avatar Moog Inc. Manufacturing

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    M ANNUAL REPORT 2015


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    TA B L E O F C O N T E N T S Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chairman’s Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Our Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Aircraft Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Space and Defense Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Industrial Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Medical Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 FINANCIAL PERFORMANCE DILUTED EARNINGS PER SHARE RECENT FINANCIAL PERFORMANCE (In dollars) (Dollars and shares in millions, except per share data) $ 4.00 $ 3.52 2015 2014 $ 3.50 $ 3.33 $ 3.35 $ 2.95 NET $ 3.00 $2,526 $2,648 SALES $ 2.75 $ 2.63 $ 2.50 $ 2.34 $ 2.36 NET $132 $158 EARNINGS $ 1.97 $ 1.98 $ 2.00 $ 1.64 DILUTED EARNINGS $3.35 $3.52 $ 1.50 PER SHARE EQUITY $ 1.00 MARKET $1,997 $2,841 CAPITALIZATION $ 0.50 AVERAGE SHARES 39.3 45.0 OUTSTANDING $ 0.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Measured as of fiscal year end FISCAL YEAR 10 Year Compound Annual Growth Rate = 7.4% moog 1


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    CHAIRMAN’S LETTER To Our Shareholders, Employees and Friends, I’d like to open my annual letter by paying tribute to the nearly 11,000 Moog employees around the world for their dedication and commitment . This report is a testimony to their hard work and ingenuity in supporting the most demanding applications in the world . I hope you find it informative . I had the good fortune to join Moog as a design engineer in 1990 . As we close out another year, and consider what the coming year holds for us, I thought it would be interesting to reflect on the longer-term evolution of our company . Since 1990, our company has transformed itself from a motion control components supplier into an integrated systems supplier on a vast array of applications . Over this time, our sales have grown eightfold . This expansion came from the vision, hard work and tenacity of thousands of Moog folks around the world . Looking through this annual report for 2015 will give you a sense for the breadth of customers we serve, the range of applications we tackle and the depth of technology our company possesses . Comparing with our annual report from last year, one might conclude that our company does not change much from year to year . This short term stability, however, belies the incredible strides we have made over time . The markets we serve evolve over many years, and sometimes decades, requiring a longer-term lens to gain a true understanding of the achievements of the Moog team . Over the last 25 years, we have become the leading supplier of flight control systems, both military and commercial, worldwide . We have watched dozens of first flights and then celebrated the outstanding performance of our flight controls . We have developed our industrial businesses beyond hydraulic components to provide a full range of motion solutions in industries as diverse as wind turbines and flight simulation . We have become the world’s leading supplier of slip rings for every application imaginable . Our products were used to put astronauts into space and rovers on the surface of Mars . Our technologies have helped protect those who defend our freedom . Moog control solutions have been put to work in every environment from the depths of the ocean to the farthest reaches of our solar system . It is a rich heritage, built up year after year on a core set of values . We like to refer to ourselves as the company our customers choose “when performance really matters .” The elements that have made our company successful over the last 25 years are unchanged from the time of our founding in 1951 . They include a focus on customers, a sense of commitment in everything we do and a culture where we work together to achieve success . Customer intimacy is how we go to market . We rarely sell the exact same product to two customers . They are typically looking for something special – not something they can find in a catalog . Sometimes, it is a simple modification to an existing product, other times it is a multi-year development program to deliver equipment tailored to the unique requirements of their application . In every case, our interest is to understand and solve our customers’ problem . This is what helps us win their business . Our customers put their trust in us to solve their toughest problems . Commitment to meeting our promises is very important to us . If we say we will do something, we work very hard to make it happen . Sometimes, meeting our commitments can be more challenging and expensive than planned . Not every opportunity turns out as we expect, but we always make the necessary investments to fulfil our promises . We believe that our sense of commitment has paid off over the long term . Our company culture is very important to us . It is what binds us together and enables our success . It is a culture of mutual trust and respect . It is a culture that values personal contribution over title . It is a culture of team work – where we look to solve problems and avoid blame . Mistakes are opportunities to learn . It is a culture which values performance and a willingness to adapt to change . We are not always perfect in living our culture but we keep it before us at all times and let it guide our actions . Looking back on the years since I first joined Moog, we have enjoyed periods of great growth and success and other periods of more challenging market conditions . When our customers have struggled with their businesses, and bought less of our products, we have been forced to restructure our company in response . Reflecting on the year we just closed, 2015 was certainly a year of challenging market conditions but also a year of continued investment for the long-term . In 2015, our defense businesses had both top line pressure and negative mix shifts . Our industrial businesses wrestled with foreign currency movements and the deteriorating economic conditions in both Europe and Asia . In addition, our sales into the energy markets were particularly hard hit by the drop in oil prices . Our commercial aircraft growth slowed and our supply chain did not meet our cost targets as quickly as we forecasted . In spite of these challenges, we delivered solid earnings and record cash flow . We deployed our cash to buy back shares and recapitalized our balance sheet to provide for future flexibility . Looking to 2016 and beyond, it is interesting to view our business in terms of the end markets we serve . Those markets are defense, industrial, commercial, energy, space and medical . 2 moog


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    Defense is the bedrock for Moog . There are early signs that defense spending is starting to recover as global conflicts continue . While some of our legacy programs are declining, the F-35 Joint Strike Fighter program is growing and we’re well positioned on the tanker program . Our ground vehicle business is recovering and our missile business remains very strong . We’re actively pursuing new programs, including Long-Range Strike, and are working closely with the military depots to expand our scope of supply in the aftermarket . Defense is a long-term play, and we remain focused on building a portfolio of platforms which will provide solid returns for decades to come . In our industrial markets, our success is based on innovative new products which deliver enhanced value in our customers’ applications . In slow economic periods, we believe it is important to continue that investment . Our areas of focus today include next generation hydraulic solutions for use in autonomous systems and very large brushless motors for use in a variety of specialized industrial applications . Our commercial aircraft business does not face a growth challenge like some of our other businesses . In this market, we’ve invested for over a decade to win enviable positions on major new platforms . Our growth is assured, and our challenge is internal as we work to complete the development programs and reduce our production costs . We still have a year or two to go to turn the corner in this business, but over the following years, we’ll see the benefits of reducing costs, lower R&D expenses and a growing aftermarket . Our strategy in the energy market is twofold . In the oil & gas business, we’re reducing costs while still looking for growth opportunities during this period of depressed returns . Oil is a limited commodity, and an eventual recovery in the price seems inevitable . In the wind business, we’re investing in new product technology to rebuild our market position . We believe wind has the potential to be a very large market for Moog towards the end of this decade . In our space business, we’re going through a consolidation of our facilities and product lines which will continue for the next year . We’re also looking to the longer-term as we invest in new technologies, such as green propellant, and capture early contracts on the Ground Based Strategic Deterrent program . This program, to refurbish the Minuteman missiles, has the potential to be a major program for Moog, although full production is probably 10 years in the future . Finally, sales into medical markets remain healthy . We continue to find new opportunities to sell our components into medical OEM’s . In our pump business, we’re investing in next generation IV and Enteral pumps which, we believe, will grow our share and create value for the long term . Over the last 25 years, we’ve built an underlying portfolio of businesses which is very strong . Like many companies, during the last few years we’ve faced a slow-growth environment and significant mix shifts . We’ve taken the necessary steps to respond to these challenges . Through this period, our strategy has not changed – we solve our customers’ toughest problems in applications where performance really matters . We focus on niche markets where we seek to be the dominant supplier . Our growth comes from expanding our range of high-performance components while also increasing our scope to become a systems supplier to our major customers . Growth will continue to be a combination of organic and acquired . Our internal initiatives to deliver on our goals are unchanged – Talent Development, Lean and Innovation . Through the daily successes and challenges, the celebrations and disappointments, we’ll continue to focus on our customers, work hard to meet our commitments and live our culture of mutual respect and teamwork . I would like to finish my letter with a tribute to our retiring director, Mr . Bob Maskrey . Bob joined Moog in 1965 . Over his 40 years as an employee and another 10 years as a director, Bob provided outstanding vision and leadership to help build the company we have today . Bob had the amazing ability to be both the engineer’s engineer – as well as a wise and thoughtful leader . He was a tireless friend of the company and we will miss his support and counsel . We wish him well in his retirement . Respectfully submitted, moog 3


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    OFFICERS AND DIRECTORS Left to Right,Top to Bottom: Larry Ball, Dick Aubrecht, Sean Gartland, Harald Seiffer, Gary Szakmary, Sash Eranki, Mark Trabert, Pat Roche, Don Fishback, John Scannell, Maureen Athoe, Eric Burghardt JOHN R. SCANNELL KRAIG H. KAYSER DONALD R. FISHBACK MAUREEN M. ATHOE SEAN GARTLAND Chairman of the Board Director Director President Vice President Chief Executive Officer President and CEO Vice President Space and Defense Strategic Growth Initiatives Seneca Foods Corp . Chief Financial Officer RICHARD A. AUBRECHT PATRICK J. ROCHE TIMOTHY P. BALKIN Director R. BRADLEY LAWRENCE GARY A. SZAKMARY President Treasurer Vice Chairman of the Board Director Vice President Industrial Systems Assistant Secretary VP – Strategy and Technology Retired Chairman and CEO Chief Human Resources Officer HARALD E. SEIFFER JENNIFER WALTER Esterline Technologies WILLIAM G. GISEL, JR. R. ERIC BURGHARDT Vice President Controller Director BRIAN J. LIPKE President Industrial Products Principal Accounting Officer President and CEO Director Aircraft Controls LAWRENCE J. BALL ROBERT J. OLIVIERI Rich Products Corp . Retired Chairman and CEO MARK J. TRABERT President Secretary Gibraltar Industries PETER J. GUNDERMANN President Components Partner Director ROBERT H. MASKREY Aircraft Controls Hodgson Russ, LLP President and CEO Director SASIDHAR ERANKI Astronics Corp . Retired Executive VP, COO Vice President Moog Inc . Deputy General Manager Aircraft Controls 4 moog


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    OUR TECHNOLOGY For over 60 years, Moog engineers have been designing and manufacturing the most advanced motion control products for applications where precise control of velocity, force, acceleration and fluid flow are critical . Customers select our products when performance really matters . Our strategy is to supply highly customized motion control solutions that are robust, reliable and supportable . We do this across a broad range of applications – from undersea to space . Our products reflect the culture that our employees embrace – a culture where the opportunity to solve a really challenging control problem is always welcomed . AIRCRAFT FLIGHT CONTROL COMPUTERS AND SOFTWARE MULTI-MISSILE LAUNCHING PEDESTAL – TURN KEY At the heart of modern flight control systems is the flight control computer Moog’s turn-key missile launching pedestal was designed for land and sea (FCC) . The FCC monitors pilot commands and in response transmits use . The pedestal supports a wide range of missiles and can be delivered electronic signals to actuators in the wing and tail to position the flight to customers more efficiently because it uses Moog in-house components control surfaces . Moog has been designing, certifying and producing FCCs including sensors, slip rings, fire control, stores management, drive systems and accompanying software as part of our integrated flight control systems and electronics . It can be mounted on military vehicles or surface ships offering since the mid 1990s . The Moog FCC platform shown above features and features a unique hinged reloading mechanism that allows for quick a proprietary triplex dissimilar, redundant architecture that has been and safe missile replenishment . The stabilization option provides shoot-on- certified by the FAA for commercial transports, long range and super mid- the-move capability . Moog six degrees of freedom motion bases are used sized business jets . Moog is currently qualifying FCCs as part of larger to test pedestals and replicate battlefield conditions . flight control systems for the Embraer E-Jet E2 family of aircraft and the Bell V280 Valor tiltrotor aircraft . SMARTMOTOR™ ELECTRIC MOTION BASES Moog SmartMotors™ and linear actuators are used in a wide array of All military and commercial pilots train on simulators that incorporate a applications, from general factory automation, to robotics, material specific aircraft model’s exact flight deck and controls with a real-world handling, entertainment automation, product packaging and winding and visual system . Moog electric motion bases and software, installed on flight spooling applications . A SmartMotor is a fully integrated motion control simulators, are designed to provide high-fidelity motion that enhances solution, incorporating a motor, an encoder, an amplifier, a controller, high- safety and the operational effectiveness of air crews . Moog electric bases speed communications, and signal inputs and outputs . SmartMotors are for full-flight simulators were the first to attain Level D Flight Certification easily programmable and can be linked together to share information to by the U .S . Federal Aviation Authority (FAA) . The Level D rating is based on rapidly solve motion control tasks . They require minimal wiring and the evaluation of a simulator’s realism in relation to a pilot flying an actual maintenance, simplify machine building, and allow users to quickly get aircraft . Our systems include electric actuators, controls and motion their automation projects in place – or get their OEM product to market faster . software for the simulator . moog 5


