# 

| |  | MTS Systems
Corporation14000 Technology DriveEden Prairie, MN 55344-2290Telephone 952-937-4000
Fax 952-937-4515
| |  | ---------------------------------------------------------------------------------------------------------------

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News Release

|                      | 
|--------------------- | 
|FOR IMMEDIATE RELEASE | 
|JANUARY 25, 2006      | 
|                      | 
|                      | 
|                      | 

# MTS Reports 8% Increase
in First Quarter EPS Before Stock Compensation Expense; Confirms 2006 Guidance

Eden Prairie, Minn., January 25, 2006
 MTS Systems Corporation (NASDAQ: MTSC) today reported net income of $8.0 million,
or $0.40 per diluted share, including $0.7 million of stock compensation expense, for its
first quarter ended fiscal 2006, a decrease of 2 percent compared to net income of $8.2
million, or $0.40 per diluted share, for first quarter fiscal 2005. Excluding the impact
of the accounting change to expense stock compensation, first quarter earnings per diluted
share would have been $0.43, an increase of 8 percent over the comparable period in fiscal
2005.

MTS delivered earnings for the
quarter in line with our expectations, said Sidney W. Emery, Jr., Chairman and CEO.
Despite the negative impact of currency, orders grew 7 percent, reflecting the
diversity of our customer base, and included our first multi-million dollar NASCAR order.
We are also pleased with the earnings results, particularly the gross profit improvements
in both segments, which partially offset planned increases in R&D and marketing
expense related to initiatives targeted at building market share. While revenue may
continue to be under pressure from currency rate changes in the remainder of the year, we
are confirming our fiscal 2006 revenue guidance of $395-$405 million. The outlook for
earnings per share also remains unchanged at $1.66-$1.76, which includes a $0.14 per share
impact of stock compensation expense.

First quarter orders increased to
$96.9 million, up 7 percent compared to $90.5 million for first quarter fiscal 2005. The
current quarters results reflect solid growth in both business segments,
particularly in North America. Although orders exceeded revenue in the quarter, backlog
decreased 2 percent, to $216 million from $220 million, due to the negative impact of
currency translation.

Revenue for the first quarter was
$91.8 million, a decrease of 1 percent compared to revenue of $93.1 million for first
quarter fiscal 2005. This decrease was due primarily to an estimated $5 million
unfavorable impact of currency translation, partially offset by increased short-cycle and
service business in the Test segment and continued growth in the Industrial segment.

Gross profit as a percent of revenue
improved 1.5 points to 44.2 percent for first quarter 2006 from 42.7 percent for first
quarter fiscal 2005, with positive results in both segments. Gross profit for the quarter
was favorably impacted by reduced warranty expense and favorable capacity utilization in
the Test segment and increased volume in the Industrial segment, partially offset by
unfavorable Test segment product mix. First quarter income from operations was $12.3
million, a decrease of 12 percent compared to income from operations of $13.9 million for
first quarter fiscal 2005, as favorable gross profit was offset by planned increases in
operating expenses and $0.9 million of stock compensation expense.



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MTS News Release Page 2

Cash, cash equivalents and short-term
investments at the end of the first quarter totaled $144 million, compared to $160 million
at the end of fiscal year 2005, reflecting the use of $22.2 million in cash to purchase
shares of the Companys common stock during the first quarter.

# Segment Results

Test Segment:

Test segment orders totaled $81.7
million for first quarter fiscal 2006, an increase of 7 percent compared to orders of
$76.5 million for first quarter fiscal 2005, due to increased volume in North America,
partially offset by decreased volume in Europe and Asia and the unfavorable impact of
currency translation. Backlog decreased 2 percent in the quarter, to $210 million from
$214 million, primarily due to the unfavorable impact of currency translation, partially
offset by increased order volume. First quarter revenue was $76.8 million, a decrease of 3
percent compared to $79.1 million for first quarter fiscal 2005, reflecting an estimated
$4 million unfavorable impact of currency translation, partially offset by increased
short-cycle and service business. First quarter gross profit as a percent of revenue was
42.5 percent, an increase of 0.6 percentage points compared to 41.9 percent for first
quarter fiscal 2005, primarily due to improved capacity utilization and reduced warranty
expense, partially offset by unfavorable product mix. Income from operations for first
quarter fiscal 2006 totaled $9.9 million, a decrease of 18 percent compared to income from
operations of $12.1 million for first quarter fiscal 2005, reflecting increased R&D
and marketing expense associated with operating initiatives, stock compensation expense of
$0.8 million, and an estimated $0.5 million unfavorable impact of currency translation.

