United
States


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





[ X
      ]
                  ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the fiscal year ended December 31, 2008[    ]
                  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE
      SECURITIES EXCHANGE ACT OF
1934




Commission
File No. 0-18348





BE
AEROSPACE, INC.


(Exact
name of registrant as specified in its charter)





Delaware
              06-1209796(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)1400
      Corporate Center Way, Wellington, Florida
              33414(Address
      of principal executive offices)
              (Zip
      Code)(561)
      791-5000(Registrant's
      telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act:  None


Securities
registered pursuant to Section 12(g) of the Act:


Common
Stock, $.01 Par Value


(Title of
Class)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes [X] 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 [X].





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 [X] 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. [X]





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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.


Large
accelerated filer [X]  Accelerated filer
[  ]  Non-accelerated filer (do not check if a smaller
reporting company) [  ]


Smaller
reporting company [  ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
[   ] No [X].





The
aggregate market value of the registrant's voting stock held by non-affiliates
was approximately $2,169.0 million on June 30, 2008 based on the closing sales
price of the registrant's common stock as reported on the Nasdaq National Market
as of such date, which is the last business day of the registrant's most
recently completed second fiscal quarter.  Shares of common stock held
by executive officers and directors and persons who own 5% or more of
outstanding common stock have been excluded since such persons may be deemed
affiliates.  This determination of affiliate status is not a
determination for any other purpose.  The number of shares of the
registrant's common stock, $.01 par value, outstanding as of February 23, 2009
was 101,021,421 shares.





DOCUMENTS
INCORPORATED BY REFERENCE





Certain
sections of the registrant's Proxy Statement to be filed with the Commission in
connection with the 2009 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Form 10-K.  With the exception of those
sections that are specifically incorporated by reference in this Annual Report
on Form 10-K, such Proxy Statement shall not be deemed filed as part of this
Report or incorporated by reference herein.










INDEX


PART I





ITEM 1.
                  Business
                  
                  
                  1ITEM 1A.
                  Risk Factors
                  
                  
                  14ITEM 1B.
                  Unresolved Staff Comments
                  
                  
                  19ITEM 2.
                  Properties
                  
                  
                  19ITEM 3.
                  Legal Proceedings
                  
                  
                  19ITEM 4.
                  Submission of Matters to a Vote of Security
      Holders
                  
                  
                  19PART IIITEM 5.
                  Market for Registrant’s Common Equity, Related
      StockholderMatters and Issuer Purchases of Equity
      Securities
                  
                  
                  20ITEM 6.
                  Selected Financial Data
                  
                  
                  21ITEM 7.
                  Management’s Discussion and Analysis of Financial Condition
      andResults of Operations
                  
                  
                  22ITEM 7A.
                  Quantitative and Qualitative Disclosures about Market
      Risk
                  
                  
                  33ITEM 8.
                  Financial Statements and Supplementary
    Data
                  
                  
                  33ITEM 9.
                  Changes in and Disagreements with Accountants on Accounting
      andFinancial Disclosure
                  
                  
                  33ITEM 9A.
                  Controls and Procedures
                  
                  
                  33PART IIIITEM 10.
                  Directors, Executive Officers and Corporate
      Governance
                  
                  
                  37ITEM 11.
                  Executive Compensation
                  
                  
                  40ITEM 12.
                  Security Ownership of Certain Beneficial Owners and
      Managementand Related Stockholder Matters
                  
                  
                  40ITEM 13.
                  Certain Relationships and Related Transactions, and
      Director Independence
                  
                  
                  40ITEM 14.
                  Principal Accounting Fees and Services
                  
                  
                  40PART IVITEM 15.
                  Exhibits and Financial Statement
    Schedules
                  
                  
                  41Index to Exhibits
                  
                  
                  42Signatures
                  
                  
                  45Index to Consolidated Financial Statements and
      Schedule
                  
                  
                  F-1





FORWARD-LOOKING
STATEMENTS





This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, (the Securities Act) and Section 21E of
the Securities Exchange Act of 1934, as amended (the Exchange Act). Such
forward-looking statements include, but are not limited to, all statements that
do not relate solely to historical or current facts, including statements
regarding implementation and expected benefits of lean manufacturing and
continuous improvement plans, our dealings with customers and partners, the
consolidation of facilities, reduction of our workforce, integration of acquired
businesses, ongoing capital expenditures, our ability to grow our business, the
impact of the large number of grounded aircraft on demand for our products and
our underlying assets, the adequacy of funds to meet our capital requirements,
the ability to refinance our indebtedness, if necessary, the reduction of debt,
the potential impact of new accounting pronouncements, the global recession and
the impact on our business of the recent and projected decreases in passenger
traffic and the size of the airline fleet.  Such forward-looking
statements include risks and uncertainties and our actual experience and results
may differ materially from the experience and results anticipated in such
statements. Factors that might cause such a difference include those discussed
in our filings with the Securities and Exchange Commission (the SEC), under the
heading "Risk Factors" in this Form 10-K, as well as future events that may have
the effect of reducing our available operating income and cash balances, such as
unexpected operating losses, the impact of rising fuel prices on our airline
customers, outbreaks in national or international hostilities, terrorist
attacks, prolonged health issues which reduce air travel demand (e.g., SARS),
delays in, or unexpected costs associated with, the integration of our acquired
or recently consolidated businesses, conditions in the airline industry,
conditions in the business jet industry, problems meeting customer delivery
requirements, our success in winning new or expected refurbishment contracts
from customers, capital expenditures, increased leverage, possible future
acquisitions, facility closures, product transition costs, labor disputes
involving us, our significant customers or airframe manufacturers, the impact of
a prolonged global recession, the possibility of a write-down of intangible
assets, delays or inefficiencies in the introduction of new products,
fluctuations in currency exchange rates or our inability to properly manage our
rapid growth.







Except
as required under the federal securities laws and rules and regulations of the
SEC, we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are cautioned not to unduly rely on such forward-looking statements when
evaluating the information presented herein. These statements should be
considered only after carefully reading this entire Form 10-K.




Unless
otherwise indicated, the industry data contained in this Form 10-K is from the
January/February 2009 issue of the Airline Monitor, the December 2008 reports of
the International Air Transport Association (IATA), the Boeing Current Market
Outlook 2008, “The ACAS Database” or the Airbus and Boeing corporate
websites.




PART 1





ITEM 1.  BUSINESS





Our
Company





General





Based on
our experience in the industry, we believe we are the world’s largest
manufacturer of cabin interior products for commercial aircraft and business
jets and the world’s leading distributor of aerospace fasteners and consumables.
We sell our products directly to virtually all of the world’s major airlines and
aerospace manufacturers.  In addition, through our consumables
management (formerly distribution) segment, we sell a large and growing number
of consumable parts to market participants in the defense
industry.  Based on our experience, we believe that we have achieved
leading global market positions in each of our major product categories, which
include:





•
                a
      broad line of aerospace fasteners and consumables, consisting of over
      275,000 Stock Keeping Units (SKUs) serving the aerospace, commercial
      aircraft, business jet and military and defense
  industries;•
                commercial
      aircraft seats, including an extensive line of super first class, first
      class, business class, tourist class and regional aircraft
      seats;




1




•
            a
      full line of aircraft food and beverage preparation and storage equipment,
      including next generation galley systems, coffeemakers, water boilers,
      beverage containers, refrigerators, freezers, chillers and
      ovens, including microwave, high efficiency convection and steam
      ovens;




•
            both
      chemical and gaseous aircraft oxygen storage, distribution and delivery
      systems, protective breathing equipment and lighting products;
      and





•
            business
      jet and general aviation interior products, including an extensive line of
      executive aircraft seats, direct and indirect overhead lighting systems,
      passenger and crew oxygen systems, air valve systems, high-end furniture
      and cabinetry.





We also
provide comprehensive aircraft cabin interior reconfiguration and
passenger-to-freighter conversion engineering services and component
kits.





We were
organized as a corporation in Delaware in 1987. We have substantially expanded
the size, scope and nature of our business as a result of a number of
acquisitions. Between 1989 and 2001, we completed 22 acquisitions, for an
aggregate purchase price of approximately $1 billion. We believe these
acquisitions enabled us to position ourselves as a preferred global supplier to
our customers.  We have undertaken three major facility and product
line consolidation efforts, eliminating 22 facilities, since 1992. We
implemented lean manufacturing and continuous improvement programs which,
together with our information technology investments, have significantly
improved our productivity and allowed us to expand our operating
margins.  During 2006, we completed two additional strategic
acquisitions: Draeger GmbH (Draeger), which strengthened our commercial aircraft
segment and New York Fasteners Corp. (New York Fasteners), which expanded the
customer base and product line breadth of our consumables management segment.
During 2008 we completed the acquisition of the Consumables Solutions
distribution business (HCS) from Honeywell International Inc.
(Honeywell).  HCS distributed fasteners, hardware, bearings, seals,
gaskets and electrical components and other consumables to the global airline,
aerospace, business jet and defense industries. The combination of HCS with our
existing distribution business created the world’s leading distributor of
aerospace fasteners and consumables.  The acquisition of HCS has
allowed us to alter our business mix, such that approximately one-half of our
business is related primarily to non-discretionary consumables and spares
demand.





Our
principal executive offices and corporate headquarters are located at 1400
Corporate Center Way, Wellington, Florida 33414 and our telephone number is
561-791-5000.





Industry
Overview





The
commercial and business jet aircraft cabin interior products industries
encompass a broad range of products and services, including aircraft seating,
passenger entertainment and service systems, food and beverage preparation and
storage systems, passenger and crew oxygen storage, distribution and delivery
systems, lavatories, lighting systems, evacuation equipment, and overhead bins,
as well as passenger-to-freighter conversions, interior reconfiguration and a
variety of other engineering design, integration, installation, retrofit and
certification services.





Historically,
the airline cabin interior products industry has derived revenues from five
sources:





•
            New
      installation programs in which airlines purchase new equipment directly
      from interior equipment manufacturers to outfit these newly purchased
      aircraft;





•
            Retrofit
      programs in which airlines purchase new interior furnishings
      to upgrade the interiors of aircraft already in
    service;





•
            Refurbishment
      programs in which airlines purchase components and services to improve the
      appearance and functionality of their cabin interior
      equipment;





•
            Equipment
      to upgrade the functionality or appearance of the aircraft interior;
      and




•
            Replacement
      spare parts.





The
retrofit and refurbishment cycles for commercial aircraft cabin interior
products differ by product category. Aircraft seating typically has a
refurbishment cycle of one to two years and a retrofit cycle of four to eight
years. Food and beverage preparation and storage equipment is periodically
upgraded or repaired, and requires a continual flow of spare parts, but may be
retrofitted only once or twice during the useful life of an
aircraft.





2


There is a
direct relationship between demand for fasteners and consumables products and
fleet size, aircraft utilization and aircraft age. All aircraft must be
serviced at prescribed intervals, which also drives aftermarket demand for
aerospace fasteners and consumables.




Aerospace
fastener and consumables revenues have been derived from the following
sources:





•
            Mandated
      maintenance and replacement of specified
parts;





•
            Demand
      for aerospace fasteners and other consumables for new build aircraft from
      the original equipment manufacturers (OEMs) and their
      suppliers;




•
            Aerospace
      and defense subcontractors, most of whom tend to purchase through
      distributors as a result of the channel shift due to
      outsourcing by aerospace and military aircraft OEMs;
    and





•
            Demand
      for structural modifications, cabin interior modifications and
      passenger-to-freighter conversions.





Through
the strategic acquisition of HCS we have created the worldwide leader in the
distribution of aerospace fasteners and consumables.  The acquisition
of HCS has allowed us to alter our business mix such that approximately one-half
of our business is related primarily to non-discretionary consumables and spares
demand.





Based on
industry sources and studies, we estimate that during 2008, the commercial and
business jet cabin interior products industry, for the principal products of the
type which we manufacture, exclusive of service revenues, had annual sales of
approximately $2.0 billion and the aerospace fastener and consumables industry
had annual sales of approximately $4.5 billion.





Airline
passenger traffic demonstrated strong continued growth over the past several
years through the middle of 2008.  Airline traffic declined during the
third and fourth quarters of 2008 as a result of the rapid deterioration in
global economic conditions. As a result of the recession, global air traffic
growth in 2008 increased by approximately 1.6% over 2007, whereas airline
traffic in 2007 increased by 7.4% over 2006, following a 5.9% increase in 2006
over 2005. In addition, according to IATA, passenger traffic is expected to fall
by approximately 3% in 2009.  Record fuel prices during most of 2008
and the global economic recession drove airlines to reduce fleet capacity, delay
aircraft purchases, defer retrofit programs and deplete their existing
inventories of spares and consumables.





The global
recession and record fuel prices during most of the year generated significant
operating losses for the global airline industry, including the U.S.
airlines.  According to IATA, the worldwide airline industry generated
approximately $5.0 billion of losses in 2008 and is expected to generate
approximately $2.5 billion of losses in 2009.  However, since the U.S.
airlines began cost reduction efforts during 2008, including fleet reductions,
IATA anticipates that the U.S. airlines will generate profits during
2009.





The
business jet industry also experienced resurgence in demand beginning in 2004
through 2008. Approximately 1,154 aircraft were delivered in 2008 versus
approximately 1,039 aircraft in 2007 and approximately 840 aircraft in
2006.  Reflecting current economic conditions, industry experts expect
deliveries to begin to decline significantly.





During the
five year period ended December 31 2008, we experienced a surge in demand for
our products, primarily from the large foreign international
carriers.  Our backlog achieved record levels in both 2008 and 2007
growing by about 30% per year to $2.2 billion in 2007 and to approximately $2.9
billion in 2008.  Our book to bill ratio was 1.1:1 during
2008.  The vast majority of our backlog growth during 2008 was
generated by foreign carriers; 9% of our backlog at December 31, 2008 was with
domestic airlines.  At December 31, 2008, several large retrofit
programs had been deferred until 2010 and 2011 as the airlines sought to
conserve cash. Despite the near term impact of these retrofit program deferrals,
which will negatively impact revenues and profits in 2009, we believe there are
substantial long-term growth opportunities for retrofit and upgrade programs,
particularly for the twin-aisle aircraft that service international
routes.





Other
factors expected to affect the industries we serve are the
following:





Long Term Growth in Worldwide
Fleet.  The size of the worldwide fleet is important to us
since the proper maintenance of the fleet generates ongoing nondiscretionary
demand for the fasteners and other consumable products that we
distribute.  According to the Airline Monitor, while new aircraft
deliveries are expected to decline in the near term, the worldwide fleet of
passenger and cargo aircraft is expected to increase to approximately 33,200
aircraft by December 31, 2023 from approximately 19,400 aircraft at December 31,
2008.  Additionally, over the next 15 years, the Airline Monitor
expects revenue passenger miles to increase at an annual rate of approximately
4.8%, increasing from 2.8 trillion miles in 2008 to approximately 5.7 trillion
miles by 2023.





3


Existing Installed
Base.  Existing installed base of products typically generates
continued retrofit, refurbishment and spare parts revenue as airlines maintain
their aircraft interiors. According to industry sources, the world's active
commercial passenger aircraft fleet consisted of approximately 17,540 aircraft
as of December 31, 2008. Additionally, based on industry sources, there are
approximately 15,600 business jets currently in service. Based on such fleet
numbers, we estimate that the total worldwide installed base of commercial and
general aviation aircraft cabin interior products, for the principal products of
the type which we manufacture, valued at replacement prices, was approximately
$16.1 billion as of December 31, 2008.  The increase in size of the
installed base is expected to generate additional and continued demand for
retrofit, refurbishment, consumables and spare parts.





Wide-Body Aircraft
Deliveries.  The trend toward a global fleet with a higher
percentage of wide-body aircraft is significant to us because wide-body aircraft
require up to six to nine times the dollar value content for our products as
compared to narrow-body aircraft. According to Airline
Monitor wide-body aircraft deliveries are expected to grow at a nearly 15%
compounded annual growth rate over the four year period ending
2012.  Deliveries of wide-body, long haul aircraft constitute an
increasing share of total new aircraft deliveries and are an increasing
percentage of the worldwide fleet. Wide-body aircraft represented approximately
21% of all new commercial aircraft (excluding regional jets) delivered in
2008.  Importantly, according to Airline Monitor, over the 2009 to
2012 time period, approximately 1,075 wide-body and super wide-body aircraft are
expected to be delivered by Boeing and Airbus.  Wide-body aircraft
currently carry up to three or four times the number of seats as narrow-body
aircraft and have multiple classes of service, including luxurious super first
class compartments, first class and business class configuration.  Our
average revenue per aircraft on a wide-body aircraft is substantially higher
than on a narrow-body aircraft.  In addition, aircraft cabin crews on
wide-body aircraft flights today may make and serve between 300 and 900 meals
and may brew and serve more than 2,000 cups of coffee and serve more than 200
glasses of wine on a single flight, thereby generating substantial demand for
seating products and food and beverage preparation and storage equipment, as
well as extensive oxygen storage, delivery distribution systems and lighting
systems.





New Aircraft
Deliveries.  The number of new aircraft delivered each year is
generally regarded as cyclical in nature. According to Airline Monitor, new
deliveries of large commercial jets during 2008, 2007 and 2006 were
approximately 852, 888 and 820, respectively and the approximate amount of new
deliveries is expected to remain at approximately the 2008 level in 2009, then
decrease to approximately 768 in 2010.





Shift Toward Seller Furnished
Equipment for Major Systems.Commencing with the launch of the
Boeing 787 and Airbus A350, both Boeing and Airbus began selecting manufacturers
for certain cabin interior systems, for the production life of the
aircraft.  To date, we have been selected by Boeing to manufacture our
patented Pulse OxygenTM system
and passenger service units for the B787, and we have been selected by Airbus to
manufacture our Next Generation galley systems and our patented passenger oxygen
delivery system for the A350 XWB. Traditionally, we have sold most of our
products directly to the airlines.  This change toward seller
furnished equipment for major systems is important to us as it adds a
significant source of revenues over a long period of time.  These
programs are currently valued at approximately $2.3 billion and are expected to
significantly increase our content per wide-body aircraft.  However,
only a small portion of these programs are included in our reported backlog at
December 31, 2008.  We believe these programs provide an excellent
platform for long term revenue stability over the coming years.





Growth in Passenger-to-Freighter
Conversion Business.   Industry sources project that the
size of the worldwide freighter fleet will almost double over the next twenty
years, growing to almost 3,890 aircraft. Industry sources also estimate that
during the period nearly 2,500 cargo aircraft will come from converting
commercial passenger jets to be used as freighters. We have developed the
engineering certification packages and kits to convert Airbus A300-600,
B747-200, B767-200 and A300-B4 aircraft types to be used as
freighters.





New Product
Development.  The aircraft cabin interior products companies
are engaged in extensive product development and marketing efforts for both new
features on existing products and totally new products. These products include a
broad range of amenities such as luxurious first class cabins with appointments
such as lie-flat seating, mini-bars, closets, flat screen TVs and digital LED
mood lighting.  Other recently introduced products include electric
lie-flat first and business class seats, narrow and wide-body economy class
seats, full face crew masks, Pulse OxygenTM gaseous passenger oxygen systems
for the Boeing 787 andAirbus A350 XWB, Next
Generation galley systems for the Airbus A350 XWB, electric fully berthing
business jet seating, a full range of business and executive jet seating and LED
lighting products, protective breathing equipment, oxygen generating systems,
new food and beverage preparation and storage equipment, kevlar barrier nets,
de-icing systems and crew rests.





4


Engineering Services
Markets.  Historically, the airlines have relied primarily on
their own in-house engineering resources to provide engineering, design,
integration and installation services, as well as services related to repairing
or replacing cabin interior products that have become damaged or otherwise
non-functional. As cabin interior product configurations have become
increasingly sophisticated and the airline industry increasingly competitive,
the airlines have begun to outsource these services in order to increase
productivity and reduce costs.





Outsourced
services include:




•
            Engineering
      design, integration, project management, installation and certification
      services;




•
            Modifications
      and reconfigurations for commercial aircraft including
      passenger-to-freighter conversions and related kits;
  and





•
            Services
      related to the support of product
upgrades.




We
estimate that during 2008 the commercial and business jet cabin interior
products industry, for the principal products of the type which we manufacture,
exclusive of service revenues, had annual sales of approximately $2.0 billion
and the aerospace fastener and consumables industry had annual sales of
approximately $4.5 billion. We estimate that the total worldwide installed base
of commercial and general aviation aircraft cabin interior products for the
principal type of products which we manufacture, valued at replacement prices,
was approximately $16.1 billion as of December 31, 2008.





Competitive
Strengths





We believe
that we have a strong competitive position attributable to a number of factors,
including the following:





Large Installed
Base.  We have a large installed base of commercial and general
aviation cabin interior products, estimated to be valued at approximately $7.3
billion (for the principal type of products which we manufacture, valued at
replacement prices) as of December 31, 2008. Based on our experience in the
industry, we believe our installed base is substantially larger than that of our
competitors. We believe that our large installed base is a strategic advantage
as airlines tend to purchase aftermarket products and services, including spare
parts, retrofit and refurbishment programs, from the original supplier of their
equipment. As a result, we expect our large installed base to generate continued
aftermarket revenue as airlines continue to maintain, evolve and reconfigure
their aircraft cabin interiors.





Operating Leverage and Low Cost
Producer.  Our ability to leverage our manufacturing and
engineering capabilities has allowed us to expand operating margins. As a result
of our cost savings programs implemented following the downturn in the airline
industry in 2001, and through our ongoing continuous improvement, global
sourcing and lean manufacturing programs, our operating margins have increased
substantially. For example, our operating margin for the fiscal year ended
December 31, 2008 (exclusive of goodwill and intangible asset impairment
charges) of 16.8% improved by 800 basis points over the operating margin we
realized for fiscal year ended 2004, reflecting ongoing manufacturing
efficiencies and operating leverage at the higher volume of sales. In addition,
our operating earnings have been increasing at a faster rate than our net sales.
For example, for the year ended December 31, 2008, revenues grew 25.8% over
revenues in 2007 while operating earnings (before goodwill and intangible asset
impairment charges) increased by 43.2% during 2008 as compared to
2007.





Focus on Innovation and New Product
Development.  We believe, based on our experience in the
industry, that we are a technological leader, with the largest research and
development organization in the cabin interior products industry. As of December
31, 2008, we had 882 employees in engineering, research and development and
program management. We believe our engineering, research and development effort
and our on-site technicians at both the airlines and airframe manufacturers
enable us to play a leading role in developing and introducing innovative
products to meet emerging industry trends, and thereby gain early entrant
advantages. Our strong focus and continued investment in research and
development, even during the 2001-2003 industry downturn, allows us to compete
favorably in winning new business awards. For example, we believe our
technological leadership and new product development capabilities were a key
factor in our ability to grow our backlog to approximately $2.9 billion at
December 31, 2008, a 32% increase as compared to December 31, 2007 and a 163%
increase as compared to December 31, 2005. Backlog growth has been driven
primarily by international aftermarket demand for retrofit of existing aircraft,
including program awards in the emerging international super first class cabin
interiors market.  We believe these and other program awards, coupled
with expected follow-on awards for other fleets of existing aircraft for product
commonality and competitive purposes, will, subject to global economic
conditions, drive sales growth and market share gains.  Introduction
of new products has also led to improvements in the product mix of our current
backlog, which, along with our continued focus on lean manufacturing processes
and additional operating leverage, is expected to result in continued margin
expansion.





5
 Exposure to International
Markets.  Our overall net sales are diversified across multiple
geographic regions. For 2008, approximately 24% of our sales were to European
customers and approximately 29% of our sales were to customers in emerging
markets such as the Asia/Pacific Rim and Middle East regions.  These
emerging market customers account for approximately 31% of our current backlog
with domestic airlines accounting for 9% of our total backlog at December 31,
2008.  We believe this geographic diversification makes us less
susceptible to a downturn in a specific geographic region and allows us to take
advantage of regional growth trends.





Diverse Product Offering and Broad
Customer Base.  In addition to serving diverse geographic
regions, we also provide a comprehensive line of products and services to a
broad customer base. During the three year period ended December 31, 2008, no
single customer accounted for more than 10% of our consolidated
sales.  We have a broad range of over 200 principal customers,
including all of the world’s major airlines. During the fiscal year ended
December 31, 2008, approximately 6% of our sales were to Boeing and Airbus and
approximately 9% were to business jet manufacturers for use in new business
jets. Our broad product offering and customer base make us less susceptible to
the loss of any one customer or program. We have continued to expand our
available products and services based on our belief that the airline industry
increasingly will seek an integrated approach to the design, development,
integration, installation, testing and sourcing of aircraft cabin interior
equipment. Based on our reputation for quality, service and product innovation,
we believe that we are well positioned to serve the world’s airlines and
aircraft manufacturers and owners and operators of business jets.





Experience with Complex Regulatory
Environment.  The airline industry is heavily regulated. The
Federal Aviation Administration (the FAA) prescribes standards and licensing
requirements for aircraft components, including virtually all commercial airline
and general aviation cabin interior products, and licenses component repair
stations within the United States. Comparable agencies, such as the European
Aviation Safety Agency (the EASA), the Japanese Civil Aviation Board (the JCAB),
and the Civil Aviation Administration of China (the CAAC) regulate these matters
in other countries.  In order to sell certain products or services, it
is necessary to obtain the required licenses for the product or service under
these various regulations. In addition, designing new products to meet existing
regulatory requirements and retrofitting installed products to comply with new
regulatory requirements can be both expensive and time consuming. We have a long
history of experience with the complex regulatory environment in which we
operate and believe this enables us to efficiently obtain the required approvals
for new products and services.





Growth
Opportunities





We believe
that we will benefit from the following industry trends:





Worldwide Fleet Creates Demand for
Aftermarket and Consumables Products.Our substantial
installed base provides significant ongoing revenues from replacements,
upgrades, repairs and the sale of spare parts, as well as demand for
nondiscretionary consumables to support the active fleets of commercial
aircraft, business jets and military aircraft.  For each of the fiscal
years ended December 31, 2008 and 2007 approximately 56% and 60% respectively,
of our revenues were derived from aftermarket and military demand. In addition,
aftermarket revenues are generally driven by aircraft usage, and as such, they
have historically tended to recover more quickly than revenues from
OEMs.  While worldwide air traffic is expected to decline by 3% in
2009, Airline Monitor forecasts that revenue passenger miles will grow at a 4.8%
compound annual growth rate over the 2008-2023 period, increasing from 2.8
trillion miles in 2008 to 5.7 trillion miles by 2023.  We believe
there are substantial growth opportunities for retrofit programs for the
twin-aisle aircraft that service international routes and that the major U.S.
airlines will need to invest in cabin interiors for their international fleets
or face the prospect of losing market share on their international
routes.





Opportunity to Substantially Expand
Our Addressable Markets through our Consumables Management
Business.  Our consumables distribution business leverages our
key strengths, including marketing and service relationships with most of the
world’s airlines, commercial aircraft OEMs and their suppliers, business jet
OEMs and their suppliers, maintenance, repair and overhaul centers (MROs), and
the military industry.  As approximately 56% of consumables demand is
generated by the existing worldwide fleet, demand for aerospace hardware,
fasteners, bearings, seals, gaskets, electrical components and other consumables
is expected to increase over time as the fleet expands, similar to the market
for cabin interior products.  The aerospace and military OEMs are
increasingly outsourcing to sub-contract manufacturers, driving a channel shift,
which is benefiting distributors such as our company, as many of these
subcontractors tend to purchase through distributors.





Record Backlog Driven by Aftermarket
Demand from International Airlines Retrofitting Existing Fleets. We
believe that substantially all of the major international airlines have begun
upgrading, or plan to upgrade, their existing fleets of twin-aisle
aircraft.  A number of our customers have deferred these retrofit
programs until 2010 and 2011 in order to conserve cash during the current
economic downturn.  This activity has been, and subject to economic
conditions, is expected to continue to be driven by both the age of the existing
cabin interiors as well as the desire by many of the leading international
carriers to achieve a competitive advantage by investing in cabin interior
products that incorporate leading comfort amenities, thereby improving passenger
loads and yields, or that reduce airline operating costs by reducing maintenance
costs and/or providing lower weight and fuel burn.  We believe that
the life cycle of premium products, such as lie-flat international business
class seats and the products comprising our super first class suites, will
continue to compress as airlines seek greater competitive advantage through more
frequent investments in cabin interior products.





6


Growth of Wide-Body Aircraft
Fleet.  According to Airline Monitor, new deliveries of
wide-body aircraft totaled 182 in 2008 and are expected to total approximately
1,075 aircraft over the 2009-2012 period, averaging approximately 269 such
aircraft per year or a 48% higher delivery level as compared to 2008. The
Airline Monitor also predicts that nearly 3,875 twin-aisle aircraft will be
delivered over the 2009-2018 timeframe or approximately 388 wide-body and super
wide-body aircraft per year, which is 113% higher, on average, as compared to
2008.  We expect to benefit from this trend as wide-body aircraft
generally carry more than six to nine times the dollar value of products of the
type that we manufacture as compared to single-aisle, or narrow-body,
aircraft.





Shift
Toward Seller Furnished Equipment for Major
Systems.Commencing with the launch of the Boeing 787 and
Airbus A350 XWB, both Boeing and Airbus began selecting exclusive manufacturers
for certain cabin interior products for the production life of the
aircraft.  To date, we have been selected by Boeing to manufacture our
patented Pulse OxygenTM system
and passenger service units for the 787, and we have been selected by Airbus to
manufacture our Next Generation galley systems and our patented passenger oxygen
delivery system for the A350 XWB.  Traditionally, we have sold our
products directly to the airlines that purchased aircraft from Boeing or
Airbus.  This change toward seller furnished equipment for major
systems is important to us as it adds a significant source of revenue over a
long period of time.  These programs are currently valued at
approximately $2.3 billion and are expected to significantly increase our
content per wide-body aircraft.  However, only a small portion of
these programs were included in our reported backlog at December 31,
2008.  We believe these programs along with our many other awards
provide an excellent platform for long term revenue stability over the coming
years.





Growth of Worldwide Airline
Fleet.  According to Airline Monitor, new deliveries of large
commercial aircraft decreased to 852 aircraft in 2008, as compared to 888
aircraft in 2007 and 820 in 2006.  According to the Airline Monitor,
new aircraft deliveries are expected to remain at approximately the 2008 level
in 2009 and then decline to approximately 768 in 2010. The worldwide fleet of
passenger and cargo aircraft was approximately 19,400 as of December 31,
2008 and, according to the Airline Monitor, is expected to increase to
approximately 33,200 by December 31, 2023. As the size of the fleet
expands, demand is also expected to grow for upgrade and refurbishment programs,
for cabin interior products and for maintenance products, including consumables
and spares.