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    AIRCRAFT CONTROLS We supply integrated systems and critical control products for military, commercial and business aircraft For 2015, revenues from development, production and aftermarket support of our aircraft products were $1 .1 billion . On the commercial production side, we provide flight controls for Airbus and Boeing commercial aircraft . Airbus’ A350 XWB wide body is entering service . Our A350 content includes the primary flight control actuation and trailing edge flap actuation . Moog systems on the Boeing 787 Dreamliner control all of the primary and secondary flight surfaces, horizontal stabilizer, leading edge slats and trailing edge flaps . Embraer’s E-Jet E2 family is currently our largest commercial development program . Moog is providing the primary flight control system, including flight control computers and software, flight control actuators and related control electronics for the E2 family with the first flight scheduled for 2016 and entry into service in 2018 . Moog’s Total Support aftermarket program provides airlines with a comprehensive range of aftermarket service, including maintenance support and 24/7 inventory access at Moog’s worldwide stocking locations . Our largest military flight control program is the F-35 Joint Strike Fighter, with all three variants currently in low rate production . The KC-46 tanker, in development at Boeing, is based on the 767 aircraft platform with a modernized fly-by-wire refueling boom . A Moog actuation system extends, retracts and guides the boom . We also provide significant production and aftermarket support for the F-15, F-18, V-22 Osprey and Black Hawk and Seahawk® (H-60/S-70) helicopters . PRODUCTS Military and Commercial Helicopters: COMPETITIVE ADVANTAGES • Integrated primary and secondary flight control • H-60/S-70, H-53, EH-101, S-76, S-92, V-22, • Flight control system design and integration systems V-280, AH-64, A109, A129, AB139, AW159, AW609, Future Lynx, 525 • Complete actuation system integration capability • Flight control computers and software • Unparalleled experience in design of primary and Military Engine Controls: • Actuator control electronics secondary flight control systems, both in the U .S . and • F-404, F-414, F-110, F-119, F-135, EJ200, AE2100, overseas • Flight control actuators using hydraulic, mechanical, T406, RTM322, T700 electromechanical and electrohydrostatic technologies • State-of-the-art technology in flight controls, engine Commercial Engine Controls: controls, navigation and guidance, and active vibration • Stabilizer trim controls and multi-axis feel and trim systems • CF-6, GE90, V2500, RB211 and Trent, Honeywell controls APUs, PW 901, PW1100G • World-class manufacturing facilities staffed with a • Wingfold, bladefold and weapons bay actuation systems Customer Support: skilled, experienced and team-based workforce • Active vibration control systems • All current production programs above plus legacy • Focused, highly-responsive global aftermarket support programs including A-7, A-10, A300, A340, AH-64, organization • Engine thrust vector control actuation systems AMX, B-1B, B-2, B-52, BAE-146, C-5, C-130, C-141, • Flight control servovalves CH-46, CH-47, CH-53, DC-8, DC-9, DC-10, E-2C, • Engine control actuators and servovalves EA-6B, F-2, F-4, F-100, F/A-18C/D, F/A-22, Hawk, COMPETITORS • Aircraft braking and steering selector manifolds and KC-10, KC-135, MD-11, MD-80, MD-90, P-3, T-45, • Parker Hannifin, UTC (Goodrich, Hamilton Sundstrand), servovalves Tornado, U-2, VC-10, 757 Liebherr, Nabtesco, Woodward, Curtiss-Wright • MEMS-based inertial sensors and inertial measurement units • Ground-based navigation aids Commercial Aircraft OEM MAJOR PROGRAMS Military Aircraft $ 372 M Military Aircraft: Aftermarket $ 210 M • F-35, F-15, F/A-18E/F, EA-18G, F-16, KC-46, A400M, Korea T-50, C-27J, C-295, CN-235, Eurofighter-Typhoon, JAS 39, India LCA, Japan XC-2, XP-1, Hawk AJT, M346 Commercial Aircraft Unmanned Aerial Systems: Aftermarket • X-47B UCAS-D, Hunter, Heron, Searcher Military $ 118 M Aircraft OEM Commercial Airplanes: $ 337 M • Boeing 737, 747, 767, 777, 787 Business Jets $ 50 M • Airbus A320, A330, A350, A380 • COMAC C919 • Embraer E-Jets E2 • Bombardier Q400 Business Jets: • Bombardier Challenger 300, 604, 605 and Global Express, Cessna Citation X, Gulfstream G280, G350, G400, G450, G500, G550, G600, G650 FY 2015 SALES – $1,087 M 6 moog


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    F35C Lightning IIs and F/A-18E/F Super Hornets Courtesy of U.S. Navy / Lt. Cmdr. Darin Russell KC-46 Pegasus Tanker Airbus A350 XWB Courtesy of Boeing and U.S. Air Force / John D. Parker Courtesy of HGabor MV-22 Osprey Tiltrotor BoeingXxxxxxxx 787-9 Dreamliner Xxxxxxxx Courtesy of U.S. Navy / MC Spec. 3rd Class Cameron McCulloch CourtesyCourtesy of Craig of Xxxxxxxxx Stevens Xxxxxxxxx HH-60G Pave Hawk Gulfstream G500 Courtesy of U.S. Air Force / Sr. Airman 1st Class John Linzmeier ©Gulfstream Aerospace Corporation moog 7


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    SPACE AND DEFENSE CONTROLS We provide unmatched mission critical solutions for space, air, land and sea platforms Revenues in the Space and Defense segment were $381 million in 2015 . Over the past 60+ years, we’ve evolved into a higher-tier space systems supplier, providing hardware, integration and launch support for satellites and the launch vehicles that carry them into orbit . We support an average of two launches and four spacecraft monthly, with Moog content that includes servovalves used in Thrust Vector Control (TVC) actuators, entire TVC systems including actuators, control avionics, cold cryogenic liquid propellant control valves, and the valves and thrusters used for roll and reaction control systems . On the development side, we are supporting NASA’s Space Launch System (SLS) and Orion vehicles, and the Soft Capture System being developed by Boeing for NASA’s new docking system . The SLS is designed to be flexible for crew or cargo missions and will back up NASA’s commercial and international partner transportation services to the International Space Station . In the defense market, Moog engineers keep warfighters and their ever-changing mission scenarios in mind at every stage of product design and development . Our electromechanical actuation systems control turret aiming and stabilization on air, land and sea platforms . Moog missile fin steering controls and divert and attitude control thruster valves steer the HELLFIRE®, TOW, and other missiles . Traditional or rapid system development and advanced mechanical integration address the needs of the U .S . and a number of other global military forces . PRODUCTS Naval Systems: COMPETITORS • Thrust vector control actuation systems, avionics, • Virginia-class submarines, USS Gerald R . Ford aircraft Spacecraft Controls: propulsion controls and structures for missiles and carrier • Propulsion – Airbus, Marotta, Vacco, ValveTech launch vehicles Sensor and Surveillance Systems: • Motion Controls – Aeroflex, RUAG, Sierra Nevada Corp . • Liquid rocket engines, tanks, chemical and electric • Military, industrial, commercial and process control applications • Vibration Control – ATA Engineering, Honeywell, propulsion systems, subsystems and components for Lord Corp . spacecraft and launch vehicles Spacecraft Avionics: • Solar array drives, antenna pointing mechanisms COMPETITIVE ADVANTAGES • BAE, SEAKR, Southwest Research Institute • Spacecraft avionics and software, occultation science payloads, GPS receivers and communications • Multi-tier provider capable of components, systems Missile and Launch Vehicle Steering and Propulsion transceivers and prime level integration Controls: • Vibration suppression for aerospace, defense and • Fluid and motion control heritage • Honeywell, SABCA, UTC Aerospace Systems, Vacco, commercial applications • World-class, high volume manufacturing Valcor • Fin actuation systems, divert and attitude control • High reliability electronics design with assembly and Defense Control Systems: components for missiles and interceptors test facilities • Curtiss-Wright, ESW, Woodward • Weapon Stores Management Systems (SMS) for use Naval Systems: on platforms for the deployment of missiles, guns and • Flowserve Limitorque, Honeywell, Sargent Aerospace rockets & Defense • Motion control systems for turreted weapon systems, Surveillance/Security: ammunition handling and expeditionary radar • Chess Dynamics, Cohu, Pelco by Schneider Electric, deployment Videotec • EM and EH actuation products for naval ships, submarines and autonomous underwater vehicles • Pan and tilt positioners, rugged tripods and Space surveillance systems $ 192 M MAJOR PROGRAMS Defense Spacecraft and Payload Applications: $ 189 M • LS-1300, Eurostar, Spacebus, LM A2100, DS-1000/2000, EAGLE, GEOStar, James Webb Space Telescope, GPS III, Galileo, ORBCOMM, NICER, SkySat Launch Vehicle and Strategic Missile Controls: • Trident D-5, Minuteman III, Antares®, Atlas V, Delta IV, Ariane 5, Vega, Minotaur, Falcon 9, NASA’s Space Launch System and Orion, CST-100 Commercial Crew Vehicle Missile Steering Controls: • HELLFIRE®, TOW, Tomahawk, EKV, MALD® Defense Controls: • LAV-25, LAV-AT, CV90 family, FLW 100/200 RWS, AC-130 Stinger II, G/ATOR Radar FY 2015 SALES – $381 M 8 moog


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    Orion Spacecraft Courtesy of NASA Space Launch System - SLS Block 1 Configuration 1300 Series Satellite - nbn Broadband Network, Australia Courtesy of NASA/MSFC Courtesy of SSL LAV-25 AT, Light-Armored Vehicle with Anti-Tank Weapons System AGM-114 HELLFIRE® Missile - FinXxxxxxxx SteeringXxxxxxxx Controls Courtesy of U.S. Marine Corps / Lance Cpl. Medina Ayala-Lo Courtesy of U.S. Navy / MCCourtesy Spec. 2nd of Class DanielXxxxxxxxx Xxxxxxxxx M. Young EXO Series GeminEye Surveillance Cameras PCU North Dakota (SSN784), Virginia Class Quiet Actuation Courtesy of Aaron Hallstrom Courtesy of U.S. Air Force / Sr. Airman 1st Class John Linzmeier moog 9


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    INDUSTRIAL SYSTEMS We take a collaborative approach to solving our customers’ complex motion control problems Industrial Systems revenues were $522 million in 2015 . Our major industrial automation markets include controls for plastics, metal forming, robotics and steel mills . Moog high-performance motion control solutions combine electric, hydraulic and hybrid technologies to help our customers develop next-generation machines with greater flexibility, uptime and energy efficiency . In the energy markets, downhole drilling, topside and subsea equipment incorporate Moog solutions for oil and gas exploration and production . Gas and steam turbine OEMs rely on our electric and hydraulic solutions for improved fuel control and metering, reliability and service life . We have over 50,000 onshore and offshore wind turbine pitch solution installations and an innovative new AC pitch system with installations in South America . Wind is a long-term play for our company and an important market for future growth . Our in-depth understanding of the capabilities of hydraulic, electric and hybrid system technology allows us to collaborate with customers to offer standard and custom solutions . The Moog family of hydraulic and electric simulation tables can be found in the world’s most demanding R&D labs testing the durability and functionality of vehicle components, ride quality, cockpit modules and gun turrets . Moog engineers are developing the world’s first manual small incision cataract surgery (MSICS) training simulator with HelpMeSee, an international not-for-profit . The technology applies the principles of our flight simulator control systems to the development of this high-fidelity virtual reality cataract surgery simulator . HelpMeSee will use the simulators to train 30,000 cataract specialists in developing countries . In 25 countries worldwide, we deliver superior value in industrial applications where performance, reliability and durability are critical . PRODUCTS Energy: COMPETITIVE ADVANTAGES • Portfolio of electric servo motors and electric actuators • Wind turbines – pitch systems and blade sensing • Global organization focused on collaborating with for light industrial automation to large machinery systems offering efficient operation, increased safety customers applications and extended turbine life • Ability to improve customers’ machine performance • Controllers, servo drives and software for a broad • Gas and steam turbines – solutions for precise control and with motion control solutions and world-class products range of motion control applications greater safety of fuel metering and guide vane positioning • Significant domain expertise in our customers’ • Hydraulic servovalves, ranging from miniature valves • Oil and gas exploration and production – solutions for machines, industry applications and design challenges for Formula 1™ race cars to large valves for industrial downhole drilling, topside and subsea equipment • Experience in the design and application of products applications and valves with embedded intelligence Simulation and Test: and system solutions for use in challenging • A wide range of high-performance servo pumps for • Flight simulation – six degrees of freedom motion environments high-end industrial applications bases, control loading systems and control cabinets for realistic pilot training • Automotive testing systems – turnkey systems for COMPETITORS SYSTEMS performance testing Servovalves: • Hydraulic and electric solutions designed to perform • Aerospace testing – turnkey systems for iron bird, • Bosch Rexroth, Parker Hannifin with precision control in harsh environments and structural and component testing Electric Servodrives, Servomotors, Servoactuation: demanding applications • Medical simulation – training simulators for learning • Danaher, Baumüller, Curtiss Wright (Exlar), Siemens • Electric hexapod motion systems for flight simulation dentistry and cataract surgery and automotive test systems Simulation and Test Systems: Services: • Control loading and G-seat solutions for flight training • MTS Systems Corp ., Rexroth Hydraudyne • Moog Global Support offers world-class repair and simulators maintenance services and flexible programs for Wind Energy: • Integrated hydraulic manifold systems incorporating upgrades, preventative maintenance and annual/ • SSB, RE-energy Electric (Suzhou) Co ., Ltd . servovalves, pumps, manifolds, sensors and power units multi-year contracts • Electric pitch control and load sensing systems for wind turbines Industrial Automation TURNKEY SYSTEMS $ 280 M • Multi-axis simulation tables and suspension, kinetics and compliance, systems for automotive testing Simulation • Driving simulators to aid R&D engineers in auto and Test development and to train drivers Energy $ 115 M $ 127 M MAJOR SECTORS Industrial Automation: • Plastic injection and blow molding machines – hydraulic and electric products for improved speed, performance and energy efficiency • Steel mills – servo control products for improved dimensional accuracy and surface finish • Metal forming machinery and presses – products to improve machine performance and productivity FY 2015 SALES – $522 M 10 moog


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    CAE 3000 Series AW139 Helicopter Training Simulator Courtesy of CAE Cataract Surgery Simulator Moog Global Support – Maintenance Courtesy of HelpMeSee Steel Mill Processing Motorsports Courtesy of Paul Broad Courtesy of Shutterstock / Digital Storm Wind Energy Turbine Controls Oil and Gas Exploration and Production Courtesy of OlegP / Shutterstock Courtesy of SSUA Photos / Shutterstock moog 11


