MTS Systems (MTSC) 8-K Results of Operations and Financial Condition

Exhibit 99.1

News Release

FOR IMMEDIATE RELEASE	For More Information Contact:
January 25, 2005	Susan Knight, Chief Financial Officer (952) 937-4000 Paul Runice, Treasurer (952) 937-4003

MTS Reports 14% First Quarter EPS Increase, Confirms 2005 Guidance

Eden Prairie, Minn., January 25, 2005 – MTS Systems Corporation (NASDAQ: MTSC) today reported first quarter earnings of $0.40 per diluted share on net income of $8.2 million, an increase of 14 percent compared to earnings of $0.35 per diluted share for the first quarter of fiscal 2004.

“MTS delivered solid revenue and earnings growth for the quarter. Both the Test and Industrial segments were strong, particularly in Europe and Asia,” said Sidney W. Emery, Jr., Chairman and CEO. “Orders were in line with our expectations. As planned, we increased expenditures in sales, marketing, and R&D as part of our multi-year growth initiatives, and we are encouraged by our progress. We are confirming our fiscal 2005 outlook of $395-$405 million in revenue and earnings per share in the $1.48-$1.53 range, excluding the impact of expensing stock options.”

First quarter orders were $96.4 million, a decrease of 35 percent compared to $147.2 million for the first quarter of fiscal 2004, primarily the result of two multi-year international contracts totaling in excess of $48 million booked in the prior year. Backlog increased 2 percent in the quarter, from $199 million to $203 million, compared to backlog of $222 million at the end of first quarter fiscal 2004.

Revenue for the first quarter was consistent with the Company’s expectations at $98.5 million, an increase of 16 percent compared to revenue of $84.6 million for the first quarter of fiscal 2004. This increase was primarily due to higher beginning backlog this quarter versus first quarter fiscal 2004, as well as approximately $4 million of favorable currency translation. First quarter income from operations was $13.1 million, an increase of 17 percent compared to $11.2 million for the first quarter of fiscal 2004, primarily driven by high-margin product mix in the Test segment.

Cash and cash equivalents at the end of the first quarter totaled $127 million, compared to $129 million at the end of fiscal year 2004. The Company repurchased approximately 184,000 shares of its common stock during the first quarter of fiscal 2005.

Segment Results

Test Segment:

Orders for the Test segment were $82.1 million for the first quarter of fiscal 2005, a decrease of 39 percent compared to orders of $134.4 million for the first quarter of fiscal 2004, primarily due to the two previously mentioned multi-year international contracts booked in the first quarter of fiscal 2004. Excluding these two contracts, orders for the first quarter of fiscal 2005 decreased 5 percent, driven by decreased volume in North America, partially offset by increased volume in Europe and Asia. Backlog increased 3 percent in the quarter, from $189 million to $194 million, compared to backlog of $213 million at the end of first quarter fiscal 2004. First quarter revenue was $83.3 million, an increase of 15 percent compared to $72.2 million for the first quarter of fiscal 2004, primarily due to higher backlog at the beginning of first quarter fiscal 2005 versus first quarter fiscal 2004, as well as approximately $3

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million of favorable currency translation. First quarter gross profit as a percent of revenue was 41.0 percent, an increase of 1.5 percentage points compared to 39.5 percent for the first quarter of fiscal 2004, primarily due to favorable product mix. The segment reported $11.5 million in income from operations, an increase of 11 percent compared to $10.4 million for the first quarter of fiscal 2004.

Industrial Segment:

Orders for the Industrial segment were $14.3 million for the first quarter, an increase of 12 percent compared to orders of $12.8 million for the first quarter of fiscal 2004. This increase reflects higher worldwide demand in the Sensors business. Backlog decreased 10 percent in the quarter, from $10 million to $9 million, compared to backlog of $9 million at the end of first quarter fiscal 2004. Revenue was $15.2 million for the first quarter, an increase of 23 percent compared to revenue of $12.4 million for the first quarter of fiscal 2004, driven by increased volume in the Sensors business. Gross profit as a percent of revenue was 43.3 percent, a decrease of 4.2 percentage points compared to 47.5 percent for the first quarter of fiscal 2004, primarily due to product mix. Income from operations was $1.6 million, an increase of 100 percent compared to income from operations of $0.8 million for the first quarter of fiscal 2004, primarily driven by higher volume in the Sensors business.

First Quarter Conference Call

A conference call will be held on Wednesday, January 26, at 9:00 a.m. CST (10:00 a.m. EST). Call +1-773-756-4623; state the Passcode “First Quarter” and conference leader “Chip Emery.” Telephone re-play will be available through 10:00 p.m. CST, February 25, 2005. Call +1-402-220-0218.

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 10:00 p.m. CST, April 22, 2005.

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 1,615 employees and revenue of $367 million for the fiscal year ended October 2, 2004. 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. 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 2, 2004.

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

	Three Months Ended
	January 1, 2005			December 27, 2003
Revenue	$	98,492		$	84,631
Cost of sales		57,757			50,219
Gross profit		40,735			34,412
Operating expenses:
Selling		16,337			13,549
General and administrative		7,274			6,375
Research and development		4,070			3,325
Total operating expenses		27,681			23,249
Income from operations		13,054			11,163
Interest expense		(595	)		(703	)
Interest income		427			418
Other income, net		118			655
Income before income taxes		13,004			11,533
Provision for income taxes		4,812			3,956
Net income	$	8,192		$	7,577
Earnings per share:
Basic earnings per share	$	0.42		$	0.37
Weighted average number of common shares outstanding – basic		19,709			20,759
Diluted earnings per share	$	0.40		$	0.35
Weighted average number of common shares outstanding – diluted		20,595			21,483

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

	January 1, 2005			October 2, 2004
ASSETS
Current Assets:
Cash and cash equivalents	$	127,365		$	129,303
Accounts receivable, net of allowances for doubtful accounts		64,602			66,066
Unbilled accounts receivable		51,216			35,896
Inventories		39,501			37,736
Prepaid expenses		5,366			4,108
Current deferred tax assets		6,314			6,290
Other current assets		94			256
Total current assets		294,458			279,655
Property and Equipment:
Land		2,478			2,478
Buildings and improvements		48,828			47,541
Machinery and equipment		88,357			87,265
Accumulated depreciation		(86,098	)		(84,509	)
Total property and equipment, net		53,565			52,775
Goodwill		4,527			4,447
Other assets		2,381			2,283
Non-current deferred tax assets		2,608			2,475
Total Assets	$	357,539		$	341,635
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
Current Liabilities:
Notes payable	$	1,660		$	1,501
Current maturities of long-term debt		6,830			6,841
Accounts payable		14,550			15,675
Accrued payroll-related costs		22,298			31,966
Advance payments from customers		57,941			49,918
Accrued warranty costs		7,018			6,147
Accrued income taxes		5,310			3,857
Current deferred income taxes		7,707			7,101
Other accrued liabilities		17,412			13,887
Total current liabilities		140,726			136,893
Deferred income taxes		1,500			1,382
Long-term debt, less current maturities		22,356			22,376
Other long-term liabilities		10,114			9,188
Total Liabilities		174,696			169,839
Shareholders’ Investment:
Common stock, $.25 par; 64,000 shares authorized:
19,720 and 19,652 shares issued and outstanding		4,930			4,913
Retained earnings		161,481			155,825
Accumulated other comprehensive income		16,432			11,058
Total shareholders’ investment		182,843			171,796
Total Liabilities and Shareholders’ Investment	$	357,539		$	341,635