Moog Inc. CFA Investment Research Challenge Canisius College Team Kevin Kuhlmann Daniel Schmitt

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

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

3. Current Price: $45.57 Source: Bloomberg Price Target: $39.67 Source: Scenario Analysis

4. 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

5. 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

6. V-22 • 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 F-35 Source: Company Data DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

7. 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 DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

8. 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

9. 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

10. Segment Growth (in millions) • 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 Source: Company Data DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

11. 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

12. 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% Source: Company Data; Student Estimates DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

13. Source: Company Data; Yahoo Finance; Bloomberg DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

14. Revenue Outlook for Free Cash Flow Model Source: Company Data; Student Estimates DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

15. Free Cash Flow Valuation Growth Rate Assumptions Capital Expenditures Growth is Estimated to Outpace Depreciation & Amortization Source: Student Estimates; Company Data DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

16. 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 Source: Student Estimates DEFENSE BUDGET OUTLOOK FINANCIAL CONDITION CONCERNS RISKY GROWTH STRATEGY COMMERCIAL AIRCRAFT OUTLOOK VALUATION

17. Current Trading Price: $45.57 Innovative Company Final Recommendation: SELL