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 1934





For the
fiscal year ended December 31, 2007








o
            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 o.





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 o 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 o.





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 o  Non-accelerated
filer (do not check if a smaller reporting company) o Smaller reporting
company o





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


Yes o No x.





The
aggregate market value of the registrant's voting stock held by non-affiliates
was approximately $3,814.7 million on June 29, 2007 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 14, 2008
was 93,073,529 shares.





DOCUMENTS
INCORPORATED BY REFERENCE





Certain
sections of the registrant's Proxy Statement to be filed with the Commission in
connection with the 2008 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.









INDEXPART
      IITEM 1.
              Business
              1ITEM 1A.
              Risk Factors
              15ITEM 1B.
              Unresolved Staff Comments
              20ITEM 2.
              Properties
              20ITEM 3.
              Legal Proceedings
              21ITEM 4.
              Submission of Matters to a Vote of Security
      Holders
              21PART
      IIITEM 5.
              Market for Registrant’s Common Equity, Related
      StockholderMatters and Issuer Purchases of Equity
      Securities
              22ITEM 6.
              Selected Financial Data
              23ITEM 7.
              Management’s Discussion and Analysis of Financial Condition
      andResults of Operations
              24ITEM 7A.
              Quantitative and Qualitative Disclosures about Market
      Risk
              35ITEM 8.
              Financial Statements and Supplementary
    Data
              36ITEM 9.
              Changes in and Disagreements with Accountants on Accounting
      andFinancial Disclosure
              36ITEM 9A.
              Controls and Procedures
              36ITEM 9B.
              Other Information
              39PART
      IIIITEM 10.
              Directors, Executive Officers and Corporate
      Governance
              39ITEM 11.
              Executive Compensation
              43ITEM 12.
              Security Ownership of Certain Beneficial Owners and
      Managementand Related Stockholder Matters
              43ITEM 13.
              Certain Relationships and Related Transactions, and
      Director Independence
              43ITEM 14.
              Principal Accounting Fees and Services
              43PART
      IVITEM 15.
              Exhibits and Financial Statement
    Schedules
              44Index to Exhibits
              45Signatures
              48Index 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, 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, and the impact on our
business of the recent increases in passenger traffic and projected increases 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 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 2008 issue of the Airline Monitor, the December 2007 reports of
the International Air Transport Association (IATA), the Boeing Current Market
Outlook 2007, “The ACAS Database” or the Airbus and Boeing corporate
websites.
 
  PART
I
 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 leading aftermarket distributor of aerospace fasteners. We sell our
products directly to virtually all of the world’s major airlines and airframe
manufacturers and a wide variety of general aviation customers. 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:
 
 •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 ovens, including
      microwave, high heat convection and steam
    ovens;
 1
 
 •both
      chemical and gaseous aircraft oxygen storage, distribution and delivery
      systems, protective breathing equipment and
      lighting  products;
 
 •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;
and
 
 •a
      broad line of aerospace fasteners, consisting of over 200,000 Stock
      Keeping Units (SKUs) serving the commercial aircraft, business jet and
      military and defense industries.
 
 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. In addition, we have undertaken three major facility and product
line consolidation efforts, eliminating 22 facilities, since 1992. We also
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 the 2002 – 2005 period, we made no significant
acquisitions, focusing instead on consolidating and improving the operations
efficiency of our businesses.  During 2006, we completed two strategic
acquisitions: Draeger GmbH (“Draeger”) which strengthened our Interior Systems
segment and New York Fasteners Corp. (“New York Fasteners”) which expanded the
customer base and product line breadth of our Distribution segment.
 
 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.
 
 There is a
direct relationship between demand for fastener 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.
 
 2
 
 Aerospace
fastener revenues have been derived from the following sources:
 
 •
              Demand
      for aerospace fasteners for new build aircraft from the original equipment
      manufacturers (OEMs) and their
suppliers;
 
 •
              Demand
      for structural modifications, cabin interior modifications and
      passenger-to-freighter conversions;
 
 •
              Mandated
      maintenance and replacement of specified parts;
  and
  •
                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.
 Based on
industry sources and studies, we estimate that during 2007, 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 $1.8 billion and the aerospace-grade fastener industry had annual
sales of approximately $4.5 billion.
 
 Airline
passenger traffic rebounded in 2004 and demonstrated strong continued growth
through 2007. Global air traffic growth in 2007 increased by approximately 7.4%
over 2006, following a 5.9% increase in 2006 over 2005.  The airline
industry responded to the strong year-over-year increases in passenger traffic
with additions to global capacity. Global capacity increased by approximately
6.2% during 2007 as compared to the prior year.
 
 During
2007, the global airline industry, including the U.S. airline industry,
generated significant profitability.  According to the International
Air Transport Association (IATA), the worldwide airline industry is expected to
generate approximately $5 billion in profits during 2008.
 