Growth in New Aircraft Introductions
Lead to New Cabin Interior Product Introductions and Major Retrofit
Opportunities.Through December
31, 2008, 16 customers have placed orders for 198 of the new Airbus A380 super
wide-body aircraft and 56 customers have placed orders for 910 of the new Boeing
787 wide-body aircraft, which Boeing has indicated is its most successful new
product launch in its history. In addition, 27 customers have placed 483 orders
for the new A350 XWB.





Long Term Growth in Business Jet and
VIP Aircraft Markets.  Business jet deliveries increased by 11%
in 2008 as compared to 2007 and by 24% in 2007 as compared to 2006. While
business jet deliveries are expected to decline significantly in the near term,
we expect that over the longer term several larger business jet types, including
the Boeing and Airbus Business Jet, the Bombardier Challenger, the Global
Express and the Global 5000, the Gulfstream 450, 550 and 650, the Falcon
900, and the Falcon 2000 and 7x, the Cessna Columbus and Embraer Legacy 450 and
Legacy 500 to be significant contributors to growth in new general aviation
aircraft deliveries in the future. This is important to us because the typical
cost of cabin interior products manufactured for a large business jet can
be ten times more than the cost to equip the interior of a small jet.
Advances in engine technology and avionics and the continued development of
fractional ownership of executive aircraft are also important growth factors for
the business jet market. In addition, because the average age of the more than
15,000 general aviation and VIP jet aircraft existing today is
approximately 15 years, we believe significant cabin interior retrofit and
upgrade opportunities exist.




7




Business
Strategy





Our
business strategy is to maintain a leadership position and to best serve our
customers by:


•
                                      Offering
      the broadest and most innovative products and services in the
      industry;•
                                      Offering
      a broad range of engineering services including design, integration,
      installation and certification services, aircraft reconfiguration, and
      passenger-to-freighter conversion services;•
                                      Pursuing
      the highest level of quality in every facet of our operations, from the
      factory floor to customer support;•
                                      Aggressively
      pursuing continuous improvement initiatives in all facets of our
      businesses and in particular our manufacturing operations, to reduce cycle
      time, lower cost, improve quality and expand our margins; and•
                                      Pursuing
      a worldwide marketing and product support approach focused by airline and
      general aviation airframe manufacturers and encompassing our entire
      product
line.


Products
and Services





We conduct
our operations through strategic business units that have been aggregated under
three reportable segments: consumables management, commercial aircraft and
business jet.





The
following is a summary of net sales for each of our segments:




Fiscal
      Year Ended December 31,($
      in millions)2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006Net
                                    
                                    
                                    %
      of
                                    
                                    
                                    Net
                                    
                                    
                                    %
      of
                                    
                                    
                                    Net
                                    
                                    
                                    %
      ofSales
                                    
                                    
                                    Net
      Sales
                                    
                                    
                                    Sales
                                    
                                    
                                    Net
      Sales
                                    
                                    
                                    Sales
                                    
                                    
                                    Net
      SalesConsumablesmanagement
                                    
                                    $
                                    697.3
                                    
                                    
                                    
                                    33.0
                                    %
                                    
                                    $
                                    386.5
                                    
                                    
                                    
                                    23.0
                                    %
                                    
                                    $
                                    251.5
                                    
                                    
                                    
                                    22.3
                                    %Commercial
      aircraft
                                    
                                    
                                    1,138.7
                                    
                                    
                                    
                                    54.0
                                    %
                                    
                                    
                                    1,098.1
                                    
                                    
                                    
                                    65.5
                                    %
                                    
                                    
                                    729.2
                                    
                                    
                                    
                                    64.6
                                    %Business
      jet
                                    
                                    
                                    274.0
                                    
                                    
                                    
                                    13.0
                                    %
                                    
                                    
                                    193.1
                                    
                                    
                                    
                                    11.5
                                    %
                                    
                                    
                                    147.5
                                    
                                    
                                    
                                    13.1
                                    %Net
      sales
                                    
                                    $
                                    2,110.0
                                    
                                    
                                    
                                    100.0
                                    %
                                    
                                    $
                                    1,677.7
                                    
                                    
                                    
                                    100.0
                                    %
                                    
                                    $
                                    1,128.2
                                    
                                    
                                    
                                    100.0
                                    %




Consumables
Management Segment





In 2009 we
aligned the legacy business names of our various distribution businesses to the
consumables management segment.  We believe that we are the world’s
leading distributor and value added service provider of aerospace fasteners and
consumables and we believe we offer one of the broadest lines of aerospace
hardware and inventory management services worldwide. Through the strategic
acquisition of HCS and its integration with our existing consumables management
segment we have created the worldwide leader in the distribution of aerospace
fasteners and consumables.  The acquisition of HCS has allowed us to
alter our business mix such that approximately one-half of our business is
related to primarily non-discretionary consumables and spares demand.
Approximately 56% of our fastener and consumables sales are to the aftermarket
and military, and nearly 58% of our orders are shipped within 24 hours of
receipt of the order. With over 275,000 SKUs and next-day service, we serve as a
distributor for almost every major aerospace fastener manufacturer. Our service
offerings include inventory management and replenishment, electronic data
interchange, special packaging and bar-coding, parts kitting, quality assurance
testing and purchasing assistance. Our seasoned purchasing and sales teams,
coupled with state-of-the-art very effective information technology and
automated retrieval systems, provide the basis for our reputation for high
quality and overnight delivery.





Commercial
Aircraft Segment





We
believe, based on our experience in the industry, that we are the world's
leading manufacturer of aircraft seats, offering a wide selection of first
class, business class, tourist class and regional aircraft seats. A typical seat
manufactured and sold by us includes the seat frame, cushions, armrests, tray
table and a variety of optional features such as adjustable lumbar supports,
footrests, reading lights, head/neck supports, and other comfort
amenities.  We also integrate a wide variety of in-flight
entertainment equipment into our seats, which is supplied to us by our customers
or third party suppliers.





8


First and Business
Classes.  Based upon major airlines' program selection and our
backlog, we believe we are the leading worldwide manufacturer of premium class
seats. Our line of first class sleeper seats incorporates full electric
actuation, an electric ottoman, privacy panels and sidewall-mounted tables. Our
business class seats incorporate features developed over 25 years of seating
design. The business class seats include electrical or mechanical actuation, PC
power ports, telephones, leg rests, adjustable lumbar cushions, four-way
adjustable headrests and fiber optic reading lights. The first and business
class products are substantially more expensive than tourist class seats due to
these luxury appointments.





Tourist Class and Regional Jet
Seats.  We believe, based on our installed base, that we are a
leading worldwide manufacturer of tourist class seats and regional aircraft
seats. We believe our Spectrum® coach class seat has become the industry's most
popular seat platform for single-aisle aircraft since its launch in late
2002.  We believe the seat improves comfort and offers significantly
improved passenger living space as well as benefiting the airlines with
simplified maintenance and spare parts purchasing. Spectrum® was engineered for
use across the entire single-aisle aircraft fleet, including regional
jets.





Spares.  Aircraft
seats require regularly scheduled maintenance in the course of normal passenger
use. Airlines depend on seat manufacturers and secondary suppliers to provide
spare parts and kit upgrade programs. As a result, a significant market exists
for spare parts and kit upgrades.





We
believe, based on our experience in the industry, that we are the leading
manufacturer of interior systems for both narrow and wide-body aircraft,
offering a broad selection of coffee and beverage makers, water boilers, liquid
containers, ovens, refrigeration equipment, oxygen delivery systems and a
variety of other interior components.





Oxygen Delivery
Systems.  We believe, based on our experience in the industry,
that we are the leading manufacturer of oxygen storage, distribution and
delivery systems for both commercial and business jet aircraft.  We
have the capability to both produce all required components and to fully
integrate overhead passenger service units with either chemical or gaseous
oxygen equipment.  Our oxygen equipment has been approved for use on
all Boeing and Airbus aircraft and is also found on essentially all general
aviation and VIP aircraft.  The Boeing 787 will be the first aircraft
equipped with a passenger oxygen system using our advanced Pulse OxygenTMtechnology
and passenger service units.  Airbus has also selected us to provide
similar technology on its passenger and crew oxygen systems for the A350
XWB.





Coffee Makers/Water
Boilers.  We believe, based on our experience in the industry,
that we are the leading manufacturer of aircraft coffee and beverage
makers.  We manufacture a broad line of coffee makers, including the
Endura® beverage maker, coffee warmers and water boilers, and a Combi Unit®
which will both brew coffee and boil water for tea while utilizing 25% less
electrical power than traditional 5,000-watt water boilers.  We also
manufacture a cappuccino/espresso maker.





Ovens.  We believe,
based on our experience in the industry, that we are the leading manufacturer of
a broad line of specialized ovens, including high efficiency convection ovens,
and steam ovens and warming ovens.  Our DS Steam OvenTM uses a
method of preparing in-flight food by maintaining constant temperature and
moisture in the food.  Our DS Steam OvenTM
addresses the airlines' need to provide a wider range of food offerings than can
be prepared by convection ovens.





Refrigeration
Equipment.  We believe, based on our experience in the
industry, that we are the worldwide industry leader in the design, manufacture
and supply of commercial aircraft refrigeration equipment.  We
manufacture self-contained wine and beverage chillers, refrigerators/freezers
and galley air chilling systems.





Engineering Design, Integration,
Installation and Certification Services.  We believe, based on
our experience in the industry, that we are a leader in providing engineering,
design, integration, installation and certification services for commercial
aircraft passenger cabin interiors. We also offer to our customers in-house
capabilities to design, manage, integrate, test and certify reconfigurations and
modifications for commercial aircraft and to manufacture related products,
including engineering kits and interface components. We provide a broad range of
interior reconfiguration services which allow airlines to change the size of
certain classes of service, modify and upgrade the seating, install
telecommunications and entertainment equipment, relocate galleys, lavatories and
overhead bins, and install crew rest compartments.





9


Passenger-to-Freighter
Conversions.  We believe, based on our experience in the
industry, that we are a leading supplier of structural design and integration
services, including airframe modifications for passenger-to-freighter
conversions. In addition, we have performed conversions for Airbus A300-600 and
A300 B4 aircraft and Boeing 767, Boeing 747-200 Combi, Boeing 747-200 (exclusive
of door surround). Freighter conversions require sophisticated engineering
capabilities and very large and complex proprietary parts kits.





Crew Rest
Compartments.  We believe, based on our experience in the
industry, that we are a leader in the design, certification and manufacture of
crew rest compartments. Long-haul international flights can carry two flight
crews and the off-duty flight crew often utilizes crew rest compartments to
sleep during the flight. A crew rest compartment is constructed utilizing
lightweight cabin interior materials and incorporates seating, electrical,
heating, ventilation and air conditioning and lavatory systems.





We
estimate that as of December 31, 2008, we had an aggregate installed base of
products produced by our commercial segment, valued at replacement prices, of
approximately $6.1 billion.





Business
Jet Segment





We
believe, based on our experience in the industry, that we are the leading
manufacturer of a broad product line of furnishings for business jets. Our
products include a complete line of business jet seating and sofa products,
including electric fully berthing lie flat seats, direct and indirect lighting,
air valves and oxygen delivery systems as well as sidewalls, bulkheads,
credenzas, closets, galley structures, lavatories and tables. We have the
capability to provide complete interior packages for business jets and executive
aircraft (i.e. head-of-state) interiors, including design services, interior
components and program management services. We believe we are the preferred
supplier of seating products and direct and indirect lighting systems for most
business jet manufacturers.




Our
business jet segment, which has had decades of experience in equipping VIP and
head of state aircraft, is the leading manufacturer of super first class cabin
interior products for commercial wide-body aircraft. Super first class products
incorporate a broad range of amenities such as luxurious first class cabins with
appointments such as lie-flat seating, mini-bars, closets, flat screen
televisions and mood lighting, which, until recently, were found only in VIP and
head-of-state aircraft.





We
estimate that as of December 31, 2008, we had an aggregate installed base of
business jet and super first class equipment, valued at replacement prices, of
approximately $1.2 billion.





Research,
Development and Engineering





We work
closely with commercial airlines, business jet and aerospace manufacturers and
global leasing companies to improve existing products and identify customers'
emerging needs. Our expenditures in research, development and engineering
totaled $131.4 million, $127.9 million and $88.6 million representing 6.2%, 7.6%
and 7.9% of net sales for the years ending December 31, 2008, 2007 and 2006,
respectively. We employed 882 professionals in engineering, research and
development and program management as of December 31, 2008. We believe, based on
our experience in the industry, that we have the largest engineering
organization in the cabin interior products industry, with mechanical,
electrical, electronic and software design skills, as well as substantial
expertise in program management, materials composition and custom cabin interior
layout design and certification.





Marketing
and Customers





We market
our aerospace fasteners and other consumables directly to the airlines, aircraft
leasing companies, MROs, general aviation airframe manufacturers, first-tier
suppliers to the commercial, military and defense airframe manufacturers, the
airframe manufacturers and other distributors. We believe that our key
competitive advantages are the breadth of our product offerings and our ability
to deliver on a timely basis. We believe that our broad product offerings of
aerospace fasteners and other consumables and our ability to deliver products on
a next day basis and our core competencies in product information management,
purchasing and logistics management provide strong barriers to
entry.





We market
and sell our commercial aircraft products directly to virtually all of the
world's major airlines, aircraft leasing companies and airframe manufacturers.
Airlines select manufacturers of cabin interior products primarily on the basis
of custom design capabilities, product quality and performance, on-time
delivery, after-sales customer service, product support and price. We believe
that our large installed base, our timely responsiveness in connection with the
custom design, manufacture, delivery and after-sales customer service and
product support of our products, our broad product line and stringent customer
and regulatory requirements, all present barriers to entry for potential new
competitors in the cabin interior products market.





10


We believe
that airlines prefer our integrated worldwide marketing approach, which is
focused by airline and encompasses our entire product line. Led by senior
executives, teams representing each product line serve designated airlines that
together accounted for the vast majority of the purchases of products
manufactured by our commercial aircraft segment including our super first class
product during the fiscal year ended December 31, 2008.  Our teams
have developed customer-specific strategies to meet each airline's product and
service needs. We also staff "on-site" customer engineers at major airlines and
airframe manufacturers to represent our entire product
line and work closely with the customers to develop specifications for each
successive generation of products required by the airlines. These engineers help
customers integrate our wide range of cabin interior products and assist in
obtaining the applicable regulatory certification for each particular product or
cabin configuration. Through our on-site customer engineers, we expect to be
able to more efficiently design and integrate products that address the
requirements of our customers. We provide program management services,
integrating all on-board cabin interior equipment and systems, including
installation and Federal Aviation Administration certification, allowing
airlines to substantially reduce costs. We believe that we are the only supplier
in the commercial aircraft cabin interior products industry with the size,
resources, breadth of product line and global product support capability to
operate in this manner.





Our
program management approach assigns a program management team to each
significant contract. The program management team leader is responsible for all
aspects of the specific contract and profitability, including managing change
orders, negotiating related up front engineering charges and monitoring the
progress of the contract through its delivery dates. We believe that our
customers benefit substantially from our program management approach, including
better on-time delivery and higher service levels. We also believe our program
management approach results in better customer satisfaction.





We market
our business jet products directly to all of the world's general aviation
airframe manufacturers, modification centers and operators. Business jet owners
typically rely upon the airframe manufacturers and completion centers to
coordinate the procurement and installation of their interiors. Business jet
owners select manufacturers of business jet products on a basis similar to
commercial aircraft interior products: customer design capabilities, product
quality and performance, on-time delivery, after-sales customer service, product
support and price. We believe that potential new competitors would face a number
of barriers to entering the cabin interior products market. Barriers to entry
include regulatory requirements, our large installed product base, our custom
design capability, manufacturing capability, delivery, and after-sales customer
service, product support and our broad product line.





As of
December 31, 2008, our direct sales, marketing and product support organizations
consisted of 606 persons. In addition, we currently retain 40 independent sales
representatives. Our sales to non-U.S. customers were approximately $1.1 billion
for the fiscal year ended December 31, 2008 and $928 million for the fiscal year
ended December 31, 2007 or approximately 53% and 55%, respectively, of net sales
during those periods. Approximately 65% of our total revenues were derived from
airlines, aircraft leasing companies, MROs, and other commercial aircraft
operators during each of the two fiscal years ended December 31, 2008.
Approximately 56% and 60% of our revenues during the fiscal years ended December
31, 2008 and 2007, respectively, were from consumables, refurbishment, military,
spares and upgrade programs. During the three years ended December 31, 2008, no
single customer accounted for more than 10% of our consolidated sales. The
portion of our revenues attributable to particular customers varies from year to
year with the airlines' scheduled purchases of new aircraft and for retrofit and
refurbishment programs for their existing aircraft.





Backlog





Our
backlog achieved record levels in 2008, in spite of deteriorating global
economic conditions. Our backlog at December 31, 2008 was $2.9 billion, as
compared to $2.2 billion at December 31, 2007 and $1.7 billion at December 31,
2006.  Our backlog at December 31, 2008 increased by approximately 32%
compared to December 31, 2007. Approximately 51% of our backlog at December 31,
2008 is scheduled to be deliverable within the next twelve
months.  While 45% of our total backlog is with North American
customers, only 9% of our total backlog is with domestic
airlines.  Approximately 24% of our current backlog is with European
customers.  Importantly, approximately 31% of backlog is with
customers in emerging markets such as the Asia/Pacific Rim and the Middle East
regions.  Our backlog includes backlog from all of our businesses. Our
book to bill ratio was 1.1:1 during 2008.





Customer
Service





We believe
that our customers place a high value on customer service and product support
and that this service level is a critical differentiating factor in our
industry. The key elements of such service include:





11


•
            Rapid
      response to requests for engineering design, proposal requests and
      technical specifications;





•
            Flexibility
      with respect to customized
features;





•
            On-time
      delivery;





•
            Immediate
      availability of spare parts for a broad range of products;
    and





•
            Prompt
      attention to customer problems, including on-site customer
      training.





Customer
service is particularly important to airlines due to the high cost to the
airlines of late delivery, malfunctions and other problems.





Warranty
and Product Liability





We warrant
our products, or specific components thereof, for periods ranging from one to
ten years, depending upon product and component type. We establish reserves for
product warranty expense after considering relevant factors such as our stated
warranty policies and practices, historical frequencies of claims to replace or
repair products under warranty and recent sales and claims trends. Actual
warranty costs reduce the warranty reserve as they are incurred. We periodically
review the adequacy of accrued product warranty reserves and revisions of such
reserves are recognized in the period in which such revisions are
determined.





We also
carry product liability insurance.  We believe that our insurance
should be sufficient to cover product liability claims.





Competition





The
commercial aircraft cabin interior products market is relatively fragmented,
with a number of competitors in each of the individual product categories. Due
to the global nature of the commercial aerospace industry, competition comes
from both U.S. and foreign manufacturers. However, as aircraft cabin interiors
have become increasingly sophisticated and technically complex, airlines have
demanded higher levels of engineering support and customer service than many
smaller cabin interior products suppliers can provide. At the same time,
airlines have recognized that cabin interior product suppliers must be able to
integrate a wide range of products, including sophisticated electronic
components, such as video and live broadcast TV, particularly in wide-body
aircraft. We believe that the airlines' increasing demands will result in a
continuing consolidation of suppliers. We have participated in this consolidation through strategic acquisitions and we
intend to continue to participate in the consolidation.





Our
primary competitors in the aerospace hardware and consumables distribution
market are Wesco Aircraft Hardware and Anixter Pentacon.  Our
principal competitors for our commercial aircraft segment are Groupe Zodiac
S.A., Keiper Recaro GmbH, JAMCO and Premium Aircraft Interiors Group (PAIG,
formerly Britax). The market for business jet products is highly fragmented,
consisting of numerous competitors, the largest of which is Decrane Aircraft
Holdings.





Manufacturing
and Raw Materials





Our
manufacturing operations consist of both the in-house manufacturing of component
parts and sub-assemblies and the assembly of our designed component parts that
are purchased from outside vendors. We maintain up-to-date facilities, and we
have an ongoing strategic manufacturing improvement plan utilizing lean
manufacturing processes. We constantly strive for continuous improvement from
implementation of these plans for each of our product lines. We have implemented
common information technology platforms company-wide, as appropriate. These
activities should lower our production costs, shorten cycle times and reduce
inventory requirements and at the same time improve product quality, customer
response and profitability. We do not believe we are materially dependent on any
single supplier or assembler for any of our raw materials or specified and
designed component parts and, based upon the existing arrangements with vendors,
our current and anticipated requirements and market conditions, we believe that
we have made adequate provisions for acquiring raw materials.





Government
Regulation





The FAA
prescribes standards and licensing requirements for aircraft components, and
licenses component repair stations within the United States. Comparable agencies
regulate such matters in other countries. We hold several FAA component
certificates and perform component repairs at a number of our U.S. facilities
under FAA repair station licenses. We also hold an approval issued by the EASA
to design, manufacture, inspect and test aircraft seating products in Leighton
Buzzard, England and to manufacture and ship from our Kilkeel, Northern Ireland
facility. We also have the necessary approvals to design, manufacture, inspect,
test and repair our interior systems products in Nieuwegein, the
Netherlands.





12


In March
1992, the FAA adopted Technical Standard Order C127, or TSO-C127, which provides
a design approval that the FAA may issue to seat manufacturers for seats tested
dynamically to meet the requirements of 14 CFR 25.562 (commonly referred to as
“16G”).  We believe we have developed and certified more seat models
that meet the requirements of TSO-C127 and TSO-C127a than our
competitors.  The FAA and EASA also prescribe that seats meet certain
flammability and electrical interference specifications.  In October
2005, the FAA adopted regulation 14 CFR 121.311(j), which requires dynamic
testing of all seats installed in all new aircraft certified after January 1,
1988 and produced after October 27, 2009.  EASA is expected to
establish a similar rule.  Our large installed base of 16G seats
demonstrates our industry leadership in seat certification
requirements.





In November 2002, our seating group became the first passenger seating
supplier to sign a Partnership for Safety Plan (PSP) with the FAA. Based on
established qualifications of personnel and systems, the PSP provides us with
increased authority to approve test plans and reports, and to witness tests. The
PSP provides us with a number of business benefits including greater planning
flexibility, simplified scheduling and greater program control and eliminates
variables such as FAA workload and priorities.





Environmental
Matters





Our
operations are subject to extensive and changing federal, state and foreign laws
and regulations establishing health and environmental quality standards,
including those governing discharges of pollutants into the air and water and
the management and disposal of hazardous substances and wastes. We may be
subject to liability or penalties for violations of those standards. We are also
subject to laws and regulations, such as the Federal Superfund Law and similar
state statutes, governing remediation of contamination at facilities that we
currently or formerly owned or operated or to which we send hazardous substances
or wastes for treatment, recycling or disposal. We believe that we are currently
compliant, in all material respects, with applicable environmental laws and
regulations. However, we could become subject to future liabilities or
obligations as a result of new or more stringent interpretations of existing
laws and regulations. In addition, we may have liabilities or obligations in the
future if we discover any environmental contamination or liability relating to
our facilities or operations.





Patents





We
currently hold 242 U.S. patents and 274 international patents, as well as 136
U.S. patent applications and 205 foreign patent applications covering a variety
of products. We believe that the termination, expiration or infringement of one
or more of such patents would not have a material adverse effect on
us.





Employees





As of
December 31, 2008, we had approximately 6,485 employees. Approximately 68% of
our employees are engaged in manufacturing/distribution operations and
purchasing, 14% in engineering, research and development and program management,
9% in sales, marketing and product support and 9% in finance, information
technology, legal and general administration. Unions represent approximately 13%
of our worldwide employees. One domestic labor contract, representing
approximately 5% of our employees, expires in May, 2009.  The labor
contract with the only other domestic union, which represents approximately 2%
of our employees, expires in June, 2010.  The balance of our union
employees are located in the U.K., the Netherlands and Germany, which tend to
have government mandated union organizations.  We consider our
employee relations to be good.





Financial
Information About Segments and Foreign and Domestic Operations





Financial
and other information by segment and relating to foreign and domestic operations
for the fiscal years ended December 31, 2008, 2007 and 2006, is set forth in
Note 13 to our consolidated financial statements.





Available
Information





Our
filings with the SEC, including our annual reports on Form 10-K, quarterly
reports on Form 10-Q, our Proxy Statement, current reports on Form 8-K and
amendments to those reports, are available free of charge on our website as soon
as reasonably practicable after they are filed with, or furnished to, the SEC.
Our Internet website is located at http://www.beaerospace.com.
Information included in or connected to our website is not incorporated by
reference in this annual report.





13


ITEM
1A.  RISK FACTORS





You
should consider carefully the following risks and uncertainties, along with the
other information contained in or incorporated by reference in this Form
10-K.  Additional risks and uncertainties that we do not presently
know about or currently believe are not material may also adversely affect our
business and operations.  If any of the following events actually
occur, our business, financial condition and financial results could be
materially adversely affected.





Risks
Relating to Our Industry





The
airline industry is heavily regulated and failure to comply with applicable laws
could reduce our sales, or require us to incur additional costs to achieve
compliance, which could reduce our results of operations.





The FAA
prescribes standards and licensing requirements for aircraft components,
including virtually all commercial airline and general aviation cabin interior
products, and licenses component repair stations within the United States.
Comparable agencies, such as the EASA, the CAAC and the JCAB, regulate these
matters in other countries. If we fail to obtain a required license for one of
our products or services or lose a license previously granted, the sale of the
subject product or service would be prohibited by law until such license is
obtained or renewed. In addition, designing new products to meet existing
regulatory requirements and retrofitting installed products to comply with new
regulatory requirements can be both expensive and time consuming.





From time
to time these regulatory agencies propose new regulations. These new regulations
generally cause an increase in costs to comply with these regulations. For
example, the FAA dynamic testing requirements originally established in 1988
under 14 CFR 25.562 are currently required for certain new generation aircraft
types.  The recent enactment of 14 CFR 121.311(j) will require dynamic
testing of all seats installed in all new aircraft produced after October 27,
2009.  EASA is expected to establish a similar
rule.  Compliance with this rule may require industry participants to
expand engineering, plant and equipment to ensure that all products meet this
rule.  Smaller seating companies may not have the resources, financial
or otherwise, to comply with this rule and may be required to sell their
business or cease operations.  To the extent the FAA implements rule
changes in the future, we may incur additional costs to achieve
compliance.





The
airline industry is subject to extensive health and environmental regulations,
any violation of which could subject us to significant liabilities and
penalties.





We are
subject to extensive and changing federal, state and foreign laws and
regulations establishing health and environmental quality standards, and may be
subject to liability or penalties for violations of those standards. We are also
subject to laws and regulations governing remediation of contamination at
facilities currently or formerly owned or operated by us or to which we have
sent hazardous substances or wastes for treatment, recycling or disposal. We may
be subject to future liabilities or obligations as a result of new or more
stringent interpretations of existing laws and regulations. In addition, we may
have liabilities or obligations in the future if we discover any environmental
contamination or liability at any of our facilities, or at facilities we may
acquire.





Risks
Relating to Our Business





We
are directly dependent upon the conditions in the airline and business jet
industries and a severe and prolonged economic downturn could negatively impact
our results of operations.





Global
financial markets have experienced extreme volatility and disruption for more
than twelve months. Since September 2008, this volatility has reached
unprecedented levels as a result of a financial crisis affecting the banking
system and participants in the global financial markets. Concerns over the
tightening of the corporate credit markets, inflation, energy costs and the
dislocation of the residential real estate and mortgage markets have contributed
to the volatility in the global financial markets and, together with the global
financial crisis, have diminished expectations for global economic conditions in
the future.  The airline and business jet industries are particularly
sensitive to changes in economic conditions.  Through 2008, the
airline industry has been parking aircraft, delaying new aircraft purchases and
delivery of new aircraft, deferring retrofit programs and depleting existing
inventories. We also expect the business jet industry to be severely impacted by
both the recession and by declining corporate profits.





Unfavorable
economic conditions can also reduce spending for both leisure and business
travel, negatively affecting the airline and business jet
industries.  The weakened global economy caused rapid declines in
global air travel during the latter portion of 2008.  According to
IATA, the economic downturn, combined with the record fuel prices experienced
during most of the year, contributed to the worldwide airline industry
generating a loss of approximately $5.0 billion in 2008.  In addition,
as a result of the decline in both traffic and airfares following the
September 11, 2001 terrorist attacks, SARS and the onset of the Iraq war,
and their aftermath, as well as other factors, such as increases in fuel costs
and heightened competition from low-cost carriers, the world airline industry
lost a total of approximately $33.7 billion in calendar years 2001-2008.
The airline industry crisis also caused 47 airlines worldwide to declare
bankruptcy or cease operations in the last seven years.





14


We expect,
based on current economic conditions, that air traffic will continue to decline
in 2009. Declining air traffic has, and we expect it will continue to,
negatively impact our customer base. A continued economic downturn would likely
continue to negatively impact the airline and business jet industries, which
could cause a significant negative impact on our future results of
operations.





There
are risks inherent in international operations that could have a material
adverse effect on our business operations.





While the
majority of our operations are based domestically, we have significant
manufacturing operations based internationally with facilities in the United
Kingdom, the Netherlands and Germany.  In addition, we sell our
products to airlines all over the world. Our customers are located primarily in
North America, Europe and the emerging markets including the Asia/Pacific Rim
region, South America and the Middle East. As a result, 53% of our net sales for
the year ended December 31, 2008 and 55% of our sales for the year ended
December 31, 2007 were to customers located outside the United
States.





In
addition, we have a number of subsidiaries in foreign countries (primarily in
Europe), which have sales outside the United States. Approximately 32% and 38%,
respectively, of our sales during the fiscal years ended December 31, 2008
and 2007 came from our foreign operations. Fluctuations in the value of foreign
currencies affect the dollar value of our net investment in foreign
subsidiaries, with these fluctuations being included in a separate component of
stockholders’ equity. At December 31, 2008, we reported a cumulative foreign
currency translation adjustment of approximately $67.4 million in
stockholders’ equity as a result of foreign currency adjustments, and we may
incur additional adjustments in future periods.  In addition,
operating results of foreign subsidiaries are translated into U.S. dollars for
purposes of our statement of operations at average monthly exchange rates.
Moreover, to the extent that our revenues are not denominated in the same
currency as our expenses, our net earnings could be materially adversely
affected. For example, a portion of labor, material and overhead costs for goods
produced in our production facilities in the United Kingdom, Germany and the
Netherlands are incurred in British pounds or euros, but the related sales
revenues are generally denominated in U.S. dollars. Changes in the value of the
U.S. dollar or other currencies could result in material fluctuations in foreign
currency translation amounts or the U.S. dollar value of transactions and, as a
result, our net earnings could be materially adversely affected.