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    COMPONENTS We’re continually focused on engineering solutions for motion control, air moving, electronics and fiber optic applications Components revenues for 2015 were $437 million . This segment specializes in solving motion and power and data transmission challenges in harsh environments with reliable and high-performance slip rings, motors, actuators, air moving, fiber optic devices and sonar . Slip rings transmit power and broadband data signals across rotating interfaces and we offer more than 10,000 designs used in a variety of rotating electromechanical systems . Our products transfer power and data for de-icing, flight control and blade position on the V-22 Osprey rotorcraft, as well as most of the major military helicopters flying today . Moog slip rings are also installed on tank turrets, satellites, CT scanners, underwater vehicles (ROVS), mooring systems and wind turbines . Our motor technology engineers are experts in understanding high efficiency, precision and low noise requirements in aerospace, industrial and medical applications . Moog custom motors are installed on machinery where reliability and custom sizing are critical . These include radiation oncology systems, nuclear medicine imaging, robotics, carpet-tufting machinery and computing systems . Deep water oil drilling and production operations require rugged equipment and maximum performance and uptime . We design and manufacture custom and vessel-specific Floating Production, Storage and Off-Loading (FPSO) swivels used in buoys, turret moorings and loading towers operating worldwide . Marine swivels are heavily customized systems designed for ship conversions and retrofits that incorporate electric slip rings, hydraulic utility swivels and fiber optic rotary joints . Our proprietary RAMS™ technology is deployed beneath FPSO vessels and provides integrity and position monitoring for mooring lines and risers in real-time from a single sonar head . PRODUCTS Energy Marine: • Multi-component and system level engineering • Wind Turbines – slip rings knowledge and applications support Motion Technology: • Remotely Operated Vehicles (ROVS) – slip rings, fiber • Integration of components into sub-systems providing • Slip ring assemblies higher value, higher level solutions optic rotary joints, multiplexers and media converters • Brush and brushless DC torque and servomotors; drives • Subsea imaging – acoustic sensors, sonars and video • Position sensors cameras COMPETITORS • Servo and utility actuators • Floating Production, Storage and Offloading Slip Rings: • Air moving systems (FPSO)– explosion-proof slip rings, monitoring • Cobham Motion Control Solutions, Schleifring, • Aircraft displays and avionic instruments Medical: Stemmann Fiber Optics and Communications: • Sleep disorder devices, ventilators and portable oxygen Commercial Motors: • Fiber optic rotary joints, multiplexers concentrators – motors and blowers • Allied Motion Technologies, Ametek, Danaher • Ethernet switches, media converters, optical • Medical imaging – slip rings and fiber optic rotary joints Military Motors: transceivers, modems • Medical and laboratory centrifuges – motors and slip • Danaher, General Dynamics – GIT, Woodward • Subsea acoustic sensors and sonars rings Actuators: Medical Components: • Fluid sensors, surgical handpieces • Kearfott , Whippany Actuation Systems, Woodward • Medical sensors and surgical handpieces Air Moving: COMPETITIVE ADVANTAGES • Ametek, ebm-papst MAJOR SECTORS • Market leader in slip rings and fractional horsepower Military and Commercial Aircraft: brushless DC motors • Electro-optic / infrared sensors – motors, air movers, slip • Market leader in marine marketplace for rotary power rings, resolvers, RVDTs, integrated assemblies, Ethernet and data transfer switches, gimbal assemblies Space and Defense • Secondary flight controls, primary flight controls for $ 60 M UAVs – EM servo and utility actuators Commercial Aircraft $ 29 M • Aircraft servos and instruments – motors, LED and analog instruments Military Industrial Aircraft $ 100 M • Communication networking – Ethernet switches, media $ 95 M converters Space Controls: • Solar array drive assemblies – slip rings, motors, resolvers Medical Energy/Marine Defense Controls: $ 91 M $ 62 M • Armored vehicle and pedestal turrets – slip rings, resolvers, motors and air moving • Radar – servo and utility actuators, slip rings, motors, resolvers and integrated EM solutions Industrial: • Food processing – motors, drives • Robotics and material handling – motors and slip rings • Telecommunications and computer equipment cooling – air moving solutions FY 2015 SALES – $437 M 12 moog


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    Sonar Application, Diving Scooter Courtesy of ROTINOR GmbH M1A1 Abrams Tank F-35 Electro-Optical Targeting System (EOTS) Courtesy of U.S. Marine Corps / Sgt. Alex C. Sauceda Courtesy of U.S. Marine Corps / Cpl. Scott L. Tomaszycki High-Performance Blower Motors, Rapid Cook Commercial Ovens Xxxxxxxx Xxxxxxxx Courtesy of Fedor Kondratenko RAMS™ FPSO Mooring and Courtesy Anchor-Chain Monitoring of Xxxxxxxxx Xxxxxxxxx Clinac ® iX Linear Accelerator, Image-guided Radiotherapy ECLIPSE 322 Electric Riding Greens Mower Courtesy of Varian Medical Systems Courtesy of Jacobsen / Textron moog 13


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    MEDICAL DEVICES Our medical products are designed to simplify procedures, increase patient safety and enhance patient and caregiver outcomes Medical revenues in 2015 were $99 million . Our Medical Devices segment supports intravenous (IV) therapy and enteral nutrition delivery with a suite of pumps and proprietary components . Ambulatory and stationary feeding pumps, sold under the Zevex label, deliver nutrition for direct gastrointestinal feeding . Products include the EnteraLite® Infinity® and Infinity® Orange™ feeding pumps . These pumps are used by infant, pediatric and adult tube-fed patients and are designed for ease of use and mobility . Moog Curlin infusion therapy pumps offer IV, intra-arterial, subcutaneous or epidural flow of fluids and precise medicine delivery . Our Aitecs syringe pumps are used in anesthesia and general ward applications, mostly in Eastern European countries . Moog medical products are sold direct or marketed by our regional distribution network for IV and enteral pumps in the U .S . and Canada, allowing us to work closely with key accounts and capture new business . While we previously determined that the medical pump business may not be core to our other businesses long-term, we’re continuing the process of reviewing the business . As part of this process, we divested the life sciences product lines in mid-2015 and the OEM sensor and surgical hand piece product lines were transferred to our Components segment . PRODUCTS COMPETITIVE ADVANTAGES COMPETITORS • Electronic ambulatory and acute care infusion pumps • We are specialized in our markets, concentrating • CME Medical, Covidien, Hospira, Smiths Medical • Enteral feeding pumps for acute care, long-term care on pumps and their respective administration sets, and ambulatory care for specialized clinical nutrition creating a market solution focus • Syringe infusion pumps and safety software that • Extremely versatile for all areas in hospitals with reduce drug administration errors enhanced safety and ease of use from neonates to adult patients • Full range of products from low end/cost effective to SALES CHANNELS high-end, including single and double syringe pumps, • Moog Medical direct: infusion pumps, administration PCA, pumps, stand-alone and stackable pumps sets, enteral feeding products • Major global clinical nutrition companies: international distribution of enteral products • Distributors and dealers worldwide Administration Sets $ 49 M Pumps $ 37 M Other Products $ 13 M FY 2015 SALES – $99 M 14 moog


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    Infinity® Orange™ Enteral Pump Courtesy of Shutterstock / Spfotocz Zevex Enteral Pumps Curlin® PainSmart Infusion Pumps Xxxxxxxx Xxxxxxxx Curlin® 6000 CMS, Ambulatory Electronic Infusion Device-Multi-Therapy Courtesy of Xxxxxxxxx Xxxxxxxxx Enteral Feeding Administration Set EnteraLite® Infinity® Pump Courtesy of Sherry Young moog 15


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    FINANCIAL HIGHLIGHTS RECENT FINANCIAL PERFORMANCE SALES (Dollars and shares in millions, except per share data) (Dollars in millions) $3,000 MOOG A/B HIGH LOW $ 2,610 $ 2,648 $ 2,526 $ 2,470 $2,500 A $79.24 $65.80 $ 2,331 1st QUARTER $ 2,114 B $78.51 $66.60 $ 2,000 $ 1,903 $ 1,849 A $77.28 $68.07 $ 1,558 2nd QUARTER $ 1,500 $ 1,306 B $76.77 $69.23 $1,051 A $75.69 $65.72 $ 1,000 3rd QUARTER B $75.26 $66.11 $ 500 A $71.55 $52.33 4th QUARTER $0 B $70.11 $52.74 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 FISCAL YEAR Source: Bloomberg REVENUE BY SEGMENT NET EARNINGS (Dollars in millions) Space and Defense Controls 15% $ 158 $160 $ 152 Aircraft Controls 43% Industrial Systems 21% $ 136 $140 $ 132 $ 119 $ 120 $120 Components 17% Medical Devices 4% $ 108 $ 101 $ 100 $ 85 $ 81 $ 80 $ 65 $ 60 $ 40 REVENUE BY MARKET $ 20 Commercial Aircraft 23% $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Defense 34% Space 8% FISCAL YEAR Industrial 21% DILUTED EARNINGS PER SHARE Medical 7% (In dollars) Energy 7% $ 3.75 $ 3.52 $ 3.50 $ 3.33 $ 3.35 $ 3.25 $ 2.95 $ 3.00 $ 2.75 $ 2.63 $ 2.75 $ 2.50 $ 2.34 $ 2.36 GEOGRAPHIC DISTRIBUTION $ 2.25 $ 1.97 $ 1.98 $ 2.00 $ 1.64 $ 1.75 International 44% $ 1.50 $ 1.25 United States 56% $ 1.00 $ 0.75 $ 0.50 $ 0.25 $ 0.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 FISCAL YEAR Moog’s military and government funded revenue is 38% and commercial revenue is 62%. 16 moog


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    FINANCIAL REVIEW 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 SEGMENT SALES: AIRCRAFT CONTROLS $ 1,087 $ 1,118 $ 1,060 $ 964 $ 850 $ 757 $ 663 $ 673 $ 587 $ 527 $ 452 SPACE AND DEFENSE CONTROLS $ 381 $ 395 $ 396 $ 359 $ 356 $ 325 $ 275 $ 253 $ 185 $ 148 $ 128 INDUSTRIAL SYSTEMS $ 522 $ 591 $ 592 $ 634 $ 629 $ 546 $ 455 $ 532 $ 436 $ 381 $ 315 COMPONENTS* $ 437 $ 450 $ 439 $ 394 $ 376 $ 378 $ 358 $ 362 $ 291 $ 238 $ 156 MEDICAL DEVICES* $ 99 $ 95 $ 124 $ 120 $ 119 $ 109 $ 99 $ 82 $ 60 $ 13 — NET SALES $ 2,526 $ 2,648 $ 2,610 $ 2,470 $ 2,331 $ 2,114 $ 1,849 $ 1,903 $ 1,558 $ 1,306 $ 1,051 EARNINGS BEFORE TAXES $ 184 $ 219 $ 165 $ 209 $ 184 $ 149 $ 111 $ 168 $ 144 $ 120 $ 95 NET EARNINGS $ 132 $ 158 $ 120 $ 152 $ 136 $ 108 $ 85 $ 119 $ 101 $ 81 $ 65 NET RETURN ON SALES 5.2% 6.0% 4.6% 6.2% 5.8% 5.1% 4.6% 6.3% 6.5% 6.2% 6.2% EARNINGS PER SHARE: BASIC $ 3.39 $ 3.57 $ 2.66 $ 3.37 $ 2.99 $ 2.38 $ 2.00 $ 2.79 $ 2.38 $ 2.01 $ 1.68 DILUTED $ 3.35 $ 3.52 $ 2.63 $ 3.33 $ 2.95 $ 2.36 $ 1.98 $ 2.75 $ 2.34 $ 1.97 $ 1.64 DILUTED WEIGHTED-AVERAGE 39.3 45.0 45.8 45.7 46.0 45.7 42.9 43.3 43.1 41.2 39.5 SHARES OUTSTANDING (in millions) RESEARCH AND DEVELOPMENT $ 132 $ 139 $ 135 $ 116 $ 106 $ 103 $ 100 $ 110 $ 103 $ 69 $ 44 CAPITAL EXPENDITURES $ 81 $ 79 $ 93 $ 107 $ 84 $ 66 $ 82 $ 92 $ 97 $ 84 $ 41 DEPRECIATION AND AMORTIZATION $ 104 $ 109 $ 108 $ 101 $ 96 $ 91 $ 76 $ 63 $ 52 $ 47 $ 36 AT YEAR END: TOTAL ASSETS $ 3,086 $ 3,208 $ 3,237 $ 3,106 $ 2,843 $ 2,712 $ 2,634 $ 2,227 $ 2,006 $ 1,608 $ 1,303 WORKING CAPITAL $ 1,022 $ 941 $ 924 $ 885 $ 834 $ 813 $ 764 $ 713 $ 617 $ 420 $ 313 INDEBTEDNESS $ 1,075 $ 874 $ 709 $ 765 $ 725 $ 765 $ 833 $ 671 $ 618 $ 387 $ 349 SHAREHOLDERS’ EQUITY $ 995 $ 1,347 $ 1,536 $ 1,305 $ 1,192 $ 1,121 $ 1,065 $ 994 $ 877 $ 763 $ 521 RETURN ON 11.3% 10.4% 8.6% 12.1% 11.4% 9.8% 8.3% 12.7% 12.3% 12.9% 12.8% SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY PER $ 27.09 $ 32.51 $ 33.86 $ 28.80 $ 26.38 $ 24.70 $ 23.53 $ 23.30 $ 20.63 $ 18.04 $ 13.48 COMMON SHARE OUTSTANDING BACKLOG (12 month) $ 1,273 $ 1,340 $ 1,296 $ 1,279 $ 1,325 $ 1,181 $ 1,098 $ 862 $ 775 $ 645 $ 539 NUMBER OF FULL-TIME 10,691 11,031 11,152 10,976 10,320 10,117 10,005 8,844 8,364 7,273 6.662 EMPLOYEES * Effective 2015, segment reporting for Components includes the sensors and handpieces product line which was previously Please Note: Amounts may not equal the total due to rounding. included in Medical Devices. All historical amounts have been restated within Components and Medical Devices. moog 17


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    I N V E S TO R I N F O R M AT I O N REPORTS Shareholders receive a copy of our annual report and Form 10-K . All other public reports are available on our website or by contacting us via email, telephone or letter at: Investor Relations Moog Inc. East Aurora, New York 14052-0018 Phone: 716-687-4225 Email: investorrelations@moog.com ELECTRONIC INFORMATION ABOUT MOOG In our annual report, we convey key information about our financial results . In addition, we have a website for investors . The site includes SEC filings, archived conference call remarks, answers to frequently asked questions, corporate governance information, press releases and links to our transfer agent . Please visit our website at: http://www .moog .com . Information contained on our website is not incorporated into this annual report or our other SEC filings . ANNUAL MEETING Our Annual Meeting of Shareholders will be held on January 13, 2016 at the Albright-Knox Art Gallery, 1285 Elmwood Avenue, Buffalo, New York . Proxy cards can be voted by internet, telephone or letter . STOCK EXCHANGE Our two classes of common shares are traded on the New York Stock Exchange under the ticker symbols MOG .A and MOG .B . FINANCIAL MAILING LIST Shareholders who hold Moog stock in the names of their brokers or bank nominees but wish to receive press releases by e-mail should contact Investor Relations at Moog . TRANSFER AGENT AND REGISTRAR Wells Fargo Shareowner Services is the stock transfer agent and registrar maintaining shareholder accounting records . If assistance is needed, it is possible for shareholders to view all facets of their accounts online at: www .shareowneronline .com . The agent will respond to questions on change of ownership, lost stock certificates and consolidation of accounts . Please direct inquiries to: Wells Fargo Shareowner Services or Wells Fargo Shareowner Services PO Box 64874 1110 Centre Pointe Curve, Suite 101 St. Paul, MN 55164-0874 Mendota Heights, MN 55120 Toll Free: 1-800-468-9716 AFFIRMATIVE ACTION PROGRAM In recognition of our role as a contributing corporate citizen, we have adopted all programs and procedures in our Affirmative Action Program as a matter of Corporate policy . Independent Auditors Ernst & Young LLP PHOTOGRAPHIC IMAGES The appearance of U .S . Department of Defense (DoD) visual information does not imply or constitute DoD endorsement . 18 moog


