiscal 2008.

Gross profit for the
First Quarter of Fiscal 2009 was $33.3 million, an increase of $3.3 million, or
11.0%, compared to gross profit of $30.0 million for the First Quarter of
Fiscal 2008. Gross profit as a percentage of revenue for the First Quarter of
Fiscal 2009 was 34.3%, a decrease of 1.3 percentage points from 35.6% for the
First Quarter of Fiscal 2008. This decease was primarily due to a higher mix of
lower-margin custom projects and higher material costs, particularly steel and
aluminum, in the organic business. In addition, SANS negatively impacted gross
profit by 0.5 percentage points in the First Quarter of Fiscal 2009.

Selling and marketing expense
for the First Quarter of Fiscal 2009 was $14.8 million, flat compared to the
First Quarter of Fiscal 2008, as a $1.0 million increase from SANS was offset
by reduced commission payments in the organic business. Selling and
marketing expense as a percentage of revenue for the First Quarter of Fiscal
2009 was 15.2%, compared to 17.6% for the First Quarter of Fiscal 2008.

General and administrative expense
for the First Quarter of Fiscal 2009 was $7.3 million, an increase of $1.7
million, or 30.4%, compared to $5.6 million for the First Quarter of Fiscal
2008. This increase was primarily due to SANS, partially offset by a net reduction
in legal and other professional fees in the organic business. General and
administrative expense as a percentage of revenue for the First Quarter of
Fiscal 2009 was 7.5%, compared to 6.7% for the First Quarter of Fiscal 2008.

Research and development expense
for the First Quarter of Fiscal 2009 was $2.2 million, a decrease of $0.5
million, or 18.5%, compared to $2.7 million for the First Quarter of Fiscal
2008. The decrease was due to a temporary reallocation of resources towards
other operating initiatives. Research and development expense as a percentage
of revenue for the First Quarter of Fiscal 2009 was 2.3%, compared to 3.2% for
the First Quarter of Fiscal 2008.

Income from operations
for the First Quarter of Fiscal 2009 was $9.0 million, an increase of $2.1
million, or 30.4%, compared to income from operations of $6.9 million for the
First Quarter of Fiscal 2008. This increase in primarily due to increased gross
profit and reduced operating expenses in the organic business, partially offset
by a $2.3 million operating loss from SANS. Operating income as a percentage of
revenue for the First Quarter of Fiscal 2009 was 9.3%, compared to 8.2% for the
First Quarter of Fiscal 2008.

SANS Acquisition

Orders and
revenue for the First Quarter of Fiscal 2009 were $5.5 million and $3.3
million, respectively. Gross profit as a percentage of revenue for the First
Quarter of Fiscal 2009 was 21.2%. Gross profit includes a $0.8 million
reduction associated with the sale of inventory that was written up to fair value as part of the acquisition, which
negatively impacted the gross margin rate by 24.2%. Loss from
operations for the First Quarter of Fiscal 2009 was $2.3 million, driven by
reduced gross profit and increased operating expenses associated with
integration costs.

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Table of Contents

Sensors Segment

Orders and Backlog

First Quarter of Fiscal 2009 Compared to
First Quarter of Fiscal 2008

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

|       |  |                                         |      |                           |   |                       |   |                                         |      |   |   |      | 
|------ |  | --------------------------------------- | ---- | ------------------------- | - | --------------------- | - | --------------------------------------- | ---- | - | - | ---- | 
|       |  | Three Months
 Ended
 December 29,
 2007 |      | Organic
 Business
 Change |   | Currency
 Translation |   | Three Months
 Ended
 December 27,
 2008 |     
|Orders |  | $                                       | 22.3 |                           | $ | (3.5                  | ) | $                                       | (0.5 | ) | $ | 18.3 | 

Orders for the First
Quarter of Fiscal 2009 totaled $18.3 million, a decrease of $4.0 million, or
17.9%, compared to orders of $22.3 million for the First Quarter of Fiscal
2008, primarily due to lower volume across all geographies resulting from
overall weakening of the global economy. The Sensors segment accounted for 19.2%
of total Company orders for the First Quarter of Fiscal 2009, compared to 18.1%
for the First Quarter of Fiscal 2008. Orders from international customers for
the First Quarter of Fiscal 2009 represented 71.0% of total orders, compared to
74.0% for the First Quarter of Fiscal 2008.