Historically
we have not engaged in hedging transactions. However, we may engage in hedging
transactions in the future to manage or reduce our foreign exchange risk. Our
attempts to manage our foreign currency exchange risk may not be successful and,
as a result, our results of operations and financial condition could be
materially adversely affected.





Our
foreign operations could also be subject to unexpected changes in regulatory
requirements, tariffs and other market barriers and political, economic and
social instability in the countries where we operate or sell our products and
offer our services. The impact of any such events that may occur in the future
could subject us to additional costs or loss of sales, which could materially
adversely affect our operating results.





If
we make acquisitions, they may be less successful than we expect, which could
have a material adverse effect on our financial condition.




We have
made many acquisitions in the past.  We are currently in the process
of integrating the HCS business which we acquired from
Honeywell.  Successful integration of HCS's operations with those of
our consumables management will depend on our ability to manage the combined
operations, realize opportunities for revenue growth presented by broader
product offerings and expanded geographic coverage, and to eliminate redundant
and excess costs.




We may
also consider future acquisitions, some of which could be material to us. We
explore and conduct discussions with many third parties regarding possible
acquisitions. Our ability to continue to achieve our goals may depend upon our
ability to effectively acquire and integrate such companies, to achieve cost
efficiencies and to manage these businesses as part of our company. For example,
our acquisition of HCS involves the integration of the HCS business with our
consumables management business. These two businesses were previously operated
independently, sometimes competing in some of the same or similar aerospace
hardware consumables distribution markets. If we cannot successfully integrate
HCS operations with those of our consumables management, we may experience
material negative consequences to our business, financial condition or results
of operations. We may not be successful in implementing appropriate operational,
financial and management systems and controls to achieve the benefits expected
to result from these acquisitions. Our efforts to integrate these businesses
could be materially adversely affected by a number of factors beyond our
control, such as regulatory developments, general economic conditions, increased
competition and the loss of certain customers resulting from the acquisitions.
In addition, the process of integrating these businesses could cause
difficulties for us, including an interruption of, or loss of momentum in, the
activities of our existing business and the loss of key personnel and customers.
Further, the benefits that we anticipate from these acquisitions may not
develop. For example, we may not be able to realize the cost savings, synergies
and revenue and earnings growth in our consumables management that we anticipate
from the HCS acquisition and the costs of achieving these benefits may be higher
than what we currently expect. Depending upon the acquisition opportunities
available, we also may need to raise additional funds through the capital
markets or arrange for additional bank financing in order to consummate such
acquisitions.  We also may not be able to raise the substantial
capital required for acquisitions and integrations on satisfactory terms, if at
all.




15





Increased
leverage could adversely impact our business and results of
operations.





We may
incur additional debt under our credit facility or through new borrowings to
finance our operations or for future growth.  A high degree of
leverage could have important consequences to us.  For example, it
could:


•
                increase
      our vulnerability to adverse economic and industry
    conditions;•
                require
      us to dedicate a substantial portion of cash from operations to the
      payment of debt service, therebyreducing the availability of cash to fund
      working capital, capital expenditures and other general corporate
      purposes;•
                limit
      our ability to obtain additional financing for working capital, capital
      expenditures, general corporate purposes or acquisitions;•
                place
      us at a disadvantage compared to our competitors that are less leveraged;
      and•
                limit
      our flexibility in planning for, or reacting to, changes in our business
      and in our industry.





Our
total assets include substantial intangible assets.  We have written
off a significant portion of our intangible assets this year and
subsequent write-offs of a significant portion of intangible assets would
negatively affect our financial results.





Our total
assets reflect substantial intangible assets. At December 31, 2008, goodwill and
identified intangibles, net, represented approximately 35% of total assets.
Intangible assets consist principally of goodwill and other identified
intangible assets associated with our acquisitions. On at least an annual basis,
we assess whether there has been an impairment in the value of goodwill and
other intangible assets with indefinite lives. If the carrying value of the
tested asset exceeds its estimated fair value, impairment is deemed to have
occurred.  In this event, the amount is written down to fair
value.  Under current accounting rules, this would result in a charge
to operating earnings. Any determination requiring the write-off of a
significant portion of unamortized goodwill and identified intangible assets
would negatively affect our results of operations and total capitalization,
which could be material.  For example, during the year ended December
31, 2008, in accordance with Statement of Financial Accounting Standards 142,
“Goodwill and Other Intangible Assets,” we performed our annual testing of
impairment of goodwill.  Adverse equity market conditions caused a
decrease in current market multiples, including our fiscal year end market
capitalization at December 31, 2008.  The fair value of our reporting
units for goodwill impairment testing were determined using valuation
techniques  based on estimates, judgments and assumptions we believe
were appropriate under the circumstances.  The sum of the fair values
of the reporting units were evaluated based on our market capitalization
determined using average share prices within a reasonable period of time near
December 31, 2008, plus an estimated control premium plus the fair value of our
debt obligations.  The decrease in the current market multiples and
our market capitalization resulted in a decline in the fair value of our
reporting units as of December 31, 2008.  Accordingly, we recorded a
pre-tax impairment charge related to goodwill and intangible assets of
approximately $390.0 million. As of December 31, 2008 the remaining balances of
goodwill and intangible assets were $663.6 million and $356.0 million,
respectively.





We
have significant financial and operating restrictions in our debt instruments
that may have an adverse effect on our operations.





The credit
agreement governing our senior bank borrowings contains numerous financial and
operating covenants that limit our ability to incur additional or repay existing
indebtedness, to create liens or other encumbrances, to make certain payments
and investments, including dividend payments, to engage in transactions with
affiliates, to engage in sale/leaseback transactions, to guarantee indebtedness
and to sell or otherwise dispose of assets and merge or consolidate with other
entities. Agreements governing future indebtedness could also contain
significant financial and operating restrictions. A failure to comply with the
obligations contained in any current or future agreement governing our
indebtedness could result in an event of default under our current or any future
bank credit facility, any future indentures or agreements governing our debt
securities, which could permit acceleration of the related debt and acceleration
of debt under other instruments that may contain cross-acceleration or
cross-default provisions. We may not have, or may not be able to obtain,
sufficient funds to make any required accelerated payments.





16


We
compete with a number of established companies, some of which have significantly
greater financial, technological and marketing resources than we do, and we may
not be able to compete effectively with these companies.





We compete
with numerous established companies. Some of these companies, particularly in
the passenger-to-freighter conversion business, have significantly greater
financial, technological and marketing resources than we do. Our ability to be
an effective competitor will depend on our ability to remain the supplier of
retrofit and refurbishment products and spare parts on the commercial fleets on
which our products are currently in service. It will also depend on our success
in causing our products and the new products we may develop to be selected for
installation in new aircraft, including next-generation aircraft, and in
avoiding product obsolescence. Our ability to maintain or expand our market
position in the passenger-to-freighter conversion business will depend on our
success in being selected to convert specific aircraft, our ability to maintain
and enhance our engineering design, our certification and program management
capabilities and our ability to manufacture a broader range of structural
components, connectors and other products used in this business.





Provisions
in our charter documents may discourage potential acquisitions of our company,
even those which the holders of a majority of our common stock may
favor.





Our
restated certificate of incorporation and by-laws contain provisions that may
have the effect of discouraging a third party from making an acquisition of us
by means of a tender offer, proxy contest or otherwise. Our restated certificate
of incorporation and by-laws:




•
                classify
      the board of directors into three classes, with directors of each class
      serving for a staggered three-year period;•
                provide
      that directors may be removed only for cause and only upon the approval of
      the holders of at least two-thirds
      of the voting power of our shares entitled to vote generally in the
      election of such directors;•
                require
      at least two-thirds of the voting power of our shares entitled to vote
      generally in the election of directors
      to alter, amend or repeal the provisions relating to the classified board
      and removal of directors described
      above;•
                permit
      the board of directors to fill vacancies and newly created directorships
      on the board;•
                restrict
      the ability of stockholders to call special meetings;
  and•
                contain
      advance notice requirements for stockholder
  proposals.
 You
may not receive cash dividends on our shares of common stock.




We have
never paid a cash dividend and do not plan to pay cash dividends on our common
stock in the foreseeable future.  We intend to retain our earnings to
finance the development and expansion of our business and to repay
indebtedness.  Also, our ability to declare and pay cash dividends on
our common stock is restricted by customary covenants in our bank credit
facility and may be restricted by customary covenants in our future agreements
governing future debt.





If
the price of our common stock continues to fluctuate significantly, you could
lose all or part of any investment in our common stock.




The price
of our common stock is subject to sudden and material increases and decreases,
and decreases could adversely affect investments in our common
stock.  For example from January 1, 2008 through December 31, 2008,
the sale price of our common stock has ranged from a low of $5.37 to a high of
$53.79.  The price of our common stock could fluctuate widely in
response to:





•
            our
      quarterly operating results;




17




•
            changes
      in earnings estimates by securities
analysts;





•
            changes
      in our business;





•
            changes
      in the market’s perception of our
business;





•
            changes
      in the businesses, earnings estimates or market perceptions of our
      competitors or customers;





•
            changes
      in airline industry or business jet industry
  conditions;





•
            changes
      in our key personnel;





•
            changes
      in general market or economic conditions;
and





•
            changes
      in the legislative or regulatory
environment.




In
addition, the stock market has experienced extreme price and volume fluctuations
in recent years that have significantly affected the quoted prices of the
securities of many companies, including companies in our
industry.  The changes often appear to occur without regard to
specific operating performance.  The price of our common stock could
fluctuate based upon factors that have little or nothing to do with our company
and these fluctuations could materially reduce our stock price.





We
have grown, and continue to grow, at a rapid pace.  Our inability to
properly manage or support the growth may have a material adverse effect on our
business, financial condition, and results of operations and could cause the
market value of our common stock to decline.





We have
experienced rapid growth in recent periods and intend to continue to grow our
business both through acquisitions and internal expansion of products and
services.  Our growth to date has placed, and could continue to place,
significant demands on our management team and our operational, administrative
and financial resources.  We may not be able to grow effectively or
manage our growth successfully, and the failure to do so could have a material
adverse effect on our business, financial condition, and results of operations
and could cause the market value of our common stock to
decline.


18


ITEM
1B.  UNRESOLVED STAFF COMMENTS





None.





ITEM
2.  PROPERTIES





As of
December 31, 2008, we had 25 principal operating facilities and one
administrative facility, which comprised an aggregate of approximately 2.6
million square feet of space.  The following table describes the
principal facilities and indicates the location, function, approximate size, and
ownership status of each location.




Segment
                                                                                                    Location
                                                                                                    Purpose
                                                                                                    
                                                                                                    Facility
                                                                                                      Size
                                                                                                      (Sq. Feet)
                                                                                                    
                                                                                                    OwnershipConsumables
      Management
                                                                                                    Miami,
      Florida
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    355,800
                                                                                                    
                                                                                                    LeasedRoanoke,
      Texas
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    208,000
                                                                                                    
                                                                                                    LeasedHamburg,
      Germany
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    67,300
                                                                                                    
                                                                                                    LeasedCarson,
      California
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    56,500
                                                                                                    
                                                                                                    LeasedEarth
      City,
      Missouri
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    47,000
                                                                                                    
                                                                                                    LeasedHamburg,
      Germany
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    44,000
                                                                                                    
                                                                                                    LeasedStratford,
      Connecticut
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    67,000
                                                                                                    
                                                                                                    LeasedParamus,
      New Jersey
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    36,000
                                                                                                    
                                                                                                    LeasedWichita,
      Kansas
                                                                                                    Distribution
                                                                                                    
                                                                                                    
                                                                                                    49,000
                                                                                                    
                                                                                                    LeasedCommercial
      Aircraft
                                                                                                    Winston-Salem,
      North Carolina
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    358,700
                                                                                                    
                                                                                                    LeasedKilkeel,
      Ireland
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    176,000
                                                                                                    
                                                                                                    Leased/OwnedMarysville,
      Washington
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    155,000
                                                                                                    
                                                                                                    LeasedLenexa,
      Kansas
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    130,000
                                                                                                    
                                                                                                    LeasedLeighton
      Buzzard, England
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    114,000
                                                                                                    
                                                                                                    OwnedAnaheim,
      California
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    98,000
                                                                                                    
                                                                                                    LeasedLubeck,
      Germany
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    86,100
                                                                                                    
                                                                                                    LeasedWestminster,
      California
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    70,000
                                                                                                    
                                                                                                    LeasedCompton,
      California
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    63,400
                                                                                                    
                                                                                                    LeasedNieuwegein,
      the Netherlands
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    47,400
                                                                                                    
                                                                                                    LeasedPacoima,
      California
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    28,800
                                                                                                    
                                                                                                    LeasedVista,
      California
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    27,200
                                                                                                    
                                                                                                    LeasedEverett,
      Washington
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    24,200
                                                                                                    
                                                                                                    LeasedBusiness
      Jet
                                                                                                    Miami,
      Florida
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    129,600
                                                                                                    
                                                                                                    LeasedHolbrook,
      New
      York
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    20,100
                                                                                                    
                                                                                                    LeasedTucson,
      Arizona
                                                                                                    Manufacturing
                                                                                                    
                                                                                                    
                                                                                                    90,500
                                                                                                    
                                                                                                    LeasedCorporate
                                                                                                    Wellington,
      Florida
                                                                                                    Administrative
                                                                                                    
                                                                                                    
                                                                                                    23,100
                                                                                                    
                                                                                                    Leased/Owned2,572,700





We believe
that our facilities are suitable for their present intended purposes and
adequate for our present and anticipated level of operations.





ITEM
3.  LEGAL PROCEEDINGS





We are a
defendant in various legal actions arising in the normal course of business, the
outcomes of which, in the opinion of management, neither individually nor in the
aggregate are likely to result in a material adverse effect on our business,
results of operations or financial condition.





There are
no material pending legal proceedings, other than the ordinary routine
litigation incidental to the business discussed above, to which we, or any of
our subsidiaries, are a party or of which any of our property is the
subject.





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





During the
last quarter of the fiscal year covered by this Form 10-K, we did not submit any
matters to a vote of security holders, through the solicitation of proxies or
otherwise.


19


PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
      PURCHASES OF EQUITY SECURITIES





Our common
stock is quoted on the Nasdaq National Market under the symbol
"BEAV.”  The following table sets forth, for the periods indicated,
the range of high and low per share sales prices for the common stock as
reported by Nasdaq.




Fiscal
      Year Ended December 31,(Amounts
      in Dollars)2008
                          
                          
                          2007High
                          
                          
                          Low
                          
                          
                          High
                          
                          
                          LowFirst
      Quarter
                          
                          $
                          53.79
                          
                          
                          $
                          30.41
                          
                          
                          $
                          33.80
                          
                          
                          $
                          25.56Second
      Quarter
                          
                          
                          43.51
                          
                          
                          
                          23.04
                          
                          
                          
                          41.65
                          
                          
                          
                          31.59Third
      Quarter
                          
                          
                          28.70
                          
                          
                          
                          12.50
                          
                          
                          
                          44.69
                          
                          
                          
                          32.20Fourth
      Quarter
                          
                          
                          15.61
                          
                          
                          
                          5.37
                          
                          
                          
                          54.09
                          
                          
                          
                          40.81





Based on
published reports in the Wall Street Journal, we believe B/E Aerospace, Inc. was
the best performing aerospace stock for the one, three, and five years ended
December 31, 2008.  We believe year to date, through February 24,
2009, our shares have out performed the vast majority of all other U. S.
aerospace stocks. During the latter portion of 2008, our share price declined
significantly due to a number of factors unrelated to our operating performance
including, but not limited to, the global credit crisis and global recession,
negative industry information such as continued delays in the launch of the B787
Dreamliner, record fuel prices and an apparent shift in investor sentiment away
from small-cap aerospace stocks.





On
February 23, 2009, the last reported sale price of our common stock as reported
by NASDAQ was $8.00 per share.  As of such date, based on information
provided to us by Computershare, our transfer agent, we had approximately 1,453
registered holders, and because many of these shares are held by brokers and
other institutions on behalf of the beneficial holders, we are unable to
estimate the number of beneficial shareholders represented by these holders of
record.  We have not paid any cash dividends in the past, and we have
no present intention of doing so in the immediate future. Our board of directors
intends, for the foreseeable future, to retain any earnings to reduce
indebtedness and finance our future growth, but expects to review our dividend
policy regularly. The credit agreement governing our bank credit facilities
permit the declaration of cash dividends only in certain circumstances described
therein.





The
following line graph compares the annual percentage change in the Company’s
cumulative total shareholder return on our common stock relative to the
cumulative total returns of the NASDAQ Composite index, the Dow Jones US
Airlines index and the Dow Jones US Aerospace & Defense index. An investment
of $100 (with reinvestment of all dividends) is assumed to have been made in the
Company's common stock and in each of the indexes on 12/31/2003 and its relative
performance is tracked through 12/31/2008.





We made no
repurchases of our common stock during the last quarter of 2008.




GRAPHIC




20


ITEM
6.  SELECTED FINANCIAL DATA


(In
millions, except per share data)





The
financial data for each of the years in the five year period ended December 31,
2008 have been derived from financial statements that have been audited by our
independent registered public accounting firm. The following financial
information is qualified by reference to, and should be read in conjunction
with, Item 7 – “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and our historical financial statements, including notes
thereto, which are included in Item 15 of this Form 10-K.  Our
historical results are not necessarily indicative of our future
results.




Fiscal
      Year Ended December 31,2008(1)
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005
                          
                          
                          2004Statements
      of Earnings (Loss) Data:Net
      sales
                          
                          $
                          2,110.0
                          
                          
                          $
                          1,677.7
                          
                          
                          $
                          1,128.2
                          
                          
                          $
                          844.1
                          
                          
                          $
                          733.5Cost
      of sales
                          
                          
                          1,386.5
                          
                          
                          
                          1,107.6
                          
                          
                          
                          731.7
                          
                          
                          
                          548.5
                          
                          
                          
                          494.8Selling,
      general and administrative
                          
                          
                          238.3
                          
                          
                          
                          195.2
                          
                          
                          
                          159.6
                          
                          
                          
                          136.4
                          
                          
                          
                          119.2Research,
      development and engineering
                          
                          
                          131.4
                          
                          
                          
                          127.9
                          
                          
                          
                          88.6
                          
                          
                          
                          65.6
                          
                          
                          
                          55.1Asset
      impairment charge
                          
                          
                          390.0
                          
                          
                          
                          --
                          
                          
                          
                          --
                          
                          
                          
                          --
                          
                          
                          
                          --Operating
      (loss) earnings
                          
                          
                          (36.2
                          )
                          
                          
                          247.0
                          
                          
                          
                          148.3
                          
                          
                          
                          93.6
                          
                          
                          
                          64.4Operating
      margin
                          
                          
                          (1.7
                          %)
                          
                          
                          14.7
                          %
                          
                          
                          13.1
                          %
                          
                          
                          11.1
                          %
                          
                          
                          8.8
                          %Interest
      expense, net
                          
                          
                          48.0
                          
                          
                          
                          20.9
                          
                          
                          
                          38.9
                          
                          
                          
                          59.3
                          
                          
                          
                          76.1Debt
      prepayment costs
                          
                          
                          3.6
                          
                          
                          
                          11.0
                          
                          
                          
                          19.4
                          
                          
                          
                          --
                          
                          
                          
                          8.8(Loss)
      earnings before income taxes
                          
                          
                          (87.8
                          )
                          
                          
                          215.1
                          
                          
                          
                          90.0
                          
                          
                          
                          34.3
                          
                          
                          
                          (20.5
                          )Income
      tax expense (benefit)(2)
                          
                          
                          11.6
                          
                          
                          
                          67.8
                          
                          
                          
                          4.4
                          
                          
                          
                          (50.3
                          )
                          
                          
                          1.5Net
      (loss) earnings
                          
                          $
                          (99.4
                          )
                          
                          $
                          147.3
                          
                          
                          $
                          85.6
                          
                          
                          $
                          84.6
                          
                          
                          $
                          (22.0
                          )Basic
      net earnings (loss) per share:Net
      (loss) earnings
                          
                          $
                          (1.05
                          )
                          
                          $
                          1.67
                          
                          
                          $
                          1.11
                          
                          
                          $
                          1.44
                          
                          
                          $
                          (0.53
                          )Weighted
      average common shares
                          
                          
                          94.3
                          
                          
                          
                          88.1
                          
                          
                          
                          77.1
                          
                          
                          
                          58.8
                          
                          
                          
                          41.7Diluted
      net earnings (loss) per share:Net
      (loss) earnings
                          
                          $
                          (1.05
                          )
                          
                          $
                          1.66
                          
                          
                          $
                          1.10
                          
                          
                          $
                          1.39
                          
                          
                          $
                          (0.53
                          )Weighted
      average common shares
                          
                          
                          94.3
                          
                          
                          
                          88.8
                          
                          
                          
                          78.0
                          
                          
                          
                          60.8
                          
                          
                          
                          41.7Balance
      Sheet Data (end of period):Working
      capital
                          
                          $
                          1,173.7
                          
                          
                          $
                          711.6
                          
                          
                          $
                          456.0
                          
                          
                          $
                          573.4
                          
                          
                          $
                          225.0Goodwill,
      intangible and other assets, net
                          
                          
                          1,081.7
                          
                          
                          
                          635.6
                          
                          
                          
                          636.2
                          
                          
                          
                          525.3
                          
                          
                          
                          545.5Total
      assets
                          
                          
                          2,930.1
                          
                          
                          
                          1,772.0
                          
                          
                          
                          1,497.7
                          
                          
                          
                          1,426.5
                          
                          
                          
                          1,024.8Long-term
      debt, net of current portion
                          
                          
                          1,117.2
                          
                          
                          
                          150.3
                          
                          
                          
                          502.0
                          
                          
                          
                          677.4
                          
                          
                          
                          678.6Stockholders'
      equity
                          
                          
                          1,266.5
                          
                          
                          
                          1,258.1
                          
                          
                          
                          706.0
                          
                          
                          
                          569.6
                          
                          
                          
                          182.8Other
      Data:Depreciation
      and amoritization
                          
                          $
                          40.7
                          
                          
                          $
                          35.0
                          
                          
                          $
                          29.4
                          
                          
                          $
                          28.6
                          
                          
                          $
                          28.4




(1)  During
the year ended December 31, 2008, in accordance with Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” we
performed our annual testing of impairment of goodwill.  Adverse
equity market conditions caused a decrease in current market multiples,
including our fiscal year end market capitalization at December 31,
2008.  The fair value of our reporting units for goodwill impairment
testing were determined using valuation techniques based on estimates, judgments
and assumptions we believe were appropriate under the
circumstances.  The sum of the fair values of the reporting units were
evaluated based on our market capitalization determined
using   average share prices within a reasonable period of time
near December 31, 2008 plus an estimated control premium plus the fair value of
our debt obligations.  The decrease in the current market multiples
and our market capitalization resulted in a decline in the fair value of our
reporting units as of December 31, 2008.  Accordingly, we recorded a
pre-tax impairment charge related to goodwill and intangible assets of
approximately $390.0 million. Exclusive
of the goodwill and intangible assets impairment charge, which did not impact
cash flows or our operations, operating earnings, earnings before income taxes,
net earnings and net earnings per diluted share for 2008 would have been $353.8,
$302.2, $200.6 and $2.12, respectively.




(2) During
the year ended December 31, 2005 we reversed a significant portion of our
valuation allowance on our U.S. deferred tax asset as a result of improved
operating performance and outlook and expected reductions in interest costs
resulting from note redemptions.




21




ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


( Dollars
in millions, except per share data)





OVERVIEW





Based on
our experience in the industry, we believe we are the world’s largest
manufacturer of cabin interior products for commercial aircraft and business
jets and the leading aftermarket distributor and value added service provider of
aerospace fasteners and other consumables products. We sell our manufactured
products directly to virtually all of the world’s major airlines and aerospace
manufacturers.  In addition, based on our experience, we believe that
we have achieved leading global market positions in each of our major product
categories, which include:





•
            a
      broad line of aerospace fasteners, consisting of over 275,000 SKUs,
      serving the aerospace commercial aircraft,  business jet and
      military and defense industries;





•
              commercial
      aircraft seats, including an extensive line of super first class, first
      class, business class, tourist class and regional aircraft
      seats;•
              a
      full line of aircraft food and beverage preparation and storage equipment,
      including coffeemakers, water boilers, beverage containers, refrigerators,
      freezers, chillers and a line of ovens which includes microwave, high heat
      convection and steam ovens;




•
            both
      chemical and gaseous aircraft oxygen delivery, distribution and storage
      systems, protective breathing
      equipment and lighting products; and





•
            business
      jet and general aviation interior products, including an extensive line of
      executive aircraft seats, direct and indirect overhead lighting systems,
      oxygen delivery systems, air valve systems, high-end furniture and
      cabinetry.





We also
provide comprehensive aircraft cabin interior reconfiguration and
passenger-to-freighter conversion engineering services and component
kits.





We
generally derive our revenues from refurbishment or upgrade programs for the
existing worldwide fleets of commercial and general aviation aircraft and from
the sale of our cabin interior equipment for new aircraft
deliveries.  For the 2008, 2007 and 2006 fiscal years, approximately
56%, 60% and 60%, respectively, of our revenues were derived from our
aftermarket and military products, with the remaining portions attributable to
the sale of cabin interior equipment associated with new aircraft deliveries. We
believe our large installed base of products, estimated to be approximately $7.3
billion as of December 31, 2008 (valued at replacement prices), gives us a
significant advantage over our competitors in obtaining orders both for spare
parts and for refurbishment programs, principally due to the tendency of the
airlines to purchase equipment for such programs from the incumbent
supplier.





We conduct
our operations through strategic business units that have been aggregated under
three reportable segments: consumables management, commercial aircraft and
business jet.  In 2009 we aligned the legacy business names of our
various distribution businesses to the consumables management
segment.





Net sales
by reportable segment for the years ended December 31, 2008, 2007 and 2006 were
as follows:




Fiscal
      Year Ended December 31,2008
                                                                    
                                                                    
                                                                    2007
                                                                    
                                                                    
                                                                    2006Net
                                                                    
                                                                    
                                                                    %
      of
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    %
      of
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    %
      ofSales
                                                                    
                                                                    
                                                                    Net
      Sales
                                                                    
                                                                    
                                                                    Sales
                                                                    
                                                                    
                                                                    Net
      Sales
                                                                    
                                                                    
                                                                    Sales
                                                                    
                                                                    
                                                                    Net
      SalesConsumablesmanagement
                                                                    
                                                                    $
                                                                    697.3
                                                                    
                                                                    
                                                                    
                                                                    33.0
                                                                    %
                                                                    
                                                                    $
                                                                    386.5
                                                                    
                                                                    
                                                                    
                                                                    23.0
                                                                    %
                                                                    
                                                                    $
                                                                    251.5
                                                                    
                                                                    
                                                                    
                                                                    22.3
                                                                    %Commercial
      aircraft
                                                                    
                                                                    
                                                                    1,138.7
                                                                    
                                                                    
                                                                    
                                                                    54.0
                                                                    %
                                                                    
                                                                    
                                                                    1,098.1
                                                                    
                                                                    
                                                                    
                                                                    65.5
                                                                    %
                                                                    
                                                                    
                                                                    729.2
                                                                    
                                                                    
                                                                    
                                                                    64.6
                                                                    %Business
      jet
                                                                    
                                                                    
                                                                    274.0
                                                                    
                                                                    
                                                                    
                                                                    13.0
                                                                    %
                                                                    
                                                                    
                                                                    193.1
                                                                    
                                                                    
                                                                    
                                                                    11.5
                                                                    %
                                                                    
                                                                    
                                                                    147.5
                                                                    
                                                                    
                                                                    
                                                                    13.1
                                                                    %Net
      sales
                                                                    
                                                                    $
                                                                    2,110.0
                                                                    
                                                                    
                                                                    
                                                                    100.0
                                                                    %
                                                                    
                                                                    $
                                                                    1,677.7
                                                                    
                                                                    
                                                                    
                                                                    100.0
                                                                    %
                                                                    
                                                                    $
                                                                    1,128.2
                                                                    
                                                                    
                                                                    
                                                                    100.0
                                                                    %





22


Net sales
by domestic and foreign operations for the years ended December 31, 2008, 2007
and 2006 were as follows:




Fiscal
      Year Ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006Domestic
                            
                            $
                            1,428.8
                            
                            
                            $
                            1,036.6
                            
                            
                            $
                            732.9Foreign
                            
                            
                            681.2
                            
                            
                            
                            641.1
                            
                            
                            
                            395.3Total
                            
                            $
                            2,110.0
                            
                            
                            $
                            1,677.7
                            
                            
                            $
                            1,128.2




Net sales
by geographic segment (based on destination) for the years ended December 31,
2008, 2007 and 2006 were as follows:




Fiscal
      Year Ended December 31,2008
                                                                        
                                                                        
                                                                        2007
                                                                        
                                                                        
                                                                        2006Net
                                                                        
                                                                        
                                                                        %
      of
                                                                        
                                                                        
                                                                        Net
                                                                        
                                                                        
                                                                        %
      of
                                                                        
                                                                        
                                                                        Net
                                                                        
                                                                        
                                                                        %
      ofSales
                                                                        
                                                                        
                                                                        Net
      Sales
                                                                        
                                                                        
                                                                        Sales
                                                                        
                                                                        
                                                                        Net
      Sales
                                                                        
                                                                        
                                                                        Sales
                                                                        
                                                                        
                                                                        Net
      SalesU.S.
                                                                        
                                                                        $
                                                                        994.4
                                                                        
                                                                        
                                                                        
                                                                        47.1
                                                                        %
                                                                        
                                                                        $
                                                                        749.5
                                                                        
                                                                        
                                                                        
                                                                        44.7
                                                                        %
                                                                        
                                                                        $
                                                                        483.0
                                                                        
                                                                        
                                                                        
                                                                        42.8
                                                                        %Europe
                                                                        
                                                                        
                                                                        508.9
                                                                        
                                                                        
                                                                        
                                                                        24.1
                                                                        %
                                                                        
                                                                        
                                                                        468.0
                                                                        
                                                                        
                                                                        
                                                                        27.9
                                                                        %
                                                                        
                                                                        
                                                                        331.5
                                                                        
                                                                        
                                                                        
                                                                        29.4
                                                                        %Asia,
      Pacific Rim,Middle
      East and other
                                                                        
                                                                        
                                                                        606.7
                                                                        
                                                                        
                                                                        
                                                                        28.8
                                                                        %
                                                                        
                                                                        
                                                                        460.2
                                                                        
                                                                        
                                                                        
                                                                        27.4
                                                                        %
                                                                        
                                                                        
                                                                        313.7
                                                                        
                                                                        
                                                                        
                                                                        27.8
                                                                        %Total
                                                                        
                                                                        $
                                                                        2,110.0
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        1,677.7
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        1,128.2
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %




Between
1989 and 2001, we substantially expanded the size, scope and nature of our
business through 22 acquisitions for an aggregate purchase price of
approximately $1 billion.  From 2002 through June 2006, essentially
all of our revenue growth was organic since we did not make any significant
acquisitions during that period.