Industrial Segment:

Industrial segment orders totaled
$15.2 million for first quarter fiscal 2006, an increase of 9 percent compared to orders
of $14.0 million for first quarter fiscal 2005, reflecting continued growth in the Sensors
business across all geographies, partially offset by the unfavorable impact of currency
translation. Backlog was essentially flat in the quarter at $6 million. First quarter
revenue was $15.0 million, an increase of 7 percent compared to revenue of $14.0 million
for first quarter fiscal 2005, driven by increased worldwide volume in the Sensors
business, partially offset by an estimated $1.0 million unfavorable impact of currency
translation. First quarter gross profit as a percent of revenue was 52.7 percent, an
increase of 5.4 percentage points compared to 47.3 percent for first quarter fiscal 2005,
primarily due to favorable product mix. Income from operations for first quarter fiscal
2006 was $2.4 million, an increase of 33 percent compared to income from operations of
$1.8 million for first quarter fiscal 2005, primarily due to higher volume, partially
offset by an estimated $0.2 million unfavorable impact of currency translation.

Non-GAAP Financial
Measures

A reconciliation of financial results
before and after the impact of stock compensation expense is included in this release as
Exhibit A. This reconciliation includes financial measures that do not reflect generally
accepted accounting principles (GAAP). These non-GAAP financial measures are provided for
additional clarification of the Companys financial performance. Investors should
consider these non-GAAP financial measures in addition to, not as a substitute for or
better than, financial measures prepared in accordance with GAAP.

# First Quarter Conference
Call

A conference call will be held on
Thursday, January 26, at 10:00 a.m. ET (9:00 a.m. CT). Call +1-773-756-0439; state the
passcode MTS First Quarter. Telephone re-play will be available through 11:59
p.m. ET, February 15, 2006. Call +1-402-998-1584.



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MTS News Release Page 3

If you prefer to listen live over the
Internet, please log on to the web at
<http://www.mts.com/news/financial_news.htm> and click on the webcast image.
The call will be archived through 6:00 p.m. ET, April 25, 2006.

# About MTS Systems
Corporation

MTS Systems Corporation is a leading
global supplier of test systems and industrial position sensors. The Companys
testing hardware and software solutions help customers accelerate and improve their
design, development, and manufacturing processes and are used for determining the
mechanical behavior of materials, products, and structures. MTS high-performance
position sensors provide controls for a variety of industrial and vehicular applications.
MTS had 1,549 employees and revenue of $374 million for the fiscal year ended October 1,
2005. Additional information on MTS can be found on the worldwide web at
http://www.mts.com.

This release contains
forward-looking statements made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 that are subject to certain risks
and uncertainties, as well as assumptions, that could cause actual results to
differ materially from historical results and those presently anticipated or projected.
The Company does not undertake any obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. In addition to the factors discussed above, other important risk
factors are delineated in the Companys SEC reports, including Form 10-K for the
year ended October 1, 2005.



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MTS News Release Page 4

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

|                                                               |  | Three Months Ended |  
|-------------------------------------------------------------- |  | ------------------ | -
|                                                               | 
|
|                                                               |  |                    |  
|Revenue:                                                       |  |                    |  
|Product                                                        |  |                    | $
|Service                                                        |  |                    |  
|                                                               |  |                    |  
|Total revenue                                                  |  |                    |  
|                                                               |  |                    |  
|Cost of sales:                                                 |  |                   
|Product                                                        |  |                    |  
|Service                                                        |  |                    |  
|                                                               |  |                    |  
|Total cost of sales                                            |  |                    |  
|                                                               |  |                    |  
|Gross profit                                                   |  |                    |  
|                                                               |  |                    |  
|Operating expenses:                                            |  |                   
|Selling                                                        |  |                    |  
|General and administrative                                     |  |                    |  
|Research and development                                       |  |                    |  
|                                                               |  |                    |  
|Total operating expenses                                       |  |                    |  
|                                                               |  |                    |  
|Income from operations                                         |  |                    |  
|                                                               |  |                    |  
|Interest expense                                               |  |                    |  
|Interest income                                                |  |                    |  
|Other income, net                                              |  |                    |  
|                                                               |  |                    |  
|Income before income taxes and discontinued operations         |  |                    |  
|Provision for income taxes                                     |  |                    |  
|                                                               |  |                    |  
|Income before discontinued operations                          |  |                    |  
|                                                               |  |                    |  
|Discontinued operations:                                       |  |                   
|Loss from discontinued operations, net of tax                  |  |                    |  
|                                                               |  |                    |  
|Net income                                                     |  |                    | $
|                                                               |  |                    |  
|Earnings per share:                                            |  |                   
|Basic-                                                         |  |                   
|Income before discontinued operations                          |  |                    | $
|Discontinued operations:                                       |  |                   
|Loss from discontinued operations, net of tax                  |  |                    |  
|                                                               |  |                    |  
|Earnings per share                                             |  |                    | $
|                                                               |  |                    |  
|Weighted average number of common shares outstanding - basic   |  |                    |  
|                                                               |  |                    |  
|Diluted-                                                       |  |                   
|Income before discontinued operations                          |  |                    | $
|Discontinued operations:                                       |  |                   
|Loss from discontinued operations, net of tax                  |  |                    |  
|                                                               |  |                    |  
|Earnings per share                                             |  |                    | $
|                                                               |  |                    |  
|Weighted average number of common shares outstanding - diluted |  |                    |  
|                                                               |  |                    |  