Backlog of
undelivered orders at the end of the First Quarter of Fiscal 2009 was $10.5
million, a decrease of 11.8% from backlog of $11.9 million at September 27,
2008. Backlog at the end of the First Quarter of Fiscal Year 2008 was $11.7
million.

Results of Operations

First Quarter of Fiscal 2009 Compared to
First Quarter of Fiscal 2008

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

|                               |  |                                         |      |                           |   |                       |   |                                         |      |   |   |      |  
|------------------------------ |  | --------------------------------------- | ---- | ------------------------- | - | --------------------- | - | --------------------------------------- | ---- | - | - | ---- | -
|                               |  | Three Months
 Ended
 December 29,
 2007 |      | Organic
 Business
 Change |   | Currency
 Translation |   | Three Months
 Ended
 December 27,
 2008 |     
|Revenue                        |  | $                                       | 23.2 |                           | $ | (3.3                  | ) | $                                       | (0.5 | ) | $ | 19.4 |  
|Cost of sales                  |  |                                         | 10.0 |                           |   | (1.3                  | ) |                                         | (0.2 | ) |   | 8.5  |  
|Gross profit                   |  |                                         | 13.2 |                           |   | (2.0                  | ) |                                         | (0.3 | ) |   | 10.9 |  
|                               |  |                                         | 56.9 | %                         |   |                       |   |                                         |      |   |   | 56.4 | %
|Operating expenses:            |  |                                         |      |                           |   |                       |   |                                         |      |   |   |      |  
|Selling and marketing          |  |                                         | 4.2  |                           |   | 0.2                   |   |                                         | (0.1 | ) |   | 4.3  |  
|General administrative         |  |                                         | 2.5  |                           |   | 0.1                   |   |                                         |     |   |   | 2.6  |  
|Research and development       |  |                                         | 1.3  |                           |   | (0.2                  | ) |                                         |     |   |   | 1.1  |  
|Total operating expenses       |  |                                         | 8.0  |                           |   | 0.1                   |   |                                         | (0.1 | ) |   | 8.0  |  
|                               |  |                                         |      |                           |   |                       |   |                                         |      |   |   |      |  
|Income (loss) from
 operations |  | $                                       | 5.2  |                           | $ | (2.1                  | ) | $                                       | (0.2 | ) | $ | 2.9  |  

24

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Table of Contents

Revenue for the
First Quarter of Fiscal 2009 was $19.4 million, a decrease of $3.8 million, or
16.4%, compared to revenue of $23.2 million for the First Quarter of Fiscal
2008. This decrease was primarily driven by reduced worldwide volume. Revenue
from international customers for the First Quarter of Fiscal 2009 represented
70.6% of total revenue, compared to 72.9% for the First Quarter of Fiscal 2008.

Gross profit for the
First Quarter of Fiscal 2009 was $10.9 million, a decrease of $2.3 million, or
17.4%, compared to gross profit of $13.2 million for the First Quarter of
Fiscal 2008. Gross profit as a percentage of revenue for the First Quarter of
Fiscal 2009 was 56.4%, a decrease of 0.5 percentage points from 56.9% for the
First Quarter of Fiscal 2008. This decrease was primarily due to reduced
volume, partially offset by favorable product mix.

Selling and marketing expense
for the First Quarter of Fiscal 2009 was $4.3 million, relatively flat compared
to the First Quarter of Fiscal 2008. The slight increase is primarily due to
higher compensation and benefit payments. Selling and marketing expense as a
percentage of revenue for the First Quarter of Fiscal 2009 was 22.2%, compared
to 18.1% for the First Quarter of Fiscal 2008.