During the
third quarter of 2006, we acquired Draeger and New York Fasteners for, in the
aggregate, approximately $147.0 in cash.  Draeger manufactures
components and integrated systems to supply oxygen systems for both civil and
military aircraft, with well-established strengths in both chemical and gaseous
oxygen systems.  Draeger is the prime contractor for the oxygen
systems in the Eurofighter Typhoon, and provides maintenance and repair services
for Germany’s Air Force in-service oxygen systems.  The integration of
Draeger with our existing oxygen business allows us to offer the broadest oxygen
system product lines in the industry. New York Fasteners is a distributor of a
wide variety of aerospace fasteners and hardware primarily to the military
sector.  The integration of New York Fasteners into our consumables
management segment has significantly expanded our overall penetration into the
military and defense sector.





During the
third quarter of 2008, we acquired Honeywell’s Consumable Solutions distribution
business, for the aggregate purchase price of approximately
$1,074.0.  The HCS business distributes consumables parts and supplies
to aviation industry manufacturers, airlines, and aircraft repair and overhaul
facilities.  The combination of HCS with our consumables management
segment positioned us as the leading global distributor and value-added provider
of aerospace fasteners and other consumable products.  The combined
business serves as a distributor for every major aerospace fastener manufacturer
in the world. The combination of HCS with our existing distribution business
created the world’s leading distributor of aerospace fasteners and consumables
thereby allowing us to alter our business mix, such that approximately one-half
of our business is related to non-discretionary consumables and spares
demand.





New
product development is a strategic initiative for us. Our customers regularly
request that we engage in new product development and enhancement activities. We
believe that these activities protect and enhance our leadership position. We
believe our investments in research and development over the past several years
have been the driving force behind our ongoing market share
gains.  Research, development and engineering spending was
approximately 6.2% of sales during 2008 and is expected to remain at
approximately that percentage of sales for the next several years.





We also
believe in providing our businesses with the tools required to remain
competitive. In that regard, we have invested, and will continue to invest in,
property and equipment that enhances our productivity. Taking into consideration
our record backlog, targeted capacity utilization levels, recent capital
expenditure investments, recent acquisitions and current industry conditions, we
expect that capital expenditures will be approximately $40 million over the next
twelve months.





23


International
airline competition for higher margin international travelers and improved
worldwide industry conditions through the third quarter of 2008 resulted in
increasing demand for our products and services, as demonstrated by record
bookings of approximately $2.2 billion during fiscal 2008.  At
December 31, 2008, backlog was approximately $2.9 billion, an increase of
approximately 32% as compared to our December 31, 2007 backlog.





The
weakened global economy has caused rapid declines in global air travel during
the latter portion of 2008.  We expect, based on current economic
conditions, that air traffic will continue to decline in
2009.  Declining air traffic has, and we expect it will continue to,
negatively impact our customer base.  The airline industry is parking
aircraft, delaying new aircraft purchases and deliveries, deferring retrofit
programs and depleting existing inventories. We also expect the business jet
industry to be severely impacted by both the recession and by declining
corporate profits. Despite these difficult industry conditions, we expect that
our strategic decision to alter our business mix such that approximately
one-half of our business is related to non-discretionary consumables and spares
demand, as well as our strategic focus on OEM direct or seller furnished
equipment programs will positively impact our business in the
future.





24





RESULTS
OF OPERATIONS





Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007





Record net
sales for the year ended December 31, 2008 were $2.11 billion, an increase of
25.8% as compared to 2007.





Net sales
for each of our segments are set forth in the following table:




Fiscal
      Year Ended December 31,Percent2008
                          
                          
                          2007
                          
                          
                          Change
                          
                          
                          ChangeConsumables
      management
                          
                          $
                          697.3
                          
                          
                          $
                          386.5
                          
                          
                          $
                          310.8
                          
                          
                          
                          80.4
                          %Commercial
      aircraft
                          
                          
                          1,138.7
                          
                          
                          
                          1,098.1
                          
                          
                          
                          40.6
                          
                          
                          
                          3.7
                          %Business
      jet
                          
                          
                          274.0
                          
                          
                          
                          193.1
                          
                          
                          
                          80.9
                          
                          
                          
                          41.9
                          %Total
      sales
                          
                          $
                          2,110.0
                          
                          
                          $
                          1,677.7
                          
                          
                          $
                          432.3
                          
                          
                          
                          25.8
                          %




Consumables
management segment revenues increased by 80.4% as compared with the prior
year.  The higher level of revenues at the consumables management
segment were the result of the acquisition of HCS, which accounted for $238.6 of
the revenue increase and a broad-based increase in aftermarket revenues and
investments in product line expansion, offset by a decrease in demand in the
fourth quarter, as a result of the global recession.  Proforma revenue
growth at the consumables management segment in 2008, reflecting the acquisition
of HCS as if it had occurred as of the beginning of 2007, was
13.0%.  Commercial aircraft segment revenues increased 3.7% as
compared with the prior year, reflecting lower demand in the second half of
2008, as a result of the global recession.  Business jet segment
revenues increased by $80.9 or 41.9%, reflecting the higher level of new
business jet deliveries and higher revenues from super first class
products.





Cost of
sales for the current period of $1,386.5, or 65.7% of net sales, increased by
$278.9 compared to $1,107.6, or 66.0% of net sales in the prior year. The 30
basis point decrease in the current year is due to the change in business mix as
a result of the acquisition of HCS, offset by margin expansion at both the
commercial aircraft and business jet segments.





Selling,
general and administrative expenses in 2008 were $238.3, or 11.3% of sales,
compared to $195.2 or 11.6% in 2007.  The increase in spending is
primarily due to the HCS acquisition ($28.9), and higher commissions,
compensation and benefits ($13.7) associated with the 25.8% increase in revenues
and a nearly 32% increase in backlog from December 31, 2007.  Selling,
general and administrative expenses as a percentage of sales decreased by 30
basis points, reflecting the operating leverage in our business.





Research,
development and engineering expenses for 2008 were $131.4, or 6.2% of sales,
compared to $127.9 or 7.6% of sales in the prior year, and reflect the higher
level of spending associated with customer specific engineering activities, new
product development activities (primarily at the commercial aircraft segment),
certification efforts related to a number of new products, including products
for the new Boeing 787 Dreamliner Aircraft, Airbus A350 XWB, as well as new
product spending for new business jet aircraft (Cessna Citation Columbus,
Gulfstream 650, Dassault Falcon 7X and Embraer Legacy 450 and Legacy 500) and
the super first class suite of products.  The 140 basis point decline
in research, development and engineering expenses as a percentage of sales is
due to the change in business mix as a result of the HCS
acquisition.  During 2008, we applied for 98 U.S. and foreign patents
versus 88 during 2007.





During the
year ended December 31, 2008, in accordance with Statement of Financial
Accounting Standard No. 142, “Goodwill and Other Intangible Assets,” we
performed our annual testing of impairment of goodwill.  Adverse
equity market conditions caused a decrease in current market multiples,
including our fiscal year end market capitalization at December 31,
2008.  The fair value of our reporting units for goodwill impairment
testing were determined using valuation techniques  based on
estimates, judgments and assumptions that we believe were appropriate under the
circumstances.  The sum of the fair values of the reporting units were
evaluated based on our  market capitalization determined using average
share prices within a reasonable period of time near December 31, 2008, plus an
estimated control premium plus the fair value of our debt
obligations.  The decrease in the current market multiples and our
market capitalization resulted in a decline in the fair value of our reporting
units as of December 31, 2008, we recorded a pre-tax asset impairment charge
related to goodwill and intangible assets of approximately $390.0.





25


As
a result of the $390.0 asset impairment charge, our 2008 operating loss was
($36.2) as compared to 2007 operating earnings of $247.0, or 14.7% of sales in
2007. Operating earnings, exclusive of the asset impairment charge, increased by
43.2% due to the 25.8% revenue growth and a 210 basis point expansion in
operating margin to 16.8% of sales, reflecting our high in quality
backlog.





The
following is a summary of operating earnings performance by
segment:




As
      Reported
                                      
                                      
                                      Excluding
      Asset Impairment ChargeFiscal
      Year Ended December 31,
                                      
                                      
                                      Fiscal
      Year Ended December 31,Percent
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      Percent2008
                                      
                                      
                                      2007
                                      
                                      
                                      Change
                                      
                                      
                                      Change
                                      
                                      
                                      2008
                                      
                                      
                                      2007
                                      
                                      
                                      Change
                                      
                                      
                                      ChangeConsumables
      management
                                      
                                      $
                                      (151.7
                                      )
                                      
                                      $
                                      85.5
                                      
                                      
                                      $
                                      (237.2
                                      )
                                      
                                      
                                      (277.4
                                      )%
                                      
                                      $
                                      158.5
                                      
                                      
                                      $
                                      85.5
                                      
                                      
                                      $
                                      73.0
                                      
                                      
                                      
                                      85.4
                                      %Commercial
      aircraft
                                      
                                      
                                      78.2
                                      
                                      
                                      
                                      141.8
                                      
                                      
                                      
                                      (63.6
                                      )
                                      
                                      
                                      (44.9
                                      )%
                                      
                                      
                                      158.0
                                      
                                      
                                      
                                      141.8
                                      
                                      
                                      
                                      16.2
                                      
                                      
                                      
                                      11.4
                                      %Business
      jet
                                      
                                      
                                      37.3
                                      
                                      
                                      
                                      19.7
                                      
                                      
                                      
                                      17.6
                                      
                                      
                                      
                                      89.3
                                      %
                                      
                                      
                                      37.3
                                      
                                      
                                      
                                      19.7
                                      
                                      
                                      
                                      17.6
                                      
                                      
                                      
                                      89.3
                                      %Total
      operating (loss) earnings
                                      
                                      $
                                      (36.2
                                      )
                                      
                                      $
                                      247.0
                                      
                                      
                                      $
                                      (283.2
                                      )
                                      
                                      
                                      (114.7
                                      )%
                                      
                                      $
                                      353.8
                                      
                                      
                                      $
                                      247.0
                                      
                                      
                                      $
                                      106.8
                                      
                                      
                                      
                                      43.2
                                      %


Consumables
management segment operating loss of ($151.7) in 2008 reflects $310.2 of
goodwill and intangible asset impairment charges.  Exclusive of these
charges, operating earnings would have been $158.5, representing an increase of
$73.0, or 85.4%, due to an 80.4% increase in revenue and a 60 basis point
increase in operating margin. Consumables management segment operating earnings
in 2008 were also impacted by $9.7 of acquisition and integration costs related
to the HCS acquisition and $21.2 of unfavorable contract accrual adjustments
related to the HCS acquisition.  On a proforma basis, giving effect to
the acquisition of HCS as if it occurred on January 1, 2007, and excluding the
goodwill and asset impairment charges, revenues in 2008 of $1,043.6 would have
increased by $120.0, or 13.0% as compared to proforma revenues in 2007 of
$923.6, and proforma operating earnings would have increased by 41.2% to $198.5
(19.0% of sales), as compared to $140.6 in 2007.  Proforma operating
earnings, including the goodwill and asset impairment charges incurred in 2008,
would have been ($104.7) and $140.6, for the years ended December 31, 2008 and
2007, respectively.




For the
year ended December 31, 2008, commercial aircraft segment operating earnings of
$78.2 reflect $79.8 of goodwill and intangible asset impairment charges.
Exclusive of these charges, 2008 operating earnings increased by $16.2, or 11.4%
as compared to 2007, primarily due to a 100 basis point expansion in operating
margin.  Excluding goodwill and asset impairment charges, operating
margin at commercial aircraft segment expanded by 100 basis points during 2008
reflecting synergies associated with the Draeger acquisition, improved
efficiencies associated with major seating programs and successful cost
reduction initiatives.  Excluding goodwill and asset impairment
charges, operating margin at commercial aircraft segment has expanded by 460
basis points over the 2005-2008 period.




Business
jet segment’s 2008 operating earnings of $37.3 increased by $17.6, or 89.3%, as
compared with the prior year, as a result of the 41.9% increase in revenue and
the 340 basis point expansion in operating margin.  This margin
expansion reflects substantially improved operating results for the super first
class product line and operating leverage at the higher sales
level.





We
financed the acquisition of HCS (and refinanced $150.0 of existing indebtedness)
by completing a new $525.0 term loan to banks, a $600.0 of senior unsecured
notes offering and by issuing 6.0 million shares of our common stock to
Honeywell at an agreed upon value of $26.38 per share.  See
“Outstanding Debt and Other Financing Arrangements” below for additional
information regarding our indebtedness.  Interest expense was $48.0
for 2008, an increase of $27.1 as compared to 2007 due to the debt incurred to
finance the HCS acquisition.  During 2008 we recorded debt prepayment
costs of $3.6, incurred in connection with the financing of the HCS
acquisition.





Loss
before income taxes in 2008 was ($87.8), as compared to earnings before income
taxes of $215.1 in 2007.  Excluding the goodwill and intangible asset
impairment charges, the 2008 earnings before income taxes were $302.2, an
increase of $87.1 or 40.5% compared to 2007, due to factors described
above.





A
significant portion of the goodwill and intangible asset impairment charge was
non-deductible for tax purposes, which resulted in income tax expense for 2008
of $11.6. Excluding the impact of the goodwill and intangible asset impairment
charges, the Company’s tax expense was $101.6 for an effective tax rate of
33.6%. The Company’s tax expense of $67.8 for 2007 reflected a tax benefit for
the recognition of our U.K. deferred tax asset in the amount of
$8.7.




Net loss
and net loss per diluted share in 2008 were ($99.4) and ($1.05),
respectively.  Excluding the goodwill and intangible asset impairment
charges, 2008 net earnings and net earnings per diluted share were $200.6 and
$2.12, respectively, as compared to 2007 net earnings and net earnings per
diluted share of $147.3 and $1.66, respectively.




26





RESULTS
OF OPERATIONS





Year
Ended December 31, 2007 Compared to the Year Ended December 31,
2006





Net sales
for the year ended December 31, 2007 were $1,677.7, an increase of $549.5 or
48.7% as compared to the prior year.  Revenue growth was driven by
robust market conditions and market share gains, and included strong retrofit
program deliveries, as well as an increase in demand related to growth in new
aircraft deliveries.





Net sales
for each of our segments are set forth in the following table:




Fiscal
      Year Ended December 31,Percent2007
                        
                        
                        2006
                        
                        
                        Change
                        
                        
                        ChangeConsumables
      management
                        
                        $
                        386.5
                        
                        
                        $
                        251.5
                        
                        
                        $
                        135.0
                        
                        
                        
                        53.7
                        %Commercial
      aircraft
                        
                        
                        1,098.1
                        
                        
                        
                        729.2
                        
                        
                        
                        368.9
                        
                        
                        
                        50.6
                        %Business
      jet
                        
                        
                        193.1
                        
                        
                        
                        147.5
                        
                        
                        
                        45.6
                        
                        
                        
                        30.9
                        %Total
      sales
                        
                        $
                        1,677.7
                        
                        
                        $
                        1,128.2
                        
                        
                        $
                        549.5
                        
                        
                        
                        48.7
                        %





The
consumables management segment revenue growth of 53.7% reflects a higher level
of revenues from first and second tier aerospace manufacturers and from higher
military sales.





The 50.6%
increase in revenue for the commercial aircraft segment reflects significant
market share gains and was driven by a substantially higher level of
aftermarket, retrofit and refurbishment activity, as well as demand created by
new aircraft deliveries. Business jet segment revenue increased by $45.6 or
30.9%, reflecting the higher level of new business jet deliveries and higher
revenues from super first class products.





Cost of
sales for the current period of $1,107.6, or 66.0% of net sales, increased by
$375.9 compared to $731.7, or 64.9% of net sales in the prior
year.  The $375.9, or 51.4%, increase in cost of sales was primarily
due to the 48.7% increase in net sales.  Cost of sales as a percentage
of net sales increased by 110 basis points during the current year period
primarily due to the higher level of commercial aircraft segment revenues, with
gross margins lower than the Company’s average.  The balance was
primarily related to the 2006 Draeger and New York Fasteners acquisitions and
integration costs related thereto and start up and learning curve costs on major
programs in the business jet and commercial aircraft segments.





Selling,
general and administrative expenses in 2007 were $195.2, or 11.6% of sales,
versus $159.6 or 14.1% in 2006 reflecting the higher level of selling, marketing
and product support costs ($6.3), the acquisitions of Draeger and New York
Fasteners ($6.1), higher commissions, compensation and benefits ($19.0)
associated with the 48.7% increase in revenues and a nearly 30% increase in
backlog from December 31, 2006.  Selling, general and administrative
expenses as a percentage of sales decreased by 250 basis points, reflecting the
operating leverage in our business.





Research,
development and engineering expenses for 2007 were $127.9, or 7.6% of sales,
versus $88.6 or 7.9% of sales in the prior year and reflect the higher level of
spending associated with customer specific engineering activities, new product
development activities (primarily at the commercial aircraft segment),
certification efforts related to a number of new products including products for
the new Boeing 787 Dreamliner Aircraft, Airbus A350 XWB, and
acquisitions.  During 2007, we applied for 88 U.S. and foreign patents
versus 73 during 2006.





Operating
earnings for 2007 were $247.0 or 66.6% greater than 2006.  The
operating earnings growth was driven by the 48.7% revenue growth and a 160 basis
point expansion in operating margin to 14.7% of sales reflecting the high in
quality backlog and operating leverage at the higher revenue level, offset by
the 2006 Draeger and New York Fasteners acquisitions and integration costs
related thereto and learning curve costs in the commercial aircraft and business
jet segments.  Operating earnings growth, exclusive of acquisitions
was 68%.





27




The
following is a summary of operating earnings performance by
segment:




Fiscal
      Year Ended December 31,Percent2007
                        
                        
                        2006
                        
                        
                        Change
                        
                        
                        ChangeConsumables
      management
                        
                        $
                        85.5
                        
                        
                        $
                        50.4
                        
                        
                        $
                        35.1
                        
                        
                        
                        69.6
                        %Commercial
      aircraft
                        
                        
                        141.8
                        
                        
                        
                        88.5
                        
                        
                        
                        53.3
                        
                        
                        
                        60.2
                        %Business
      jet
                        
                        
                        19.7
                        
                        
                        
                        9.4
                        
                        
                        
                        10.3
                        
                        
                        
                        109.6
                        %Total
                        
                        $
                        247.0
                        
                        
                        
                        148.3
                        
                        
                        
                        98.7
                        
                        
                        
                        66.6
                        %





Consumables
management segment operating earnings of $85.5 increased by $35.1, or 69.6%, due
to a 53.7% increase in revenue and a 210 basis point increase in operating
margin.  The consumables management segment operating margin of 22.1%,
which reflects the segment’s highly efficient information technology and
automated retrieval systems, was negatively impacted by the New York Fasteners
acquisition and integration costs related thereto.




For the
year ended December 31, 2007, commercial aircraft segment operating earnings of
$141.8 increased by $53.3, or 60.2%, due to both a 50.6% increase in revenue and
a 80 basis point expansion in operating margin.  The Draeger
acquisition integration costs negatively impacted commercial aircraft segment
margin.  The operating margins at the commercial aircraft segment are
expected to significantly improve during 2008 and beyond due to their high in
quality backlogs, operational efficiency initiatives, operating leverage and,
with respect to interior systems, the now substantially complete Draeger
integration activities.




Business
jet segment operating earnings of $19.7, increased by $10.3, or 109.6%, as
compared with the prior year, as a result of the 30.9% increase in revenue and
the 380 basis point expansion in operating margin.  This margin
expansion reflects substantially improved operating results for the super first
class product line and operating leverage at the higher sales
level.





Interest
expense was $23.5 for 2007 and decreased by $19.3 as compared to 2006, due to
the redemption of our $250 87/8% senior
subordinated notes due 2011 and prepayment of $100 of bank term debt during
2007, which together generated $11.0 of debt prepayment costs.





Earnings
before income taxes of $215.1 were $125.1, or 139.0% greater than in
2006.  The large increase in earnings before income taxes was due to
the $98.7 or 66.6% increase in operating earnings and the $19.3 decrease in
interest expense offset by $11.0 of debt prepayment costs.





The
Company’s tax expense of $67.8 for 2007 reflects approximately $8.7 of tax
benefits associated with one-time tax planning initiatives finalized during
2007.  The Company’s tax expense of $4.4 for 2006 reflected a tax
benefit for the recognition of our U.K. deferred tax asset in the amount of
$22.9.




Net
earnings for 2007 of $147.3 were $61.7, or 72.1%, greater than net earnings of
$85.6 in 2006.  Net earnings per diluted share for 2007 of $1.66
increased $0.56 per diluted share, or 50.9%, as compared to 2006, reflecting the
$98.7, or 66.6%, increase in operating earnings in 2007, a 31.5% effective tax
rate in 2007 versus a 4.9% effective tax rate in 2006, and a 14% increase in
weighted average shares outstanding during 2007.





28





LIQUIDITY
AND CAPITAL RESOURCES





Current
Financial Condition





Our
liquidity requirements consist of working capital needs, ongoing capital
expenditures and payments of interest and principal on our indebtedness. Our
primary requirements for working capital are directly related to the level of
our operations.  Working capital consists primarily of accounts
receivable and inventories, which fluctuate with the sales of our products. Our
working capital was $1,173.7 as of December 31, 2008, as compared to $711.6 as
of December 31, 2007, consistent with the nearly 25.8% increase in revenues and
the effects of the HCS acquisition.  Factors impacting the change in
working capital include the HCS acquisition ($234.4), a $262.0 increase in
inventories principally related to the product line expansion in the consumables
management segment and to support the delivery of our record backlog, and a
$53.4 increase in accounts receivable due to the increase in our revenues,
somewhat offset by a $196.9 increase in accounts payable and accrued
liabilities.  At December 31, 2008, reflecting the $390.0 pre-tax
non-cash goodwill and intangible asset impairment charge, our net debt to net
capital ratio was 43.0%.  Long term debt, less cash and cash
equivalents, at December 31, 2008 was $955.1, which represents total debt of
$1,123.2 less cash and cash equivalents of $168.1.  At December 31,
2008, there was $522.4 in term debt outstanding under the senior secured credit
facility, which consists of a $350.0 revolving credit facility and a $525.0 term
loan facility.  There were no borrowings outstanding under the
revolving credit component of our senior secured credit facility.





Cash
Flows





As of
December 31, 2008, cash and cash equivalents were $168.1 as compared to $81.6 at
December 31, 2007.  Cash provided by operating activities was $115.5
for the year ended December 31, 2008 as compared to $22.0 during the year ended
December 31, 2007.  The primary sources of cash provided by operating
activities during 2008 were net loss of $99.4 offset by a non-cash charge for
goodwill and intangible asset impairment of $390.0, depreciation and
amortization of $40.7, non-cash compensation of $15.5, and provision for
doubtful accounts of $8.7.  The primary use of cash in operating
activities during the year ended December 31, 2008 was $229.4 related to changes
in our operating assets and liabilities, primarily related to a $262.0
investment in inventories, a $22.2 increase in accounts receivable, offset by a
$50.9 increase in accounts payable and accruals and a $14.7 increase in deferred
income taxes.  The primary source of cash provided by operating
activities during 2007 were net earnings of $147.3 plus non-cash charges for
depreciation and amortization of $35.0, a reduction in deferred income taxes
totaling $58.5, non-cash compensation aggregating $11.0 plus the non-cash impact
from loss on debt extinguishment of $11.0.  The primary use of cash in
operating activities during the year ended December 31, 2007 was $241.9 related
to changes in our operating assets and liabilities primarily related to
investments in inventory, offset by an increase in our accounts
payable.





The
primary use of cash in investing activities during the years ended December 31,
2008 and 2007 was related to capital expenditures of $31.7 and $32.1,
respectively.




During
2008, we prepaid $150.0 of our bank term loan with proceeds from the financing
of the HCS acquisition.  During 2007, we redeemed $250.0 of our 87/8% senior
subordinated notes and repaid $100.0 of our bank term loan with proceeds from
our March 2007 common stock offering.





Capital
Spending





Our
capital expenditures were $31.7 and $32.1 during the years ended December 31,
2008 and 2007, respectively.  Taking into consideration our record
backlog, targeted capacity utilization levels, recent capital expenditure
investments, the HCS acquisition and current industry conditions, we anticipate
capital expenditures of approximately $40.0 for the next twelve
months.  We have no material commitments for capital expenditures. We
have, in the past, generally funded our capital expenditures from cash from
operations and funds available to us under bank credit facilities. We expect to
fund future capital expenditures from cash on hand, from operations and from
funds available to us under our senior secured credit facility.





Between
1989 and 2008, we completed 25 acquisitions for an aggregate purchase price of
approximately $2.2 billion.  Following these acquisitions, we
rationalized the businesses, reduced headcount by approximately 4,500 employees
and eliminated 22 facilities.  We have financed these acquisitions
primarily through issuances of debt and equity securities. As discussed above,
we recently completed the HCS acquisition for $1,073.7.





29





Outstanding
Debt and Other Financing Arrangements




On July 1,
2008, we issued $600.0 aggregate principal amount of our 81⁄2% Senior Notes due
2018 (the Senior Notes), in an offering registered pursuant to the Securities
Act.  The net proceeds of our offering of Senior Notes were used,
together with borrowings under the Term Loan Facility described below and an
issuance of our common stock to Honeywell, to pay for the HCS acquisition, to
repay approximately $150.0 outstanding under our Old Credit Agreement described
below, and to pay transaction fees and expenses.





On July
28, 2008, we entered into a senior secured credit facility, dated as of July 28,
2008 (the Credit Agreement) consisting of (a) a five-year, $350.0 revolving
credit facility (the Revolving Credit Facility) and (b) a six-year, $525.0 term
loan facility (the Term Loan Facility).  Borrowings under the
Revolving Credit Facility bear interest at an annual rate equal to the London
interbank offered rate (LIBOR) plus 275 basis points or prime (as defined) plus
175 basis points. There were no amounts outstanding under the Revolving Credit
Facility as of December 31, 2008.  Borrowings under the Term Loan
Facility bear interest at an annual rate equal to LIBOR plus 275 basis points or
prime (as defined) plus 175 basis points (5.82% at December 31,
2008).  $522.4 was outstanding under the Term Loan Facility as of
December 31, 2008.  Letters of credit outstanding under the Credit
Agreement aggregated approximately $24.7 as of December 31, 2008.




In
connection with entering into the Credit Agreement, we prepaid approximately
$150.0 outstanding under our Amended and Restated Credit Agreement, dated as of
August 25, 2006 (the Old Credit Agreement).  The Old Credit Agreement
was terminated as of July 28, 2008.





Contractual
Obligations





The
following charts reflect our contractual obligations and commercial commitments
as of December 31, 2008. Commercial commitments include lines of credit,
guarantees and other potential cash outflows resulting from a contingent event
that requires performance by us or our subsidiaries pursuant to a funding
commitment.





Contractual Obligations(1)
                      
                      2009
                      
                      
                      2010
                      
                      
                      2011
                      
                      
                      2012
                      
                      
                      2013
                      
                      
                      Thereafter
                      
                      
                      TotalLong-term
      debt and other non-current liabilities
                      
                      $
                      6.0
                      
                      
                      $
                      14.9
                      
                      
                      $
                      5.7
                      
                      
                      $
                      5.7
                      
                      
                      $
                      5.5
                      
                      
                      $
                      1,104.2
                      
                      
                      $
                      1,142.0Operating
      leases
                      
                      
                      24.2
                      
                      
                      
                      20.3
                      
                      
                      
                      16.9
                      
                      
                      
                      14.6
                      
                      
                      
                      13.0
                      
                      
                      
                      59.0
                      
                      
                      
                      148.0Purchase
      obligations (2)
                      
                      
                      42.5
                      
                      
                      
                      19.9
                      
                      
                      
                      9.8
                      
                      
                      
                      6.7
                      
                      
                      
                      3.9
                      
                      
                      
                      1.3
                      
                      
                      
                      84.1Future
      interest payment on outstanding debt (3)
                      
                      
                      83.2
                      
                      
                      
                      82.6
                      
                      
                      
                      82.3
                      
                      
                      
                      82.0
                      
                      
                      
                      81.7
                      
                      
                      
                      71.9
                      
                      
                      
                      483.7Total
                      
                      $
                      155.9
                      
                      
                      $
                      137.7
                      
                      
                      $
                      114.7
                      
                      
                      $
                      109.0
                      
                      
                      $
                      104.1
                      
                      
                      $
                      1,236.4
                      
                      
                      $
                      1,857.8Commercial
      CommitmentsLetters
      of Credit
                      
                      $
                      24.7
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      $
                      24.7


(1)
            Our
      liability for unrecognized tax benefits of $12.5 at December 31, 2008 has
      been omitted from the above table because we cannot determine with
      certainty when this liability will be settled.  It is reasonably
      possible that the amount of liability for unrecognized tax benefits will
      change in the next twelve months; however, we do not expect the change to
      have a material impact on our consolidated financial
      statements.





(2)
            Occasionally,
      we enter into purchase commitments for production materials and other
      items, which are reflected in the table above.  We also enter
      into unconditional purchase obligations with various vendors and suppliers
      of goods and services in the normal course of operations through purchase
      orders or other documentation or just with an invoice.  Such
      obligations are generally outstanding for periods less than a year and are
      settled by cash payments upon delivery of goods and services and are not
      reflected in purchase obligations.





(3)
            Interest
      payments include estimated amounts due on our outstanding term loan of our
      Senior Secured Credit Facility based on the actual interest rate at
      December 31, 2008 and based on the stated rate of 81⁄2% on our senior
      unsecured notes.  Actual interest payments on our obligations
      under the Senior Secured Credit Facility will fluctuate based on LIBOR
      pursuant to the terms of the senior secured credit
    facility.