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    Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 3, 2015 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-05129 Inc. (Exact Name of Registrant as Specified in its Charter) New York 16-0757636 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) East Aurora, New York 14052-0018 (Address of Principal Executive Offices) (Zip Code) Registrant’s Telephone Number, Including Area Code: (716) 652-2000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Class A Common Stock, $1.00 Par Value New York Stock Exchange Class B Common Stock, $1.00 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 1 19


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    Table of Contents Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of the common stock outstanding and held by non-affiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant, based upon the closing sale price of the common stock on the New York Stock Exchange on April 4, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2,579 million. The number of shares of common stock outstanding as of the close of business on November 10, 2015 was: Class A 33,321,024 Class B 3,376,045. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Moog Inc. Proxy Statement for the Annual Meeting of Shareholders to be held on January 13, 2016 (“2015 Proxy”) are incorporated by reference into Part III of this Form 10-K. 2 20


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    Inc. FORM 10-K INDEX PART I Item 1 Business 23 Item 1A Risk Factors 27 Item 1B Unresolved Staff Comments 32 Item 2 Properties 32 Item 3 Legal Proceedings 32 Item 4 Mine Safety Disclosures 32 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer 33 Purchases of Equity Securities Item 6 Selected Financial Data 36 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A Quantitative and Qualitative Disclosures About Market Risk 58 Item 8 Financial Statements and Supplementary Data 59 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 100 Item 9A Controls and Procedures 100 Item 9B Other Information 100 PART III Item 10 Directors, Executive Officers and Corporate Governance 101 Item 11 Executive Compensation 101 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related 101 Stockholder Matters Item 13 Certain Relationships and Related Transactions, and Director Independence 101 Item 14 Principal Accountant Fees and Services 101 PART IV Item 15 Exhibits and Financial Statement Schedules 101 21


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    Disclosure Regarding Forward-Looking Statements Information included or incorporated by reference in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report. 4 22


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    Table of Contents PART I The Registrant, Moog Inc., a New York corporation formed in 1951, is referred to in this report as “Moog” or in the nominative “we” or the possessive “our.” Unless otherwise noted or the context otherwise requires, all references to years in this report are to fiscal years. Item 1. Business. Description of the Business. Moog is a worldwide designer, manufacturer and integrator of high performance precision motion and fluid controls and systems for a broad range of applications in aerospace and defense and industrial markets. We have five operating segments: Aircraft Controls, Space and Defense Controls, Industrial Systems, Components and Medical Devices. Additional information describing the business and comparative segment revenues, operating profits and related financial information for 2015, 2014 and 2013 are provided in Note 17 of Item 8, Financial Statements and Supplementary Data of this report. Distribution. Our sales and marketing organization consists of individuals possessing highly specialized technical expertise. This expertise is required in order to effectively evaluate a customer’s precision control requirements and to facilitate communication between the customer and our engineering staff. Our sales staff is the primary contact with customers. Manufacturers’ representatives are used to cover certain domestic aerospace markets. Distributors are used selectively to cover certain industrial and medical markets. Industry and Competitive Conditions. We experience considerable competition in our aerospace and defense and industrial markets. We believe that the principal points of competition in our markets are product quality, reliability, price, design and engineering capabilities, product development, conformity to customer specifications, timeliness of delivery, effectiveness of the distribution organization and quality of support after the sale. We believe we compete effectively on all of these bases. Competitors in our five operating segments include: • Aircraft Controls: Curtiss-Wright, Liebherr, Nabtesco, Parker Hannifin, UTC (Goodrich, Hamilton Sundstrand) and Woodward. • Space and Defense Controls: Aeroflex, Airbus, ATA Engineering, BAE, Chess Dynamics, Cohu, Curtiss- Wright, ESW, Flowserve Limitorque, Honeywell, Marotta, RUAG, Lord Corp., Pelco, SABCA, Sargent Aerospace & Defense, SEAKR, Sierra Nevada Corp., Southwest Research Institute, UTC, Vacco, Valcor, Videotec, ValveTech and Woodward. • Industrial Systems: Bosch Rexroth, Danaher, Baumuller, Siemens, Parker Hannifin, REenergy Electric (Suzhou), MTS Systems Corp., Curtiss Wright (Exlar) and Rexroth Hydradyne. • Components: Allied Motion Technologies, Ametek, Cobham, Danaher, EBM - PAPST, General Dynamics - GIT, Kearfott, Woodward, Schleifring, Stemmann, and Whippany Actuation Systems. • Medical Devices: Smiths Medical, Hospira, CME Medical and Covidien. Government Contracts. All U.S. Government contracts are subject to termination by the U.S. Government. In 2015, sales under U.S. Government contracts represented 31% of total sales and were primarily within our Aircraft Controls, Space and Defense Controls and Components segments. Backlog. Our twelve-month backlog represents confirmed orders we believe will be recognized as revenue within the next twelve months. See the discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report. Raw Materials. Materials, supplies and components are purchased from numerous suppliers. We believe the loss of any one supplier, although potentially disruptive in the short-term, would not materially affect our operations in the long-term. Working Capital. See the discussion on operating cycle in Note 1 of Item 8, Financial Statements and Supplementary Data of this report. Seasonality. Our business is generally not seasonal; however, certain products and systems, such as those in the energy market of our Industrial Systems segment, do experience seasonal variations in sales levels. 5 23


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    Table of Contents Patents. We maintain a patent portfolio of issued or pending patents and patent applications worldwide that generally includes the U.S., Europe, China, Japan and India. The portfolio includes patents that relate to electrohydraulic, electromechanical, electronics, hydraulics, components and methods of operation and manufacture as related to motion control and actuation systems. The portfolio also includes patents related to wind turbines, robotics, surveillance/security, vibration control and medical devices. We do not consider any one or more of these patents or patent applications to be material in relation to our business as a whole. The patent portfolio related to certain medical devices is significant to our position in this market as several of these products work exclusively together, and provide us future revenue opportunities. Research Activities. Research and development activity has been, and continues to be, significant for us. Research and development expense was at least $125 million in each of the last three years and represented over 5% of sales in 2015. Employees. On October 3, 2015, we employed 10,691 full-time employees. Customers. Our principal customers are Original Equipment Manufacturers, or OEMs, and end users for whom we provide aftermarket support. Aerospace and defense OEM customers collectively represented 51% of 2015 sales. The majority of these sales are to a small number of large companies. Due to the long-term nature of many of the programs, many of our relationships with aerospace and defense OEM customers are based on long-term agreements. Our industrial OEM sales, which represented 33% of 2015 sales, are to a wide range of global customers and are normally based on lead times of 90 days or less. We also provide aftermarket support, consisting of spare and replacement parts and repair and overhaul services, for all of our products. Our major aftermarket customers are the U.S. Government and commercial airlines. In 2015, aftermarket sales accounted for 16% of total sales. Significant customers in our five operating segments include: • Aircraft Controls: Boeing, Lockheed Martin, Airbus, Japan Aerospace, United Technologies, Honeywell, Gulfstream, Bombardier, Bell Helicopter, Embraer and the U.S. Government. • Space and Defense Controls: Lockheed Martin, Aerojet Rocketdyne, Raytheon, Boeing, General Dynamics, Airbus, United Launch Alliance, Alliant Techsystems and Orbital ATK. • Industrial Systems: CAE, Senvion, General Electric, FlightSafety, Rockwell Automation, Schlumberger, Arburg, Rockwell Collins, Japan Aerospace and Schuler. • Components: Philips Healthcare, Raytheon, Northrup Grumman, Boeing, Lockheed Martin, MacArtney, Rockwell Collins, Turbo Chef Technologies, General Dynamics, Honeywell and the U.S. Government. • Medical Devices: Nestle and Nutricia. International Operations. Our operations outside the United States are conducted through wholly-owned foreign subsidiaries and are located predominantly in Europe and the Asia-Pacific region. See Note 17 of Item 8, Financial Statements and Supplementary Data of this report for information regarding sales by geographic area and Exhibit 21 of Item 15, Exhibits and Financial Statement Schedules of this report for a list of subsidiaries. Our international operations are subject to the usual risks inherent in international trade, including currency fluctuations, local government contracting regulations, local governmental restrictions on foreign investment and repatriation of profits, exchange controls, regulation of the import and distribution of foreign goods, as well as changing economic and social conditions in countries in which our operations are conducted. Environmental Matters. See the discussion in Note 18 of Item 8, Financial Statements and Supplementary Data of this report. Website Access to Information. Our internet address is www.moog.com. We make our annual reports on Form quarterly reports on Form 10-Q, current reports on Form 8-K and, if applicable, amendments to those reports, available on the investor relations portion of our website. The reports are free of charge and are available as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. We have posted our corporate governance guidelines, Board committee charters and code of ethics to the investor relations portion of our website. This information is available in print to any shareholder upon request. All requests for these documents should be made to Moog’s Manager of Investor Relations by calling 716-687-4225. 6 24


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    Table of Contents Executive Officers of the Registrant. Other than Robert J. Oliveri and the changes noted below, the principal occupations of our officers for the past five years have been their employment with us in the same positions they currently hold. Robert J. Oliveri's principal occupation is partner in the law firm of Hodgson Russ LLP. On August 11, 2015, Maureen M. Athoe was named Vice President and President, Space and Defense Group. Previously, she was a Group Vice President, Group General Manager and Site Manager. On August 11, 2015, R. Eric Burghardt was named Vice President and President, Aircraft Group. Previously, he was a Group Vice President and Financial Director. On August 11, 2015, Mark J. Trabert was named Vice President and President, Aircraft Group. Previously, he was a Group Vice President and Deputy General Manager. On September 1, 2012, Patrick J. Roche was named Vice President. Previously, he was a Group Vice President and General Manager of the Moog Ireland operation. On December 1, 2011, John R. Scannell was named Chief Executive Officer. Previously, he was President and Chief Operating Officer. Prior to that, he was Vice President and Chief Financial Officer. On December 1, 2011, Gary Szakmary was named Vice President. Previously, he was a Corporate Group Vice President. 7 25


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    Table of Contents Year First Elected Executive Officers Age Officer John R. Scannell Chairman of the Board; Chief Executive Officer Director 52 2006 Richard A. Aubrecht Vice Chairman of the Board; Vice President - Strategy and Technology; Director 71 1980 Donald R. Fishback Director; Vice President; Chief Financial Officer 59 1985 Warren C. Johnson Vice President 55 2000 Lawrence J. Ball Vice President 61 2004 Harald E. Seiffer Vice President 56 2005 Sasidhar Eranki Vice President 61 2006 Sean Gartland Vice President 52 2010 Gary A. Szakmary Vice President 64 2011 Patrick J. Roche Vice President 52 2012 Maureen M. Athoe Vice President 57 2015 R. Eric Burghardt Vice President 56 2015 Mark J. Trabert Vice President 56 2015 Jennifer Walter Controller; Principal Accounting Officer 44 2008 Timothy P. Balkin Treasurer; Assistant Secretary 56 2000 Robert J. Olivieri Secretary 65 2014 8 26


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    Table of Contents Item 1A. Risk Factors. The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate. The markets we serve are sensitive to fluctuations in general business cycles as well as domestic and foreign economic conditions and events. For example, our defense programs are largely contingent on U.S. Department of Defense funding. Our space programs rely on the same governmental funding as well as investment for commercial and exploration activities. Demand for our industrial systems' products is dependent upon several factors, including capital investment, product innovations, economic growth, the price of oil and natural gas, cost-reduction efforts and technology upgrades. In addition, the commercial airline industry is cyclical and sensitive to fuel price increases, labor disputes and economic conditions. If these economic conditions deteriorate, our operations could be negatively impacted through declines in our sales, profitability and cash flows due to lower orders, payment delays and price pressures for our products. We operate in highly competitive markets with competitors who may have greater resources than we possess. Many of our products are sold in highly competitive markets. Some of our competitors, especially in our industrial markets and medical markets, are larger, more diversified and have greater financial, marketing, production and research and development resources. As a result, they may be better able to withstand the effects of periodic economic downturns. Our sales and operating margins will be negatively impacted if our competitors: • develop products that are superior to our products, • develop products of comparable quality and performance that are more competitively priced than our products, • develop methods of more efficiently and effectively providing products and services, or • adapt more quickly than we do to new technologies or evolving customer requirements. We believe that the principal points of competition in our markets are product quality, reliability, price, design and engineering capabilities, product development, conformity to customer specifications, timeliness of delivery, effectiveness of the distribution organization and quality of support after the sale. Maintaining or improving our competitive position requires continued investment in manufacturing, engineering, quality standards, marketing, customer service and support and our distribution networks. If we do not maintain sufficient resources to make these investments or are not successful in maintaining our competitive position, our operations and financial performance will suffer. We depend heavily on government contracts that may not be fully funded or may be terminated, and the failure to receive funding or the termination of one or more of these contracts could reduce our sales and increase our costs. Sales to the U.S. Government and its prime contractors and subcontractors represent a significant portion of our business. In 2015, sales under U.S. Government contracts represented 31% of our total sales, primarily within Aircraft Controls, Space and Defense Controls and Components. Sales to foreign governments represented 7% of our total sales. Funding for government programs can be structured into a series of individual contracts and depend on annual congressional appropriations, which are subject to change. Additionally, the 2011 Budget Control Act reduced the Department of Defense spending (or sequestration) by approximately $500 billion over the next decade. These uniform cuts could have ramifications for the aerospace and defense market. The Bipartisan Budget Act of 2013, provided some near-term opportunities to lessen the effects of sequestration, in exchange for extending the imposition of sequestration to fiscal years 2022 and 2023. However, we expect we will continue to face significant challenges over the next decade as a result of sequestration, as significant uncertainty remains with respect to the overall levels of defense spending. Any reduction in future Department of Defense spending levels could adversely impact our sales, operating profit and our cash flow. We have resources applied to specific government contracts and if any of those contracts are rescheduled or terminated, we may incur substantial costs redeploying those resources. 9 27