General and administrative expense
for the First Quarter of Fiscal 2009 was $2.6 million, relatively flat compared
to the First Quarter of Fiscal 2008. General and administrative expense as a
percentage of revenue for the First Quarter of Fiscal 2009 was 13.4%, compared
to 10.8% for the First Quarter of Fiscal 2008.

Research and development expense
for the First Quarter of Fiscal 2009 was $1.1 million, a decrease of $0.2
million, or 15.4%, compared to $1.3 million for the First Quarter of Fiscal
2008. The decrease was due to reduced spending. Research and development
expense as a percentage of revenue for the First Quarter of Fiscal 2009 was
5.7%, relatively flat compared to the First Quarter of Fiscal 2008.

Income from operations
for the First Quarter of Fiscal 2009 was $2.9 million, a decrease of $2.3
million, or 44.2%, compared to income from operations of $5.2 million for the
First Quarter of Fiscal 2008, primarily due to lower gross profit. Operating
income as a percentage of revenue for the First Quarter of Fiscal 2009 was
14.9%, compared to 22.4% for the First Quarter of Fiscal 2008.

Capital Resources and Liquidity

The Company
had cash and cash equivalents of $104.8 million at the end of the First Quarter
of Fiscal 2009. Of this amount, $13.2 million was located in North America,
$70.4 million in Europe, and $21.2 million in Asia. In accordance with its
investment policy, the Company places cash equivalent investments with issuers
who have high-quality investment credit ratings. In addition, the Company
limits the amount of investment exposure it has with any particular issuer. The
Companys investment objectives are to preserve principal, maintain liquidity,
and achieve the best available return consistent with its primary objectives of
safety and liquidity. At the end of the First Quarter of Fiscal 2009, the
Company held no short-term investments.

Total cash and
cash equivalents decreased $9.3 million in the First Quarter of Fiscal 2009,
primarily due to employee incentives and related benefit payments, purchases of
the Companys stock, and dividend payments, partially offset by earnings. Total
cash and cash equivalents increased $8.8 million in the First Quarter of Fiscal
2008, primarily due to earnings and net proceeds generated from the conversion
of short-term investments to cash and cash equivalents, partially offset by
increased working capital requirements, employee incentives and related
benefits payments, and purchases of the Companys common stock. The Company
believes that its anticipated operating cash flows, funds available from cash,
cash equivalents, and its credit facility, are adequate to fund ongoing
operations, capital expenditures, and share purchases, as well as to fund
internal growth opportunities and strategic acquisitions.

Cash flows from operating activities
provided cash totaling $5.5 million for the First Quarter of Fiscal 2009,
compared to use of cash totaling $1.7 million for the First Quarter of Fiscal
2008. The cash provided for the First Quarter of Fiscal 2009 was primarily due
to $15.8 million decreased accounts and unbilled receivables resulting from the
general timing of billing and collections, and earnings. The cash provided was
partially offset by $9.0 million net employee incentives and related benefits
payments, primarily consisting of bonuses relating to the 2008 fiscal year,
$8.4 million decreased accounts payable resulting from the general timing of
purchases and payments, and a $2.9 million decrease in advance payments received
from customers. The cash usage for the First Quarter of Fiscal 2008 was
primarily due to $8.5 million increased accounts and unbilled receivables, $4.4
million net employee incentives and related benefits payments, $4.0 million
decreased accounts payable, partially offset by earnings and a $7.7 million
increase in advance payments received from customers driven by higher order
volume.

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Table of Contents

Cash flows from investing activities
required the use of cash totaling $22.0 million for the First Quarter of Fiscal
2009, compared to cash provided totaling $14.6 million for the First Quarter of
Fiscal 2008. The cash usage for the First Quarter of Fiscal 2009 was due to
$18.9 million payments associated with the acquisition of SANS, and a $3.0
million investment in property and equipment. The cash provided for the First
Quarter of Fiscal 2008 was due to net proceeds from the conversion of
short-term investments to cash and cash equivalents of $17.1 million, partially
offset by a $2.5 million investment in property and equipment.

