| |  | MTS Systems Corporation
14000 Technology Drive
Eden Prairie, MN 55344-2290
Telephone 952-937-4000
Fax 952-937-4515
| |  | ------------------------------------------------------------------------------------------------------------------

News Release



FOR IMMEDIATE RELEASENovember 15, 2006
        For More Information Contact:
Susan Knight, Chief Financial Officer(952) 937-4000
Paul Runice, Treasurer(952) 937-4003




MTS Reports Fiscal 2006 EPS of $2.04, up 13% on Strong Fourth Quarter

Eden Prairie, Minn., November 15, 2006  MTS Systems Corporation (NASDAQ: MTSC) today reported fourth quarter net income of $11.6 million, or $0.62 per diluted share, an increase of 10 percent and 22 percent, respectively, compared to net income of $10.5 million, or $0.51 per diluted share, for fourth quarter fiscal 2005.  Fourth quarter fiscal 2006 results included $0.9 million, or $0.05 per diluted share, of stock compensation expense.

Fiscal year 2006 net income was $39.3 million, or $2.04 per diluted share, an increase of 6 percent and 13 percent, respectively, compared to net income of $37.1 million, or $1.81 per diluted share, for fiscal 2005.  The full year fiscal 2006 results included $3.2 million, or $0.17 per diluted share, of stock compensation expense.

As projected, fourth quarter results were excellent, said Sidney W. Emery, Jr., Chairman and CEO.  Orders exceeded $100 million; revenue of $106 million was at the high end of our expected range, and earnings per share surpassed expectations.  Both segments had a strong quarter.

While we finished the year with strong revenue and EPS growth, Emery continued, orders for the year were disappointing, reflecting the protracted sales cycle we continue to experience on large custom orders.  As a result, our opening backlog for fiscal 2007 is lower than anticipated, and thus we are projecting modest 2007 revenue growth, to $400-$410 million.  Our order opportunity pipeline is robust, and our revenue projection assumes orders will rebound in fiscal 2007.  We expect EPS to increase to $2.10-$2.20 per diluted share, growing faster than revenue.  Our earnings estimate includes continued incremental spending for R&D and global sales infrastructure to achieve long-term market share growth.

Fourth Quarter Results

Fourth quarter orders totaled $100.8 million, a decrease of 8 percent compared to orders of $109.7 million for fourth quarter fiscal 2005, reflecting decreased custom orders in the Test segment, partially offset by increased volume in the Industrial segment.  Backlog decreased 3 percent in the quarter, from $198 million to $192 million.

Revenue in the fourth quarter was $106.2 million, an increase of 17 percent compared to revenue of $90.5 million for fourth quarter fiscal 2005.  This increase resulted from growth in both segments.

Gross profit for the fourth quarter
was $45.3 million, an increase of 16 percent compared to $39.2 million for fourth quarter fiscal 2005. This increase was primarily
due to higher volume in both segments, as well as $3.6 million in fiscal 2005 costs related to the noise and vibration business
that the Company exited in fourth quarter fiscal 2005. Fourth quarter income from operations was $14.7 million, an increase of 60
percent compared to income from operations of $9.2 million for fourth quarter fiscal 2005. This increase was due to higher gross
profit in both segments and $0.9 million of prior year costs associated with the exit of the noise and vibration business. These
increases were partially offset by planned increases in operating expenses and $1.2 million of stock

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compensation expense. Fourth quarter
net income was $11.6 million, or $0.62 per diluted share, an increase of 10 percent compared to fourth quarter fiscal 2005 net
income of $10.5 million, or $0.51 per diluted share, driven by higher income from operations, $0.7 million favorable net interest,
and a $0.8 million favorable net impact of foreign currency transaction gains. Income tax expense increased $4.5 million,
primarily due to higher earnings and a reduction in tax benefits resulting from favorable resolution of previously accrued tax
matters. Fourth quarter fiscal 2006 and 2005 results also included income from discontinued operations of $0.5 million and $2.0
million, respectively.

Full Year Results

Fiscal 2006 orders were $376.9 million, a decrease of 7 percent compared to $404.4 million for fiscal 2005, primarily due to a decrease in large Test segment custom orders in Europe and Asia and an $8.4 million reduction in volume associated with the noise and vibration business that the Company exited at the end of fiscal 2005.  These reductions were partially offset by increased North American volume in the Test segment and continued growth in the Industrial segment.  Backlog decreased 13 percent in the fiscal year, from $220 million to $192 million.