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    Table of Contents We make estimates in accounting for long-term contracts, and changes in these estimates may have significant impacts on our earnings. We have long-term contracts with some of our customers. These contracts are predominantly within Aircraft Controls and Space and Defense Controls. Revenue representing 33% of 2015 sales was accounted for using the percentage of completion, cost-to-cost method of accounting. Under this method, we recognize revenue as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods. Changes in these required estimates could have a material adverse effect on sales and profits. Any adjustments are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting. For contracts with anticipated losses at completion, we establish a provision for the entire amount of the estimated remaining loss and charge it against income in the period in which the loss becomes known. Amounts representing performance incentives, penalties, contract claims or impacts of scope change negotiations are considered in estimating revenues, costs and profits when they can be reliably estimated and realization is considered probable. Due to the substantial judgments involved with this process, our actual results could differ materially or could be settled unfavorably from our estimates. We enter into fixed-price contracts, which could subject us to losses if we have cost overruns. In 2015, fixed- price contracts represented 93% of our sales that were accounted for using the percentage of completion, cost-to-cost method of accounting. On fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price. Depending on the fixed price negotiated, these contracts may provide us with an opportunity to achieve higher profits based on the relationship between our total contract costs and the contract's fixed price. However, we bear the risk that increased or unexpected costs may reduce our profit or cause us to incur a loss on the contract, which could reduce our net earnings. Loss reserves are most commonly associated with fixed-price contracts that involve the design and development of new and unique controls or control systems to meet the customer's specifications. We may not realize the full amounts reflected in our backlog as revenue, which could adversely affect our future revenue and growth prospects. As of October 3, 2015, our twelve-month backlog was $1.3 billion, which represents confirmed orders we believe will be recognized as revenue within the next twelve months. There is no assurance that our customers will purchase all the orders represented in our backlog, due in part to the U.S. Government's ability not to exercise contract options or to modify, curtail or terminate major programs. Due to the uncertain nature of our contracts with the U.S. Government, we may never realize revenue from some of the orders that are included in our backlog. If we fail to realize the full amounts included in our backlog, our future revenue and growth prospects may be adversely affected. If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted. We rely on subcontracts with other companies to perform a portion of the service we provide to our customers on many of our contracts. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract or our hiring of personnel of a subcontractor. Failure by our subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact our ability to perform our obligations as the prime contractor. Subcontractor performance deficiencies could result in a customer terminating our contract for default. A default termination could expose us to liability and substantially impair our ability to compete for future contracts and orders. In addition, a delay or failure in our ability to obtain components and equipment parts from our suppliers may adversely affect our ability to perform our obligations to our customers. Contracting on government programs is subject to significant regulation, including rules related to bidding, billing and accounting kickbacks and false claims, and any non-compliance could subject us to fines and penalties or possible debarment. Like all government contractors, we are subject to risks associated with this contracting, including substantial civil and criminal fines and penalties. These fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks or filing false claims. We have been, and expect to continue to be, subjected to audits and investigations by U.S. and foreign government agencies and authorities. The failure to comply with the terms of our government contracts could harm our business reputation. It could also result in our progress payments being withheld or our suspension or debarment from future government contracts. 10 28


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    Table of Contents The loss of The Boeing Company as a customer or a significant reduction in sales to The Boeing Company could adversely impact our operating results. We provide The Boeing Company, or Boeing, with controls for both military and commercial applications, which, in total, were 16% of our 2015 sales. Sales to Boeing's commercial airplane group are generally made under a long-term supply agreement through 2021 for the Boeing 787 and through 2019 for other commercial airplanes. The loss of Boeing as a customer or a significant reduction in sales to Boeing could reduce our sales and earnings. Our new product research and development efforts may not be successful which could reduce our sales and earnings. Technologies related to our products have undergone, and in the future may undergo, significant changes. We have incurred, and we expect to continue to incur, expenses associated with research and development activities and the introduction of new products in order to succeed in the future. Our technology has been developed through customer-funded and internally-funded research and development, as well as through business acquisitions. If we fail to predict customers' preferences or fail to provide viable technological solutions, we may experience difficulties that could delay or prevent the acceptance of new products or product enhancements. Also, the research and development expenses we incur may exceed our cost estimates and new products we develop may not generate sales sufficient to offset our costs. Additionally, our competitors may develop technologies and products that have more competitive advantages than ours and render our technology uncompetitive or obsolete. Our inability to adequately enforce and protect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete. In order to maintain a competitive advantage, we rely on internally developed and acquired patents, trademarks and proprietary knowledge and technologies. Our inability to defend against the unauthorized use of these rights and assets could have an adverse effect on our results of operations and financial condition. Litigation may be necessary to protect our intellectual property rights or defend against claims of infringement. This litigation could result in significant costs and divert management's focus away from operations. Our business operations may be adversely affected by information systems interruptions, intrusions or new software implementations. We are dependent on various information technologies throughout our company to administer, store and support multiple business activities. Disruptions or cybersecurity attacks, such as unauthorized access, malicious software and other intrusions, may lead to exposure of proprietary and confidential information as well as potential data corruption. Any intrusion may cause operational stoppages, diminished competitive advantages through reputational damages and increased operational costs. We are initiating a multi-year business information system transformation and standardization project. This endeavor will occupy additional resources, diverting attention from other operational activities, and may cause our information systems to perform unexpectedly. While we expect to invest significant resources throughout the planning and project management process, unanticipated delays could occur. Our indebtedness and restrictive covenants under our credit facilities could limit our operational and financial flexibility. We have incurred significant indebtedness, and may in the future incur additional debt for acquisitions, operations, research and development and capital expenditures. Our ability to make interest and scheduled principal payments and meet restrictive covenants could be adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our credit ratings or our outlook. These changes could increase our cost of business, limiting our ability to pursue acquisition opportunities, react to market conditions and meet operational and capital needs, thereby placing us at a competitive disadvantage. Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could adversely affect our earnings and equity and increase our pension funding requirements. Pension costs and obligations are determined using actual results as well as actuarial valuations that involve several assumptions. The most critical assumptions are the discount rate, the long-term expected return on assets and mortality tables. Other assumptions include salary increases and retirement age. Some of these assumptions, such as the discount rate and return on pension assets, are reflective of economic conditions and largely out of our control. Changes in the pension assumptions could adversely affect our earnings, equity and funding requirements. 11 29


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    Table of Contents A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth. Goodwill and other intangible assets are a substantial portion of our assets. At October 3, 2015, goodwill was $737 million and other intangible assets were $144 million of our total assets of $3.1 billion. Our goodwill and other intangible assets may increase in the future since our growth strategy includes acquisitions. However, we may have to write off all or part of our goodwill or other intangible assets if their value becomes impaired. Although this write-off would be a non-cash charge, it could reduce our earnings and net worth significantly. Among other adverse impacts, this could result in our inability to refinance or renegotiate the terms of our bank indebtedness. In the fourth quarter of 2013, we took a $38 million goodwill impairment charge in our Medical Devices segment. Our sales and earnings may be affected if we cannot identify, acquire or integrate strategic acquisitions, or if we engage in divesting activities. Acquisitions are a key part of our growth strategy. Our historical growth has depended, and our future growth is likely to depend, in part, on our ability to successfully identify, acquire and integrate acquired businesses. We intend to continue to seek additional acquisition opportunities, both to expand into new markets and to enhance our position in existing markets throughout the world. Growth by acquisition involves risk that could adversely affect our financial condition and operating results. We may not know the potential exposure to unanticipated liabilities. Additionally, the expected benefits or synergies might not be fully realized, integrating operations and personnel may be slowed and key employees, suppliers or customers of the acquired business may depart. We may also engage in divesting activities if the business operations do not meet our strategic objectives. Divestitures could adversely affect our profitability and, under certain circumstances, require us to record impairment charges or a loss as a result of a transaction. In pursuing acquisition opportunities, integrating acquired businesses, or divesting business operations, management's time and attention may be diverted from our core business, while consuming resources and incurring expenses for these activities. Our operations in foreign countries expose us to political and currency risks and adverse changes in local legal and regulatory environments. We have significant manufacturing and sales operations in foreign countries. In addition, our domestic operations have sales to foreign customers. In 2015, 44% of our net sales were to customers outside of the United States. Our financial results may be adversely affected by fluctuations in foreign currencies and by the translation of the financial statements of our foreign subsidiaries from local currencies into U.S. dollars. We expect international operations and export sales to continue to contribute to our earnings for the foreseeable future. Both the sales from international operations and export sales are subject in varying degrees to risks inherent in doing business outside of the United States. Such risks include the possibility of unfavorable circumstances arising from host country laws or regulations, changes in tariff and trade barriers, import or export licensing requirements, and political or economic reprioritization, insurrection, civil disturbance or war. Unforeseen exposure to additional income tax liabilities may affect our operating results. Our distribution of taxable income is subject to domestic and, as a result of our significant manufacturing and sales presence in foreign countries, foreign tax jurisdictions. Our effective tax rate and earnings may be affected by shifts in our mix of earnings in countries with varying statutory tax rates, changes in reinvested foreign earnings, alterations to tax regulations or interpretations and outcomes of any audits performed on previous tax returns. Government regulations could limit our ability to sell our products outside the United States and otherwise adversely affect our business. In 2015, approximately 17% of our sales were subject to compliance with the United States export regulations. Our failure to obtain, or fully adhere to the limitations contained in, the requisite licenses, meet registration standards or comply with other government export regulations would hinder our ability to generate revenues from the sale of our products outside the United States. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position. In order to sell our products in European Union countries, we must satisfy certain technical requirements. If we are unable to comply with those requirements with respect to a significant quantity of our products, our sales in Europe would be restricted. Doing business internationally also subjects us to numerous U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, foreign corrupt practices and anti-boycott provisions. From time to time, we may file voluntary disclosure reports with the U.S. Department of State and the Department of Commerce regarding certain violations of U.S. export laws and regulations discovered by us in the course of our business activities, employee training or internal reviews and audits. To date, our voluntary disclosures have not resulted in a fine, penalty, or export privilege denial or restriction that has had a material adverse impact on our financial condition or ability to export. Our failure, or failure by an authorized agent or representative that is attributable to us, to comply with these laws and regulations could result in administrative, civil or criminal liabilities. In the extreme case, these failures could result in financial penalties, suspension or debarment from government contracts or suspension of our export privileges, which could have a material adverse effect on us. 12 30


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    Table of Contents Governmental regulations and customer demands related to conflict minerals may adversely impact our operating results. Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, required the Securities and Exchange Commission to establish disclosure requirements for publicly-traded companies whose products contain metals derived from conflict minerals originating from the Democratic Republic of Congo (DRC) and its neighboring countries. The implementation of these requirements could result in additional costs associated with complying with the disclosure requirements. As this regulation will likely impact our suppliers, the availability of raw materials used in our operations could be negatively impacted, including an increase in the price of raw materials. In addition, because our global supply chain is complex, we may face commercial challenges if we are unable to sufficiently verify the origins for all metals used in our products through the due diligence procedures that we have implemented. We have, and will continue to, work with our suppliers and customers to exclude, to the extent feasible, from our product supply chain the use of conflict minerals originating from the DRC or adjoining countries. The failure or misuse of our products may damage our reputation, necessitate a product recall or result in claims against us that exceed our insurance coverage, thereby requiring us to pay significant damages. Defects in the design and manufacture of our products may necessitate a product recall. We include complex system designs and components in our products that could contain errors or defects, particularly when we incorporate new technology into our products. If any of our products are defective, we could be required to redesign or recall those products, pay substantial damages or warranty claims and face actions by regulatory bodies and government authorities. Such an event could result in significant expenses, disrupt sales, affect our reputation and that of our products and cause us to withdraw from certain markets. We are also exposed to product liability claims. Many of our products are used in applications where their failure or misuse could result in significant property loss and serious personal injury or death. We carry product liability insurance consistent with industry norms. However, these insurance coverages may not be sufficient to fully cover the payment of any potential claim. A product recall or a product liability claim not covered by insurance could have a material adverse effect on our business, financial condition and results of operations. Future terror attacks, war, natural disasters or other catastrophic events beyond our control could negatively impact our business. Terror attacks, war or other civil disturbances, natural disasters and other catastrophic events could lead to economic instability and decreased demand for commercial products, which could negatively impact our business, financial condition, results of operations and cash flows. From time to time, terrorist attacks worldwide have caused instability in global financial markets and the aviation industry. In 2015, 23% of our net sales were in the commercial aircraft market. Also, our facilities are located throughout the world and could be subject to damage from fires, floods, earthquakes or other natural or man-made disasters. Although we carry third party property insurance covering these and other risks, our inability to meet customers' schedules as a result of a catastrophe may result in the loss of customers or significantly increase costs, including penalty claims under customer contracts. Our operations are subject to environmental laws, and complying with those laws may cause us to incur significant costs. Our operations and facilities are subject to numerous stringent environmental laws and regulations. Although we believe that we are in material compliance with these laws and regulations, future changes in these laws, regulations or interpretations of them, or changes in the nature of our operations may require us to make significant capital expenditures to ensure compliance. We have been and are currently involved in environmental remediation activities. The cost of these activities may become significant depending on the discovery of additional environmental exposures at sites that we currently own or operate, at sites that we formerly owned or operated, or at sites to which we have sent hazardous substances or wastes for treatment, recycling or disposal. We are involved in various legal proceedings, the outcome of which may be unfavorable to us. Our business may be adversely impacted by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty. We estimate loss contingencies and establish reserves based on our assessment where liability is deemed probable and reasonably estimable given the facts and circumstances known to us at a particular point in time. Subsequent developments may affect our assessment and estimates of the loss contingencies recorded as liabilities. 13 31