We believe
that our cash flows, together with cash on hand and the availability under the
Senior Secured Credit Facility, provide us with the ability to fund our
operations, make planned capital expenditures and make scheduled debt service
payments for at least the next twelve months. However, such cash flows are
dependent upon our future operating performance, which, in turn, is subject to
prevailing economic conditions and to financial, business and other factors,
including the conditions of our markets, some of which are beyond our control.
If, in the future, we cannot generate sufficient cash from operations to meet
our debt service obligations, we will need to refinance such debt obligations,
obtain additional financing or sell assets. We cannot assure you that our
business will generate cash from operations, or that we will be able to obtain
financing from other sources, sufficient to satisfy our debt service or other
requirements.





30


Off-Balance-Sheet
Arrangements





Lease
Arrangements




We finance
our use of certain equipment under committed lease arrangements provided by
various financial institutions.  Since the terms of these arrangements
meet the accounting definition of operating lease arrangements, the aggregate
sum of future minimum lease payments is not reflected in our consolidated
balance sheet.  Future minimum lease payments under these arrangements
aggregated approximately $148.0 at December 31, 2008.





Indemnities,
Commitments and Guarantees





During the
normal course of business, we made certain indemnities, commitments and
guarantees under which we may be required to make payments in relation to
certain transactions. These indemnities include non-infringement of patents and
intellectual property indemnities to our customers in connection with the
delivery, design, manufacture and sale of our products, indemnities to various
lessors in connection with facility leases for certain claims arising from such
facility or lease, and indemnities to other parties to certain acquisition
agreements. The duration of these indemnities, commitments and guarantees
varies, and in certain cases, is indefinite. We believe that substantially all
of our indemnities, commitments and guarantees provide for limitations on the
maximum potential future payments we could be obligated to make. However, we are
unable to estimate the maximum amount of liability related to our indemnities,
commitments and guarantees because such liabilities are contingent upon the
occurrence of events which are not reasonably determinable. Management believes
that any liability for these indemnities, commitments and guarantees would not
be material to our accompanying consolidated financial statements.





Deferred
Tax Assets





We
maintained a tax valuation allowance of $6.9 as of December 31, 2008, primarily
related to foreign tax credits and foreign operating losses.





Critical
Accounting Policies





The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.





Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and potentially result in materially different
results under different assumptions and conditions. We believe that our critical
accounting policies are limited to those described below. For a detailed
discussion on the application of these and other accounting policies, see Note 1
to our Consolidated Financial Statements.





Revenue
Recognition





Sales of
products are recorded when the earnings process is complete. This generally
occurs when the products are shipped to the customer in accordance with the
contract or purchase order, risk of loss and title has passed to the customer,
collectibility is reasonably assured and pricing is fixed and determinable. In
instances where title does not pass to the customer upon shipment, we recognize
revenue upon delivery or customer acceptance, depending on the terms of the
sales contract.





Service
revenues primarily consist of engineering activities and are recorded when
services are performed.





Revenues
and costs under certain long-term contracts are recognized using contract
accounting under the percentage-of-completion method in accordance with American
Institute of Certified Public Accountants Statement of Position (SOP) 81-1,
“Accounting for Performance of Construction –Type and Certain Production –Type
Contracts,” with the majority of the contracts accounted for under the
cost-to-cost method. Under the cost-to-cost method, the revenues related to the
long-term contracts are recognized based on the ratio of actual costs incurred
to total estimated costs to be incurred. The Company also uses the
units-of-delivery method to account for certain of its
contracts.  Under the units-of delivery method, revenues are
recognized based on the contract price of units delivered.





31


The
percentage-of-completion method requires the use of estimates of costs to
complete long-term contracts. Due to the duration of these contracts as well as
the technical nature of the products involved, the estimation of these costs
requires management judgment in connection with assumptions and projections
related to the outcome of future events.  Management’s assumptions
include future labor performance and rates and projections relative to material
and overhead costs, as well as the quantity and timing of product deliveries.
The Company reevaluates its contract estimates periodically and reflects changes
in estimates in the current period using the cumulative catch-up method.
Revenues associated with any contractual claims are recognized when it is
probable that the claim will result in additional contract revenue and the
amount can be reasonably estimated. Anticipated losses on contracts are
recognized in the period in which the losses become probable and
estimable.





Accounts
Receivable





We perform
ongoing credit evaluations of our customers and adjust credit limits based upon
payment history and the customer's current creditworthiness, as determined by
our review of their current credit information. We continuously monitor
collections and payments from our customers and maintain an allowance for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. If the actual uncollected
amounts significantly exceed the estimated allowance, our operating results
would be significantly adversely affected. While such credit losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates
that we have in the past.





Inventories





We value
our inventories at the lower of cost to purchase, using FIFO or weighted average
cost method, or market. The inventory balance, which includes the cost of raw
material, purchased parts, labor and production overhead costs, is recorded net
of a reserve for excess, obsolete or unmarketable inventories. We regularly
review inventory quantities on hand and record a reserve for excess and obsolete
inventories based primarily on historical usage and on our estimated forecast of
product demand and production requirements. In accordance with industry
practice, costs in inventory include amounts relating to long-term contracts
with long production cycles and to inventory items with long procurement cycles,
some of which are not expected to be realized within one year.  Demand
for our products can fluctuate significantly. Our estimates of future product
demand may prove to be inaccurate, in which case we may have understated or
overstated the provision required for excess and obsolete inventories. In the
future, if our inventories are determined to be overvalued, we would be required
to recognize such costs in our cost of goods sold at the time of such
determination. Likewise, if our inventories are determined to be undervalued, we
may have over-reported our costs of goods sold in previous periods and would be
required to recognize such additional operating income at the time of
sale.





Long-Lived
Assets and Goodwill





To conduct
our global business operations and execute our strategy, we acquire tangible and
intangible assets, which affect the amount of future period amortization expense
and possible impairment expense that we may incur. The determination of the
value of such intangible assets requires management to make estimates and
assumptions that affect our consolidated financial statements. In accordance
with Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” we assess potential impairment to goodwill of a reporting
unit and other intangible assets on an annual basis or when there is evidence
that events or changes in circumstances indicate that the carrying amount of an
asset may not be recovered. Our judgment regarding the existence of impairment
indicators and future cash flows related to intangible assets are based on
operational performance of our acquired businesses, expected changes in the
global economy, aerospace industry projections, discount rates and other
judgmental factors. Future events could cause us to conclude that impairment
indicators exist and that goodwill or other acquired tangible or intangible
assets associated with our acquired businesses are impaired. Any resulting
impairment loss could have an adverse impact on our results of
operations.





During
2008, adverse equity market conditions caused a decrease in current market
multiples, including our fiscal year end market capitalization at December 31,
2008.  The fair value of our reporting units for goodwill impairment
testing were determined using valuation techniques based on estimates, judgments
and assumptions we believe were appropriate under the
circumstances.  The sum of the fair values of the reporting units were
evaluated based on our market capitalization determined using average share
prices within a reasonable period of time near December 31, 2008, plus an
estimated control premium plus the fair value of our debt
obligations.  The decrease in the current market multiples and our
market capitalization resulted in a decline in the fair value of our reporting
units.  Accordingly, as of December 31, 2008, we recorded a pre-tax
impairment charge of $369.3 related to goodwill. Additionally, we recorded a
pre-tax impairment charge of $20.7 related to an identified intangible
asset.





32


Accounting for Income Taxes





Significant
management judgment is required in evaluating our tax positions and in
determining our provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance recorded against our net deferred tax
assets. We have recorded a valuation allowance of $6.9 as of December 31, 2008,
due to uncertainties related to our ability to utilize our deferred tax assets,
primarily consisting of our foreign net operating losses and foreign
tax credit carryforwards. The valuation allowance is based on our estimates of
taxable income by jurisdictions in which we operate and the period over which
our deferred tax assets will be recoverable. In the event that actual results
differ from these estimates, or we revise these estimates in future periods, we
may need to adjust the valuation allowance which could materially impact our
financial position and results of operations.





ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We are
exposed to a variety of risks, including foreign currency fluctuations and
changes in interest rates affecting the cost of our variable-rate
debt.





Foreign currency - We have
direct operations in Europe that receive revenues from customers primarily in
U.S. dollars and we purchase raw materials and component parts from foreign
vendors primarily in British pounds or euros. Accordingly, we are exposed to
transaction gains and losses that could result from changes in foreign currency
exchange rates relative to the U.S. dollar. The largest foreign currency
exposure results from activity in British pounds and euros.





From time
to time, we and our foreign subsidiaries may enter into foreign currency
exchange contracts to manage risk on transactions conducted in foreign
currencies. At December 31, 2008, we had no outstanding foreign currency
exchange contracts. In addition, we have not entered into any other derivative
financial instruments.





Interest Rates - At December
31, 2008, we had adjustable rate debt of $522.4. The weighted average interest
rate for the adjustable rate debt was approximately 5.8% at December 31, 2008.
If interest rates on variable rate debt were to increase by 10% above current
rates, the impact on our financial statements would be to reduce pre-tax income
by $3.0. We do not engage in transactions intended to hedge our exposure to
changes in interest rates.





As of
December 31, 2008, we maintained a portfolio of securities consisting mainly of
taxable, interest-bearing deposits with weighted average maturities of less than
three months. If short-term interest rates were to increase or decrease by 10%,
we estimate interest income would increase or decrease by approximately
$0.1.








ITEM
8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA





The
information required by this section is set forth beginning from page F-1 of
this Form 10-K.





ITEM
9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE





None.





ITEM
9A.   CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





The
Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness, as of
December 31, 2008, of the design and operation of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Exchange
Act).  Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in the Company’s periodic filings with the SEC and in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms.





33


Internal
Control over Financial Reporting





There were
no changes in the Company’s internal control over financial reporting that
occurred during the fourth quarter of 2008 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


34


MANAGEMENT’S ANNUAL REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING





The management of BE Aerospace, Inc. and its subsidiaries (the Company) is
responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.  Internal control over financial
reporting is a process designed by, or under the supervision of the Company’s
principal executive and principal financial officers, and effected by the
Company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company’s financial statements for external purposes in
accordance with generally accepted accounting principles.





The
Company’s internal control over financial reporting includes those policies and
procedures that: (1) pertain to the maintenance of records, that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008. Management excluded
from its assessment the internal control over financial reporting at Honeywell
Consumables Solutions, which was acquired on July 28, 2008 and whose financial
statements constitute 35.8% of total assets and 11.5% of revenues of the
consolidated financial statement amounts as of and for the year ended December
31, 2008.   In making the assessment, the Company’s management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control – Integrated
Framework.  Based on its assessment, management believes that,
as of December 31, 2008, the Company’s internal control over financial reporting
is effective.





The
registered public accounting firm that audited the financial statements included
in this annual report has issued an attestation report on the Company’s internal
control over financial reporting.





By:
                /s/ Amin J. Khoury
                By:
                /s/ Thomas P. McCaffreyAmin
      J. Khoury
                
                Thomas
      P. McCaffreyChairman
      and Chief Executive Officer
                
                Senior
      Vice President and Chief Financial OfficerFebruary
      26, 2009
                
                February
      26, 2009





35




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM




The Board
of Directors and Stockholders


BE
Aerospace, Inc.


Wellington,
Florida





We have
audited the internal control over financial reporting of BE Aerospace, Inc. and
subsidiaries (the Company) as of December 31, 2008, based on criteria
established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  As described in
Management’s Annual Report on Internal Control Over Financial Reporting,
management excluded from its assessment the internal control over financial
reporting at Honeywell Consumables Solutions, which was acquired on July 28,
2008 and whose financial statements constitute 35.8% of total assets and 11.5%
of revenues of the consolidated financial statement amounts as of and for the
year ended December 31, 2008.  Accordingly, our audit did not include
the internal control over financial reporting at Honeywell Consumables
Solutions.  The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control Over Financial
Reporting.  Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the Company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
Company’s Board of Directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial
statements.





Because of
the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected on
a timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the
risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.





In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended December 31,
2008, of the Company and our report dated February 26, 2009, expressed an
unqualified opinion on those consolidated financial statements and financial
statement schedule and included an explanatory paragraph regarding the Company’s
adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes.





/s/  Deloitte
& Touche LLP


Costa
Mesa, California


February
26, 2009





36





PART
III





ITEM
10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
following table sets forth information regarding our directors and executive
officers as of February 26, 2009. Officers of the Company are elected annually
by the Board of Directors.





Title
                  
                  Age
                  
                  PositionAmin
      J. Khoury
                  
                  
                  69
                  
                  Chairman
      of the Board and Chief Executive OfficerCharles
      L. Chadwell
                  
                  
                  68
                  
                  Director(2),
      (3)Jim
      C. Cowart
                  
                  
                  57
                  
                  Director(1),
      (3)Richard
      G. Hamermesh
                  
                  
                  61
                  
                  Director(1),
      (3)Robert
      J. Khoury
                  
                  
                  66
                  
                  DirectorJonathan
      M. Schofield
                  
                  
                  68
                  
                  Director(2),
      (3)Arthur
      E. Wegner
                  
                  
                  71
                  
                  Director(1),
      (3)Michael
      B. Baughan
                  
                  
                  49
                  
                  President
      and Chief Operating OfficerThomas
      P. McCaffrey
                  
                  
                  54
                  
                  Senior
      Vice President, Chief Financial Officer and TreasurerWayne
      R. Exton
                  
                  
                  45
                  
                  Vice
      President and General Manager, Business Jet SegmentWerner
      Lieberherr
                  
                  
                  48
                  
                  Vice
      President and General Manager, Commercial Aircraft Products
      GroupRobert
      A. Marchetti
                  
                  
                  66
                  
                  Vice
      President and General Manager, Consumables ManagementEdmund
      J. Moriarty
                  
                  
                  65
                  
                  Vice
      President-Law, General Counsel and SecretaryStephen
      R. Swisher
                  
                  
                  50
                  
                  Vice
      President-Finance and
Controller





________


(1)         Member,
Audit Committee


(2)         Member,
Compensation Committee


(3)         Member,
Nominating and Governance Committee


37


Director
Classification





Our
restated certificate of incorporation provides that the Board of Directors is to
be divided into three classes, each nearly as equal in number as possible, so
that each director (in certain circumstances after a transitional period) will
serve for three years, with one class of directors being elected each
year.  The Board is currently comprised of two Class I Directors (Jim
C. Cowart and Arthur E. Wegner), two Class II Directors (Robert J. Khoury and
Jonathan M. Schofield) and three Class III Directors (Amin J. Khoury, Charles L.
Chadwell and Richard G. Hamermesh). The terms of the Class I, Class II and Class
III Directors expire at the end of each respective three-year term and upon the
election and qualification of successor directors at annual meetings of
stockholders held at the end of each fiscal year. Our executive officers are
elected annually by the Board of Directors following the annual meeting of
stockholders and serve at the discretion of the Board of Directors.





Current
Directors





Amin J. Khoury has been the
Chairman of the Board since July 1987 when he founded the
company.  Effective December 31, 2005, Mr. Amin J. Khoury was
appointed Chief Executive Officer.  Mr. Amin J. Khoury also served as
the company’s Chief Executive Officer until April 1, 1996.  Since
1986, Mr. Khoury has been a director of Synthes, Inc., the world’s leading
manufacturer and marketer of orthopedic trauma implants and a leading global
manufacturer and marketer of cranial-maxillofacial and spine implants. Mr.
Khoury is a member of the board of directors of the Aerospace Industries
Association.  Mr. Khoury is the brother of Robert J.
Khoury.





Charles L. Chadwell has been
a Director since January 2007.  He was the Vice President and General
Manager, Commercial Engine Operations for GE Aircraft Engines, from which he
retired in 2002.  After joining General Electric in 1965, he held a
variety of management positions, including:  Program Manager, CF6-80C
program; Plant Manager, GE Aircraft Engines’ Wilmington, North Carolina plant;
General Manager, GE Aircraft Engines’ Sourcing Operations; General Manager;
Production Operations, GE Aircraft Engines’ Lynn, Massachusetts plant; Vice
President, GE Aircraft Engines Human Resources; and Vice President and General
Manager, Production and Procurement, GE Aircraft Engines. Currently serves on
the Boards of Spirit AeroSystems Holdings Inc., Parkway Products Inc. and
Chairman of the Board, PaR Systems.





Jim C. Cowart has been a
Director since November 1989.  Since September 2005, Mr. Cowart has
been a Director of EAG, Inc., a privately held company, a predecessor
of which was a company listed on the London Stock Exchange, and
which provides microanalytic laboratory services including surface analysis
and materials characterization.  Since September 2004, Mr. Cowart has
been Chairman and Chief Executive Officer of Auriga Medical Products GmbH, a
distributor of medical devices.  He is a Principal of Cowart & Co.
LLC and Auriga Partners, Inc., private capital firms that provide strategic
planning, competitive analysis, financial relations and other
services.  From August 1999 to May 2001, he was Chairman of QualPro
Corporation, an aerospace components manufacturing company.  From
January 1993 to November 1997, he was the Chairman and CEO of Aurora Electronics
Inc. Previously, Mr. Cowart was a founding general partner of Capital Resource
Partners, a private investment capital manager, and held various positions in
investment banking and venture capital with Lehman Brothers, Shearson Venture
Capital and Kidder, Peabody & Co.





Richard G. Hamermesh has been
a Director since July 1987. Dr. Hamermesh has been a Professor of Management
Practice at Harvard Business School since July 1, 2002. From 1987 to 2001, he
was a co-founder and a Managing Partner of The Center for Executive Development,
an executive education and development consulting firm.  From 1976 to
1987, Dr. Hamermesh was a member of the faculty of Harvard Business School. He
is also an active investor and entrepreneur, having participated as a principal,
director and investor in the founding and early stages of more than 15
organizations.





Robert J. Khoury has been a
Director since July 1987, when he co-founded the company.  On December
31, 2005, Mr. Khoury retired from service as the company’s President and Chief
Executive Officer, a position he held since August 2000.  From April
1996 through August 2000, he served as Vice Chairman.  Mr. Khoury is
the brother of Amin J. Khoury.





Jonathan M. Schofield has
been a Director since April 2001. From December 1992 through February 2000, Mr.
Schofield served as Chairman of the Board and CEO of Airbus North America
Holdings, a subsidiary of Airbus Industries, a manufacturer of large civil
aircraft, and served as Chairman from February 2000 until his retirement in
March 2001. From 1989 until he joined Airbus, Mr. Schofield was President of
United Technologies International Corporation. Mr. Schofield is currently a
member of the board of directors of Aero Sat, Inc., Nordam Group and
TurboCombustor Technology, Inc.; and is a trustee of LIFT Trust.





Arthur E. Wegner has been a
Director since January 2007.  Mr. Wegner retired in 2000 as Executive
Vice President of Raytheon Company and Chairman of Raytheon
Aircraft.  He joined Raytheon Company in July 1993 as a Senior Vice
President and was appointed Chairman and CEO of Raytheon’s Beech Aircraft
Corporation.  In September 1994, he was appointed Chairman and CEO of
Raytheon Aircraft, which was formed by the merger of Raytheon subsidiaries,
Beech Aircraft and Raytheon Corporate Jets.  He became Chairman of
Raytheon Aircraft in 2000.  He was elected an Executive Vice President
of Raytheon Company in March of 1995.  Mr. Wegner came to Raytheon
Company after 20 years with United Technologies Corporation (UTC), where he was
Executive Vice President and President of UTC’s Aerospace and Defense
Sector.  Prior to that he was President of UTC’s Pratt and Whitney
Division.  Mr. Wegner is past Chairman of the Board of Directors of
the General Aviation Manufacturers Association and the Aerospace Industries
Association.





38


Executive
Officers





Michael B. Baughan has been
President and Chief Operating Officer since December 31, 2005.  From
July 2002 to December 31, 2005, Mr. Baughan served as Senior Vice President and
General Manager of Commercial Aircraft Segment. From May 1999 to July 2002, Mr.
Baughan was Vice President and General Manager of Seating Products. From
September 1994 to May 1999, Mr. Baughan was Vice President, Sales and Marketing
for Seating Products. Prior to 1994, Mr. Baughan held various positions
including President of AET Systems, Manager of Strategic Initiatives at The
Boston Company (American Express) and Sales Representative at Dow Chemical
Company.





Thomas P. McCaffrey has been
Senior Vice President and Chief Financial Officer since May 1993. From August
1989 through May 1993, Mr. McCaffrey was a Director with Deloitte & Touche
LLP, and from 1976 through 1989 served in several capacities, including Audit
Partner, with Coleman & Grant LLP.





Werner Lieberherr has been
Vice President and General Manager, Commercial Aircraft Segment since July
2006.  Prior to joining our company, Mr. Lieberherr spent 20 years
with  Alstom Power, Inc., where he served in various senior management
positions in Europe, Asia, and North America, including President, Managing
Director, Vice President Project Management Worldwide, and General
Manager-Sales.





Wayne R. Exton has been Vice
President and General Manager, Business Jet Segment since May
2006.  From November 2005 to April 2006, Mr. Exton served as Vice
President and General Manager super first class division of the Business Jet
Segment.  Prior to joining our company, Mr. Exton spent nine years at
the PLC (formerly Britax PLC) Britax Automotive and Aerospace Divisions of
Britax PLC, serving in a variety of senior management positions including
President, Vice President Operations and Director of Global Marketing and
Sales.  Before joining PLC, Mr. Exton held several senior management
positions at Magneti Marelli (a division of Fiat), and Lucas
Electrical.





Robert A. Marchetti has been
Vice President and General Manager, Consumables Management Segment since April
2002. From February 2001 to April 2002, Mr. Marchetti was Vice President of
Machined Products Group. From 1997 to January 2001 Mr. Marchetti was employed by
Fairchild Corporation’s Fasteners Division with his last position being Senior
Vice President and Chief Operating Officer. From 1990 to 1997, Mr. Marchetti
served as a corporate officer of UNC Inc. where he held several senior positions
such as Corporate VP of Marketing, President of Tri-Remanufacturing and Chief
Operating Officer of the Accessory Overhaul Division. From 1989 to 1990, he
served as President of AWA Incorporated. From 1986 through 1989, Mr. Marchetti
was Vice President of Marketing at General Electric Aircraft Engines and General
Manager for a Component Repair Division. From 1965 through 1986 he held several
sales and general management positions with Copperweld Corporation and Carlisle
Corporation.





Edmund J. Moriarty has been
Vice President-Law, General Counsel and Secretary since November 1995. From 1991
to 1995, Mr. Moriarty served as Vice President and General Counsel to Rollins,
Inc., a national service company. From 1982 through 1991, Mr. Moriarty served as
Vice President and General Counsel to Old Ben Coal Company, a wholly owned coal
subsidiary of The Standard Oil Company.





Stephen R. Swisher has been
Vice President-Finance and Controller since August 1999. Mr. Swisher has been
Controller since 1996 and served as Director, Finance from 1994 to 1996. Prior
to 1994, Mr. Swisher held various management positions at Burger King
Corporation and Deloitte & Touche LLP.





Audit
Committee





We have a
separately-designated standing Audit Committee established in accordance with
section 3(a)(58)(A) of the Exchange Act.  Messrs. Cowart, Hamermesh
and Wegner currently serve as members of the Audit Committee.  Under
the current SEC rules and the rules of the Nasdaq, all of the members are
independent. Our Board of Directors has determined that Mr. Cowart is an “audit
committee financial expert” in accordance with current SEC rules.  Mr.
Cowart is also independent, as that term is used in Item 407 of Regulation S-K
of the federal securities laws.





39


Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires our directors and executive officers, and
persons who own more than ten percent of a registered class of our equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of our common stock and other equity securities. Officers,
directors and greater-than-ten-percent shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they
file.




To our
knowledge, based solely on a review of the copies of such reports furnished to
us and, with respect to our officers and directors, written representations that
no other reports were required, during the fiscal year ended December 31, 2008,
all Section 16(a) filing requirements applicable to our officers, directors and
greater-than-ten-percent beneficial owners were complied with.





In making
the above statements, we have relied on the written representations of our
directors and officers and copies of the reports that have been filed with the
SEC.





Code
of Ethics




We have
adopted a code of ethics, or Code of Business Conduct, to comply with the rules
of the SEC and Nasdaq.  The Code of Business Conduct applies to our
directors, officers and employees worldwide, including our principal executive
officer and senior financial officers.  A copy of our Code of Business
Conduct is maintained on our website at www.beaerospace.com.





ITEM
11.    EXECUTIVE COMPENSATION





Information
set forth under the caption "Executive Compensation" in the Proxy Statement is
incorporated by reference herein. The Compensation Committee Report will be
included in the Proxy Statement and is not incorporated herein.





ITEM
12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND
RELATED STOCKHOLDER MATTERS





Information
set forth under the captions "Security Ownership of Certain Beneficial Owners
and Management" and “Equity Compensation Plan Information” in the Proxy
Statement is incorporated by reference herein.





ITEM
13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE





Information
set forth under the caption "Certain Relationships and Related Transactions" in
the Proxy Statement is incorporated by reference herein.





ITEM
14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES





Information
set forth under the caption “Principal Accountant Fees and Services” in the
Proxy Statement is incorporated by reference herein.


40


PART
IV





ITEM
15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a)
            Documents
      filed as part of report on Form
10-K




1.
                  Financial
      StatementsReport
      of Independent Registered Public Accounting FirmConsolidated
      Balance Sheets, December 31, 2008 and December 31, 2007Consolidated
      Statements of Earnings and Comprehensive Income for the Fiscal Years Ended
      December 31, 2008, 2007, and 2006Consolidated
      Statements of Stockholders' Equity for the Fiscal Years Ended December 31,
      2008, 2007, and 2006Consolidated
      Statements of Cash Flows for the Fiscal Years Ended December 31, 2008,
      2007, and 2006Notes
      to Consolidated Financial Statements for the Fiscal Years Ended December
      31, 2008, 2007, and 20062.
                  Financial
      Statement SchedulesSchedule
      II – Valuation and Qualifying AccountsAll
      other consolidated financial statement schedules are omitted because such
      schedules are not required or the information required has been presented
      in the aforementioned consolidated financial
statements.3.
                  Exhibits
      – The exhibits listed in the following "Index to Exhibits" are filed with
      this Form 10-K or incorporated by reference as set forth
      below.





(b)
            The
      exhibits listed in the "Index to Exhibits" below are filed with this Form
      10-K or incorporated by reference
      as set forth below.







(c)
            Additional
      Financial Statement Schedules –
None.








41





INDEX TO
EXHIBITS




ExhibitNumber
                      DescriptionExhibit
      3
                      Articles
      of Incorporation and By-Laws3.1
                      Amended
      and Restated Certificate of Incorporation (1)3.2
                      Certificate
      of Amendment of the Restated Certificate of Incorporation
    (2)3.3
                      Certificate
      of Amendment of the Restated Certificate of Incorporation
    (3)3.4
                      Certificate
      of Amendment of the Restated Certificate of Incorporation
    (8)3.5
                      Amended
      and Restated By-Laws (9)3.6
                      Certificate
      of Amendment of the Restated Certificate of Incorporation
    (11)Exhibit
      4
                      Instruments
      Defining the Rights of Security Holders, including
    debentures4.1
                      Specimen
      Common Stock Certificate (1)4.2
                      Indenture,
      dated as of July 1, 2008, between the Registrant and Wilmington Trust
      Company, as Trustee (16)4.3
                      First
      Supplemental Indenture, dated as of July 1, 2008, between the
      Registrant and Wilmington Trust Company, as Trustee
(16)Exhibit
      10(i)
                      Material
      Contracts10.1
                      Stock
      and Asset Purchase Agreement, dated June 9, 2008, between the Registrant
      and Honeywell International Inc. (15)10.2
                      Commitment
      Letter, dated as of June 9, 2008, among the Registrant, JPMorgan Chase
      Bank, N.A., UBS Loan Finance LLC and Credit Suisse Securities (USA) LLC,
      as Initial Lenders, and J.P. Morgan Securities Inc., UBS Securities LLC
      and Credit Suisse Securities (USA) LLC, as Joint Lead Arrangers and Joint
      Bookrunners (17)10.3
                      Supply
      Agreement, dated as of July 28, 2008, between the Registrant and HoneywellInternational
      Inc. (18)10.4
                      License
      Agreement, dated as of July 28, 2008, between the Registrant and HoneywellInternational
      Inc. (18)10.5
                      Stockholders
      Agreement, dated as of July 28, 2008, among the Registrant and HoneywellInternational
      Inc.,Honeywell
      UK Limited, Honeywell Holding France SAS andHoneywell Deutschland
      GmbH (18)10.6
                      Credit
      Agreement, dated as of July 28, 2008, among the Registrant, as Borrower,
      JPMorganChase
      Bank,N.A.,
      as Administrative Agent, UBS Securities LLC and Credit Suisse Securities(USA)
      LLC, as SyndicationAgents,
      The Royal Bank of Scotland plc and Wells Fargo Bank, N.A.,as
      Documentation Agents, and certainlenders
      party thereto (18)Exhibit
      10(iii)
                      Management
      Contracts and Executive Compensation Plans, Contracts and
      Arrangements10.7
                      Amended
      and Restated Employment Agreement for Amin J. Khoury dated as of December
      31, 2008*10.8
                      Amended
      and Restated Employment Agreement for Michael B. Baughan dated as of
      December 31, 2008*10.9
                      Amended
      and Restated Employment Agreement for Thomas P. McCaffrey dated as of
      December 31, 2008*10.10
                      Amended
      and Restated Employment Agreement for Werner Lieberherr dated as of
      December 9, 2008*10.11
                      Amended
      and Restated Employment Agreement for Wayne R. Exton dated as of December
      9, 2008*10.12
                      Employment
      Agreement dated as of January 1, 2009 between the Registrant and Robert A.
      Marchetti*10.13
                      Amended
      and Restated Employment Agreement for Stephen R. Swisher dated December 9,
      2008*10.14
                      Retirement
      Agreement dated as of November 19, 2008 between the Registrant and Edmund
      J. Moriarty*10.15
                      Retirement
      Agreement dated as of December 31, 2005 between the Registrant and Robert
      J. Khoury (13)10.16
                      Consulting
      Agreement dated as of December 31, 2005 between the Registrant and Robert
      J. Khoury (13)10.17
                      United
      Kingdom 1992 Employee Share Option Scheme (2)10.18
                      1996
      Stock Option Plan (6)10.19
                      Amendment
      No. 1 to the 1996 Stock Option Plan (4)10.20
                      Amendment
      No. 2 to the 1996 Stock Option Plan (5)10.21
                      2001
      Stock Option Plan (7)10.22
                      BE
      Aerospace, Inc. Management Incentive Plan (100%) – FY
  2009*10.23
                      BE
      Aerospace, Inc. Management Incentive Plan (80%) – FY
  2009*10.24
                      2005
      Long-Term Incentive Plan (10)10.25
                      Standard
      Form of Restricted Stock Award Agreement (14)10.26
                      2007
      Form of Restricted Stock Award Agreement for Robert A. Marchetti
      (14)                                                     42
  10.27
                          Form
      of Restricted Stock Award Agreement for Amin J. Khoury
      (14)10.28
                          Form
      of Restricted Stock Award Agreement for Thomas P. McCaffrey
      (14)10.29
                          Form
      of Restricted Stock Award Agreement for Michael B. Baughan
      (14)10.30
                          Restricted
      Stock Award Agreement, between Registrant and Robert A. Marchetti, dated
      August 5, 2008 (18)10.31
                          Form
      of Performance-Based Restricted Stock Unit Award Agreement
      (18)10.32
                          Form
      of Performance-Based Restricted Stock Award Agreement
      (18)10.33
                          Form
      of Performance-Based Restricted Stock Award Agreement (Amin J. Khoury)
      (18)10.34
                          Form
      of Performance-Based Restricted Stock Award Agreement (Thomas P. McCaffrey
      & Michael B. Baughan) (18)10.35
                          Form
      of Performance-Based Restricted Stock Unit Agreement (Thomas P. McCaffrey
      & Michael B. Baughan) (18)10.36
                          Amended
      and Restated 1994 Employee Stock Purchase Plan
  (12)10.37
                          Amendment
      to 1994 Employee Stock Purchase Plan*Exhibit
      14
                          Code
      of Ethics14.1
                          Code
      of Business Conduct (9)Exhibit
      21
                          Subsidiaries
      of the Registrant21.1
                          Subsidiaries*Exhibit
      23
                          Consents
      of Experts and Counsel23.1
                          Consent
      of Independent Registered Public Accounting Firm – Deloitte & Touche
      LLP*Exhibit
      31
                          Rule
      13a-14(a)/15d-14(a) Certifications31.1
                          Certification
      of Chief Executive Officer*31.2
                          Certification
      of Chief Financial Officer*Exhibit
      32
                          Section
      1350 Certifications32.1
                          Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350*32.2
                          Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section
    1350*


* Filed
herewith.