Fiscal 2006 revenue was $396.8 million, an increase of 6 percent compared to $374.4 million for fiscal 2005, reflecting market share growth in our core markets.  Both the short-cycle and service business grew in the Test segment, in addition to continued growth in the Industrial segment.  These increases were partially offset by a $7.7 million reduction in revenue related to the noise and vibration business and an estimated $9.6 million unfavorable impact of currency translation.

Gross profit for fiscal 2006 was
$172.7 million, an increase of 6 percent compared to $163.6 million for fiscal 2005. This increase was primarily due to higher
volume in both segments and $3.6 million in fiscal 2005 costs associated with the exit of the noise and vibration business,
partially offset by $1.1 million of stock compensation expense and an estimated $2.3 million unfavorable impact of currency
translation. Fiscal 2006 income from operations was $55.8 million, an increase of 5 percent compared to $53.0 million for fiscal
2005. This increase was due to higher gross profit in both segments, a $0.9 million gain on sale of assets of the noise and
vibration business, and $0.9 million of prior year costs associated with the exit of the noise and vibration business, partially
offset by planned increases in operating expenses and $4.4 million of stock compensation expense. Fiscal 2006 net income was $39.3
million, or $2.04 per diluted share, an increase of 6 percent compared to fiscal 2005 net income of $37.1 million, or $1.81 per
diluted share, driven by higher income from operations, $1.7 million favorable net interest, and a $2.1 million favorable net
impact of foreign currency transaction gains. Income tax expense increased $4.6 million, primarily due to higher earnings and a
reduction in tax benefits resulting from favorable resolution of previously accrued tax matters. Fiscal 2006 and 2005 results both
included income from discontinued operations of $0.5 million.

Cash, cash equivalents and short-term investments at the end of fourth quarter fiscal 2006 decreased to $122 million, compared to $160 million at year-end fiscal 2005.  During fiscal 2006 the Company reduced total debt outstanding by $8.0 million and used $64.5 million in cash to purchase approximately 1.8 million shares of its common stock.  The reduction in shares outstanding positively impacted the Companys earnings per share by $0.12 for fiscal year 2006.

Segment Results

Test Segment:

Test segment orders were $83.2 million for fourth quarter fiscal 2006, a decrease of 12 percent compared to orders of $94.1 million for fourth quarter fiscal 2005, primarily due to a reduction in large custom orders.  Backlog decreased 4 percent in the quarter, from $191 million to $184 million.  Fourth quarter revenue was $89.5 million, an increase of 20 percent compared to $74.7 million for fourth quarter fiscal 2005.  This increase reflects low volume in fiscal 2005 due to a supplier issue, partially offset by a $2.1 million reduction in revenue associated with the noise and vibration business.  Fourth quarter gross profit was $36.3 million, an increase of 16 percent compared to $31.4 million for fourth quarter fiscal 2005, primarily due to higher volume and $3.6 million in fiscal 2005 costs associated with the noise and

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vibration business exit. Income from
operations for fourth quarter fiscal 2006 was $11.4 million, an increase of 54 percent compared to income from operations of $7.4
million for fourth quarter fiscal 2005. This increase was due to higher gross profit and $0.9 million of prior year costs
associated with the exit of the noise and vibration business, partially offset by $1.0 million of stock compensation
expense.

Orders for fiscal 2006 were $310.7
million, a decrease of 9 percent compared to orders of $342.9 million for fiscal 2005, primarily due to a decrease in large custom
orders in Europe and Asia and $8.4 million of prior year orders associated with the noise and vibration business. Orders in North
America increased. Backlog decreased to $184 million from $214 million at the end of fiscal 2005. Fiscal 2006 revenue was $332.6
million, an increase of 6 percent compared to $313.5 million for fiscal 2005, primarily due to increased short-cycle and service
business, which was partially offset by a $7.7 million reduction in revenue associated with the noise and vibration business as
well as an estimated $7.8 million unfavorable impact of currency translation. Fiscal 2006 gross profit was $138.2 million, an
increase of 3 percent compared to $134.0 million for fiscal 2005, due to higher volume and $3.6 million in fiscal 2005 costs
associated with the exit of the noise and vibration business, partially offset by $1.1 million of stock compensation expense and
an estimated $1.3 million unfavorable impact of currency translation. Income from operations for fiscal 2006 was $44.7 million,
flat compared to fiscal 2005 income from operations. Higher gross profit, a $0.9 million fiscal 2006 gain on sale of assets of
the noise and vibration business, and $0.9 million of prior year costs associated with the exit of the noise and vibration
business were offset by planned increases in operating expenses, $3.8 million of stock compensation expense, and $0.4 million
unfavorable impact of currency translation.