 The
business jet industry also experienced a resurgence in demand beginning in
2004.  Approximately 1,039 aircraft were delivered in 2007 (versus
approximately 840 aircraft in 2006) and industry experts expect deliveries of
approximately 1,121 aircraft in 2008, which represents an increase of 59% over
the approximately 706 aircraft delivered in 2005, an increase of 33% over 2006.
Industry sources estimate that over 3,500 business jets will be built during the
2008 through 2010 period.
 
 Since the
second half of 2003, we have experienced a surge in demand for our products,
primarily from the large foreign international carriers.  Our backlog
achieved record levels in both 2006 and 2007 growing 60% to $1.7 billion in 2006
and by nearly 30% to approximately $2.2 billion in 2007.  Our book to
bill ratio was 1.2:1 during 2007.  Our $2.2 billion backlog at
December 31, 2007 increased by 30% compared to our December 31, 2006 backlog,
despite a nearly 50% year-over-year increase in revenues. The vast majority of
our backlog growth during 2007 was generated by foreign carriers; 15% of our
backlog at December 31, 2007 was with domestic airlines.  While some
retrofit programs for major U.S. carriers have begun, through December 31, 2007,
the domestic airlines have generally continued to conserve cash, in part by
deferring aircraft expenditures. However, we believe that essentially all of the
major U.S. carriers have begun to upgrade their international fleets to compete
on international routes.  We believe there are substantial growth
opportunities for retrofit programs, particularly for the twin-aisle aircraft
that service international routes.
 
 Other
factors expected to affect the cabin interior products industry are the
following:
 
 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 17,160 aircraft
as of December 31, 2007.  Additionally, based on industry sources,
there are approximately 15,000 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 $13.6 billion as of December 31, 2007.
 
 Growth in Worldwide
Fleet.  The expansion of the worldwide fleet is expected to
generate significant additional revenues from new installation programs, while
the increase in the size of the installed base is expected to generate
additional and continued retrofit, refurbishment and spare parts revenue.
According to the Airline Monitor, worldwide air traffic is projected to grow at
a compounded average rate of 5.0% per year during the 2007–2022 period,
increasing annual revenue passenger miles from approximately 2.8 trillion in
2007 to approximately 5.8 trillion by 2022.
  3
  New Aircraft
Deliveries.  The number of new aircraft delivered each year is
generally regarded as cyclical in nature. According to the Airline Monitor, new
deliveries of large commercial jets increased to 888 in 2007 (versus 820 in
2006) and the approximate amount of new deliveries is expected to increase to
1,005 in 2008, 1,130 in 2009, and 1,220 in 2010.
 
 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 five to eight 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 20%
compounded annual growth rate over the four year period ending
2011.  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 22% of all new commercial aircraft (excluding regional jets)
delivered in 2007.  Importantly, according to Airline Monitor, over
the 2008 to 2011 time period, approximately 1,217 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 because of multiple classes of service, including
luxurious super first class compartments, first class and business class
configurations, our average revenue per aircraft on a wide-body aircraft is
substantially higher than on a narrow-body aircraft. 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.
 
 Military and Defense as a New
Platform.  New product development activities and our
acquisitions of Draeger and New York Fasteners have substantially increased our
presence in the military and defense market.  Key military end
products include a full line of oxygen systems, food and beverage preparation
and storage equipment and a growing number of fasteners for a broad range of
military aircraft.
 
 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, with almost 3,400 aircraft being added. Industry sources also estimate
that nearly 2,500 of these aircraft are expected to come from converting
commercial passenger jets to use as freighters. The company has developed the
engineering certification packages and kits to convert B747-200, B767-200 and
A300-B4 aircraft types to use as freighters and is currently working on the
Airbus A300–600.
 
 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 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,
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.
 
 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.
  4
  We
estimate that during 2007 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 $1.8 billion
and the aerospace-grade fastener 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
$13.6 billion as of December 31, 2007.
 
 Commercial
Aircraft Industry
 
 The
commercial airline industry saw an upturn in air travel beginning in
2003.  According to IATA, during 2007, the global airline industry
expanded airline capacity by approximately 6.2% in response to an approximate
7.4% increase in global air traffic. We believe increases in passenger traffic,
and associated increases in airline capacity, initially benefit providers of
aftermarket products and services. However, as the new aircraft delivery cycle
begins to gain momentum, increases in original equipment manufacturer production
rates are also expected. According to the Airline Monitor, the approximate
number of deliveries of new large commercial aircraft are expected to grow to
1,005 in 2008 from 888 in 2007, and then 1,130 in 2009, 1,220 in 2010, and 1,190
in 2011. In addition, according to the Airline Monitor, approximately 1,217
twin-aisle aircraft will be delivered during the 2008-2011
period.  According to the Airline Monitor, by 2016 approximately 37.6%
of new annual deliveries will be twin-aisle aircraft, an increase from 22.2% of
new deliveries in 2007.  An increase in twin-aisle aircraft is
important to us as we believe twin-aisle aircraft require up to five to eight
times the dollar value of products of the type that we manufacture as compared
to a single-aisle, or narrow-body, aircraft and generate substantially more
demand for spare parts and upgrade products and services.
 