(1)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-1, as
      amended (No. 33-33689), filed with the Commission on March 7,
      1990.


(2)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-1, as
      amended (No. 333-54146), filed with the Commission on November 3,
      1992.


(3)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-3 (No.
      333-60209), filed with the Commission on July 30,
  1998.


(4)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-8 (No.
      333-89145), filed with the Commission on October 15,
  1999.


(5)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-8 (No.
      333-30578), filed with the Commission on February 16,
  2000.


(6)
            Incorporated
      by reference to the Company's Registration Statement on Form S-8 (No.
      333-14037), filed with the Commission on October 15,
  1996.


(7)
            Incorporated
      by reference to the Company's Registration Statement on Form S-8 (No.
      333-71442), filed with the Commission on October 11,
  2001.


(8)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-3 (No.
      333-112493), as amended, filed with the Commission on February 5,
      2004.


(9)
            Incorporated
      by reference to the Company’s Transition Report on Form 10-K for the
      ten-month transition period ended December 31, 2002, filed with the
      Commission March 26, 2003.




43




(10)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K dated July 26,
      2005, filed with the Commission on July 26,
  2005.


(11)
            Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2006, filed with the Commission on August 7,
      2006.


(12)
            Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006, filed with the Commission on November 7,
      2006.


(13)
            Incorporated
      by reference to the Company’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2005 filed with the Commission on March 15,
      2006.


(14)
            Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2007, filed with the Commission on May 9,
      2007.


(15)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K dated June 9,
      2008, filed with the Commission on June 11,
  2008.


(16)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K dated June 26,
      2008, filed with the Commission on July 1,
2008.


(17)
            Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2008, filed with the Commission on August 7,
      2008.


(18)
            Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2008, filed with the Commission on November 7,
      2008.







44





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




BE
      AEROSPACE, INC.By:
              /s/ Amin
      J. KhouryAmin
      J. KhouryChairman
      and Chief Executive Officer


Date:  February
26, 2009





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
                      
                      Title
                      Date/s/
      Amin J. Khoury
                      
                      Chairman
      and Chief Executive Officer
                      February
      26, 2009Amin
      J. Khoury/s/
      Thomas P. McCaffrey
                      
                      Senior
      Vice President and Chief Financial Officer
                        (Principal
      Financial and Accounting Officer)
                      February
      26, 2009Thomas
      P. McCaffrey/s/
      Charles L. Chadwell
                      
                      Director
                      February
      26, 2009Charles
      L. Chadwell/s/
      Jim C. Cowart
                      
                      Director
                      February
      26, 2009Jim
      C. Cowart/s/
      Richard G. Hamermesh
                      
                      Director
                      February
      26, 2009Richard
      G. Hamermesh/s/
      Robert J. Khoury
                      
                      Director
                      February
      26, 2009Robert
      J. Khoury/s/
      Jonathan M. Schofield
                      
                      Director
                      February
      26, 2009Jonathan
      M. Schofield/s/
      Arthur E. Wegner
                      
                      Director
                      February
      26, 2009Arthur
      E. Wegner


45


ITEM
8.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE




PageReport
      of Independent Registered Public Accounting Firm
                                            
                                            F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets, December 31, 2008 and 2007
                                            
                                            F-3Consolidated
      Statements of Earnings (Loss) and Comprehensive Income
    (Loss)
                                            
                                            F-4for
      the Fiscal Years Ended December 31, 2008, 2007 and 2006Consolidated
      Statements of Stockholders' Equity
                                            
                                            F-5for
      the Fiscal Years Ended December 31, 2008, 2007 and 2006Consolidated
      Statements of Cash Flows
                                            
                                            F-6for
      the Fiscal Years Ended December 31, 2008, 2007 and 2006Notes
      to Consolidated Financial Statements
                                            
                                            F-7for
      the Fiscal Years Ended December 31, 2008, 2007 and 2006Consolidated
      Financial Statement Schedule:Schedule
      II - Valuation and Qualifying Accounts
                                            
                                            F-25for
      the Fiscal Years Ended December 31, 2008, 2007 and 2006








F-1




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM




The Board
of Directors and Stockholders


BE
Aerospace, Inc.


Wellington,
Florida





We have
audited the accompanying consolidated balance sheets of BE Aerospace, Inc. and
subsidiaries (the Company) as of December 31, 2008 and 2007, and the
related consolidated statements of earnings (loss) and comprehensive income
(loss), stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2008. Our audits also included the financial
statement schedule listed in item 15(a)(2). These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of BE Aerospace, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.





As
discussed in Note 9 to the consolidated financial statements, in 2007 the
Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48,“Accounting for Uncertainty in Income Taxes.”





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2008, based on the criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 26, 2009 expressed an
unqualified opinion on the Company's internal control over financial
reporting.









/s/
Deloitte & Touche LLP


Costa
Mesa, California


February
26, 2009





F-2





CONSOLIDATED
BALANCE SHEETS, DECEMBER 31, 2008 AND 2007


(In
millions, except per share data)




December
      31,
                            
                            
                            December
      31,2008
                            
                            
                            2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                            
                            $
                            168.1
                            
                            
                            $
                            81.6Accounts
      receivable trade, net
                            
                            
                            271.4
                            
                            
                            
                            218.0Inventories,
      net
                            
                            
                            1,197.0
                            
                            
                            
                            636.3Deferred
      income taxes, net
                            
                            
                            22.1
                            
                            
                            
                            62.4Other
      current assets
                            
                            
                            24.8
                            
                            
                            
                            21.7Total
      current assets
                            
                            
                            1,683.4
                            
                            
                            
                            1,020.0Property
      and equipment, net
                            
                            
                            115.8
                            
                            
                            
                            116.4Goodwill
                            
                            
                            663.6
                            
                            
                            
                            467.2Identifiable
      intangible assets, net
                            
                            
                            356.0
                            
                            
                            
                            142.2Deferred
      income taxes, net
                            
                            
                            49.2
                            
                            
                            
                            --Other
      assets, net
                            
                            
                            62.1
                            
                            
                            
                            26.2$
                            2,930.1
                            
                            
                            $
                            1,772.0LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                            
                            $
                            274.5
                            
                            
                            $
                            192.1Accrued
      liabilities
                            
                            
                            229.2
                            
                            
                            
                            114.7Current
      maturities of long-term debt
                            
                            
                            6.0
                            
                            
                            
                            1.6Total
      current liabilities
                            
                            
                            509.7
                            
                            
                            
                            308.4Long-term
      debt, net of current maturities
                            
                            
                            1,117.2
                            
                            
                            
                            150.3Deferred
      income taxes, net
                            
                            
                            5.4
                            
                            
                            
                            34.9Other
      non-current liabilities
                            
                            
                            31.3
                            
                            
                            
                            20.3Commitments,
      contingencies and off-balance sheetarrangements
      (Note 8)Stockholders'
      equity:Preferred
      stock, $0.01 par value; 1.0 sharesauthorized;
      no shares outstanding
                            
                            
                            --
                            
                            
                            
                            --Common
      stock, $0.01 par value; 200.0 sharesauthorized;
      101.1 shares issued and 101.0 sharesoutstanding
      as of December 31, 2008, and 93.1 sharesissued
      and outstanding as of December 31, 2007
                            
                            
                            1.0
                            
                            
                            
                            0.9Additional
      paid-in capital
                            
                            
                            1,500.7
                            
                            
                            
                            1,324.3Accumulated
      deficit
                            
                            
                            (189.1
                            )
                            
                            
                            (89.7
                            )Accumulated
      other comprehensive (loss) income
                            
                            
                            (44.8
                            )
                            
                            
                            22.6Less
      0.1 treasury shares in 2008, at cost
                            
                            
                            (1.3
                            )
                            
                            
                            --Total
      stockholders' equity
                            
                            
                            1,266.5
                            
                            
                            
                            1,258.1$
                            2,930.1
                            
                            
                            $
                            1,772.0




See
accompanying notes to consolidated financial statements.


F-3


CONSOLIDATED
STATEMENTS OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)


FOR THE
FISCAL YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006


(In
millions, except per share data)




Fiscal
      Years Ended December 31,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006Net
      sales
                                  
                                  $
                                  2,110.0
                                  
                                  
                                  $
                                  1,677.7
                                  
                                  
                                  $
                                  1,128.2Cost
      of sales
                                  
                                  
                                  1,386.5
                                  
                                  
                                  
                                  1,107.6
                                  
                                  
                                  
                                  731.7Selling,
      general and administrative
                                  
                                  
                                  238.3
                                  
                                  
                                  
                                  195.2
                                  
                                  
                                  
                                  159.6Research,
      development and engineering
                                  
                                  
                                  131.4
                                  
                                  
                                  
                                  127.9
                                  
                                  
                                  
                                  88.6Asset
      impairment charge
                                  
                                  
                                  390.0
                                  
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --Operating
      (loss) earnings
                                  
                                  
                                  (36.2
                                  )
                                  
                                  
                                  247.0
                                  
                                  
                                  
                                  148.3Interest
      expense, net
                                  
                                  
                                  48.0
                                  
                                  
                                  
                                  20.9
                                  
                                  
                                  
                                  38.9Debt
      prepayment costs
                                  
                                  
                                  3.6
                                  
                                  
                                  
                                  11.0
                                  
                                  
                                  
                                  19.4(Loss)
      earnings before income taxes
                                  
                                  
                                  (87.8
                                  )
                                  
                                  
                                  215.1
                                  
                                  
                                  
                                  90.0Income
      tax expense
                                  
                                  
                                  11.6
                                  
                                  
                                  
                                  67.8
                                  
                                  
                                  
                                  4.4Net
      (loss) earnings
                                  
                                  
                                  (99.4
                                  )
                                  
                                  
                                  147.3
                                  
                                  
                                  
                                  85.6Other
      comprehensive (loss) income:Foreign
      exchange translationadjustment
      and other
                                  
                                  
                                  (67.4
                                  )
                                  
                                  
                                  9.8
                                  
                                  
                                  
                                  17.5Comprehensive
      (loss) income
                                  
                                  $
                                  (166.8
                                  )
                                  
                                  $
                                  157.1
                                  
                                  
                                  $
                                  103.1Net
      (loss) earnings per share - basic
                                  
                                  $
                                  (1.05
                                  )
                                  
                                  $
                                  1.67
                                  
                                  
                                  $
                                  1.11Net
      (loss) earnings per share - diluted
                                  
                                  $
                                  (1.05
                                  )
                                  
                                  $
                                  1.66
                                  
                                  
                                  $
                                  1.10Weighted
      average common shares - basic
                                  
                                  
                                  94.3
                                  
                                  
                                  
                                  88.1
                                  
                                  
                                  
                                  77.1Weighted
      average common shares - diluted
                                  
                                  
                                  94.3
                                  
                                  
                                  
                                  88.8
                                  
                                  
                                  
                                  78.0






See
accompanying notes to consolidated financial statements.


F-4


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006


(In
millions)





AccumulatedAdditional
                            
                            
                            
                            
                            
                            Other
                            
                            
                            
                            
                            
                            
                            
                            
                            TotalCommon Stock
                            
                            
                            Paid-in
                            
                            
                            Accumulated
                            
                            
                            Comprehensive
                            
                            
                            Treasury
      Stock
                            
                            
                            Stockholders'Shares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Deficit
                            
                            
                            Income (Loss)
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            EquityBalance,
      December 31, 2005
                            
                            
                            74.3
                            
                            
                            $
                            0.7
                            
                            
                            $
                            894.0
                            
                            
                            $
                            (320.4
                            )
                            
                            $
                            (4.7
                            )
                            
                            
                            --
                            
                            
                            $
                            --
                            
                            
                            $
                            569.6Sale
      of stock underemployee
      stock purchase plan
                            
                            
                            0.1
                            
                            
                            
                            --
                            
                            
                            
                            2.6
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            2.6Exercise
      of stock options
                            
                            
                            3.6
                            
                            
                            
                            0.1
                            
                            
                            
                            28.5
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            28.6Restricted
      stock grants
                            
                            
                            1.5
                            
                            
                            
                            --
                            
                            
                            
                            2.2
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            2.2Deferred
      income tax expensefrom
      shared based payments
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (0.7
                            )
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (0.7
                            )Net
      earnings
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            85.6
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            85.6Foreign
      currency translationadjustment
      and other
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            0.6
                            
                            
                            
                            --
                            
                            
                            
                            17.5
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            18.1Balance,
      December 31, 2006
                            
                            
                            79.5
                            
                            
                            
                            0.8
                            
                            
                            
                            927.2
                            
                            
                            
                            (234.8
                            )
                            
                            
                            12.8
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            706.0Sale
      of common stockunder
      public offering, net
                            
                            
                            12.1
                            
                            
                            
                            0.1
                            
                            
                            
                            368.5
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            368.6Sale
      of stock underemployee
      stock purchase plan
                            
                            
                            0.1
                            
                            
                            
                            --
                            
                            
                            
                            3.1
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            3.1Exercise
      of stock options
                            
                            
                            1.0
                            
                            
                            
                            --
                            
                            
                            
                            14.8
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            14.8Restricted
      stock grants
                            
                            
                            0.4
                            
                            
                            
                            --
                            
                            
                            
                            10.7
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            10.7Net
      earnings
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            147.3
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            147.3Foreign
      currency translationadjustment
      and other
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            0.1
                            
                            
                            
                            9.8
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            9.9Impact
      of adoption of FIN 48
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (2.3
                            )
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (2.3
                            )Balance,
      December 31, 2007
                            
                            
                            93.1
                            
                            
                            
                            0.9
                            
                            
                            
                            1,324.3
                            
                            
                            
                            (89.7
                            )
                            
                            
                            22.6
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            1,258.1Sale
      of stock underemployee
      stock purchase plan
                            
                            
                            0.2
                            
                            
                            
                            --
                            
                            
                            
                            3.1
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            3.1Common
      stock issuedfor
      acquistion
                            
                            
                            6.0
                            
                            
                            
                            0.1
                            
                            
                            
                            158.2
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            158.3Purchase
      of treasury stock
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (0.1
                            )
                            
                            
                            (1.3
                            )
                            
                            
                            (1.3
                            )Exercise
      of stock options
                            
                            
                            0.1
                            
                            
                            
                            --
                            
                            
                            
                            0.7
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            0.7Restricted
      stock grants
                            
                            
                            1.7
                            
                            
                            
                            --
                            
                            
                            
                            15.0
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            15.0Deferred
      income tax expensefrom
      shared based payments
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (0.6
                            )
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (0.6
                            )Net
      loss
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (99.4
                            )
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (99.4
                            )Foreign
      currency translationadjustment
      and other
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (67.4
                            )
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (67.4
                            )Balance,
      December 31, 2008
                            
                            
                            101.1
                            
                            
                            $
                            1.0
                            
                            
                            $
                            1,500.7
                            
                            
                            $
                            (189.1
                            )
                            
                            $
                            (44.8
                            )
                            
                            
                            (0.1
                            )
                            
                            $
                            (1.3
                            )
                            
                            $
                            1,266.5





See
accompanying notes to consolidated financial statements.


F-5


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006


(In
millions)





Fiscal
      Year Ended December 31,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) earnings
                                  
                                  $
                                  (99.4
                                  )
                                  
                                  $
                                  147.3
                                  
                                  
                                  $
                                  85.6Adjustments
      to reconcile net (loss) earnings tonet
      cash flows provided by operating activities, net ofeffects
      from acquisition:Goodwill
      and intangible asset impairment charge
                                  
                                  
                                  390.0
                                  
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --Depreciation
      and amortization
                                  
                                  
                                  40.7
                                  
                                  
                                  
                                  35.0
                                  
                                  
                                  
                                  29.4Deferred
      income taxes
                                  
                                  
                                  (14.7
                                  )
                                  
                                  
                                  58.5
                                  
                                  
                                  
                                  (1.3
                                  )Non-cash
      compensation
                                  
                                  
                                  15.5
                                  
                                  
                                  
                                  11.0
                                  
                                  
                                  
                                  2.7Provision
      for doubtful accounts
                                  
                                  
                                  8.7
                                  
                                  
                                  
                                  0.6
                                  
                                  
                                  
                                  1.8Loss
      on disposal of property and equipment
                                  
                                  
                                  0.5
                                  
                                  
                                  
                                  0.5
                                  
                                  
                                  
                                  0.5Debt
      prepayment costs
                                  
                                  
                                  3.6
                                  
                                  
                                  
                                  11.0
                                  
                                  
                                  
                                  19.4Changes
      in operating assets and liabilities:Accounts
      receivable
                                  
                                  
                                  (22.2
                                  )
                                  
                                  
                                  (43.2
                                  )
                                  
                                  
                                  (16.2
                                  )Inventories
                                  
                                  
                                  (262.0
                                  )
                                  
                                  
                                  (212.9
                                  )
                                  
                                  
                                  (155.7
                                  )Other
      current assets and other assets
                                  
                                  
                                  3.9
                                  
                                  
                                  
                                  (19.2
                                  )
                                  
                                  
                                  8.3Payables,
      accruals and other liabilities
                                  
                                  
                                  50.9
                                  
                                  
                                  
                                  33.4
                                  
                                  
                                  
                                  66.5Net
      cash flows provided by operating activities
                                  
                                  
                                  115.5
                                  
                                  
                                  
                                  22.0
                                  
                                  
                                  
                                  41.0CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
                                  
                                  
                                  (31.7
                                  )
                                  
                                  
                                  (32.1
                                  )
                                  
                                  
                                  (24.1
                                  )Acquisitions,
      net of cash acquired and other
                                  
                                  
                                  (912.7
                                  )
                                  
                                  
                                  (0.5
                                  )
                                  
                                  
                                  (145.3
                                  )Net
      cash flows used in investing activities
                                  
                                  
                                  (944.4
                                  )
                                  
                                  
                                  (32.6
                                  )
                                  
                                  
                                  (169.4
                                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from common stock issued, net of expenses
                                  
                                  
                                  3.4
                                  
                                  
                                  
                                  386.1
                                  
                                  
                                  
                                  30.0Purchase
      of treasury stock
                                  
                                  
                                  (1.3
                                  )
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --Principal
      payments on long term debt
                                  
                                  
                                  (152.8
                                  )
                                  
                                  
                                  (352.8
                                  )
                                  
                                  
                                  (549.5
                                  )Debt
      facility and debt prepayment costs
                                  
                                  
                                  (50.3
                                  )
                                  
                                  
                                  (7.4
                                  )
                                  
                                  
                                  (19.2
                                  )Proceeds
      from long-term debt
                                  
                                  
                                  1,124.1
                                  
                                  
                                  
                                  --
                                  
                                  
                                  
                                  373.6Borrowings
      on line of credit
                                  
                                  
                                  65.0
                                  
                                  
                                  
                                  93.0
                                  
                                  
                                  
                                  150.0Repayments
      on line of credit
                                  
                                  
                                  (65.0
                                  )
                                  
                                  
                                  (93.0
                                  )
                                  
                                  
                                  (150.0
                                  )Net
      cash flows provided by (used in) financing activities
                                  
                                  
                                  923.1
                                  
                                  
                                  
                                  25.9
                                  
                                  
                                  
                                  (165.1
                                  )Effect
      of foreign exchange rate changes on cash andcash
      equivalents
                                  
                                  
                                  (7.7
                                  )
                                  
                                  
                                  1.3
                                  
                                  
                                  
                                  2.5Net
      increase (decrease) in cash and cash equivalents
                                  
                                  
                                  86.5
                                  
                                  
                                  
                                  16.6
                                  
                                  
                                  
                                  (291.0
                                  )Cash
      and cash equivalents, beginning of year
                                  
                                  
                                  81.6
                                  
                                  
                                  
                                  65.0
                                  
                                  
                                  
                                  356.0Cash
      and cash equivalents, end of year
                                  
                                  $
                                  168.1
                                  
                                  
                                  $
                                  81.6
                                  
                                  
                                  $
                                  65.0Supplemental
      disclosures of cash flow information:Cash
      paid during period for:Interest
                                  
                                  $
                                  19.2
                                  
                                  
                                  $
                                  26.6
                                  
                                  
                                  $
                                  49.0Income
      taxes
                                  
                                  
                                  17.7
                                  
                                  
                                  
                                  8.0
                                  
                                  
                                  
                                  1.6Supplemental
      schedule of non-cash activitites:Common
      stock issued in connection with acquisition
                                  
                                  $
                                  158.3
                                  
                                  
                                  $
                                  --
                                  
                                  
                                  $
                                  --





See
accompanying notes to consolidated financial statements.


F-6


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006


(In
millions, except share and per share data)





1.       SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Organization and Basis of
Presentation –
BE Aerospace, Inc. and its wholly owned subsidiaries (the Company) designs,
manufactures, sells and services commercial aircraft and business jet cabin
interior products consisting of a broad range of seating, interior systems,
including structures as well as all food and beverage storage and preparation
equipment and distributes aerospace fasteners and consumables.  The
Company’s principal customers are the operators of commercial and business jet
aircraft and aircraft manufacturers.  As a result, the Company’s
business is directly dependent upon the conditions in the commercial airline,
business jet and aircraft manufacturing industries.  The accompanying
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America.





Consolidation – The
accompanying consolidated financial statements include the accounts of BE
Aerospace, Inc. and its wholly owned subsidiaries.  All intercompany
transactions and balances have been eliminated in consolidation.





Financial Statement
Preparation –
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts and related disclosures.  Actual results could differ from
those estimates.




Revenue Recognition – Sales of products are
recorded when the earnings process is complete. This generally occurs when the
products are shipped to the customer in accordance with the contract or purchase
order, risk of loss and title has passed to the customer, collectibility is
reasonably assured and pricing is fixed and determinable. In instances where
title does not pass to the customer upon shipment, we recognize revenue upon
delivery or customer acceptance, depending on the terms of the sales
contract.




Service
revenues primarily consist of engineering activities and are recorded when
services are performed.




Revenues
and costs under certain long-term contracts are recognized using contract
accounting under the percentage-of-completion method in accordance with American
Institute of Certified Public Accountants Statement of Position (SOP) 81-1,
“Accounting for Performance of Construction– Type and Certain Production –Type
Contracts,” with the majority of the contracts accounted for under the
cost-to-cost method. Under the cost-to-cost method, the revenues related to the
long-term contracts are recognized based on the ratio of actual costs incurred
to total estimated costs to be incurred. The Company also uses the
units-of-delivery method to account for certain of its
contracts.  Under the units-of delivery method, the revenues are
recognized based on the contract price of units delivered.




The
percentage-of-completion method requires the use of estimates of costs to
complete long-term contracts. Due to the duration of these contracts as well as
the technical nature of the products involved, the estimation of these costs
requires management judgment in connection with assumptions and projections
related to the outcome of future events.  Management’s assumptions
include future labor performance and rates and projections relative to material
and overhead costs, as well as the quantity and timing of product deliveries.
The Company re-evaluates its contract estimates periodically and reflects
changes in estimates in the current period using the cumulative catch-up method.
Revenues associated with any contractual claims are recognized when it is
probable that the claim will result in additional contract revenue and the
amount can be reasonably estimated. Anticipated losses on contracts are
recognized in the period in which the losses become probable and
estimable.





Income Taxes – The Company provides
deferred income taxes for temporary differences between the amounts of assets
and liabilities recognized for financial reporting purposes and such amounts
recognized for income tax purposes.  Deferred income taxes are
computed using enacted tax rates that are expected to be in effect when the
temporary differences reverse.  A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion
or the entire deferred tax asset will not be realized. The Company classifies
interest and penalties related to income tax as income tax expense.





F-7


Cash Equivalents – The
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.





Accounts Receivable –The
Company performs ongoing credit evaluations of its customers and adjusts credit
limits based upon payment history and the customer's current creditworthiness,
as determined by review of their current credit information.  The
Company continuously monitors collections and payments from its customers and
maintains a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that have been
identified.  The allowance for doubtful accounts at December 31, 2008
and 2007 was $12.2 and $4.5, respectively.





Inventories –The Company
values inventory at the lower of cost or market, using FIFO or weighted average
cost method.  The Company regularly reviews inventory quantities on
hand and records a provision for excess and obsolete inventory based primarily
on historical demand, as well as an estimated forecast of product demand and
production requirements.  Demand for the Company’s products can
fluctuate significantly.  In accordance with industry practice, costs
in inventory include amounts relating to long-term contracts with long
production cycles and to inventory items with long procurement cycles, some of
which are not expected to be realized within one year.





Property and Equipment–Property and equipment
are stated at cost and depreciated generally under the straight-line method over
their estimated useful lives of three to fifty years (or the lesser of the term
of the lease for leasehold improvements, as appropriate).





Debt Issuance Costs – Costs
incurred to issue debt are deferred and amortized as interest expense over the
term of the related debt.





Goodwill and Intangible
Assets – Under
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets,” (SFAS 142) goodwill and other intangible assets with
indefinite lives are not amortized, but are reviewed at least annually for
impairment.  Acquired intangible assets with definite lives are
amortized over their individual useful lives.  Patents and other
intangible assets are amortized using the straight-line method over periods
ranging from one to thirty years (see Note 5).




On at
least an annual basis, management assesses whether there has been any impairment
in the value of goodwill or intangible assets with indefinite lives by comparing
the fair value to the net carrying value of reporting units.  If the
carrying value exceeds its estimated fair value, an impairment loss is
recognized if the implied fair value of the asset being tested is less than its
carrying value.  In this event, the asset is written down accordingly.
The fair values of reporting units for goodwill impairment testing are
determined using valuation techniques based on estimates, judgments and
assumptions management believes are appropriate in the
circumstances.  The sum of the fair values of the reporting units are
evaluated based on market capitalization determined using average share prices
within a reasonable period of time near the selected testing date (calendar
year-end), plus an estimated control premium plus the fair value of the
Company’s debt obligations.  Recent adverse equity market conditions caused
a decrease in current market multiples, including the Company’s fiscal year end
market capitalization at December 31, 2008.  The decrease in the
current market multiples and the Company’s market capitalization resulted in a
decline in the fair value of the Company’s reporting units as of December 31,
2008.  Accordingly, the Company recorded a pre-tax impairment charge
related to goodwill of $369.3. Additionally, the Company recorded a pre-tax
impairment charge of $20.7 related to an identified intangible asset. There were
no impairment charges in 2007 or 2006.





Long-Lived Assets – The
Company assesses potential impairments to its long-lived assets when there is
evidence that events or changes in circumstances indicate that the carrying
amount of an asset may not be recovered.  An impairment loss is
recognized when the undiscounted cash flows expected to be generated by an asset
(or group of assets) is less than its carrying amount.  Any required
impairment loss is measured as the amount by which the asset's carrying value
exceeds its fair value and is recorded as a reduction in the carrying value of
the related asset and a charge to operating results.





Product Warranty Costs – Estimated costs related to
product warranties are accrued at the time products are sold.  In
estimating its future warranty obligations, the Company considers various
relevant factors, including the Company's stated warranty policies and
practices, the historical frequency of claims and the cost to replace or repair
its products under warranty.  Estimated warranty costs are embedded in
the accrued liabilities balances on the consolidated balance
sheet.  The following table provides a reconciliation of the activity
related to the Company's accrued warranty expense:





F-8
 
 Fiscal
      Year Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Balance
      at beginning of period
                          
                          $
                          20.6
                          
                          
                          $
                          18.4
                          
                          
                          $
                          14.3Accruals
      for warranties issued during the period
                          
                          
                          29.9
                          
                          
                          
                          24.5
                          
                          
                          
                          12.7Settlements
      of warranty claims
                          
                          
                          (28.1
                          )
                          
                          
                          (22.3
                          )
                          
                          
                          (9.2
                          )Warranty
      liabilities assumed from acquistions
                          
                          
                          --
                          
                          
                          
                          --
                          
                          
                          
                          0.6Balance
      at end of period
                          
                          $
                          22.4
                          
                          
                          $
                          20.6
                          
                          
                          $
                          18.4


Accounting for Stock-Based
Compensation– The Company accounts for share-based compensation
arrangements in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123(R), “Share Based Payment” (SFAS 123(R)),
whereby stock-based compensation cost is measured on the date of grant, based on
the fair value of the award, and is recognized over the requisite service
period.




Compensation
cost recognized during the three years ended December 31, 2008 related to grants
of restricted stock and restricted stock units. No compensation cost related to
stock options was recognized during those periods as the vesting of all
remaining unvested awards was accelerated in December 2005 and no options were
granted during the three year period ended December 31, 2008.





The
Company has established a qualified Employee Stock Purchase Plan.  The
Plan allows qualified employees (as defined in the plan) to participate in the
purchase of designated shares of the Company's common stock at a price equal to
85% of the closing price for each semi-annual stock purchase period. The fair
value of employee purchase rights represents the difference between the closing
price of the Company’s shares on the date of purchase and the purchase price of
the shares. The value of the rights granted during the years ended December 31,
2008, 2007 and 2006 was $0.5, $0.5 and $0.4, respectively.