Cash flows from financing activities
provided cash totaling $9.9 million for the First Quarter of Fiscal 2009,
compared to a use of cash totaling $6.7 million for the First Quarter of Fiscal
2008. The cash provided in the First Quarter of Fiscal 2009 was primarily due
$16.0 million net proceeds received from short-term borrowings, partially
offset by the use of $3.6 million to purchase 120,100 shares of the Companys
common stock, and payment of cash dividends of $2.5 million. The cash usage for
the First Quarter of Fiscal 2008 was primarily due to the use of $4.6 million
to purchase 108,000 shares of the Companys common stock, and payment of cash
dividends of $2.7 million, partially offset by $0.7 million received in
connection with employee stock option exercises.

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

Off-Balance Sheet Arrangements

As of December
27, 2008, 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.
Due to the diversity of its products, the Company is required to comply with a
variety of technical accounting requirements in order to achieve consistent and
accurate revenue recognition. This requires a certain amount of judgment in the
evaluation of completed contract versus percentage-of-completion accounting,
the determination of estimated costs to complete contracts, and evaluation of
customer acceptance terms.

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

Impairment of Long-Lived Assets.
In accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets, the Company reviews the carrying value of long-lived assets
or asset groups, such as property and equipment and intangibles subject to
amortization, when events or changes in circumstances such as market value,
asset utilization, physical change, legal factors, or other matters indicate
that the carrying value may not be recoverable. When this review indicates the
carrying value of an asset or asset group exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual sale of the asset or
asset group, the Company recognizes an asset impairment charge against
operations. The amount of the impairment loss recorded is the amount by which
the carrying value of the impaired asset or asset group exceeds its fair value.

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

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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.

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

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

Recent Accounting Pronouncements

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

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

In March 2008,
the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an Amendment to SFAS No. 133. SFAS No. 161 requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. The Company does not
expect the adoption of SFAS No. 161 to have a material impact on its
consolidated financial statements.

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

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

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

In May 2008,
the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts-and interpretation of FASB Statement No. 60. SFAS No. 163 clarifies
how SFAS No. 60, Accounting and Reporting by Insurance Enterprises, applies
to financial guarantee insurance contracts issued by insurance enterprises,
including the recognition and measurement of premium revenue and claims
liabilities. This statement also requires expanded disclosures about financial
guarantee insurance contracts. SFAS No. 163 is effective for fiscal years
beginning on or after December 15, 2008, and interim periods within those
years. The Company does not expect the adoption of SFAS No. 163 to have any
impact on its consolidated financial statements.

Other Matters

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

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

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Item 3.
Quantitative and Qualitative Disclosures about Market Risk

The Companys
investment portfolio at December 27, 2008 included $104.8 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 $0.3 million for the
three-month period ended December 27, 2008.

The Company
operates internationally and is subject to foreign currency exchange rate
fluctuations. A hypothetical 10% appreciation or depreciation in foreign
currencies against the U.S. dollar, assuming all other variables were held
constant, would have resulted in an estimated increase or decrease of $5.2
million in revenue for the three-month period ended December 27, 2008.

At December 27, 2008, the Companys short-term borrowings outstanding
consisted of $40.0 million utilization of the revolving credit facility and
$0.4 million in non-interest bearing notes payable to vendors. This utilization
of the credit facility involves interest payments calculated at a floating
rate. In order to mitigate the Companys exposure to interest rate increases,
the Company has entered into floating to fixed interest rate swap agreements.
The notes payable to vendors are non-interest bearing and, therefore, are not
impacted by the effect of increases or decreases in market interest rates. The
Companys long-term debt has a fixed rate of interest and, therefore, is not
impacted by changes in market interest rates.

Item 4.
Controls and Procedures

The Companys
management, including the Chief Executive Officer and Chief Financial Officer,
have conducted an evaluation of the effectiveness of the design and operation
of the Companys disclosure controls and procedures (as defined under Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934
(the 1934 Act)) as of December 27, 2008. 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.