Industrial Segment:

Industrial segment orders were $17.6
million for fourth quarter fiscal 2006, an increase of 13 percent compared to orders of $15.6 million for fourth quarter fiscal
2005, due to continued growth in the Sensors business in Europe and Asia. Backlog increased 14 percent in the quarter, from $7
million to $8 million. Fourth quarter revenue was $16.7 million, an increase of 6 percent compared to revenue of $15.8 million for
fourth quarter fiscal 2005, driven by increased volume in Europe and Asia. Fourth quarter gross profit was $9.0 million, an
increase of 15 percent compared to $7.8 million for fourth quarter fiscal 2005, reflecting increased volume and improved capacity
utilization. Income from operations for fourth quarter fiscal 2006 was $3.3 million, an increase of 83 percent compared to income
from operations of $1.8 million for fourth quarter fiscal 2005, primarily due to increased gross profit, partially offset by $0.1
million of stock compensation expense.

Orders for fiscal 2006 were $66.2
million, an increase of 8 percent compared to orders of $61.5 million for fiscal 2005, primarily due to increased volume in the
Sensors business in Europe and Asia. Backlog increased to $8 million at the end of fiscal 2006 from $6 million at the end of
fiscal 2005. Fiscal 2006 revenue was $64.2 million, an increase of 5 percent compared to $60.9 million for fiscal 2005, primarily
due to higher order volume in Europe and Asia, partially offset by an estimated $1.8 million unfavorable impact of currency
translation. Fiscal 2006 gross profit was $34.5 million, an increase of 17 percent compared to $29.6 million for fiscal 2005,
primarily due to increased volume and fiscal 2005 charges associated with obsolete inventory. This was partially offset by an
estimated $1.0 million unfavorable impact of currency translation. Income from operations for fiscal 2006 was $11.1 million, an
increase of 32 percent compared to income from operations of $8.4 million for fiscal 2005, primarily due to increased gross
profit, offset by $0.4 million of stock compensation expense and an estimated $0.5 million unfavorable impact of currency
translation.

Non-GAAP Financial Measures

Certain financial results before the impact of stock compensation expense are included in this release as Exhibit A, together with a reconciliation to financial results after the impact of such expenses.  This reconciliation includes financial measures that do not reflect generally accepted accounting principles (GAAP).  These non-GAAP financial measures are provided for additional information on the Companys financial performance and provide better comparability to prior period financial results that did not include stock compensation expense.  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.

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Fiscal Year 2006 Earnings Release and Conference Call

A conference call will be held on Thursday, November 16, at 10:00 a.m. EST (9:00 a.m. CST).  Call +1-785-832-1508; and state the Conference ID MTS or Program Title MTS Quarterly Conference Call.  Telephone re-play will be available through 11:59 p.m. EST, November 30, 2006.  Call +1-402-220-2673.

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 event notice.  The webcast will be archived through 11:59 p.m. EST, January 19, 2007.

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 1,510 employees and revenue of $397 million for the fiscal year ended September 30, 2006.  Additional information on MTS can be found on the worldwide web athttp://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 most recent SEC Form 10-Q and 10-K filings.

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MTS SYSTEMS CORPORATION

Consolidated Statements of Income

(unaudited - in thousands, except per share data)



Three Months Ended
        
        Year EndedSeptember 30,2006
        
        October 1,2005
        
        September 30,2006
        
        October 1,2005Revenue:Product
        
        $
        92,008
        
        $
        78,235
        
        $
        343,867
        
        $
        328,514Service
        
        
        14,179
        
        
        12,249
        
        
        52,918
        
        
        45,863Total revenue
        
        
        106,187
        
        
        90,484
        
        
        396,785
        
        
        374,377Cost of sales:Product
        
        
        53,531
        
        
        44,928
        
        
        197,674
        
        
        187,261Service
        
        
        7,308
        
        
        6,329
        
        
        26,446
        
        
        23,534Total cost of sales
        
        
        60,839
        
        
        51,257
        
        
        224,120
        
        
        210,795Gross profit
        
        
        45,348
        
        
        39,227
        
        
        172,665
        
        
        163,582Operating expenses:Selling
        
        
        17,038
        
        
        18,328
        
        
        65,117
        
        
        65,254General and administrative
        
        
        8,875
        
        
        7,692
        
        
        34,175
        
        
        30,417Research and development
        
        
        4,785
        
        
        3,958
        
        
        18,413
        
        
        14,936Total operating expenses
        
        
        30,698
        
        
        29,978
        
        
        117,705
        
        
        110,607Gain on sale of assets
        
        
        
        
        
        
        
