mts100503_ex99-1.htm - Generated by SEC Publisher for SEC Filing

Ø 13 percent sequential increase in orders to $108 million; third consecutive quarter of orders growth

Eden Prairie, Minn., February 4, 2010 – MTS Systems Corporation (NASDAQ: MTSC) today reported fiscal 2010 first quarter financial results.

“We are pleased to again see sequential improvement in orders and backlog in both of our business segments during the first quarter. Our strong first quarter order results still supports our prevailing view that the market will produce a broad range of possible order outcomes” said Laura B. Hamilton, MTS chair and chief executive officer. “As we look forward, there are several aspects of our business and the market that support our cautious sense of optimism. First, overall market conditions remained relatively unchanged during the quarter and this sense of ongoing stability is reassuring. Second, the expense-reduction and efficiency initiatives implemented over the past several quarters successfully aligned our cost structure with this environment. Third, we are encouraged that our shorter-cycle Sensors segment, which was more immediately impacted by the economic downturn at its onset, is achieving margin results similar to pre-recession levels.”

Orders were $107.7 million, an increase of 13 percent compared to fourth quarter 2009, including growth in both segments. This increase included two large Test segment orders in excess of $5 million totaling $20 million, compared to one large order of $7 million in the prior quarter. Backlog rose 10 percent to $184 million.

Revenue was $89.0 million, a decrease of 5 percent compared to the previous quarter. The overall decrease primarily reflects the impact of an extra week in the prior quarter and was comprised of an 8 percent decline in the Test business, partially offset by an 8 percent increase in the Sensors business.

Gross profit was $35.2 million, up 12 percent compared to fourth quarter 2009. Gross margin rate was 39.5 percent, up 6.2 percentage points. Severance charges reduced the fourth quarter 2009 margin rate by 5.4 percentage points.

Income from operations was $6.4 million, an increase of $10.3 million compared to the prior quarter, which included severance charges of $8.1 million. Lower operating expenses in the first quarter resulted from prior year workforce reductions and reduced discretionary spending.

Net earnings were $0.23 per share, an increase of $0.41 compared to the prior quarter which included severance charges of $0.33 per share.

Cash and cash equivalents at the end of the first quarter totaled $113.7 million, compared to $118.9 million at the end of fourth quarter fiscal 2009. Operating activities generated cash of $1.7 million. During the first quarter, the Company invested $1.8 million in capital expenditures, paid $2.5 million in dividends and purchased approximately 52,700 shares of its common stock for $1.4 million.

Orders totaled $90.1 million, an increase of 14 percent compared to fourth quarter 2009, driven by higher volume in the Americas and Europe, partially offset by lower volume in Asia and the impact of an extra week in the prior quarter. Orders included two large custom orders totaling $20 million, compared to one large order of $7 million in the prior quarter. Backlog increased 10 percent to $172 million. The Test segment is a longer-lead cycle business, with changes in revenue lagging changes in orders. Revenue was $71.9 million, a decrease of 8 percent, partially reflecting the impact of an extra week in the prior quarter. Currency translation favorably impacted revenue by 1 percent.

Gross profit was $25.8 million, a gain of $3.3 million or 15 percent, compared to last quarter. First quarter gross margin rate was 35.9 percent, an increase of 7.0 percentage points compared to the prior quarter. It included a 6.4 percentage point favorable impact from severance charges and 3.0 percentage points due to lower warranty expense which was partially offset by 2.4 percentage points from lower volume.

Income from operations was $3.2 million, compared to a loss of $4.9 million in the prior quarter, which included $7.2 million of severance charges. Excluding these severance charges, operating expenses declined $2.7 million in the quarter from prior year workforce reductions and reduced discretionary spending.

Orders totaled $17.6 million, a 6 percent increase compared to fourth quarter 2009, due to higher volume in Europe and Asia and a 2 percent favorable impact of currency translation, partially offset by lower volume in the Americas and the impact of an extra week in the prior quarter. Backlog rose 4 percent to $12 million. Revenue was $17.1 million, an increase of 8 percent, driven by higher order volume and a 2 percent favorable impact of currency translation, partially offset by the impact of an extra week in the prior quarter. Gross profit was $9.4 million, up $0.6 million or 7 percent. First quarter gross margin rate was 54.8 percent, essentially flat.

Income from operations was $3.2 million, an increase of $2.2 million compared to fourth quarter fiscal 2009, due to higher gross profit and $0.6 million lower operating expenses. Severance costs last quarter were $0.9 million.

Orders for the first quarter rose 13 percent compared to first quarter 2009, driven by the previously mentioned two large custom orders and a 4 percent favorable impact of currency translation, partially offset by lower volume in the Sensors segment across all geographies. Revenue was $89.0 million, a decrease of 24 percent, primarily due to a 29 percent lower opening backlog, partially offset by a 3 percent favorable impact of currency translation. In the year-earlier quarter, MTS had not significantly experienced the effects of the global economic downturn.

Gross profit was $35.2 million, down 20 percent. The gross margin rate was 39.5 percent, an increase of 1.6 percentage points, primarily due to favorable product mix in the Test segment, partially offset by lower volume in both segments. Income from operations was $6.4 million, a decrease of 46 percent, primarily driven by $9.0 million lower gross profit, partially offset by a $3.5 million reduction in operating expenses. EPS for the quarter decreased 60 percent to $0.23 per share, driven by lower income from operations, unfavorable currency related losses, and a higher tax rate. The tax rate for the quarter rose to 32.7% from 24.1% due to the benefit received from the enactment of favorable U.S. tax legislation in the first quarter last year.