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    Table of Contents Item 1B. Unresolved Staff Comments. None. Item 2. Properties. On October 3, 2015, we occupied 5,155,000 square feet of space, distributed by segment as follows: Square Feet Owned Leased Total Aircraft Controls 1,442,000 411,000 1,853,000 Space and Defense Controls 457,000 403,000 860,000 Industrial Systems 745,000 554,000 1,299,000 Components 669,000 261,000 930,000 Medical Devices 98,000 93,000 191,000 Corporate Headquarters 20,000 2,000 22,000 Total 3,431,000 1,724,000 5,155,000 We have principal manufacturing facilities in the United States and countries throughout the world in the following locations: • Aircraft Controls - U.S., Philippines and United Kingdom • Space and Defense Controls - U.S., United Kingdom, Netherlands, Ireland and Germany. • Industrial Systems - Germany, Italy, U.S., China, Netherlands, Luxembourg, Philippines, Japan, India, Ireland, Brazil and United Kingdom. • Components - U.S., United Kingdom and Canada. • Medical Devices - Costa Rica, U.S. and Lithuania. Our corporate headquarters is located in East Aurora, New York. We believe that our properties have been adequately maintained and are generally in good condition. Operating leases for our properties expire at various times from 2016 through 2036. Upon the expiration of our current leases, we believe that we will be able to either secure renewal terms or enter into leases for alternative locations at market terms. Item 3. Legal Proceedings. From time to time, we are involved in legal proceedings. We are not a party to any pending legal proceedings that management believes will result in a material adverse effect on our financial condition, results of operations or cash flows. Item 4. Mine Safety Disclosures. Not applicable. 14 32


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    Table of Contents PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our two classes of common shares, Class A common stock and Class B common stock, are traded on the New York Stock Exchange ("NYSE") under the ticker symbols MOG.A and MOG.B. The following chart sets forth, for the periods indicated, the high and low sales prices of the Class A common stock and Class B common stock on the NYSE. Quarterly Stock Prices Class A Class B Fiscal Year Ended High Low High Low October 3, 2015 1st Quarter $ 79.24 $ 65.80 $ 78.51 $ 66.60 2nd Quarter 77.28 68.07 76.77 69.23 3rd Quarter 75.69 65.72 75.26 66.11 4th Quarter 71.55 52.33 70.11 52.74 September 27, 2014 1st Quarter $ 69.97 $ 56.07 $ 69.80 $ 56.67 2nd Quarter 69.45 57.11 69.44 57.61 3rd Quarter 75.00 60.00 74.65 61.10 4th Quarter 74.20 65.42 73.83 65.98 The number of shareholders of record of Class A common stock and Class B common stock was 797 and 348, respectively, as of November 10, 2015. We did not pay cash dividends on our Class A common stock or Class B common stock in 2014 or 2015 and have no current plans to do so. 15 33


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    Table of Contents The following table summarizes our purchases of our common stock for the quarter ended October 3, 2015. Issuer Purchases of Equity Securities (d) Maximum Number (or Approx. (c) Total number Dollar Value) of of Shares Shares that (a) Total Purchased as May Number of Part of Publicly Yet Be Shares (b) Average Announced Purchased Purchased Price Paid Plans Under Plans or Period (1)(2) Per Share or Programs (3) Programs (3) July 5 - July 31, 2015 407,566 $ 68.69 398,592 742,423 August 1 - August 31, 2015 424,401 65.12 399,868 4,342,555 September 1 - October 3, 2015 156,728 61.75 140,000 4,202,555 Total 988,695 $ 66.06 938,460 4,202,555 (1) Reflects purchases by the Moog Inc. Stock Employee Compensation Trust Agreement ("SECT") of shares of Class B common stock from the Moog Inc. Retirement Savings Plan ("RSP") as follows: 8,216 shares at $67.43 per share during July; 24,533 shares at $65.98 per share during August; and 16,228 shares at $56.98 per share during September. Purchases by the SECT from members of the Moog family included: 500 shares of Class B common stock at $64.79 per share on September 8, 2015. (2) In connection with the exercise of equity-based compensation awards, we accept delivery of shares to pay for the exercise price and withhold shares for tax withholding obligations. On July 24, 2015, we accepted delivery of 758 shares at $66.34 per share, in connection with the exercise of equity based awards. (3) In December 2011, the Board of Directors authorized a share repurchase program, which was amended in January 2014. The program permitted the purchase of up to 4,000,000 shares of Class A or Class B common stock in open market or privately negotiated transactions at the discretion of management. In August 2014, the Board of Directors authorized an additional repurchase of up to 5,000,000 shares of Class A or Class B common stock under identical terms and conditions. In August 2015, the Board of Directors authorized an additional repurchase of up to 4,000,000 shares of Class A or Class B common stock at management's discretion. During July, we purchased 398,592 Class A shares at an average price of $68.72 per share. In August, we purchased 399,564 Class A shares at an average price of $65.07 per share and 304 Class B shares at an average price of $65.80 per share. In September, we purchased 140,000 Class A shares at an average price of $62.29 per share. 16 34


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    Table of Contents Performance Graph The following graph and tables show the performance of the Company's Class A common stock compared to the NYSE Composite-Total Return Index and the S&P Aerospace & Defense Index for a $100 investment made on September 30, 2010, including reinvestment of any dividends. 9/10 9/11 9/12 9/13 9/14 9/15 Moog Inc. - Class A Common Stock $ 100.00 $ 91.86 $ 106.65 $ 165.22 $ 192.62 $ 152.27 NYSE Composite - Total Return Index 100.00 95.44 119.10 142.46 162.29 152.27 S&P Aerospace & Defense Index 100.00 100.84 122.91 178.27 210.69 218.60 17 35


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    Table of Contents Item 6. Selected Financial Data. For a more detailed discussion of 2013 through 2015, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and Item 8, Financial Statements and Supplementary Data of this report. (dollars in thousands, except per share data) 2015(1) 2014(1) 2013(2)(3) 2012(3) 2011(3) RESULTS FROM OPERATIONS Net sales $ 2,525,532 $ 2,648,385 $ 2,610,311 $ 2,469,536 $ 2,330,680 Net earnings 131,883 158,198 120,497 152,462 136,021 Net earnings per share Basic $ 3.39 $ 3.57 $ 2.66 $ 3.37 $ 2.99 Diluted $ 3.35 $ 3.52 $ 2.63 $ 3.33 $ 2.95 Weighted-average shares outstanding Basic 38,945,880 44,362,412 45,335,336 45,246,960 45,501,806 Diluted 39,334,520 44,952,437 45,823,720 45,718,324 46,047,422 FINANCIAL POSITION Cash and cash equivalents $ 309,853 $ 231,292 $ 157,090 $ 148,841 $ 113,679 Working capital 1,021,990 941,260 924,145 885,032 834,056 Total assets 3,086,471 3,208,452 3,237,095 3,105,907 2,842,967 Indebtedness - total 1,075,184 874,036 709,157 764,622 725,447 Shareholders’ equity 994,532 1,347,415 1,535,765 1,304,790 1,191,891 Shareholders’ equity per common share outstanding $ 27.09 $ 32.51 $ 33.86 $ 28.80 $ 26.38 SUPPLEMENTAL FINANCIAL DATA Capital expenditures $ 80,693 $ 78,771 $ 93,174 $ 107,030 $ 83,695 Depreciation and amortization 103,609 109,259 108,073 100,816 96,327 Research and development 132,271 139,462 134,652 116,403 106,385 Twelve-month backlog (4) 1,273,495 1,339,959 1,296,371 1,279,307 1,324,809 RATIOS Net return on sales 5.2% 6.0% 4.6% 6.2% 5.8% Return on shareholders’ equity 11.3% 10.4% 8.6% 12.1% 11.4% Current ratio 2.7 2.3 2.3 2.3 2.5 Net debt to capitalization (5) 43.5% 32.3% 26.4% 32.1% 33.9% (1) Includes the effects of our share repurchase program. See the Consolidated Statements of Shareholders' Equity and Consolidated Statements of Cash Flow at Item 8, Financial Statements and Supplementary Data of this report. (2) Includes goodwill impairment charge. See Note 6 of the Consolidated Financial Statements at Item 8, Financial Statements and Supplementary Data of this report. (3) Includes the effects of acquisitions. In 2013, we acquired two businesses, one in our Space and Defense Controls segment and one in our Components segment. In 2012, we acquired four businesses, two each in our Components and Space and Defense Controls segments. In 2011, we acquired three businesses, two in our Aircraft Controls segment and one in our Components segment. (4) Twelve-month backlog is defined as confirmed orders we believe will be recognized as revenue within the next twelve months. (5) Net debt is total debt less cash and cash equivalents. Capitalization is the sum of net debt and shareholders’ equity. 18 36


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    Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW We are a worldwide designer, manufacturer and systems integrator of high performance precision motion and fluid controls and control systems for a broad range of applications in aerospace and defense and industrial markets. Within the aerospace and defense market, our products and systems include: • Defense market - primary and secondary flight controls for military aircraft, stabilization and automatic ammunition loading controls for armored combat vehicles, tactical and strategic missile steering controls and gun aiming controls. • Commercial aircraft market - primary and secondary flight controls for commercial aircraft. • Commercial space market - space satellite positioning controls and thrust vector controls for space launch vehicles. In the industrial market, our products are used in a wide range of applications including: • Industrial automation market - injection molding, metal forming, heavy industry, material and automotive testing, pilot training simulators and surveillance systems. • Energy market - oil and gas exploration, wind energy and power generation. • Medical market - motors used in sleep apnea devices, enteral clinical nutrition and infusion therapy pumps, ultrasonic sensors and surgical handpieces and CT scanners. We operate under five segments, Aircraft Controls, Space and Defense Controls, Industrial Systems, Components and Medical Devices. Our principal manufacturing facilities are located in the United States, United Kingdom, Philippines, Germany, Italy, Netherlands, China, Costa Rica, Japan, Luxembourg, India, Canada and Ireland. We have long-term contracts with some of our customers. These contracts are predominantly within Aircraft Controls and Space and Defense Controls and represent 33%, 34% and 33% of our sales in 2015, 2014 and 2013, respectively. We recognize revenue on these contracts using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion. The remainder of our sales are recognized when the risks and rewards of ownership and title to the product are transferred to the customer, principally as units are delivered or as service obligations are satisfied. This method of revenue recognition is predominantly used within the Industrial Systems, Components and Medical Devices segments, as well as with aftermarket activity. We concentrate on providing our customers with products designed and manufactured to the highest quality standards. Our products are applied in demanding applications, "When Performance Really Matters®." We believe we have achieved a leadership position in the high performance, precision controls market, by capitalizing on our strengths, which include: • superior technical competence in delivering mission-critical solutions, • an innovative customer-intimacy approach, • a diverse base of customers and end markets served by a broad product portfolio, • well-established international presence serving customers worldwide, and • a proven ability to successfully undertake investments designed to enhance our control systems product franchise and drive continued growth. These strengths afford us the ability to innovate our current solutions into new, complimentary technologies, providing us the opportunity to expand our product scope supply from one market to another and from component to systems supplier. In addition, we will continue to strive for achieving substantial content positions on the platforms on which we currently participate, seeking to be the dominant supplier in the current niche markets we serve. We also look for innovation in all aspects of our business, employing new technologies to improve productivity and to develop innovative business models. 19 37


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    Table of Contents These activities will help us achieve our financial objectives of increasing our revenue base and improving our long term profitability and cash flow from operations while continuously focusing on internal cost improvement initiatives. In doing so, we expect to maintain a balanced, diversified portfolio in terms of markets served, product applications, customer base and geographic presence. Our fundamental strategies to achieve our objectives include: • maintaining our technological excellence by building upon our systems integration capabilities while solving our customers’ most demanding technical problems in applications "When Performance Really Matters®," • utilizing our global capabilities and strong engineering heritage to innovate, • continuing to grow our profitable aftermarket business, • maximizing customer value by implementing lean enterprise principles, and • investing in talent development to accelerate our leadership capability and employee performance. We focus on improving shareholder value through strategic revenue growth, both acquired and organic, through improving operating efficiencies and manufacturing initiatives and through utilizing low cost manufacturing facilities without compromising quality. Additionally, we take a balanced approach to capital deployment, which may include strategic acquisitions or further share buyback activity in order to maximize shareholder returns over the long-term. We face numerous challenges to improving shareholder value. These include, but are not limited to, adjusting to dynamic global economic conditions that are influenced by governmental, industrial and commercial factors, pricing pressures from customers, strong competition, foreign currency fluctuations and increases in employee benefit costs. Based on periodic strategy reviews, including the financial outlook of our business, we may also engage in restructuring activities, including reducing overhead, consolidating facilities, exiting some product lines and divesting operations. Financial Highlights • Net sales for fiscal 2015 decreased 5% to $2.5 billion, as weaker foreign currencies contributed 80% of the decline. • Total operating profit decreased 11% to $246 million. • Net earnings decreased 17% to $132 million. • We repurchased 5 million shares of common stock in 2015, lowering our average outstanding shares 13%. • Diluted earnings per share decreased 5% to $3.35. • Cash provided by operating activities was a record for the company at $335 million. Acquisitions and Divestitures All of our acquisitions are accounted for under the purchase method and, accordingly, the operating results for the acquired companies are included in the consolidated statements of earnings from the respective dates of acquisition. Under purchase accounting, we record assets and liabilities at fair value and such amounts are reflected in the respective captions on the consolidated balance sheets. The purchase price described for each acquisition below is net of any cash acquired, includes debt issued or assumed and the fair value of contingent consideration. In 2015, we completed one divestiture in our Medical Devices segment. We sold our Rochester, New York and Erie, Pennsylvania life sciences operations for $3 million. We did not complete any acquisitions in 2014 or in 2015. 20 38