        
        872
        
        
        Income from operations
        
        
        14,650
        
        
        9,249
        
        
        55,832
        
        
        52,975Interest expense
        
        
        (421
        )
        
        (489
        )
        
        (1,716
        )
        
        (2,128
        )Interest income
        
        
        1,397
        
        
        776
        
        
        3,595
        
        
        2,348Other income (expense), net
        
        
        4
        
        
        (1,101
        )
        
        1,048
        
        
        (1,381
        )Income before income taxes and discontinued operations
        
        
        15,630
        
        
        8,435
        
        
        58,759
        
        
        51,814Provision for income taxes
        
        
        4,512
        
        
        (25
        )
        
        19,897
        
        
        15,245Income before discontinued operations
        
        
        11,118
        
        
        8,460
        
        
        38,862
        
        
        36,569Discontinued operations:Income (loss) from discontinued operations, net of tax
        
        
        461
        
        
        (1,052
        )
        
        461
        
        
        (2,589
        )Net gain on disposal of discontinued businesses, net of tax
        
        
        
        
        
        3,078
        
        
        
        
        
        3,078Income from discontinued operations, net of tax
        
        
        461
        
        
        2,026
        
        
        461
        
        
        489Net income
        
        $
        11,579
        
        $
        10,486
        
        $
        39,323
        
        $
        37,058Earnings per share:Basic-Income before discontinued operations
        
        $
        0.62
        
        $
        0.43
        
        $
        2.08
        
        $
        1.86Discontinued operations:Income (loss) from discontinued operations, net of tax
        
        
        0.02
        
        
        (0.05
        )
        
        0.02
        
        
        (0.13
        )Net gain on disposal of discontinued businesses, net of tax
        
        
        
        
        
        0.15
        
        
        
        
        
        0.15Income from discontinued operations, net of tax
        
        
        0.02
        
        
        0.10
        
        
        0.02
        
        
        0.02Earnings per share
        
        $
        0.64
        
        $
        0.53
        
        $
        2.10
        
        $
        1.88Weighted average number of common shares outstanding - basic
        
        
        18,214
        
        
        19,652
        
        
        18,749
        
        
        19,714Diluted-Income before discontinued operations
        
        $
        0.60
        
        $
        0.41
        
        $
        2.02
        
        $
        1.79Discontinued operations:Income (loss) from discontinued operations, net of tax
        
        
        0.02
        
        
        (0.05
        )
        
        0.02
        
        
        (0.13
        )Net gain on disposal of discontinued businesses, net of tax
        
        
        
        
        
        0.15
        
        
        
        
        
        0.15Income from discontinued operations, net of tax
        
        
        0.02
        
        
        0.10
        
        
        0.02
        
        
        0.02Earnings per share
        
        $
        0.62
        
        $
        0.51
        
        $
        2.04
        
        $
        1.81Weighted average number of common shares outstanding - diluted
        
        
        18,584
        
        
        20,449
        
        
        19,229
        
        
        20,509


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MTS SYSTEMS CORPORATION

Consolidated Balance Sheets

(unaudited - in thousands, except per share data)



September 30,
2006
        
        October 1,
2005ASSETSCurrent Assets:Cash and cash equivalents
        
        $
        97,962
        
        $
        83,143Short-term investments
        
        
        23,575
        
        
        76,650Accounts receivable, net of allowances for doubtful accounts
        
        
        72,997
        
        
        64,363Unbilled accounts receivable
        
        
        27,132
        
        
        25,093Inventories
        
        
        40,480
        
        
        38,029Prepaid expenses
        
        
        3,180
        
        
        2,600Current deferred tax assets
        
        
        5,134
        
        
        6,415Other current assets
        
        
        1,065
        
        
        2,351Assets of discontinued operations
        
        
        803
        
        
        1,710Total current assets
        
        
        272,328
        
        
        300,354Property and Equipment:Land
        
        
        1,668
        
        
        1,668Buildings and improvements
        
        
        42,072
        
        
        40,906Machinery and equipment
        
        
        78,651
        
        
        72,837Accumulated depreciation
        
        
        (78,777
        )
        
        (72,458
        )Total property and equipment, net
        
        
        43,614
        
        
        42,953Goodwill
        
        
        4,466
        
        
        4,423Other assets
        
        
        2,102
        
        
        2,291Non-current deferred tax assets
        
        
        1,613
        
        
        1,711Total Assets
        
        $
        324,123
        
        $
        351,732LIABILITIES AND SHAREHOLDERS INVESTMENTCurrent Liabilities:Notes payable
        