There have
been no changes in internal control over financial reporting during the fiscal
quarter ended December 27, 2008 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting. As previously announced, the Company acquired
substantially all of the assets of SANS on September 28, 2008. The Company has
not fully evaluated any changes in internal control over financial reporting
associated with this acquisition and, therefore, any material changes that may
result from this acquisition have not been disclosed in this report. The
Company intends to disclose all material changes, if any, resulting from this
acquisition within, or prior to, the time that our first annual assessment of
internal control over financial reporting is required to include SANS. The
results of operations of SANS have been included in the Companys results of
operations since the date of the acquisition.

PART II  OTHER INFORMATION

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

Purchases of
Company Equity Securities:

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|                                       |  |                                    |         |                                 |   |                                                                                         |  |                                                                                       |         |  |  |           | 
|-------------------------------------- |  | ---------------------------------- | ------- | ------------------------------- | - | --------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- | ------- |  |  | --------- | 
|Period                                 |  | Total Number
 of Shares
 Purchased |         | Average
 Price
 Paid per
 Share |   | Total Number
 of Shares
 Purchased as
 Part of
 Publicly
 Announced
 Plans or
 Programs |  | Maximum
 Number of
 Shares
 that May Yet
 be Purchased
 Under the
 Plans or
 Programs |        
|September 28, 2008 -
 November 1, 2008 |  |                                    | 43,500  |                                 | $ | 35.46                                                                                   |  |                                                                                       | 43,500  |  |  | 2,467,538 | 
|November 2, 2008 -
 November 29, 2008  |  |                                    | 38,200  |                                 | $ | 29.14                                                                                   |  |                                                                                       | 38,200  |  |  | 2,429,338 | 
|November 30, 2008 -
 December 27, 2008 |  |                                    | 38,400  |                                 | $ | 24.95                                                                                   |  |                                                                                       | 38,400  |  |  | 2,390,938 | 
|Total                                  |  |                                    | 120,100 |                                 | $ | 30.09                                                                                   |  |                                                                                       | 120,100 |  |  |           | 

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

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

Item 6.Exhibits

|              |                                                                                                                                                                                            
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber | Description                                                                                                                                                                                
|             
|3.a           | Restated and
 Amended Articles of Incorporation, incorporated by reference from Exhibit
 3.a. of the Registrants Annual Report on Form 10-K for the fiscal year ended
 September 30, 1996.
|             
|3.b           | Amended and
 Restated Bylaws, incorporated herein by reference from Exhibit 3.b of the
 Registrants Annual Report on Form 10-K for the fiscal year ended September
 29, 2007.             
|             
|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).                                                    

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SIGNATURES

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

|                         |                                               | 
|------------------------ | --------------------------------------------- | 
|                         | MTS SYSTEMS
 CORPORATION                      | 
|                         |                                               | 
|Dated:
 February 2, 2009 | /s/ LAURA B.
 HAMILTON                        | 
|                         | Laura B.
 Hamilton                            | 
|                         | Chair,
 President and Chief Executive Officer | 
|                         |                                               | 
|Dated:
 February 2, 2009 | /s/ SUSAN E.
 KNIGHT                          | 
|                         | Susan E.
 Knight                              | 
|                         | Vice
 President and Chief Financial Officer   | 

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EXHIBIT INDEX TO FORM 10-Q

|     |                                                                                                                                                                                        
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.a  | Restated and
 Amended Articles of Incorporation, incorporated by reference from Exhibit
 3.a. of Registrants
 Annual Report on Form 10-K for the fiscal year ended September 30, 1996.
|     |                                                                                                                                                                                        
|3.b  | Amended and
 Restated Bylaws, incorporated herein by reference from Exhibit 3.b of the
 Registrants Annual
 Report on Form 10-K for the fiscal year ended September 29, 2007.         
|     |                                                                                                                                                                                        
|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).                                                

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