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MTS News Release Page 5

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

|                                                             |  | December 31,
2005 |   | October 1,
2005
|------------------------------------------------------------ |  | ----------------- | - | ---------------
|                                                             |  |                   |  
|ASSETS                                                       |  |                   |   |                
|Current Assets:                                              |  |                  
|Cash and cash equivalents                                    |  |                   | $ | 89,750         
|Short-term investments                                       |  |                   |   | 54,177         
|Accounts receivable, net of allowances for doubtful accounts |  |                   |   | 70,374         
|Unbilled accounts receivable                                 |  |                   |   | 26,440         
|Inventories                                                  |  |                   |   | 37,877         
|Prepaid expenses                                             |  |                   |   | 4,450          
|Current deferred tax assets                                  |  |                   |   | 6,403          
|Other current assets                                         |  |                   |   | 2,990          
|Assets of discontinued operations                            |  |                   |   | 1,524          
|                                                             |  |                   |  
|Total current assets                                         |  |                   |   | 293,985        
|                                                             |  |                   |  
|Property and Equipment:                                      |  |                  
|Land                                                         |  |                   |   | 1,668          
|Buildings and improvements                                   |  |                   |   | 40,751         
|Machinery and equipment                                      |  |                   |   | 74,143         
|Accumulated depreciation                                     |  |                   |   | (74,024        
|                                                             |  |                   |  
|Total property and equipment, net                            |  |                   |   | 42,538         
|                                                             |  |                   |  
|Goodwill                                                     |  |                   |   | 4,408          
|Other assets                                                 |  |                   |   | 2,185          
|Non-current deferred tax assets                              |  |                   |   | 1,674          
|                                                             |  |                   |  
|Total Assets                                                 |  |                   | $ | 344,790        
|                                                             |  |                   |  
|LIABILITIES AND SHAREHOLDERS INVESTMENT                     |  |                  
|Current Liabilities:                                         |  |                  
|Notes payable                                                |  |                   | $ | 1,502          
|Current maturities of long-term debt                         |  |                   |   | 6,691          
|Accounts payable                                             |  |                   |   | 16,995         
|Accrued payroll-related costs                                |  |                   |   | 21,445         
|Advance payments from customers                              |  |                   |   | 67,375         
|Accrued warranty costs                                       |  |                   |   | 5,045          
|Accrued income taxes                                         |  |                   |   | 2,794          
|Current deferred income taxes                                |  |                   |   | 3,699          
|Other accrued liabilities                                    |  |                   |   | 17,105         
|Liabilities of discontinued operations                       |  |                   |   | 621            
|                                                             |  |                   |  
|Total current liabilities                                    |  |                   |   | 143,272        
|                                                             |  |                   |  
|Deferred income taxes                                        |  |                   |   | 2,298          
|Long-term debt, less current maturities                      |  |                   |   | 15,673         
|Other long-term liabilities                                  |  |                   |   | 11,307         
|                                                             |  |                   |  
|Total Liabilities                                            |  |                   |   | 172,550        
|                                                             |  |                   |  
|Shareholders Investment:                                    |  |                  
|Common stock, $.25 par; 64,000 shares authorized:            |  |                  
|19,072 and 19,664 shares issued and outstanding              |  |                   |   | 4,768          
|Retained earnings                                            |  |                   |   | 159,372        
|Accumulated other comprehensive income                       |  |                   |   | 8,100          
|                                                             |  |                   |  
|Total shareholders investment                               |  |                   |   | 172,240        
|                                                             |  |                   |  
|Total Liabilities and Shareholders Investment               |  |                   | $ | 344,790        
|                                                             |  |                   |  



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MTS News Release Page 6

# EXHIBIT A

MTS SYSTEMS CORPORATION
Stock Compensation Expense Reconciliation
(unaudited - in thousands, except per share data)

|                                                                     |  | Three Months Ended
|-------------------------------------------------------------------- |  | ------------------
|                                                                     | 
|
|                                                                     |  |                   
|Revenue                                                              |  |                   
|                                                                     |  |                   
|Gross profit:                                                        |  |                   
|Before stock compensation expense                                    |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|Gross profit                                                         |  |                   
|                                                                     |  |                   
|Operating expenses:                                                  |  |                   
|Selling expense before stock compensation expense                    |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|Selling expense                                                      |  |                   
|                                                                     |  |                   
|General and administrative expense before stock compensation expense |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|General and administrative expense                                   |  |                   
|                                                                     |  |                   
|Research and development expense before stock compensation expense   |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|Research and development expense                                     |  |                   
|                                                                     |  |                   
|Total operating expenses before stock compensation expense           |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|Total operating expenses                                             |  |                   
|                                                                     |  |                   
|Income from operations:                                              |  |                   
|Before stock compensation expense                                    |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|Income from operations                                               |  |                   
|                                                                     |  |                   
|Net income:                                                          |  |                   
|Before stock compensation expense                                    |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|Net income                                                           |  |                   
|                                                                     |  |                   
|Earnings per share - diluted:                                        |  |                   
|Before stock compensation expense                                    |  |                   
|Stock compensation expense                                           |  |                   
|                                                                     |  |                   
|Earnings per share - diluted                                         |  |                   
|                                                                     |  |