Hamilton concluded, “We are confident that the steps we have taken to improve our operational and financial strength over the past several quarters provide a solid basis from which to pursue our platform of strategic growth initiatives including expansion in the industrial market, continued investment in mobile hydraulics, leveraging our geographic presence and leadership particularly in China, leveraging our base in lifecycle management and capitalizing on specific end-market opportunities such as wind and rail.”

A conference call will be held on February 5, 2010, at 10 a.m. EDT (9 a.m. CST). Call +1-719-325-4757 (Toll Free: +1-877-681-3374); and reference the conference pass code “3204599.” Telephone re-play will be available until 12 p.m. CST, February 12, 2010. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference replay pass code “3204599.”

A transcript of the call can also be accessed from the MTS website at http://www.mts.com/en/InvestorRelations/index.asp. It will be available on February 10, 2010.

MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company’s testing hardware and software solutions help customers accelerate and improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. MTS’ high-performance position sensors provide controls for a variety of industrial and vehicular applications. MTS had 2,015 employees and revenue of $409 million for the fiscal year ended October 3, 2009. 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. Important risk factors are delineated in the Company’s most recent SEC Form 10-Q and 10-K filings.

	Three Months Ended
	January 2, 2010			December 27, 2008

Revenue	$	88,960		$	116,609
Cost of sales		53,778			72,388
Gross profit		35,182			44,221
Gross margin		*39.5*	%		37.9	%

Operating expenses:
Selling, general and administrative		25,384			29,023
Research and development		3,370			3,259
Total operating expenses		28,754			32,282

Income from operations		6,428			11,939
Operating margin		*7.2*	%		10.2	%

Interest (expense) income, net		(408	)		9
Other (expense) income, net		(319	)		894

Income before income taxes		5,701			12,842
Provision for income taxes		1,864			3,091
Net income	$	3,837		$	9,751

Earnings per share:
Basic-
Earnings per share	$	0.23		$	0.58
Weighted average number of common shares outstanding - basic		16,579			16,936

Diluted-
Earnings per share	$	0.23		$	0.57
Weighted average number of common shares outstanding - diluted		16,617			16,989

	January 2, 2010		October 3, 2009
ASSETS

Current Assets:
Cash and cash equivalents	$	113,681	$	118,885
Accounts receivable, net		89,591		72,553
Unbilled accounts receivable		18,244		27,246
Inventories		48,432		47,969
Other current assets		19,670		18,905
Total current assets		289,618		285,558

Property and equipment, net		55,177		56,118

Goodwill		15,174		15,206
Intangibles, net		23,551		23,826
Other assets		5,768		6,206
Total Assets	$	389,288	$	386,914

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

Current Liabilities:
Short-term borrowings	$	40,138	$	40,182
Accounts payable		17,994		18,630
Advance payments from customers		50,835		46,739
Other accrued liabilities		62,318		62,441
Total current liabilities		171,285		167,992

Other long-term liabilities		14,929		14,957
Total Liabilities		186,214		182,949

Shareholders’ Investment:
Common stock, $.25 par; 64,000 shares authorized:
16,524 and 16,564 shares issued and outstanding		4,131		4,141
Retained earnings		175,079		174,301
Accumulated other comprehensive income		23,864		25,523
Total shareholders’ investment		203,074		203,965
Total Liabilities and Shareholders’ Investment	$	389,288	$	386,914

	Three Months Ended
Test Segment	January 2, 2010			October3, 2009			% Variance

Orders	$	90,100		$	78,993		14	%

Revenue	$	71,873		$	77,954		-8	%
Cost of sales		46,060			55,413		-17	%
Gross profit		25,813			22,541		15	%
Gross margin		*35.9*	%		28.9	%	7.0	%

Operating expenses		22,576			27,456		-18	%

Income (loss) from operations	$	3,237		$	(4,915	)	166	%

Sensors Segment

Orders	$	17,588		$	16,548		6	%

Revenue	$	17,087		$	15,887		8	%
Cost of sales		7,718			7,150		8	%
Gross profit		9,369			8,737		7	%
Gross margin		*54.8*	%		55.0	%	-0.2	%

Operating expenses		6,178			7,722		-20	%

Income from operations	$	3,191		$	1,015		214	%

Total Company

Orders	$	107,688		$	95,541		13	%

Revenue	$	88,960		$	93,841		-5	%
Cost of sales		53,778			62,563		-14	%
Gross profit		35,182			31,278		12	%
Gross margin		*39.5*	%		33.3	%	6.2	%

Operating expenses		28,754			35,178		-18	%

Income (loss) from operations⁽¹⁾	$	6,428		$	(3,900	)	265	%

	Three Months Ended
Test Segment	January 2, 2010			December 27, 2009			% Variance

Orders	$	90,100		$	77,034		17	%

Revenue	$	71,873		$	97,208		-26	%
Cost of Sales		46,060			63,927		-28	%
Gross profit		25,813			33,281		-22	%
Gross margin		*35.9*	%		34.2	%	1.7	%

Operating expenses		22,576			24,241		-7	%

Income from operations	$	3,237		$	9,040		-64	%

Sensors Segment

Orders	$	17,588		$	18,310		-4	%

Revenue	$	17,087		$	19,401		-12	%
Cost of Sales		7,718			8,461		-9	%
Gross profit		9,369			10,940		-14	%
Gross margin		*54.8*	%		56.4	%	-1.6	%

Operating expenses		6,178			8,041		-23	%

Income from operations	$	3,191		$	2,899		10	%

Total Company

Orders	$	107,688		$	95,344		13	%

Revenue	$	88,960		$	116,609		-24	%
Cost of Sales		53,778			72,388		-26	%
Gross profit		35,182			44,221		-20	%
Gross margin		*39.5*	%		37.9	%	1.6	%

Operating expenses		28,754			32,282		-11	%

Income from operations	$	6,428		$	11,939		-46	%

MTS Systems Corporation

News Release