        $
        222
        
        $
        1,582Current maturities of long-term debt
        
        
        6,683
        
        
        6,708Accounts payable
        
        
        17,090
        
        
        16,142Accrued payroll-related costs
        
        
        29,273
        
        
        31,059Advance payments from customers
        
        
        51,356
        
        
        49,901Accrued warranty costs
        
        
        5,894
        
        
        5,333Accrued income taxes
        
        
        512
        
        
        3,643Current deferred income taxes
        
        
        4,643
        
        
        3,767Other accrued liabilities
        
        
        5,125
        
        
        15,026Liabilities of discontinued operations
        
        
        
        
        
        890Total current liabilities
        
        
        130,798
        
        
        134,051Deferred income taxes
        
        
        2,487
        
        
        2,310Long-term debt, less current maturities
        
        
        8,990
        
        
        15,673Other long-term liabilities
        
        
        12,527
        
        
        11,266Total Liabilities
        
        
        154,802
        
        
        163,300Shareholders Investment:Common stock, $.25 par; 64,000 shares authorized: 18,216 and 19,664 shares issued and outstanding
        
        
        4,554
        
        
        4,916Retained earnings
        
        
        152,657
        
        
        173,487Accumulated other comprehensive income
        
        
        12,110
        
        
        10,029Total shareholders investment
        
        
        169,321
        
        
        188,432Total Liabilities and Shareholders Investment
        
        $
        324,123
        
        $
        351,732


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EXHIBIT A



MTS SYSTEMS CORPORATION

Stock Compensation Expense Information and Reconciliation

(unaudited - in thousands, except per share data)



Three Months Ended
        
        Year EndedSeptember 30,
2006
        
        October 1,
2005
        
        September 30,
2006
        
        October 1,
2005Revenue
        
        $
        106,187
        
        $
        90,484
        
        $
        396,785
        
        $
        374,377Gross profit:Before stock compensation expense
        
        $
        45,666
        
        $
        39,227
        
        $
        173,797
        
        $
        163,582Stock compensation expense
        
        
        318
        
        
        
        
        
        1,132
        
        
        Gross profit
        
        $
        45,348
        
        $
        39,227
        
        $
        172,665
        
        $
        163,582Operating expenses:Selling expense before stock compensation expense
        
        $
        16,756
        
        $
        18,328
        
        $
        64,045
        
        $
        65,254Stock compensation expense
        
        
        282
        
        
        
        
        
        1,072
        
        
        Selling expense
        
        $
        17,038
        
        $
        18,328
        
        $
        65,117
        
        $
        65,254General and administrative expense before stock compensation expense
        
        $
        8,287
        
        $
        7,630
        
        $
        32,041
        
        $
        30,239Stock compensation expense
        
        
        588
        
        
        62
        
        
        2,134
        
        
        178General and administrative expense
        
        $
        8,875
        
        $
        7,692
        
        $
        34,175
        
        $
        30,417Research and development expense before stock compensation expense
        
        $
        4,763
        
        $
        3,958
        
        $
        18,336
        
        $
        14,936Stock compensation expense
        
        
        22
        
        
        
        
        
        77
        
        
        Research and development expense
        
        $
        4,785
        
        $
        3,958
        
        $
        18,413
        
        $
        14,936Total operating expenses before stock compensation expense
        
        $
        29,806
        
        $
        29,916
        
        $
        114,422
        
        $
        110,429Stock compensation expense
        
        
        892
        
        
        62
        
        
        3,283
        
        
        178Total operating expenses
        
        $
        30,698
        
        $
        29,978
        
        $
        117,705
        
        $
        110,607Income from operations:Before stock compensation expense
        
        $
        15,860
        
        $
        9,311
        
        $
        60,247
        
        $
        53,153Stock compensation expense
        
        
        1,210
        
        
        62
        
        
        4,415
        
        
        178Income from operations
        
        $
        14,650
        
        $
        9,249
        
        $
        55,832
        
        $
        52,975Net income:Before stock compensation expense
        
        $
        12,486
        
        $
        10,525
        
        $
        42,563
        
        $
        37,169Stock compensation expense
        
        
        907
        
        
        39
        
        
        3,240
        
        
        111Net income
        
        $
        11,579
        
        $
        10,486
        
        $
        39,323
        
        $
        37,058Earnings per share - diluted:Before stock compensation expense
        
        $
        0.67
        
        $
        0.51
        
        $
        2.21
        
        $
        1.81Stock compensation expense
        
        
        0.05
        
        
        0.00
        
        
        0.17
        
        
        0.00Earnings per share - diluted
        
        $
        0.62
        
        $
        0.51
        
        $
        2.04
        
        $
        1.81


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