Treasury Stock–The Company may
periodically repurchase shares of its common stock from employees for the
satisfaction of their individual payroll tax withholdings upon vesting of
restricted stock and restricted stock units in connection with the Company’s
Long Term Incentive Plan.The Company’s
repurchases of common stock are recorded at the average cost of the common stock
held in treasury and result in a reduction of stockholders’
equity.





Research and Development –
Research and development expenditures are expensed as incurred.





Foreign Currency Translation
– The assets and
liabilities of subsidiaries located outside the United States are translated
into U.S. dollars at the rates of exchange in effect at the balance sheet
dates.  Revenue and expense items are translated at the average
exchange rates prevailing during the period.  Gains and losses
resulting from foreign currency transactions are recognized currently in income,
and those resulting from translation of financial statements are accumulated as
a separate component of stockholders’ equity.  The Company's European
subsidiaries utilize the British pound or the Euro as their local functional
currency.





Concentration of Risk –The
Company’s products and services are primarily concentrated within the aerospace
industry with customers consisting primarily of commercial aircraft
manufacturers, commercial airlines and a wide variety of business jet customers.
In addition to the overall business risks associated with the Company’s
concentration within the aerospace industry, the Company is exposed to a
concentration of collection risk on credit extended to commercial aircraft
manufacturers and commercial airlines.  The Company’s management
performs ongoing credit evaluations on the financial condition of all of its
customers and maintains allowances for uncollectible accounts receivable based
on expected collectibility. Credit losses have historically been within
management's expectations and the provisions established.





Significant
customers change from year to year depending on the level of refurbishment
activity and/or the level of new aircraft purchases by such customers. During
the fiscal years ended December 31, 2008, 2007 and 2006 no single customer
accounted for more than 10% of the Company’s consolidated net
sales.





Recent
Accounting Pronouncements




In April
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 142-3,
“Determination of the Useful Life of Intangible Assets” (SFAS 142-3). SFAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS 142.  The intent of SFAS 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142, the period of expected cash flows used to measure the fair value of the
asset under SFAS No.141 (revised 2007), “Business Combinations” (SFAS 141(R))
and other U.S. generally accepted accounting principles.  SFAS 142-3
is effective for financial statements issued for interim periods and fiscal
years beginning after December 15, 2008.  The Company is currently
evaluating the impact, if any, that the adoption of SFAS 142-3 will have on the
consolidated financial statements of the Company.





F-9
 In
December 2007, the FASB issued SFAS 141(R) and SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51”
(SFAS 160).  SFAS 141(R) will change how business acquisitions are
accounted for and SFAS 160 will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity.  Purchase price adjustments for
acquisitions consummated before the effective date of SFAS 141(R) will be
recognized under SFAS No. 141, “Business Combinations” (SFAS 141) with the
exception of certain tax adjustments. SFAS 141(R) and SFAS 160 are effective for
fiscal years beginning on or after December 15, 2008 (January 1, 2009 for the
Company).  The adoption of SFAS 141(R) and SFAS 160 is not expected to
have a material impact on the Company’s consolidated financial
statements.




In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities, including an Amendment of FASB Statement No.
115” (SFAS 159).  SFAS 159 allows companies to measure at fair value
most financial assets and liabilities that are currently required to be measured
in a different manner, such as based on their carrying amount. SFAS 159 was
effective for the Company's fiscal year 2008. Upon adoption, the Company chose
not to elect the fair value option for its financial assets or financial
liabilities. The adoption of SFAS 159 did not have a material impact on the
Company’s consolidated financial statements.




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements.
SFAS 157 indicates that, among other things, a fair value measurement
assumes that the transaction to sell an asset or transfer a liability occurs in
the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market for the asset or liability. The
Company adopted SFAS 157 in the fiscal year 2008. The adoption of this
statement did not have a material impact on the Company’s consolidated financial
statements. In February 2008, the FASB issued FASB Staff Position SFAS No.
157-2, “Effective Date of FASB Statement No. 157,” (SFAS 157-2)which delayed the
effective date of SFAS 157 for all non-financial assets and liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis, until January 1, 2009. The Company does not currently
anticipate the implementation of the deferred portions of SFAS 157 will have a
material impact on the consolidated financial statements. In October 2008, the
FASB Issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When
the Market for That Asset Is Not Active” (FSP 157-3).  FSP 157-3
clarifies the application of FASB Statement No. 157, “Fair Value Measures,” in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.  FSP 157-3 is effective
upon issuance.  Based on the Company’s evaluation of FSP 157-3, the
adoption of this standard is not expected to have a material impact on the
Company’s consolidated financial statements.





2.  BUSINESS
COMBINATIONS





On July
28, 2008, the Company acquired from Honeywell International Inc. (Honeywell) its
Consumables Solutions distribution business (HCS). The transaction was accounted
for as a purchase under SFAS 141.  The assets purchased and
liabilities assumed for this acquisition have been reflected in the accompanying
consolidated balance sheet as of December 31, 2008 and results of operations for
the acquisition are included in the accompanying consolidated statement of
earnings (loss) from the date of acquisition.





The
purchase price of $1,073.7 consisted of $903.1 in cash plus six million shares
of the Company’s common stock valued at $158.3, or $26.38 per share plus
transaction fees and expenses of $12.3.  For financial reporting
purposes, the share price was based on the closing price of the Company’s common
stock two business days before, including and after the measurement date (July
24, 2008). The HCS acquisition has been accounted for using the purchase method
of accounting and has been included in the Company’s consolidated financial
statements since July 28, 2008.





F-10


The HCS
business distributes consumables parts and supplies to aviation industry
manufacturers, airlines, and aircraft repair and overhaul
facilities.  The combination of HCS with our consumables management
segment positioned us as the premier global distributor and value-added provider
of aerospace fasteners and other consumable products, thereby allowing the
Company to alter its business mix, such that approximately one-half of its
business is related to non-discretionary consumables and spares demand. The
combined business serves as a distributor for every major aerospace fastener
manufacturer in the world.




In
connection with the HCS acquisition, the Company entered into a new senior
secured credit facility on July 28, 2008, consisting of (a) a five-year, $350.0
revolving credit facility (the Revolving Credit Facility) and (b) a six-year,
$525.0 term loan facility (the Term Loan Facility).  In addition, on
July 1, 2008, the Company issued $600.0 aggregate principal amount of its 8 1⁄2%
Senior Notes due 2018 (the Senior Notes), in an offering registered pursuant to
the Securities Act of 1933, as amended.





The
Company used the net proceeds from the Senior Notes offering, together with
borrowings under the Term Loan Facility, and six million shares of common stock
to pay for the HCS acquisition, to repay approximately $150.0 of existing
indebtedness under its Amended and Restated Credit Agreement, dated as of August
25, 2006 (2006 Senior Secured Credit Facility), which was terminated in
connection with the repayment, and to pay transaction fees and
expenses.





The
estimated excess of the purchase price over the fair value of identifiable net
tangible assets acquired was $824.1, of which $250.0 was allocated to intangible
assets and $574.1 was allocated to goodwill.  Approximately $371.0 of
the goodwill amount and all of the identifiable intangible assets of $250.0 are
expected to be amortizable and deductible for tax purposes.





The
Company has not yet completed the evaluation and allocation of the purchase
price for the HCS acquisition as management’s assessment of the valuation
of certain assets and liabilities is not yet complete. The Company does not
believe that the final allocation will materially modify the preliminary
purchase price allocation. The following table summarizes the preliminary
estimates of fair values of assets acquired and liabilities assumed in
accordance with SFAS 141, which are currently recorded based on management’s
estimates as follows:




Accounts
      receivable trade
                          
                          $
                          62.6Inventories
                          
                          
                          329.6Property
      and equipment
                          
                          
                          1.2Goodwill
                          
                          
                          574.1Identifiable
      intangible assets
                          
                          
                          250.0Deferred
      income tax asset
                          
                          
                          20.6Other
      assets
                          
                          
                          3.5Accounts
      payable and accrued liabilities
                          
                          
                          (157.8
                          )Other
      liabilities
                          
                          
                          (10.1
                          )Total
      purchase price
                          
                          $
                          1,073.7


In
connection with the HCS acquisition, the Company entered into a 30-year license
agreement (HCS License Agreement) to become Honeywell’s exclusive licensee with
respect to the sale to the global aerospace industry of Honeywell proprietary
fasteners, seals, bearings, gaskets and electrical components associated with
Honeywell’s engines, APU’s, avionics, wheels and brakes.  The Company
also entered into the supply agreement (Honeywell Supply Agreement), under which
it became the exclusive supplier of both Honeywell proprietary consumables and
standard consumables to support the internal manufacturing needs of Honeywell
Aerospace.  Pricing under the contract is adjusted annually, beginning
in 2010, to reflect changes in market conditions. The HCS License Agreement, the
Honeywell Supply Agreement, along with the various acquired original equipment
manufacturer customer contracts and relationships, were valued at $250.0 and are
being amortized over their respective useful lives, ranging 8-30
years.




Included
in accounts payable and accrued liabilities at the date of acquisition were
$71.5 related to unfavorable customer contracts assumed in connection with the
HCS acquisition which were priced below market and a portion of which were
generating gross margin losses. The accrual for unfavorable contracts was
determined by the Company through a study of product pricing as of the
acquisition date for similar type contracts and products and a forecast of sales
through the remaining contract term which was based on historical sales levels
as adjusted for expected changes in demand under market conditions that existed
as of the acquisition date. The unfavorable contracts have durations of up to
three years. To the extent that the profitability of these contracts is improved
either through contract renegotiations, cost decreases, or price increases,
these effects will be reflected when realized, and to the extent that the
profitability on these contracts is not improved, the accrual will be amortized
until the termination of the contracts.





F-11


Consolidated
unaudited proforma results for fiscal years 2008 and 2007, presented below,
reflect the impact of the HCS acquisition if it had occurred as of January 1,
2008 and 2007.  Consolidated unaudited 2008 proforma results exclude
goodwill and intangible asset impairment charges.




2008
                    
                    
                    2007Net
      sales
                    
                    $
                    2,455.8
                    
                    
                    $
                    2,214.5Operating
      earnings
                    
                    
                    400.8
                    
                    
                    
                    314.1Net
      earnings
                    
                    
                    209.4
                    
                    
                    
                    153.4Net
      earnings per diluted share
                    
                    
                    2.21
                    
                    
                    
                    1.62




3.      
  INVENTORIES





Finished
goods and work-in-process inventories include material, labor and manufacturing
overhead costs.  Finished goods inventories primarily consist of
aftermarket fasteners. Inventories consist of the following:




December
      31,
                      
                      
                      December
      31,2008
                      
                      
                      2007Purchased
      materials and component parts
                      
                      $
                      150.8
                      
                      
                      $
                      132.2Work-in-process
                      
                      
                      36.8
                      
                      
                      
                      37.7Finished
      goods
                      
                      
                      1,009.4
                      
                      
                      
                      466.4$
                      1,197.0
                      
                      
                      $
                      636.3




4.
            PROPERTY
      AND EQUIPMENT





Property
and equipment consist of the following:




Useful
      Life
                            
                            
                            December
      31,
                            
                            
                            December
      31,(Years)
                            
                            
                            2008
                            
                            
                            2007Land,
      buildings and improvements
                            
                            
                            5 - 50
                            
                            
                            $
                            45.1
                            
                            
                            $
                            48.2Machinery
                            
                            
                            5 - 20
                            
                            
                            
                            69.7
                            
                            
                            
                            69.0Tooling
                            
                            
                            3 - 20
                            
                            
                            
                            28.9
                            
                            
                            
                            30.2Computer
      equipment and software
                            
                            
                            3 - 15
                            
                            
                            
                            118.8
                            
                            
                            
                            113.1Furniture
      and equipment
                            
                            
                            3 - 15
                            
                            
                            
                            15.9
                            
                            
                            
                            14.5278.4
                            
                            
                            
                            275.0Less
      accumulated depreciation
                            
                            
                            
                            
                            
                            
                            (162.6
                            )
                            
                            
                            (158.6
                            )$
                            115.8
                            
                            
                            $
                            116.4




Depreciation
expense was $25.7, $23.9 and $19.1 for the fiscal years ended December 31, 2008,
2007 and 2006, respectively.





F-12





5.         GOODWILL
AND INTANGIBLE ASSETS





The
following sets forth the intangible assets by major asset class, all of which
were acquired through business purchase transactions:




December
      31, 2008
                                
                                
                                December
      31, 2007Net
                                
                                
                                
                                
                                
                                
                                
                                
                                NetUseful
      Life
                                
                                
                                Original
                                
                                
                                Accumulated
                                
                                
                                Impairment
                                
                                
                                Book
                                
                                
                                Original
                                
                                
                                Accumulated
                                
                                
                                Book(Years)
                                
                                
                                Cost
                                
                                
                                Amortization
                                
                                
                                Charge
                                
                                
                                Value
                                
                                
                                Cost
                                
                                
                                Amortization
                                
                                
                                ValueAcquired
      technologies
                                
                                
                                10-40
                                
                                
                                $
                                101.2
                                
                                
                                $
                                33.5
                                
                                
                                $
                                --
                                
                                
                                $
                                67.7
                                
                                
                                $
                                100.2
                                
                                
                                $
                                29.7
                                
                                
                                $
                                70.5Trademarks
      and patents
                                
                                
                                1-20
                                
                                
                                
                                28.2
                                
                                
                                
                                17.3
                                
                                
                                
                                --
                                
                                
                                
                                10.9
                                
                                
                                
                                28.8
                                
                                
                                
                                17.0
                                
                                
                                
                                11.8Trademarks
      and tradenames
                                  (non-amortizing)
                                
                                
                                --
                                
                                
                                
                                20.7
                                
                                
                                
                                --
                                
                                
                                
                                (20.7
                                )
                                
                                
                                --
                                
                                
                                
                                20.7
                                
                                
                                
                                --
                                
                                
                                
                                20.7Technical
      qualifications, plansand
      drawings
                                
                                
                                18-30
                                
                                
                                
                                30.2
                                
                                
                                
                                20.6
                                
                                
                                
                                --
                                
                                
                                
                                9.6
                                
                                
                                
                                31.7
                                
                                
                                
                                20.3
                                
                                
                                
                                11.4Replacement
      parts annuityand
      product approvals
                                
                                
                                18-30
                                
                                
                                
                                39.2
                                
                                
                                
                                30.0
                                
                                
                                
                                --
                                
                                
                                
                                9.2
                                
                                
                                
                                42.9
                                
                                
                                
                                30.9
                                
                                
                                
                                12.0Customer
      contracts and relationships
                                
                                
                                8-30
                                
                                
                                
                                250.0
                                
                                
                                
                                4.3
                                
                                
                                
                                --
                                
                                
                                
                                245.7
                                
                                
                                
                                --
                                
                                
                                
                                --
                                
                                
                                
                                --Covenants
      not to compete andother
      identified intangibles
                                
                                
                                3-14
                                
                                
                                
                                27.1
                                
                                
                                
                                14.2
                                
                                
                                
                                --
                                
                                
                                
                                12.9
                                
                                
                                
                                27.6
                                
                                
                                
                                11.8
                                
                                
                                
                                15.8$
                                496.6
                                
                                
                                $
                                119.9
                                
                                
                                $
                                (20.7
                                )
                                
                                $
                                356.0
                                
                                
                                $
                                251.9
                                
                                
                                $
                                109.7
                                
                                
                                $
                                142.2




Subsequent
to the HCS acquisition, the Company recorded a pre-tax impairment charge of
$20.7 related to an intangible asset which was determined to have no future
use.


Amortization
expense of intangible assets was $15.0, $11.1 and $10.2 for the fiscal years
ended December 31, 2008, 2007 and 2006, respectively.  Amortization
expense associated with identified intangible assets is expected to be
approximately $20 in each of the next five years. The future amortization
amounts are estimates.  Actual future amortization expense may be
different due to future acquisitions, impairments, changes in amortization
periods, or other factors.




In
accordance with SFAS 142, goodwill and indefinite life intangible assets are not
amortized, but are subject to an annual impairment test.  During the
year ended December 31, 2008, the Company performed its annual testing of
impairment of goodwill.  Adverse equity market conditions caused a
decrease in current market multiples, including the Company’s fiscal year end
market capitalization at December 31, 2008.  The fair value of the
reporting units for goodwill impairment testing were determined using valuation
techniques based on estimates, judgments and assumptions management believes
were appropriate in the circumstances.  The sum of the fair values of
the reporting units were evaluated based on the Company’s market capitalization
determined using average share prices within a reasonable period of time near
December 31, 2008, plus an estimated control premium plus the fair value of its
debt obligations.  The decrease in the current market multiples and
the Company’s market capitalization resulted in a decline in the fair value of
the reporting units as of December 31, 2008.  Accordingly, the Company
recorded a pre-tax impairment charge related to goodwill of $369.3
million.




F-13
 
  The
changes in the carrying amount of goodwill for the fiscal years ended December
31, 2008 and 2007 are as follows:
 Consumables
                                      
                                      
                                      Commerical
                                      
                                      
                                      BusinessManagement
                                      
                                      
                                      Aircraft
                                      
                                      
                                      Jet
                                      
                                      
                                      TotalBalance
      as ofDecember 31, 2006
                                      
                                      $
                                      150.6
                                      
                                      
                                      $
                                      218.0
                                      
                                      
                                      $
                                      88.6
                                      
                                      
                                      $
                                      457.2Inter-segment
      transfers
                                      
                                      
                                      (18.0
                                      )
                                      
                                      
                                      18.0
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --Effect
      of foreigncurrency translation
                                      
                                      
                                      0.2
                                      
                                      
                                      
                                      7.6
                                      
                                      
                                      
                                      0.2
                                      
                                      
                                      
                                      8.0Purchase
      accounting adjustments
                                      
                                      
                                      0.4
                                      
                                      
                                      
                                      1.6
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      2.0Balance
      as of December 31, 2007
                                      
                                      
                                      133.2
                                      
                                      
                                      
                                      245.2
                                      
                                      
                                      
                                      88.8
                                      
                                      
                                      
                                      467.2Acquisition
      of HCS
                                      
                                      
                                      574.1
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      574.1Impairment
      charge
                                      
                                      
                                      (290.7
                                      )
                                      
                                      
                                      (78.6
                                      )
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (369.3
                                      )Effect
      of foreigncurrency translation
                                      
                                      
                                      (0.1
                                      )
                                      
                                      
                                      (8.1
                                      )
                                      
                                      
                                      (0.2
                                      )
                                      
                                      
                                      (8.4
                                      )Balance
      as ofDecember 31, 2008
                                      
                                      $
                                      416.5
                                      
                                      
                                      $
                                      158.5
                                      
                                      
                                      $
                                      88.6
                                      
                                      
                                      $
                                      663.6


6.
            ACCRUED
      LIABILITIES




Accrued
liabilities consist of the following:
  December
      31,
                                              
                                              
                                              December
      31,2008
                                              
                                              
                                              2007Accrued
      salaries, vacation and related benefits
                                              
                                              $
                                              40.3
                                              
                                              
                                              $
                                              34.2Accrued
      product warranties
                                              
                                              
                                              22.4
                                              
                                              
                                              
                                              20.6Accrued
      interest
                                              
                                              
                                              27.7
                                              
                                              
                                              
                                              1.2Deferred
      revenue
                                              
                                              
                                              12.9
                                              
                                              
                                              
                                              12.7Deferred
      taxes
                                              
                                              
                                              1.9
                                              
                                              
                                              
                                              0.2HCS
      acquisition accruals
                                              
                                              
                                              42.5
                                              
                                              
                                              
                                              --Other
      accrued liabilities
                                              
                                              
                                              81.5
                                              
                                              
                                              
                                              45.8$
                                              229.2
                                              
                                              
                                              $
                                              114.7  7.
                                                  LONG-TERM
      DEBT
  Long-term
debt consists of the
following:
  December
      31,
                                                
                                                
                                                December
      31,2008
                                                
                                                
                                                2007Senior
      Notes
                                                
                                                $
                                                600.0
                                                
                                                
                                                $
                                                --Bank
      credit facilities
                                                
                                                
                                                522.4
                                                
                                                
                                                
                                                150.0Other
      long-term debt
                                                
                                                
                                                0.8
                                                
                                                
                                                
                                                1.91,123.2
                                                
                                                
                                                
                                                151.9Less
      current portion of long-term debt
                                                
                                                
                                                (6.0
                                                )
                                                
                                                
                                                (1.6
                                                )$
                                                1,117.2
                                                
                                                
                                                $
                                                150.3




Senior
Notes


On July 1,
2008, the Company issued $600.0 aggregate principal amount of the 81⁄2% Senior
Notes due 2018 (the Senior Notes).  The Company used the net proceeds,
together with borrowings under the Term Loan Facility described below and an
issuance of its common stock to Honeywell to pay for the HCS acquisition, to
refinance approximately $150.0 of indebtedness under its 2006 Senior Secured
Credit Facility and to pay transaction fees and expenses.


F-14




Bank
Credit Facilities





In
connection with the closing of the HCS acquisition, the Company entered into a
senior secured credit facility, dated as of July 28, 2008 (the Credit Agreement)
consisting of (a) a five-year, $350.0 revolving credit facility (the Revolving
Credit Facility) and (b) a six-year, $525.0 term loan facility (the Term Loan
Facility).   Borrowings under the Revolving Credit Facility bear
interest at an annual rate equal to the London interbank offered rate (LIBOR)
plus 275 basis points or prime (as defined) plus 175 basis points. There were no
amounts outstanding under the Revolving Credit Facility as of December 31,
2008.  Borrowings under the Term Loan Facility bear interest at an
annual rate equal to LIBOR plus 275 basis points or prime (as defined) plus 175
basis points (5.82% at December 31, 2008).  $522.4 was outstanding
under the Term Loan Facility as of December 31, 2008.  Letters of
credit outstanding under the Credit Agreement aggregated $24.7 at December 31,
2008.




The Credit
Agreement contains an interest coverage ratio financial covenant (as defined in
the Credit Agreement) that currently must be maintained at a level greater than
2.25 to 1 through December 31, 2008 and 2.50 to 1, thereafter.  The
Credit Agreement also contains a total leverage ratio covenant (as defined in
the Credit Agreement) which limits net debt to a 4.25 to 1 multiple of EBITDA
(as defined in the Credit Agreement) through December 31, 2008 and 4.00 to 1
thereafter.  The Credit Agreement is collateralized by substantially
all of the Company’s assets and contains customary affirmative covenants,
negative covenants and conditions precedent for borrowings, all of which were
met as of December 31, 2008.




Maturities
of long-term debt are as follows:




Fiscal
      Year Ending December 31,2009
                                
                                $
                                6.02010
                                
                                
                                5.32011
                                
                                
                                5.32012
                                
                                
                                5.32013
                                
                                
                                5.2Thereafter
                                
                                
                                1,096.1Total
                                
                                $
                                1,123.2




Interest
expense amounted to $49.7 for the year ended December 31, 2008, $23.5 for the
year ended December 31, 2007 and $42.8 for the ended December 31,
2006.





8.
            COMMITMENTS,
      CONTINGENCIES AND OFF-BALANCE-SHEET
ARRANGEMENTS





Lease Commitments –The
Company finances its use of certain facilities and equipment under committed
lease arrangements provided by various institutions.  Since the terms
of these arrangements meet the accounting definition of operating lease
arrangements, the aggregate sum of future minimum lease payments is not
reflected on the consolidated balance sheets.  At December 31, 2008,
future minimum lease payments under these arrangements approximated $148.0, of
which $132.9 is related to long-term real estate leases.





F-15




Rent
expense for the years ended December 31, 2008, 2007 and 2006 was $22.1, $20.4
and $16.8, respectively.  Future payments under operating leases with
terms greater than one year as of December 31, 2008 are as follows:




Fiscal
      Year Ending December 31,2009
                          
                          $
                          24.22010
                          
                          
                          20.32011
                          
                          
                          16.92012
                          
                          
                          14.62013
                          
                          
                          13.0Thereafter
                          
                          
                          59.0Total
                          
                          $
                          148.0





Litigation – The Company is a
defendant in various legal actions arising in the normal course of business, the
outcomes of which, in the opinion of management, neither individually nor in the
aggregate are likely to result in a material adverse effect on the Company's
consolidated financial statements.





Indemnities, Commitments and
Guarantees – During its normal course of business, the Company has made
certain indemnities, commitments and guarantees under which it may be required
to make payments in relation to certain transactions.  These
indemnities include non-infringement of patents and intellectual property
indemnities to the Company's customers in connection with the delivery, design,
manufacture and sale of its products, indemnities to various lessors in
connection with facility leases for certain claims arising from such facility or
lease and indemnities to other parties to certain acquisition
agreements.  The duration of these indemnities, commitments and
guarantees varies, and in certain cases, is indefinite.  Substantially
all of these indemnities, commitments and guarantees provide for limitations on
the maximum potential future payments the Company could be obligated to make.
However, the Company is unable to estimate the maximum amount of liability
related to its indemnities, commitments and guarantees because such liabilities
are contingent upon the occurrence of events which are not reasonably
determinable.  Management believes that any liability for these
indemnities, commitments and guarantees would not be material to the
accompanying condensed consolidated financial
statements.  Accordingly, no significant amounts have been accrued for
indemnities, commitments and guarantees.





Employment Agreements –The
Company has employment and compensation agreements with three key officers of
the Company.  Agreements for one of the officers provides for the
officer to earn a minimum of $1.0 per year through a three-year period ending
from any date after which it is measured, adjusted annually for changes in the
consumer price index (as defined) or as determined by the Company's Board of
Directors, as well as a retirement compensation equal to 1.5 times the base
salary.





Two other
agreements provide for the officers to each receive annual minimum compensation
of $0.5 per year through a three-year period ending from any date after which it
is measured, adjusted annually for changes in the consumer price index (as
defined) or as determined by the Company's Board of Directors, as well as a
retirement compensation equal to 50% of each officer’s average three years'
annual salary (as defined).





Retirement
compensation has been accrued as provided for under the above-mentioned
employment agreements.  Through December 31, 2008, the Company fully
funded these and other retirement compensation obligations, through grantor
trusts on behalf of the individuals. In addition, the Company has employment
agreements with certain other key members of management expiring on various
dates through the year 2009.  The Company's employment agreements
generally provide for certain protections in the event of a change of
control.  These protections generally include the payment of severance
and related benefits under certain circumstances in the event of a change of
control, and for the Company to reimburse such officers for the amount of any
excise taxes associated with such benefits.





F-16




9.
            INCOME
      TAXES





The
components of earnings (loss) before incomes taxes were:




Fiscal
      Year Ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006Earnings
      (loss) beforeincome taxesUnited
      States
                            
                            $
                            (119.4
                            )
                            
                            $
                            127.3
                            
                            
                            $
                            43.0Foreign
                            
                            
                            31.6
                            
                            
                            
                            87.8
                            
                            
                            
                            47.0Earnings
      (loss) before income taxes
                            
                            $
                            (87.8
                            )
                            
                            $
                            215.1
                            
                            
                            $
                            90.0





Income tax
expense consists of the following:


Fiscal
      Year Ended December 31,2008
                        
                        
                        2007
                        
                        
                        2006Current:Federal
                        
                        $
                        1.9
                        
                        
                        $
                        2.1
                        
                        
                        $
                        --State
                        
                        
                        2.9
                        
                        
                        
                        --
                        
                        
                        
                        --Foreign
                        
                        
                        24.1
                        
                        
                        
                        7.2
                        
                        
                        
                        5.628.9
                        
                        
                        
                        9.3
                        
                        
                        
                        5.6Deferred:Federal
                        
                        
                        (15.5
                        )
                        
                        
                        34.7
                        
                        
                        
                        16.4State
                        
                        
                        (4.4
                        )
                        
                        
                        5.1
                        
                        
                        
                        2.9Foreign
                        
                        
                        2.6
                        
                        
                        
                        18.7
                        
                        
                        
                        (20.5
                        )(17.3
                        )
                        
                        
                        58.5
                        
                        
                        
                        (1.2
                        )Total
      income tax expense
                        
                        $
                        11.6
                        
                        
                        $
                        67.8
                        
                        
                        $
                        4.4





The
difference between income tax expense and the amount computed by applying the
statutory U.S. federal income tax rate (35%) to the pre-tax earnings consists of
the following:




Fiscal
      Year Ended December 31,2008
                        
                        
                        2007
                        
                        
                        2006Statutory
      federal income tax expense
                        
                        $
                        (30.7
                        )
                        
                        $
                        75.3
                        
                        
                        $
                        31.5U.S.
      state income taxes
                        
                        
                        (1.2
                        )
                        
                        
                        5.9
                        
                        
                        
                        2.9Dividend
      income from foreign affiliate
                        
                        
                        --
                        
                        
                        
                        2.5
                        
                        
                        
                        0.4Foreign
      tax rate differential
                        
                        
                        (17.9
                        )
                        
                        
                        (6.3
                        )
                        
                        
                        (1.2
                        )Non-deductible
      charges/losses and other
                        
                        
                        10.2
                        
                        
                        
                        3.9
                        
                        
                        
                        2.4Research
      and development credit
                        
                        
                        (1.9
                        )
                        
                        
                        (5.3
                        )
                        
                        
                        (4.2
                        )Goodwill
      and intangible asset impairment charge
                        
                        
                        54.6
                        
                        
                        
                        --
                        
                        
                        
                        --Extra-territorial
      income exclusion
                        
                        
                        (1.5
                        )
                        
                        
                        (8.2
                        )
                        
                        
                        --Change
      in valuation allowance
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        (27.4
                        )$
                        11.6
                        
                        
                        $
                        67.8
                        
                        
                        $
                        4.4


During 2006 the Company
reversed $27.4 of its valuation allowance on its U.S. and U.K. deferred tax
assets as a result of improved performance and outlook for its operations and
expected reductions in interest costs resulting from note
redemptions.


