Moog Inc. CFA Investment Research Challenge Canisius College Team Kevin Kuhlmann Daniel Schmitt Steve Jerz Thomas DiNunzio Anthony Magnano

BUSINESS Military and Commercial Aircrafts Satellites and Space Vehicles Launch Vehicles Missiles Industrial Machinery Wind Energy Marine Applications Medical Equipment Source: Company Data

SELL RECOMMENDATION Valuation Commercial Aircraft Outlook Risky Growth Strategy Financial Condition Concerns Defense Budget Outlook Source: Bloomberg Price Target: $39.67 Source: Scenario Analysis Current Price: $45.57

DEFENSE BUDGET The U.S. Defense Budget is Estimated to Remain Relatively Stagnant Over the Next Five Years 61% of Aircraft Controls Revenue Comes from the Military Moog’s Space and Defense Segment Will Also be Significantly Affected by the Defense Budget Source: Company Data; usgovernmentspending.com DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

DIVERSIFICATION Majority of Moog’s Revenue Concentrated in the U.S. Military/Government Revenue Accounted for 40% of Total Fiscal Year 2010 Revenues Boeing and Lockheed Martin Contributed 18% of Revenue Extremely Susceptible to Changes in the Defense Budget Source: Company Data; Wall Street Journal DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

Source: Company Data BUDGET CUTS The F-35 and the V-22 Moog also Supplies Components to Light Armored Vehicles for the Marines Almost $80 Billion Has Recently Been Cut From the Defense Budget, Including Programs to Which Moog Supplies Components V-22 F-35 DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

INCOME STATEMENT High Research and Development Costs as a Percentage of Sales Difficult to Integrate R&D Among Acquired Companies Inflated Net Profit Margin Led to Higher Return on Equity Source: Company Data; Bloomberg ROE Decomposition Q1 FY 2011 Net Profit Margin3.68%6.26%4.60%5.11%6.03% (x) Asset Turnover (x) Equity Multipler (=) Return on Equity6.96%12.73%8.25%9.89%11.77% DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

BALANCE SHEET Majority of Moog’s Long-Term Debt is Coming Due Within the Next 5 Years Large Amount of Goodwill from Moog’s Acquisition Strategy Increasing Pension Liabilities High Pension Expense Relative to Net Income Source: Company Data DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

STATEMENT OF CASH FLOWS In 2010, Depreciation and Amortization was Greater Than Capital Expenditures Moog Estimates Amortization to Decrease in the Next 5 Years We Estimate Capital Expenditures to Increase Faster Than Depreciation/Amortization Source: Company Data DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

Non-Organic Growth Moog’s Core Markets Have Not Been Growing Organically Fiscal Year 2010 was Deemed “The Year of the Recovery” However, There was very Little Organic Growth Without Acquisitions Moog’s Revenue Growth Would Have Been Far Different Segment Growth (in millions) Source: Company Data DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

COMMERCIAL AIRCRAFT Air Traffic Growth is Supposed to Grow at an Average 4% Rate Over the Next Few Years Airlines are Switching to Smaller Planes or Purchasing Aircraft That Can be Delivered Sooner Source: Boeing and Airbus Data DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

Economic Value Added TM Negative EVA in Four of the Previous Five Years Consistently Destroying Value for Moog Shareholders We Estimate This to Continue for at Least the Next Two Years Forward Weighted Average Cost of Capital of 9.39% Weighted Average Cost of Capital ForwardUpper RangeLower Range Effective Tax Rate (Estimate) 28.0% Cost of Debt (10yr Bond YTM) 6.48% Cost of Equity (CAPM) 12.60%13.21%11.98% WACC9.39%9.75%9.02% Source: Company Data; Student Estimates Economic Value Added TM Q FY2011 EBIT$142,010$173,289$205,774$149,882$188,178$45,780 Less Taxes$38,803$42,815$48,967$25,516$41,342$12,373 NOPAT$103,207$130,474$156,807$124,366$146,836$33,407 WACC9.39% (x) Total Capital$1,132,295$1,491,381$1,657,891$1,881,148$1,883,681$1,861,826 Opportunity Cost$106,323$140,041$155,676$176,640$176,791$43,706 EVA($3,116)($9,567)$1,131($52,274)($29,955)($10,299) ROIC9.11%8.75%9.46%6.61%7.80%7.18% DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