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    Table of Contents CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by our application of accounting policies, which are discussed in Note 1 of Item 8, Financial Statements and Supplementary Data of this report. We believe the accounting policies discussed below are the most critical in understanding and evaluating our financial results. These critical accounting policies have been reviewed with the Audit Committee of our Board of Directors. Revenue Recognition on Long-Term Contracts Revenue representing 33% of 2015 sales was accounted for using the percentage of completion, cost-to-cost method of accounting. This method of revenue recognition is predominantly used within the Aircraft Controls and Space and Defense Controls segments due to the contractual nature of the business activities, with the exception of their respective aftermarket activities. The contractual arrangements are either firm fixed-price or cost-plus contracts and are with the U.S. Government or its prime subcontractors, foreign governments or commercial aircraft manufacturers, including Boeing and Airbus. The nature of the contractual arrangements includes customers’ requirements for delivery of hardware as well as funded nonrecurring development work in anticipation of follow-on production orders. We recognize revenue on contracts in the current period using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods. Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. Estimates are reviewed and updated quarterly for substantially all contracts. A significant change in an estimate on one or more contracts could have a material effect on our results of operations. Occasionally, it is appropriate to combine or segment contracts. Contracts are combined in those limited circumstances when they are negotiated as a package in the same economic environment with an overall profit margin objective and constitute, in essence, an agreement to do a single project. In such cases, we recognize revenue and costs over the performance period of the combined contracts as if they were one. Contracts are segmented in limited circumstances if the customer had the right to accept separate elements of the contract and the total amount of the proposals on the separate components approximated the amount of the proposal on the entire project. For segmented contracts, we recognize revenue and costs as if they were separate contracts over the performance periods of the individual elements or phases. Contract costs include only allocable, allowable and reasonable costs which are included in cost of sales when incurred. For applicable U.S. Government contracts, contract costs are determined in accordance with the Federal Acquisition Regulations and the related Cost Accounting Standards. The nature of these costs includes development engineering costs and product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead costs. Contract profit is recorded as a result of the revenue recognized less costs incurred in any reporting period. Amounts representing performance incentives, penalties, contract claims or change orders are considered in estimating revenues, costs and profits when they can be reliably estimated and realization is considered probable. Revenue recognized on contracts for unresolved claims or unapproved contract change orders was not material in 2015, 2014 or 2013. Contract Loss Reserves At October 3, 2015, we had contract loss reserves of $30 million. For contracts with anticipated losses at completion, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations that are treated as period expenses. Loss reserves are more common on firm fixed-price contracts that involve, to varying degrees, the design and development of new and unique controls or control systems to meet the customers’ specifications. 21 39


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    Table of Contents Reserves for Inventory Valuation At October 3, 2015, we had net inventories of $493 million, or 30% of current assets. Reserves for inventory were $100 million, or 17% of gross inventories. Inventories are stated at the lower-of-cost-or-market with cost determined primarily on the first-in, first-out method of valuation. We record valuation reserves to provide for slow-moving or obsolete inventory by using both a formula-based method that increases the valuation reserve as the inventory ages and, additionally, a specific identification method. We consider overall inventory levels in relation to firm customer backlog in addition to forecasted demand including aftermarket sales. Changes in these and other factors such as low demand and technological obsolescence could cause us to increase our reserves for inventory valuation, which would negatively impact our gross margin. As we record provisions within cost of sales to increase inventory valuation reserves, we establish a new, lower cost basis for the inventory. Reviews for Impairment of Goodwill At October 3, 2015, we had $737 million of goodwill, or 24% of total assets. We test goodwill for impairment for each of our reporting units at least annually, during our fourth quarter, and whenever events occur or circumstances change, such as changes in the business climate, poor indicators of operating performance or the sale or disposition of a significant portion of a reporting unit. We also test goodwill for impairment when there is a change in reporting units. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components. Our reporting units are the same as our operating segments. Companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or selected reporting units. Companies are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired. Economic uncertainties and the length of time from the calculation of a baseline fair value are factors that we consider in determining whether to perform a quantitative test. When we evaluate the potential for goodwill impairment using a qualitative assessment, we consider factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative two-step impairment test. Quantitative testing first requires a comparison of the fair value of each reporting unit to its carrying value. We use the discounted cash flow method to estimate the fair value of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating margins and cash flows, the terminal growth rate and the discount rate. Management projects revenue growth rates, operating margins and cash flows based on each reporting unit's current business, expected developments and operational strategies over a five-year period. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss must be measured. In measuring the impairment loss, the implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit's assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination at fair value. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to that excess. 22 40


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    Table of Contents Annual test For our annual test of goodwill for impairment in 2015, we performed quantitative assessments for each of our five reporting units. In performing these assessments, we used a 3% terminal growth rate, which is supported by our historical growth rate, near-term projections and long-term expected market growth. We then discounted our projected cash flows using weighted-average costs of capital that ranged from 10.0% to 11.5% for our various reporting units. These discount rates reflect management’s assumptions of marketplace participants’ cost of capital. Based on our tests, the fair value of each reporting unit exceeded its carrying amount. Therefore, we concluded that goodwill was not impaired. The fair value of each reporting unit exceeded its carrying amount by at least 25%. While any individual assumption could differ from those that we used, we believe the overall fair values of our reporting units are reasonable as the values are derived from a mix of reasonable assumptions. Had we used discount rates that were 100 basis points higher or a terminal growth rate that was 100 basis points lower than those we assumed, the fair values of each of our reporting units would have continued to exceed their carrying amounts by at least 10%. We evaluate the reasonableness of the resulting fair values of our reporting units by comparing the aggregate fair value to our market capitalization and assessing the reasonableness of any resulting premium. The determination of our assumptions is subjective and requires significant estimates. Changes in these estimates and assumptions could materially affect the results of our reviews for impairment of goodwill. Interim Test During the fourth quarter of 2015, we transferred the management of our sensors and handpieces business from Medical Devices to Components. Accordingly, we performed an interim test on goodwill for impairment for these two reporting units. We determined the fair value of the sensors and handpieces business consistent with our practice for determining fair values in our tests for goodwill impairment, and we moved the fair value of this business from Medical Devices to Components. We also transferred the assets of this business, including the proportionate share of goodwill based on the relative fair value of this business to the Medical Devices reporting unit. We then compared the fair values to the carrying values of the Medical Devices and Components reporting units. The resulting fair values exceeded our carrying values, so we determined that goodwill was not impaired. The fair value of the Components reporting unit exceeded its carrying value by a significant amount. Had we used a discount rate that was 100 basis point higher or a terminal growth rate that was 100 basis points lower than those we assumed, the fair value of this reporting unit would have continued to exceed its carrying amount by a significant amount. The fair value of the Medical Devices reporting unit exceeded its carrying amount by 18%. This reporting unit had $62 million of goodwill at October 3, 2015. Had we used a discount rate that was 100 basis points higher or a terminal growth rate that was 100 basis points lower than those we assumed, the fair value of this reporting unit would have exceeded its carrying amount by 4% and 10%, respectively. The primary factor causing the fair value of this reporting unit to not be substantially greater than the carrying value is that the Medical Devices segment was created through a series of acquisitions between 2006 and 2009. The creation of this reporting unit resulted in recording substantial goodwill, which increased the carrying value. The key assumptions that drive the estimated fair value are the projected revenue and operating margins, which are used to project future cash flows. Our expectation for this reporting unit is for revenue growth over the five year projection period to be driven by the overall market growth of the home healthcare segment of the infusion therapy market and by capturing market share due to new product offerings. Additionally, our expectation is that operating margins improve throughout the five year projection period, driven by improved sales, as well as continued cost containment activities. If cash flows generated by our Medical Devices reporting unit were to decline in the future, or if there were adverse revisions to key assumptions, we may be required to record impairment charges. There are specific circumstances that would pose risk to the fair value of this reporting unit. Lower than projected growth rates of the home healthcare segment of the infusion therapy market, changes in provider capital purchase cycles, changes in healthcare legislation, changes in private insurance plans, as well as changes in treatment therapies may negatively affect the fair value of this reporting unit. Also, our projected market share capture rates may be lower due to delayed or unsuccessful new product offerings, which would negatively affect the fair value of this reporting unit. In addition, the fair value of this reporting unit may be negatively impacted based on the results of our strategic review and the courses of action that we may decide to pursue. 23 41


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    Table of Contents Pension Assumptions We maintain various defined benefit pension plans covering employees at certain locations. Pension expense for all defined benefit plans for 2015 was $41 million. Pension obligations and the related costs are determined using actuarial valuations that involve several assumptions. The most critical assumptions are mortality rates, the discount rate and the long-term expected return on assets. Other assumptions include salary increases and retirement age. Mortality rates are used to estimate the life expectancy of plan participants during which they are expected to receive benefit payments. We began using a new table and projection scale to determine our mortality assumption for our U.S. plans as of October 3, 2015. Our assumption represents a modified version of the mortality table and projection scale published by the Society of Actuaries (SOA), and reflects improvements consistent with the Social Security Administration. We believe the use of this modified table and projection scale best reflects our demographics and anticipated plan outcomes. This change will increase our pension expense by $6 million in 2016. The discount rate is used to state expected future cash flows at present value. Using a higher discount rate decreases the present value of pension obligations and decreases pension expense. We use the Mercer Pension Above Mean Discount Yield Curve to determine the discount rate for our U.S. defined benefit plans at year end. The discount rate is constructed from bonds included in the Mercer Yield Curve that have a yield higher than the mean yield curve. We believe that the Mercer Pension Above Mean Discount Yield Curve best mirrors the yields of bonds that would be selected by management if actions were taken to settle our obligation. The yield curve calculation matches the notional cash inflows of the hypothetical bond portfolio with the expected benefit payments to arrive at the discount rate. In determining expense for 2015 for our largest U.S. plan, we used a 4.4% discount rate, compared to 5.0% for 2014. We will use a 4.5% discount rate to determine our expense in 2016 for this plan. This 10 basis point increase in the discount rate will decrease our pension expense by $1 million in 2016. The long-term expected return on assets assumption reflects the average rate of return expected on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. In determining the long-term expected return on assets assumption, we consider our current and target asset allocations. We consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. Asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future benefit payment requirements. In determining the 2015 expense for our largest plan, we used an 8.0% return on assets assumption, compared to 8.4% for 2014. A 50 basis point decrease in the long-term expected return on assets assumption would increase our annual pension expense by $3 million. Deferred Tax Asset Valuation Allowances At October 3, 2015, we had gross deferred tax assets of $281 million and deferred tax asset valuation allowances of $7 million. The deferred tax assets principally relate to benefit accruals, inventory obsolescence, tax benefit carryforwards and contract loss reserves. The deferred tax assets include $9 million related to tax benefit carryforwards associated with net operating losses, for which $6 million of deferred tax asset valuation allowances are recorded. We record a valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely than not to be realized. We consider recent earnings projections, allowable tax carryforward periods, tax planning strategies and historical earnings performance to determine the amount of the valuation allowance. Changes in these factors could cause us to adjust our valuation allowance, which would impact our income tax expense when we determine that these factors have changed. 24 42


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    Table of Contents CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK 2015 vs. 2014 2014 vs. 2013 $ % $ % (dollars in millions except per share data) 2015 2014 2013 Variance Variance Variance Variance Net sales $ 2,526 $ 2,648 $ 2,610 $ (123) (5%) $ 38 1% Gross margin 29.2% 30.1% 30.0% Research and development expenses $ 132 $ 139 $ 135 $ (7) (5%) $ 5 4% Selling, general and administrative expenses as a percentage of sales 14.7% 15.2% 15.2% Interest expense $ 29 $ 13 $ 27 $ 16 131% $ (14) (54%) Restructuring expense $ 15 $ 13 $ 14 $ 3 20% $ (1) (8%) Goodwill Impairment $ — $ — $ 38 $ — n/a $ (38) n/a Other $ 5 $ 10 $ 8 $ (6) (54%) $ 2 25% Effective tax rate 28.3% 27.7% 27.0% Net earnings $ 132 $ 158 $ 120 $ (26) (17%) $ 38 31% Diluted earnings per share $ 3.35 $ 3.52 $ 2.63 $ (0.17) (5%) $ 0.89 34% Net sales decreased in 2015 compared to 2014 as all of our segments' sales declined with the exception of Medical Devices. Weaker foreign currencies, in particular the Euro and the British Pound relative to the U.S. dollar, contributed 80% of the sales decline in 2015. Net sales increased in 2014 compared to 2013 due to growth in Aircraft Controls and Components. Sales declined in Medical Devices, Space and Defense Controls and Industrial Systems. Acquisitions in Components and Space and Defense Controls contributed 56% of the sales growth, while changes in foreign currency exchange rates contributed 44% of the sales growth. Gross margin declined in 2015 compared to 2014 due to an adverse sales mix. We were negatively impacted by lower amounts of military OEM and aftermarket sales and commercial aftermarket sales in Aircraft Controls, as well as lower amounts of energy sales in Industrial Systems and in Components. The decline was partly offset by the benefits of $14 million of lower amounts of additions to contract loss reserves in Aircraft Controls and $11 million of benefits realized from the 2014 restructuring activities. Gross margin was flat in 2014 compared to 2013. Unfavorable sales mix, primarily in Aircraft Controls, was offset by lower pension expense as well as benefits realized from the 2013 restructuring activities. Our pension expense in 2014 decreased $12 million, driven by the increase in the discount rate for our U.S. plan, rising to 5.00% from 3.75%. Research and development expenses decreased in 2015 compared to 2014. Within Aircraft Controls, research and development expenses decreased $7 million as we had lower activity on the Airbus A350 program, but was partly offset by higher amounts of Embraer E-Jets activity. Research and development expenses increased in 2014 compared to 2013. Within Aircraft Controls, research and development expenses increased $11 million as the ramp up of activities on the Embraer E-Jets program was partially offset by decreasing development activity on the Boeing 787 and Airbus A350 programs. Within Industrial Systems, research and development expenses decreased $6 million. Selling, general and administrative expenses as a percentage of sales decreased in 2015 compared to 2014. Most of the decline is due to an on-going focus on expense reduction. Selling, general and administrative expenses as a percentage of sales for 2014 were comparable to 2013's percentage of sales as benefits from earlier restructuring activities were offset by start up activities on a new ERP system. Interest expense increased in 2015 compared to 2014. Higher cost debt following the issuance of our $300 million 5.25% senior notes in November 2014 increased our interest expense by $8 million. Also, higher levels of debt due to funding our share repurchase program increased our interest expense by $5 million. Interest expense decreased in 2014 compared to 2013, with $11 million of the decrease due to the redemption of our senior subordinated notes. On December 19, 2013, we repurchased our 7.25% senior subordinated notes due on January 15, 2018. In doing so, we incurred a 3.625% call premium in the first quarter of 2014. In 2015, 2014 and 2013, we incurred restructuring expenses in response to business conditions. In 2013, we incurred $14 million of restructuring expenses primarily in Industrial Systems and Space and Defense Controls. Through 2014, the total savings were $23 million, or 98% of our projected benefits, split evenly between cost of sales and selling, general and administrative expenses. In 2014, we incurred $13 million of restructuring expenses primarily in Aircraft 25 43