F-17




The tax
effects of temporary differences and carryforwards that give rise to deferred
income tax assets and liabilities consist of the following:




December
      31,
                            
                            
                            December
      31,2008
                            
                            
                            2007Deferred
      tax assets:Inventory
      reserves
                            
                            $
                            11.8
                            
                            
                            $
                            10.2Warranty
      reserves
                            
                            
                            6.4
                            
                            
                            
                            5.0Accrued
      liabilities
                            
                            
                            12.1
                            
                            
                            
                            7.9Net
      operating loss carryforward
                            
                            
                            24.4
                            
                            
                            
                            58.6Federal
      capital loss carryforward
                            
                            
                            --
                            
                            
                            
                            7.3Research
      and developmentcredit
      carry forward
                            
                            
                            22.4
                            
                            
                            
                            19.2Alternative
      minimumtax
      credit carryforward
                            
                            
                            3.9
                            
                            
                            
                            2.0Intangible
      assets
                            
                            
                            22.7
                            
                            
                            
                            --Depreciation
                            
                            
                            --
                            
                            
                            
                            1.3HCS
      purchase accountingbook
      to tax differences
                            
                            
                            12.7
                            
                            
                            
                            --Other
                            
                            
                            6.7
                            
                            
                            
                            6.2$
                            123.1
                            
                            
                            $
                            117.7Deferred
      tax liabilities:Acquisition
      accruals
                            
                            $
                            (13.7
                            )
                            
                            $
                            (13.4
                            )Book
      to tax revenue differences
                            
                            
                            (30.8
                            )
                            
                            
                            --Intangible
      assets
                            
                            
                            --
                            
                            
                            
                            (61.5
                            )Depreciation
                            
                            
                            (3.1
                            )
                            
                            
                            --Software
      development costs
                            
                            
                            (4.6
                            )
                            
                            
                            (5.7
                            )(52.2
                            )
                            
                            
                            (80.6
                            )Net
      deferred tax asset before valuationallowance
                            
                            
                            70.9
                            
                            
                            
                            37.1Valuation
      allowance
                            
                            
                            (6.9
                            )
                            
                            
                            (9.8
                            )Net
      deferred tax asset
                            
                            $
                            64.0
                            
                            
                            $
                            27.3





The
Company maintained a valuation allowance of $6.9 as of December 31, 2008
primarily related to foreign tax credits and foreign net operating
losses.  During 2008 the Company’s valuation allowance decreased due
to the expiration of the federal capital loss carryforward.





As of
December 31, 2008, the Company had federal, state and foreign net operating loss
carryforwards of approximately $123.0, $83.0 and $11.0,
respectively.  The federal and state net operating loss carryforwards
begin to expire in 2012 and 2009, respectively.  As of December 31,
2008, the Company had federal and state research and development tax credit
carryforwards of $22.4 which expire through 2023.





The
Company has not provided for any residual U.S. income taxes on the approximately
$125.4 of earnings from its foreign subsidiaries because such earnings are
intended to be indefinitely reinvested.  Such residual U.S. income
taxes, if provided for, would not be material.





Through
2008, the Company recognized cumulative tax deductions of $75.2 related to stock
option exercises and vested restricted shares.  In accordance with the
Company’s methodology for determining when these deductions are deemed realized
under SFAS No. 123(R), the Company assumes that it utilizes its net operating
loss carryforwards to reduce its taxes payable rather than these
deductions.  Pursuant to SFAS 123(R), these deductions are not deemed
realized until they reduce taxes payable.  The Company expects to
record a credit to additional paid-in capital of $29.2 to the extent deductions
of $75.2 are treated as reducing taxes payable in the future.




F-18


The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes,” on January 1, 2007.  Upon the adoption,
the liability for unrecognized tax benefits at January 1, 2007 was $4.9, which
was accounted for as a $2.3 increase to accumulated deficit, a $2.3 increase in
long-term deferred tax assets, and a $0.3 reduction in income taxes
payable.  This liability, if recognized, would affect the Company’s
effective tax rate.  It is reasonably possible that the amount of
liability for unrecognized tax benefits will change in the next twelve months;
however, the Company does not expect the change to have a material impact on the
Company’s consolidated financial statements.




A
reconciliation of the beginning and ending amounts of gross unrecognized tax
benefit are as follows:




2008
                        
                        
                        2007Balance,
      beginning of the period
                        
                        $
                        11.8
                        
                        
                        $
                        7.4Additions
      for current year tax positions
                        
                        
                        3.1
                        
                        
                        
                        1.6Additions
      for tax positions of prior years
                        
                        
                        0.7
                        
                        
                        
                        2.5Currency
      fluctuations
                        
                        
                        (0.5
                        )
                        
                        
                        0.3Balance,
      end of the period
                        
                        $
                        15.1
                        
                        
                        $
                        11.8




The
difference between the gross uncertain tax position of $15.1 and the liability
for unrecognized tax benefits of $12.5 is due to the netting of certain items
when calculating the liability for unrecognized tax benefits.




The
Company is currently undergoing a U.S. federal income tax examination as well as
an examination in one of its non-U.S. jurisdictions.  With minor
exceptions, the Company is currently open to audit by the tax authorities for
the four tax years ending December 31, 2008.




The
Company classifies interest and penalties related to income tax as income tax
expense.  The amount included in the Company’s liability for
unrecognized tax benefits for interest and penalties as of the date of adoption
was under $1.0 and this amount did not materially change as of December 31,
2008.





10.
            EMPLOYEE
      RETIREMENT PLANS





The
Company sponsors and contributes to a qualified, defined contribution savings
and investment plan, covering substantially all U.S. employees.  The
BE Aerospace Savings and Investment Plan was established pursuant to Section
401(k) of the Internal Revenue Code.  Under the terms of this plan,
covered employees may contribute up to 100% of their pay, limited to certain
statutory maximum contributions for 2008.  Participants are vested in
matching contributions immediately and the matching percentage is 100% of the
first 3% of employee contributions and 50% on the next 2% of employee
contributions.  Total expense for the plan was $6.9, $5.6 and $3.9 for
the calendar years ended December 31, 2008, 2007 and 2006,
respectively.




In
addition, the Company contributes to the BE Aerospace, Inc. Hourly Tax-Sheltered
Retirement Plan. This plan was established pursuant to Section 401(k) of the
Internal Revenue Code and covers certain U.S. union employees.  Under
terms of this plan, covered employees may contribute from 1% to 20% of their
compensation, limited to certain statutory maximum contributions for
2008.  The Company matches 50% of employee contributions, up to 8% of
a participant’s compensation.  Participants become fully vested in the
Company’s contributions after six years of service with the
Company.  Total expense for the plan was $0.3, $0.2 and $0.3 for the
calendar years ended December 31, 2008, 2007 and 2006,
respectively.




The
Company also has two defined benefit plans which were adopted by the Company
when the related subsidiary companies were acquired.  Under terms of
these plans participants are entitled to certain defined benefits upon
retirement.  283 employees were covered by these plans as of December
31, 2008.  The Company’s funding contribution to these plans was $0.1,
$0.5 and $0.2 for the calendar years ended December 31, 2008, 2007 and 2006,
respectively.





In
addition, the Company and its subsidiaries participate in government-sponsored
programs in certain European countries.  The Company funds these plans
based on legal requirements, tax considerations, local practices and investment
opportunities.





F-19




11.
            STOCKHOLDERS'
      EQUITY





Earnings (Loss) Per
Share - Basic net (loss) earnings per common share is computed
using the weighted average of common shares outstanding during the
year.  Diluted net (loss) earnings per common share reflects the
potential dilution from assumed conversion of all dilutive securities such as
stock options and unvested restricted stock using the treasury stock method.
When the effects of the outstanding stock options are anti-dilutive, they are
not included in the calculation of diluted earnings per common share. For the
years ended December 31, 2008, 2007 and 2006, anti-dilutive securities
totaling approximately 0.9, 0.1, and 0.3 million shares, respectively, were
excluded from the determination of diluted earnings per common share because the
effect would have been antidultive.





The
following table sets forth the computation of basic and diluted net earnings per
share for the fiscal years ended December 31, 2008, 2007 and 2006:




Fiscal
      Year Ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006Numerator:
      net (loss) earnings
                            
                            $
                            (99.4
                            )
                            
                            $
                            147.3
                            
                            
                            $
                            85.6Denominator:Denominator
      for basic earnings per share -
                            
                            
                            94.3
                            
                            
                            
                            88.1
                            
                            
                            
                            77.1Weighted
      average shares (in millions)Effect
      of dilutive securities -Dilutive
      securities
                            
                            
                            --
                            
                            
                            
                            0.7
                            
                            
                            
                            0.9Denominator
      for diluted earnings per share -Adjusted
      weighted average shares (in millions)
                            
                            
                            94.3
                            
                            
                            
                            88.8
                            
                            
                            
                            78.0Basic
      net (loss) earnings per share
                            
                            $
                            (1.05
                            )
                            
                            $
                            1.67
                            
                            
                            $
                            1.11Diluted
      net (loss) earnings per share
                            
                            $
                            (1.05
                            )
                            
                            $
                            1.66
                            
                            
                            $
                            1.10





Long Term Incentive Plan
-The Company has a Long Term Incentive Plan (LTIP) under which the
Company’s Compensation Committee may grant stock options, stock appreciation
rights, restricted stock, restricted stock units or other forms of equity based
or equity related awards.  The LTIP replaced the Company’s 2001 Stock
Option Plan, the 1996 Stock Option Plan, the United Kingdom 1992 Employee Share
Option Scheme and the Company’s Amended and Restated 1989 Stock Option Plan
(collectively, the “Prior Plans”).  24,933 shares were available for
grant under the LTIP as of December 31, 2008.





During 2007 and 2008,
the Company granted restricted stock and restricted stock units to certain
members of the Company’s Board of Directors and
management.  Restricted stock grants vest over periods ranging from
two to four years and are granted at the discretion of the Compensation
Committee of the Board of Directors.  Compensation cost is recorded on
a straight-line basis over the vesting term of the shares based on the grant
date value using the closing trading price.  Share based compensation
of $15.1 and $10.3 was recorded during 2008 and 2007,
respectively.  Unrecognized compensation cost related to these grants
was $51.5 and $41.0 at December 31, 2008, and December 31, 2007,
respectively.





The
following table summarizes shares of restricted stock that were granted,
forfeited and outstanding:




December
      31, 2008
                              
                              
                              December
      31, 2007Weighted
                              
                              
                              
                              
                              
                              
                              
                              
                              WeightedWeighted
                              
                              
                              Average
                              
                              
                              
                              
                              
                              Weighted
                              
                              
                              AverageAverage
                              
                              
                              Remaining
                              
                              
                              
                              
                              
                              Average
                              
                              
                              RemainingShares
                              
                              
                              Grant
      Date
                              
                              
                              Vesting
      Period
                              
                              
                              Shares
                              
                              
                              Grant
      Date
                              
                              
                              Vesting
      Period(in
      thousands)
                              
                              
                              Fair
      Value
                              
                              
                              (
      in years)
                              
                              
                              (in
      thousands)
                              
                              
                              Fair
      Value
                              
                              
                              (
      in years)Outstanding,
      beginning ofperiod
                              
                              
                              1,458
                              
                              
                              $
                              31.18
                              
                              
                              
                              3.1
                              
                              
                              
                              1,423
                              
                              
                              $
                              26.13
                              
                              
                              
                              3.7Shares
      granted
                              
                              
                              1,764
                              
                              
                              
                              11.85
                              
                              
                              
                              --
                              
                              
                              
                              454
                              
                              
                              
                              42.43
                              
                              
                              
                              --Shares
      vested
                              
                              
                              (452
                              )
                              
                              
                              30.09
                              
                              
                              
                              --
                              
                              
                              
                              (355
                              )
                              
                              
                              26.14
                              
                              
                              
                              --Shares
      forfeited
                              
                              
                              (43
                              )
                              
                              
                              33.17
                              
                              
                              
                              --
                              
                              
                              
                              (64
                              )
                              
                              
                              27.30
                              
                              
                              
                              --Outstanding,
      end of period
                              
                              
                              2,727
                              
                              
                              
                              18.82
                              
                              
                              
                              3.1
                              
                              
                              
                              1,458
                              
                              
                              
                              31.18
                              
                              
                              
                              3.1




During the
year ended December 31, 2008, the Company granted 909,773 restricted stock units
of which 1,843 units were forfeited during the year. As of December 31, 2008,
the weighted average remaining vesting period for these units was 3.89
years.





F-20


No stock
options were granted during the three years ended December 31, 2008 and no
related stock compensation was recognized as the Company accelerated the vesting
of all such awards in 2005.  Outstanding stock options at December 31,
2008, 2007 and 2006 totaled approximately 184,000, 245,000, and 1,170,000, all
of which were exercisable. During the years ended December 31, 2008, 2007 and
2006, 0.1, 0.9 and 3.6 million stock options were exercised with an aggregate
intrinsic value of $0.4, $20.8 and $62.6 determined as of the date of option
exercise.  The aggregate intrinsic value of outstanding options as of
December 31, 2008 was $0.2.





12.
            EMPLOYEE
      STOCK PURCHASE PLAN





The
Company has established a qualified Employee Stock Purchase Plan, the terms of
which allow for qualified employees (as defined in the Plan) to participate in
the purchase of designated shares of the Company's common stock at a price equal
to 85% of the closing price at the end of each semi-annual stock purchase
period.  The Company issued approximately 286,000, 67,000 and 110,000
shares of common stock during the fiscal years ended December 31, 2008, 2007 and
2006, respectively, pursuant to this plan at a weighted average price per share
of $9.26, $39.46, and $20.51, respectively.





13.
            SEGMENT
      REPORTING





The
Company is organized based on the products and services it
offers.  Following the acquisition of HCS described in Note 2, the
Company revised its reportable segments to reflect three reportable segments
which align with the Company’s post-acquisition organizational structure:
consumables management, commercial aircraft and business jet. Each segment
regularly reports its results of operations and makes requests for capital
expenditures and acquisition funding to the Company’s chief operational
decision-making group.  This group is presently comprised of the
Chairman and Chief Executive Officer, the President and Chief Operating Officer,
and the Senior Vice President and Chief Financial Officer.  Each
operating segment has separate management teams and infrastructures dedicated to
providing a full range of products and services to their commercial, business
jet, military, MRO, aircraft leasing and aircraft manufacturing customers.Segment information for
prior periods has been presented on a consistent
basis.





The
following table presents net sales and other financial information by business
segment:


Fiscal
      Year Ended December 31, 2008Consumables
                      
                      
                      Commercial
                      
                      
                      BusinessManagement
                      
                      
                      Aircraft
                      
                      
                      Jet
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      697.3
                      
                      
                      $
                      1,138.7
                      
                      
                      $
                      274.0
                      
                      
                      $
                      2,110.0Operating
      (loss) earnings (1)(2)
                      
                      
                      (151.7
                      )
                      
                      
                      78.2
                      
                      
                      
                      37.3
                      
                      
                      
                      (36.2
                      )Total
      assets(3)
                      
                      
                      1,830.9
                      
                      
                      
                      827.6
                      
                      
                      
                      271.6
                      
                      
                      
                      2,930.1Goodwill
                      
                      
                      416.5
                      
                      
                      
                      158.5
                      
                      
                      
                      88.6
                      
                      
                      
                      663.6Capital
      expenditures
                      
                      
                      6.9
                      
                      
                      
                      20.7
                      
                      
                      
                      4.1
                      
                      
                      
                      31.7Depreciation
      and amortization
                      
                      
                      10.1
                      
                      
                      
                      24.7
                      
                      
                      
                      5.9
                      
                      
                      
                      40.7


Fiscal
      Year Ended December 31, 2007Consumables
                      
                      
                      Commercial
                      
                      
                      BusinessManagement
                      
                      
                      Aircraft
                      
                      
                      Jet
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      386.5
                      
                      
                      $
                      1,098.1
                      
                      
                      $
                      193.1
                      
                      
                      $
                      1,677.7Operating
      earnings (2)
                      
                      
                      85.5
                      
                      
                      
                      141.8
                      
                      
                      
                      19.7
                      
                      
                      
                      247.0Total
      assets (3)
                      
                      
                      575.2
                      
                      
                      
                      940.4
                      
                      
                      
                      256.4
                      
                      
                      
                      1,772.0Goodwill
                      
                      
                      133.2
                      
                      
                      
                      245.2
                      
                      
                      
                      88.8
                      
                      
                      
                      467.2Capital
      expenditures
                      
                      
                      4.4
                      
                      
                      
                      22.7
                      
                      
                      
                      5.0
                      
                      
                      
                      32.1Depreciation
      and amortization
                      
                      
                      4.3
                      
                      
                      
                      25.2
                      
                      
                      
                      5.5
                      
                      
                      
                      35.0





F-21





Fiscal
      Year Ended December 31, 2006Consumables
                      
                      
                      Commercial
                      
                      
                      BusinessManagement
                      
                      
                      Aircraft
                      
                      
                      Jet
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      251.5
                      
                      
                      $
                      729.2
                      
                      
                      $
                      147.5
                      
                      
                      $
                      1,128.2Operating
      earnings (2)
                      
                      
                      50.4
                      
                      
                      
                      88.5
                      
                      
                      
                      9.4
                      
                      
                      
                      148.3Total
      assets (3)
                      
                      
                      492.9
                      
                      
                      
                      753.2
                      
                      
                      
                      251.6
                      
                      
                      
                      1,497.7Goodwill
                      
                      
                      150.6
                      
                      
                      
                      218.0
                      
                      
                      
                      88.6
                      
                      
                      
                      457.2Capital
      expenditures
                      
                      
                      3.3
                      
                      
                      
                      15.7
                      
                      
                      
                      5.1
                      
                      
                      
                      24.1Depreciation
      and amortization
                      
                      
                      3.5
                      
                      
                      
                      21.7
                      
                      
                      
                      4.2
                      
                      
                      
                      29.4




(1)  The
2008 information includes goodwill and intangible asset impairment charge of
$310.2 at consumables management segment and $79.8 at commercial aircraft
segment.  Excluding such charges, operating earnings for 2008 would
have been $158.5 at consumables management segment and $158.0 at commercial
aircraft segment.





(2)  Operating
earnings (loss) includes an allocation of corporate IT costs, employee benefits
and general and administrative costs based on the proportion of each segments’
systems users, number of employees and sales, respectively.





(3)  Corporate
assets (including cash and cash equivalents) of $256.7, $139.2 and $117.7 at
December 31, 2008, 2007 and 2006, respectively, have been allocated to the above
segments based on each segments respective percentage of total
assets.  During 2007 certain operations with total assets of
approximately $31.5 were transferred from consumable management to commercial
aircraft segments.





Net sales
for these business segments for the fiscal years ended December 31, 2008, 2007
and 2006 are presented below:




Fiscal
      Year Ended December 31,2008
                                                                    
                                                                    
                                                                    2007
                                                                    
                                                                    
                                                                    2006Net
                                                                    
                                                                    
                                                                    %
      of
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    %
      of
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    %
      ofSales
                                                                    
                                                                    
                                                                    Net
      Sales
                                                                    
                                                                    
                                                                    Sales
                                                                    
                                                                    
                                                                    Net
      Sales
                                                                    
                                                                    
                                                                    Sales
                                                                    
                                                                    
                                                                    Net
      SalesConsumables
      management
                                                                    
                                                                    $
                                                                    697.3
                                                                    
                                                                    
                                                                    
                                                                    33.0
                                                                    %
                                                                    
                                                                    $
                                                                    386.5
                                                                    
                                                                    
                                                                    
                                                                    23.0
                                                                    %
                                                                    
                                                                    $
                                                                    251.5
                                                                    
                                                                    
                                                                    
                                                                    22.3
                                                                    %Commercial
      aircraft
                                                                    
                                                                    
                                                                    1,138.7
                                                                    
                                                                    
                                                                    
                                                                    54.0
                                                                    %
                                                                    
                                                                    
                                                                    1,098.1
                                                                    
                                                                    
                                                                    
                                                                    65.5
                                                                    %
                                                                    
                                                                    
                                                                    729.2
                                                                    
                                                                    
                                                                    
                                                                    64.6
                                                                    %Business
      jet
                                                                    
                                                                    
                                                                    274.0
                                                                    
                                                                    
                                                                    
                                                                    13.0
                                                                    %
                                                                    
                                                                    
                                                                    193.1
                                                                    
                                                                    
                                                                    
                                                                    11.5
                                                                    %
                                                                    
                                                                    
                                                                    147.5
                                                                    
                                                                    
                                                                    
                                                                    13.1
                                                                    %Net
      sales
                                                                    
                                                                    $
                                                                    2,110.0
                                                                    
                                                                    
                                                                    
                                                                    100.0
                                                                    %
                                                                    
                                                                    $
                                                                    1,677.7
                                                                    
                                                                    
                                                                    
                                                                    100.0
                                                                    %
                                                                    
                                                                    $
                                                                    1,128.2
                                                                    
                                                                    
                                                                    
                                                                    100.0
                                                                    %


Geographic
Information





The Company operated principally in
three geographic areas, the United States, Europe (primarily the United Kingdom)
and emerging markets, i.e., Asia, Pacific Rim, Middle East, etc. during the
fiscal years ended December 31, 2008, 2007 and 2006.  There were no
significant transfers between geographic areas during these
periods.





The following table presents net sales
and operating earnings based on the originating location for the fiscal years
ended December 31, 2008, 2007 and 2006. Additionally, it presents all
identifiable assets related to the operations in each geographic area as of
December 31, 2008 and 2007:





F-22


Fiscal
      Year Ended December 31,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006Net
      sales:Domestic
                                  
                                  $
                                  1,428.8
                                  
                                  
                                  $
                                  1,036.6
                                  
                                  
                                  $
                                  732.9Foreign
                                  
                                  
                                  681.2
                                  
                                  
                                  
                                  641.1
                                  
                                  
                                  
                                  395.3$
                                  2,110.0
                                  
                                  
                                  $
                                  1,677.7
                                  
                                  
                                  $
                                  1,128.2Operating
      earnings (loss):Domestic
                                  
                                  $
                                  (129.7
                                  )
                                  
                                  $
                                  159.1
                                  
                                  
                                  $
                                  100.7Foreign
                                  
                                  
                                  93.5
                                  
                                  
                                  
                                  87.9
                                  
                                  
                                  
                                  47.6$
                                  (36.2
                                  )
                                  
                                  $
                                  247.0
                                  
                                  
                                  $
                                  148.3December
      31,Identifiable
      assets:
                                  
                                  2008
                                  
                                  
                                  2007Domestic
                                  
                                  $
                                  2,386.9
                                  
                                  
                                  $
                                  1,306.6Foreign
                                  
                                  
                                  543.2
                                  
                                  
                                  
                                  465.4$
                                  2,930.1
                                  
                                  
                                  $
                                  1,772.0





Net sales
by geographic area, (based on destination), for the fiscal years ended December
31, 2008, December 31, 2007, and 2006 were as follows:





Fiscal
      Year Ended December 31,2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006Net
                                                        
                                                        
                                                        %
      of
                                                        
                                                        
                                                        Net
                                                        
                                                        
                                                        %
      of
                                                        
                                                        
                                                        Net
                                                        
                                                        
                                                        %
      ofSales
                                                        
                                                        
                                                        Net
      Sales
                                                        
                                                        
                                                        Sales
                                                        
                                                        
                                                        Net
      Sales
                                                        
                                                        
                                                        Sales
                                                        
                                                        
                                                        Net
      SalesU.S.
                                                        
                                                        $
                                                        994.4
                                                        
                                                        
                                                        
                                                        47.1
                                                        %
                                                        
                                                        $
                                                        749.5
                                                        
                                                        
                                                        
                                                        44.7
                                                        %
                                                        
                                                        $
                                                        483.0
                                                        
                                                        
                                                        
                                                        42.8
                                                        %Europe
                                                        
                                                        
                                                        508.9
                                                        
                                                        
                                                        
                                                        24.1
                                                        %
                                                        
                                                        
                                                        468.0
                                                        
                                                        
                                                        
                                                        27.9
                                                        %
                                                        
                                                        
                                                        331.5
                                                        
                                                        
                                                        
                                                        29.4
                                                        %Asia,
      Pacific Rim,Middle
      East and other
                                                        
                                                        
                                                        606.7
                                                        
                                                        
                                                        
                                                        28.8
                                                        %
                                                        
                                                        
                                                        460.2
                                                        
                                                        
                                                        
                                                        27.4
                                                        %
                                                        
                                                        
                                                        313.7
                                                        
                                                        
                                                        
                                                        27.8
                                                        %$
                                                        2,110.0
                                                        
                                                        
                                                        
                                                        100.0
                                                        %
                                                        
                                                        $
                                                        1,677.7
                                                        
                                                        
                                                        
                                                        100.0
                                                        %
                                                        
                                                        $
                                                        1,128.2
                                                        
                                                        
                                                        
                                                        100.0
                                                        %


Export
sales from the United States to customers in foreign countries amounted to
$566.9, $437.1 and $307.6 in the fiscal years ended December 31, 2008, 2007 and
2006, respectively.





14.
            FAIR
      VALUE INFORMATION





The
following disclosure of the estimated fair value of financial instruments at
December 31, 2008 and 2007 is made in accordance with the requirements of SFAS
No. 107,"Disclosures
about Fair Value of Financial Instruments.”  The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies; however, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.




The
carrying amounts of cash and cash equivalents, accounts receivable-trade, and
accounts payable and term debt are a reasonable estimate of their fair values as
interest is based upon floating market rates. The fair value of the Company’s
81⁄2% Senior Notes, based on market prices for publically traded debt, was $540.0
as of December 31, 2008.





The fair
value information presented herein is based on pertinent information available
to management at December 31, 2008 and December 31, 2007, respectively. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since those
dates, and current estimates of fair value may differ significantly from the
amounts presented herein.





F-23


15.           SELECTED QUARTERLY DATA (Unaudited)





Summarized quarterly financial data
for the fiscal years ended December 31, 2008 and December 31, 2007 are as
follows:




Fiscal
      Year Ended December 31, 2008First
                          
                          
                          Second
                          
                          
                          Third
                          
                          
                          FourthQuarter
                          
                          
                          Quarter
                          
                          
                          Quarter
                          
                          
                          QuarterNet
      sales
                          
                          $
                          473.2
                          
                          
                          $
                          522.2
                          
                          
                          $
                          587.8
                          
                          
                          $
                          526.8Gross
      profit
                          
                          
                          169.1
                          
                          
                          
                          179.8
                          
                          
                          
                          193.4
                          
                          
                          
                          181.2Net
      earnings (loss) (1)
                          
                          
                          48.5
                          
                          
                          
                          53.9
                          
                          
                          
                          51.8
                          
                          
                          
                          (253.6
                          )  
      (2)Basic
      net earnings (loss) per share(1)
                          
                          
                          0.53
                          
                          
                          
                          0.59
                          
                          
                          
                          0.54
                          
                          
                          
                          (2.59
                          )   (2)Diluted
      net earnings (loss) per share (1)
                          
                          
                          0.53
                          
                          
                          
                          0.59
                          
                          
                          
                          0.54
                          
                          
                          
                          (2.59
                          )  
      (2)


Fiscal
      Year Ended December 31, 2007First
                        
                        
                        Second
                        
                        
                        Third
                        
                        
                        FourthQuarter
                        
                        
                        Quarter
                        
                        
                        Quarter
                        
                        
                        QuarterNet
      sales
                        
                        $
                        387.8
                        
                        
                        $
                        398.2
                        
                        
                        $
                        428.2
                        
                        
                        $
                        463.5Gross
      profit
                        
                        
                        134.3
                        
                        
                        
                        140.6
                        
                        
                        
                        146.7
                        
                        
                        
                        148.5Net
      earnings
                        
                        
                        32.1
                        
                        
                        
                        28.4
                        
                        
                        
                        44.5
                        
                        
                        
                        42.3Basic
      net earnings per share(1)
                        
                        
                        0.41
                        
                        
                        
                        0.31
                        
                        
                        
                        0.49
                        
                        
                        
                        0.46Diluted
      net earnings per share (1)
                        
                        
                        0.40
                        
                        
                        
                        0.31
                        
                        
                        
                        0.48
                        
                        
                        
                        0.46




(1)
            Net
      earnings (loss) per share are computed individually for each quarter
      presented.  Therefore, the sum of the quarterly net earnings per
      share may not necessarily equal the total for the
  year.





(2)
            The
      fourth quarter information includes $390.0 of pre-tax goodwill and
      intangible asset impairment charges, ($300.0 on an after tax
      basis).  Excluding such charges, operating earnings, net
      earnings, basic net earnings per share and diluted net earnings per share
      would have been $90.8, $46.4, $0.47 and $0.47,
    respectively.




F-24


SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS


FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006


(In
millions)





BalanceAt
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            BalanceBeginning
                            
                            
                            
                            
                            
                            
                            
                            
                            Write-
                            
                            
                            At
      EndOf
                            
                            
                            
                            
                            
                            
                            
                            
                            Offs/
                            
                            
                            OfPeriod
                            
                            
                            Expenses
                            
                            
                            Other
                            
                            
                            Disposals
                            
                            
                            PeriodDeducted From Assets:Allowance for doubtful
      accounts:Fiscal
      year ended December 31, 2008
                            
                            $
                            4.5
                            
                            
                            $
                            8.7
                            
                            
                            $
                            (0.3
                            )
                            
                            $
                            0.7
                            
                            
                            $
                            12.2Fiscal
      year ended December 31, 2007
                            
                            
                            4.7
                            
                            
                            
                            0.6
                            
                            
                            
                            --
                            
                            
                            
                            0.8
                            
                            
                            
                            4.5Fiscal
      year ended December 31, 2006
                            
                            
                            2.9
                            
                            
                            
                            1.4
                            
                            
                            
                            1.6
                            
                            
                            
                            1.2
                            
                            
                            
                            4.7Reserve for obsolete
      inventories:Fiscal
      year ended December 31, 2008
                            
                            
                            32.2
                            
                            
                            
                            11.0
                            
                            
                            
                            --
                            
                            
                            
                            2.2
                            
                            
                            
                            41.0Fiscal
      year ended December 31, 2007
                            
                            
                            29.1
                            
                            
                            
                            8.1
                            
                            
                            
                            --
                            
                            
                            
                            5.0
                            
                            
                            
                            32.2Fiscal
      year ended December 31, 2006
                            
                            
                            27.1
                            
                            
                            
                            3.3
                            
                            
                            
                            2.6
                            
                            
                            
                            3.9
                            
                            
                            
                            29.1Deferred tax asset valuation
      allowance:Fiscal
      year ended December 31, 2008
                            
                            
                            9.8
                            
                            
                            
                            --
                            
                            
                            
                            (2.9
                            )
                            
                            
                            --
                            
                            
                            
                            6.9Fiscal
      year ended December 31, 2007
                            
                            
                            15.5
                            
                            
                            
                            --
                            
                            
                            
                            (5.7
                            )
                            
                            
                            --
                            
                            
                            
                            9.8Fiscal
      year ended December 31, 2006
                            
                            
                            40.5
                            
                            
                            
                            (27.4
                            )
                            
                            
                            2.4
                            
                            
                            
                            --
                            
                            
                            
                            15.5










F-25