Present Value of Growth Opportunities PVGO:MOG.AHONDHR Current Price (1-Apr-11) $45.57$59.26$52.57 Forward EPS (Bloomberg) $2.77$3.83$2.70 Beta (Bloomberg) Cost of Equity (CAPM) 12.6%13.1%10.1% PVGO$23.61$30.11$25.71 As Percentage of Trading Price51.8%50.8%48.9% 5yr Growth Est. EPS Growth (Yahoo Finance) 10.80%15.10%16.14% Highest PVGO as Percentage of Trading Price Lowest 5 Year Estimated Growth Rate Overvalued Relative to Competitors Source: Company Data; Yahoo Finance; Bloomberg DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

Revenue Outlook for Free Cash Flow Model Aircraft Controls Positive Commercial Aerospace Outlook Negative Military Aerospace Outlook Uncertainty in Sales from the V-22 and F-35 Market Under perform Space and Defense Stagnant Defense Budget over the next few years Low Estimated Growth Potential with Budget Cuts Increased Competition for Government Contracts Market Under perform Industrial Systems Strong Growth through Acquisitions Organic Growth as the Economy Recovers Positive Outlook in Core Markets Market Out perform Components Negative Outlook for Aircraft and Defense Components Limited Growth with the Defense Budget Cuts Partially Offset by Higher Demand in Industrial Markets Market Under perform Medical Devices Strong Growth through Acquisitions Strong Aftermarket Sales New Product Offerings Market Out perform Source: Company Data; Student Estimates DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

Source: Student Estimates; Company Data (in millions) E2012E2013E2014E2015E Aircraft Controls Space and Defense Controls Industrial Systems Components Medical Devices Net Sales$2,114$2,241$2,362$2,490$2,661$2,871 Cost of Goods Sold1,5021,5801,6531,7301,8361,967 Research & Development Selling, General & Administrative Other8 EBIT$188$213$231$251$277$307 Taxes NOPAT$147$163$176$190$208$230 Depreciation & Amortization Non-cash Losses Compensation Expense Capital Expenditures(66)(90)(94)(106)(120)(136) Change in Net Working Capital(7)(9)(15)(40)(53)(65) FCFF$225$221$228$212$211$214 Free Cash Flow Valuation Capital Expenditures Growth is Estimated to Outpace Depreciation & Amortization Growth Rate Assumptions 4.5% for 5 years Aircraft Controls 6% for 3 years; 11% for 2 years Space and Defense 11% in 2011; decreasing 1% per year Industrial Systems (3%) in 2011; increasing 2% per year Components 10.5% in 2011; increasing 0.5% per year Medical Devices DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

SCENARIO ANALYSIS The Scenario Analysis Shows How Changes in Terminal Values, Weighted Average Cost of Capital and Cost of Sales Affect the Intrinsic Value Our Free Cash Flow Price Target Based on the Scenario Analysis and Revenue Estimates is $39.67 Scenario Analysis RiskBaseOptimisticPessimistic Terminal Value (in millions) $2,490$2,990$2,279 WACC9.39%9.02%9.75% Cost of Sales70.5%70.0%71.0% Intrinsic ValueBaseOptimisticPessimistic Terminal Value$32.69 $39.67 $29.74 WACC $33.46$31.96 Cost of Sales $33.44$31.94 Intrinsic Value of $39.67 Cost of Sales of 70.5% WACC of 9.4% Terminal Value of $2.99 Billion Source: Student Estimates DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

POSITIVESNEGATIVES Financial Condition Issues Risky Growth Strategy Defense Budget Outlook Strong Management Strong Aircraft Outlook Innovative Company Final Recommendation: SELL Current Trading Price: $45.57