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    Table of Contents Controls and Space and Defense Controls. Through 2015, the total savings were $14 million, or 91% of our projected benefits, and were primarily in cost of sales. In 2015, we incurred $15 million of restructuring expenses, primarily in Industrial Systems, Space and Defense Controls and Aircraft Controls. We expect these activities to result in $21 million of cost savings in 2016. In 2013, we took a $38 million goodwill impairment charge in our Medical Devices segment. The impairment charge net of tax was $24 million, or $0.52 per share. Other expense in 2015 includes a $2 million asset impairment write-down in Industrial Systems and a $1 million loss on the sales of two small operations in our Medical Devices segment. Other expense in 2014 includes payment of a $7 million call premium on the early redemption of our 7.25% senior subordinated notes and a $5 million write-down of a technology investment in Industrial Systems. Other expense in 2013 is primarily related to a $7 million loss in our Medical Devices segment on the sale of the Buffalo, New York Ethox Medical operations. The effective tax rate in 2015 was higher than the effective tax rate in 2014 due primarily to lower earnings in favorable tax jurisdictions, especially in the U.K. Partially offsetting the negative impact was lower domestic earnings, which carry a higher tax rate. The effective tax rate in 2014 was higher than in 2013 due primarily to the absence of benefits from 2013. In 2013, we benefited from a catchup adjustment for research and development tax credits mostly associated with 2012 following the enactment of legislation in 2013. Due to the goodwill impairment charge in 2013, we also had a lower effective tax rate in 2014. Average common shares outstanding decreased in 2015 compared to 2014 due to our share buyback program. Since the Board of Directors amended the program in January 2014, we have repurchased nine million shares. There are four million additional shares available under this program as of year end. Other comprehensive loss increased in 2015 compared to 2014. Foreign currency translation adjustments decreased other comprehensive income $51 million compared to 2014. Comparing 2015 to 2014, the British Pound had a negative impact of $20 million, the Euro had a negative impact of $15 million and the Canadian dollar had a negative impact of $7 million. Other comprehensive income decreased in 2014 compared to 2013. The retirement liability adjustment decreased other comprehensive income by $148 million due primarily to a 60 basis point decrease on the discount rates applicable to our U.S. plan. Also, foreign currency translation adjustments, driven by the Euro relative to the U.S. dollar, decreased other comprehensive income $38 million compared to 2013. 2016 Outlook – We expect sales in 2016 to increase 2% to $2.6 billion. We expect that Aircraft Controls will drive the sales growth, due mostly to the ramp up of the Airbus A350 program. We expect slight sales increases in Space and Defense Controls, Medical Devices and Industrial Systems, and a small decrease in Components' sales. We expect operating margin to increase to 10.7%. The benefits of our 2015 cost containment strategies will drive the margin expansion, offsetting margin pressure from unfavorable sales mixes in Aircraft Controls and Components. We expect net earnings will increase 12% to $148 million. Average diluted shares outstanding will decrease 6% to 37 million due to shares already repurchased under our current share buyback program. We expect diluted earnings per share will increase 19% to $4.00. The difference between projected diluted earnings per share growth and projected net earnings growth is the anticipated result of shares already repurchased under our current share buyback program. 26 44


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    Table of Contents SEGMENT RESULTS OF OPERATIONS AND OUTLOOK During 2015, we made a change to our segment reporting. Components now includes the sensor and handpieces product line, which we previously included in the Medical Devices segment. This product line consists of manufactured ultrasonic and optical sensors as well as surgical handpieces distributed to medical OEMs. Since the customer base is different from the sale of medical pumps directly to end users, the chief operating decision maker is now reviewing performance and assessing the allocation of resources of this product line as part of the Components segment. Sales of sensors and handpieces were $25 million in 2015 and 2014 and $23 million in 2013. All amounts have been restated to present sensors and handpieces within Components. Operating profit, as presented below, is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, manpower or profit. Operating profit is reconciled to earnings before income taxes in Note 17 of Item 8, Financial Statements and Supplementary Data of this report. Aircraft Controls 2015 vs. 2014 2014 vs. 2013 $ % $ % (dollars in millions) 2015 2014 2013 Variance Variance Variance Variance Net sales - military aircraft $ 546 $ 572 $ 596 $ (26) (4%) $ (24) (4%) Net sales - commercial aircraft 540 546 463 (6) (1%) 82 18 % $ 1,087 $ 1,118 $ 1,060 $ (31) (3%) $ 58 5% Operating profit $ 100 $ 116 $ 127 $ (16) (14%) $ (11) (9%) Operating margin 9.2% 10.4% 12.0% Backlog $ 678 $ 715 $ 671 $ (36) (5%) $ 43 6% Aircraft Controls' net sales decreased in 2015 compared to 2014 in both our military and commercial markets. In 2014, Aircraft Controls' net sales increased in our commercial market but decreased in our military market compared to 2013. Military aftermarket sales declined $13 million in 2015 compared to 2014 due to lower spares sales across multiple programs. Also, military OEM sales declined $12 million, due to lower amounts of development work on the KC-46 Tanker program and lower foreign military sales. Sales in commercial aftermarket decreased $12 million due to declining sales for initial provisioning spares for the Boeing 787 program. Slightly offsetting these declines was an increase of $14 million of sales to Airbus due to the ramp up of the new A350 program. Commercial OEM sales in 2014 increased compared to 2013 due to Boeing and Airbus program ramp ups and volume increases. Sales to Boeing increased $48 million as production continued to ramp up on the Boeing 787 and volume increased on legacy Boeing production programs. Also, sales to Airbus increased $14 million due to the production growth on the A350 program. In addition, commercial aftermarket increased $18 million due to higher initial provisioning sales for the Boeing 787. Partially offsetting the commercial growth was a decline in military sales. Helicopters declined $16 million due mostly to lower deliveries on the V-22. Also, military aftermarket sales declined $8 million due in part to lower foreign military F-15 sales. Operating margin in 2015 and 2014 was affected by restructuring activities. In 2014, we incurred $5 million of restructuring expenses. We expected to receive $7 million in future cost savings in 2015, of which we realized 85%. In 2015, we incurred $3 million of restructuring expenses, and we expect these activities to result in $5 million of cost savings in 2016. Operating margin for 2015 declined as compared to 2014, due to an adverse sales mix due to lower amounts of military and commercial aftermarket sales and to lower amounts of military OEM sales. Partly offsetting the margin decline was $14 million of lower additions to contract loss reserves in 2015 compared to 2014. Also, research and development expenses declined $7 million due, in part, to lower activity on the Airbus A350 program. Slightly offsetting the lower Airbus spend was higher research and development expenses associated with the ramp up of the Embraer E-Jets program. The operating profit in 2015 also benefited from restructuring benefits realized from 2014 restructuring activities. 27 45


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    Table of Contents Operating margin for 2014 declined as compared to 2013. Research and development costs increased $11 million. We had development costs associated with the ramp up of the Embraer E-Jets program, but those costs were partially offset by decreasing development activity on the Boeing 787 and Airbus A350 programs. Additionally, we incurred $4 million in higher restructuring expenses than in 2013. Partly offsetting the operating margin declines was $7 million of lower pension expense, driven by the increase in the discount rate. The decrease of twelve-month backlog for Aircraft Controls at October 3, 2015 compared to September 27, 2014 is in part due to the timing of commercial orders as well as work completed on military programs. The higher level of twelve-month backlog for Aircraft Controls at September 27, 2014 compared to September 28, 2013 is largely related to increases in commercial orders. 2016 Outlook for Aircraft Controls – We expect sales in Aircraft Controls to increase 4% to $1.13 billion in 2016. Commercial aircraft sales are expected to increase 9%, due primarily to the sales increase on the Airbus A350 program. We expect that commercial aftermarket sales will continue to decline due to the lower levels of Boeing 787 initial provisioning sales. We expect military sales to decline 1% in 2016, as higher F-35 production sales are offset by lower V-22 and military aftermarket sales. We expect our operating margin will increase slightly to 9.5% in 2016. We expect the benefits of our restructuring actions in 2015 will improve operating margin. However, we expect margin pressures due to an unfavorable sales mix associated with lower amounts of military and commercial aftermarket sales. Additionally, our research and development costs will remain elevated due to the continued spend on the A350 and the Embraer E-2 programs. 28 46


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    Table of Contents Space and Defense Controls 2015 vs. 2014 2014 vs. 2013 $ % $ % (dollars in millions) 2015 2014 2013 Variance Variance Variance Variance Net sales $ 381 $ 395 $ 396 $ (13) (3%) $ (1) —% Operating profit $ 33 $ 26 $ 25 $ 7 27% $ 1 3% Operating margin 8.7% 6.6% 6.4% Backlog $ 250 $ 254 $ 254 $ (4) (2%) $ — —% Space and Defense Controls' net sales decreased in 2015 compared to 2014 as sales declines in our space market were partially offset by sales growth in our defense market. Space and Defense Controls' net sales in 2014 are comparable to sales in 2013. Sales in our space market decreased $26 million in 2015 compared to 2014 due to satellite and launch vehicle programs winding down. Partly offsetting the sales decline was $13 million of sales growth in our defense market. Within defense, sales increased $29 million as production rates increased on defense controls, missile systems and naval systems programs. However, these increases within our defense market were offset by $15 million of lower security sales due to lower sales volume. Segment sales in 2014 were comparable to 2013. Sales for missile defense systems and security products increased $14 million due to higher production rates and higher product demand. Offsetting these increases was a $13 million decline in our defense controls business due to a program's prior year's sales not repeating. Sales in our space market in 2014 declined $2 million. Within our space market, sales of satellite components and engines programs declined $3 million due mostly to activity slowdowns and program delays. Activity on NASA's Soft Capture System increased sales by $12 million, but was offset by other program completions. Operating margin in 2015, 2014 and 2013 was affected by restructuring activities. In 2013, we incurred $5 million of restructuring expenses. We expected to receive $9 million in future cost savings in 2014, of which we realized 99%. In 2014, we also incurred $5 million of restructuring expenses. We expected to receive $9 million in future cost savings in 2015, of which we realized 95%. In 2015, we incurred $6 million of restructuring expenses, and we expect these activities to result in $5 million of cost savings in 2016. More than half of the total restructuring expense in 2015 relates to the termination of a selling and marketing contractual relationship, and will not carry the same ratio of benefits as our previous restructuring activities. Operating margin increased in 2015 compared to 2014. Operating profit increased due to the benefits realized from our 2014 and 2015 restructuring activities. We also benefited from an improved sales mix as well as cost containment activities. Partly offsetting these increases is an $8 million accounting correction recorded in the second quarter of 2015. Operating margin in 2014 was comparable to operating margin in 2013. The 2014 operating profit benefited from our 2013 restructuring activities. Additionally, we benefited from a $2 million settlement related to an acquisition. These improvements were mostly offset by a lower level of profitable spares sales for defense controls. The lower level of twelve-month backlog for Space and Defense Controls at October 3, 2015 compared to September 27, 2014 is due to declines in our security and defense controls markets, partly offset by increases in our satellites programs. The level of twelve-month backlog at September 27, 2014 is comparable to the level at September 28, 2013 as increases in our defense market were offset by declines in our space market. 2016 Outlook for Space and Defense Controls – We expect sales in Space and Defense Controls to increase slightly to $386 million in 2016. We expect sales increases in our defense market to be driven by increased production volumes for missile systems and improved domestic and foreign military vehicle sales. Offsetting this growth is an expected decline in our space market as production programs continue to wind down. We expect our operating margin will increase to 11.5% in 2016 from 8.7% in 2015 as the 2015 accounting correction does not repeat and as we benefit from our 2015 restructuring actions. 29 47


  • Page 50

    Table of Contents Industrial Systems 2015 vs. 2014 2014 vs. 2013 $ % $ % (dollars in millions) 2015 2014 2013 Variance Variance Variance Variance Net sales $ 522 $ 591 $ 592 $ (69) (12%) $ (1) —% Operating profit $ 45 $ 58 $ 42 $ (13) (23%) $ 16 38% Operating margin 8.6% 9.8% 7.1% Backlog $ 178 $ 182 $ 187 $ (5) (3%) $ (5) (2%) Industrial Systems' net sales decreased across our major markets in 2015 compared to 2014. Weaker foreign currencies, in particular the Euro relative to the U.S. dollar, contributed $60 million of the sales decline. Industrial Systems' net sales were flat in 2014 compared to 2013. Sales in our industrial automation and energy markets improved but were offset by declines in our simulation and test market. Sales in our energy market decreased $31 million in 2015 compared to 2014. Unfavorable foreign currency translation contributed approximately half of the decline. Additionally, sales of our non-renewable energy products contributed the other half of the decline due to the unfavorable macro-economic conditions related, in part, to the significant decline in the price of crude oil. Within our industrial automation market, sales decreased $27 million. Unfavorable foreign currency translation contributed $33 million to the decline, but was partly offset by sales increases in our aftermarket services. Sales within our simulation and test market decreased $11 million. Unfavorable foreign currency translation contributed approximately 80% of the decline. Within our industrial automation market, sales increased $14 million in 2014 compared to 2013 due to improvements from our European businesses in metal forming and presses, distribution and aftermarket. Additionally, sales in our energy market increased $4 million due to a new wind application in Brazil. Offsetting the growth was a $19 million decline in our simulation and test market, resulting from lower orders from our larger flight training simulation customers. Operating margin decreased in 2015 compared to 2014. Our operating profit was negatively impacted by the strengthening U.S. dollar relative to foreign currencies, lower sales volumes and margin pressures in the energy business. Additionally in 2015, we incurred an additional $4 million of restructuring expense, and we expect these activities will result in $8 million of cost savings in 2016. Partly offsetting the declines was $6 million of lower write downs in 2015. Operating margin increased in 2014 compared to 2013. Operating profit improved as we realized the $14 million of expected benefits associated with the 2013 restructuring activities. Additionally in 2014, we benefited from $7 million less in restructuring expenses, additional cost containment activities, lower material costs and lower levels of research and development expenses. However, the operating margin in 2014 was negatively impacted by an incremental $3 million of technology investment write-downs and by a $3 million charge related to a quality issue on a customer application. The lower level of twelve-month backlog in Industrial Systems at October 3, 2015 compared to September 27, 2014 is primarily due the impact of foreign currency translation, but was partly offset by higher levels of industrial automation orders. The lower level of twelve-month backlog in Industrial Systems at September 27, 2014 compared to September 28, 2013 is primarily due to timing of orders in our energy market. 2016 Outlook for Industrial Systems – We expect sales in Industrial Systems to increase slightly to $525 million in 2016, as general economic conditions do not indicate any meaningful changes in 2016. We expect our operating margin will increase to 10.7% in 2016 from 8.6% in 2015, as we will benefit from both our restructuring actions in the fourth quarter of 2015 and our cost containment actions. 30 48

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