 Business
Jet Industry
 
 The
business jet industry experienced a severe downturn following the events of
September 11, 2001, reaching a trough in 2003. Since 2004, annual delivery
rates of new business jet deliveries have increased each year.  In
2007 approximately 1,039 aircraft were delivered, which represented an increase
of 24% as compared to 2006 and an increase of 47% as compared to
2005.  Recent industry forecasts project significant near-term growth,
with total deliveries of approximately 1,121 aircraft in 2008, an increase of
59% over the 706 aircraft delivered in 2005. Industry sources estimate that over
3,500 business jets will be built during the 2008 through 2010
period.
 
 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 $6.7
billion (for the principal type of products which we manufacture, valued at
replacement prices) as of December 31, 2007. 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, retrofits 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 and lean
manufacturing programs, our operating margins have increased substantially. For
example, our margin for the fiscal year ended December 31, 2007 of 14.7%
improved by 590 basis points over the 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, 2007, operating
earnings grew 66.6% over operating earnings for the year ended December 31,
2006, as compared to net sales growth of 48.7% during 2007.  Our
operating margin which was 14.7% for the fiscal year 2007 has expanded in the
range of 160 - 230 basis points per year over the past three years.
 
 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, 2007, we had 1,000 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 $2.2 billion at
December 31, 2007, a nearly 30% increase as compared to December 31, 2006 and a
100% 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 expect to see an increase in orders for new
interior equipment for new aircraft beginning in 2008.  To date,
airlines have not yet begun to place large amounts of orders for cabin
interiors.  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 continue to drive sales growth and
market share gains over the 2008-2010 period. 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 2007, approximately 28% of our sales were to European
customers and approximately 24% 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 39% of our current backlog
with domestic airlines accounting for 15% of our total backlog at December 31,
2007.  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. For the fiscal years ended December 31, 2007, 2006 and 2005
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, 2007, approximately 6% of sales were to Boeing and Airbus and
approximately 6% 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:
 
 Improving Airline Industry
Conditions.  Improving worldwide industry conditions are
resulting in increased demand for our products and services, as demonstrated by
the approximate 30% year over year increase in 2007 backlog to $2.2
billion. A majority of the backlog growth over the fiscal year ended
December 31, 2007 was primarily the result of international aftermarket demand
for the retrofit of existing aircraft. We expect demand to further increase over
the course of the next several years consistent with the expected increase in
wide-body and super wide-body aircraft deliveries and the expected participation
by the domestic carriers in both retrofit and new-buy activity.
  6
  Worldwide Air Traffic Growth and
Airline Capacity Additions Drive Resurgence in Aftermarket
Activities.  Our substantial installed base provides
significant ongoing revenues from replacements, upgrades, repairs and the sale
of spare parts. For each of the fiscal years ended December 31, 2007 and 2006
approximately 60% of our revenues were derived from aftermarket activities. In
addition, aftermarket revenues are generally driven by aircraft usage, and as
such, they have historically tended to recover more quickly than revenues from
original equipment manufacturers. As worldwide air traffic grows and airlines
add capacity,  and our installed base grows, we expect our aftermarket
business to continue to grow. According to IATA, during the fiscal year ended
December 31, 2007, the global airline industry expanded airline capacity by 6.2%
in response to a 7.4% increase in global air traffic. 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.
 
 Record Backlog Driven by Aftermarket
Demand from International Airlines Retrofitting Existing
Fleets.  We believe that substantially all of the major
international airlines are in the process of upgrading, or planning to upgrade,
their existing fleets of twin-aisle aircraft. This activity is being 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
and place a strong emphasis on pleasing aesthetics, quality and finish in order
to enhance their international passengers’ flight experience. As a result, we
believe that the life-cycle of premium products, such as international business
class seats and the products comprising our super first class suites, will
continue to compress as airlines make investments in cabin interior products on
a more frequent basis. For example, in 2005, British Airways selected us to
outfit their wide-body fleet with our next generation horizontal lie-flat seats.
In 2000, British Airways revolutionized the airline industry by introducing the
first horizontal business class lie-flat seats (which were subsequently
installed on their wide-body fleet during 2001-2002). We believe actions such as
British Airways’ decision to select our next generation horizontal lie-flat
seats have accelerated the retrofit cycle for premium class seating products for
other airlines operating wide-body aircraft serving international
routes.  Through December 31, 2007, retrofit activity for the
international airlines with twin-aisle aircraft has consisted of upgrading the
premium class seating, mood lighting and food and beverage preparation equipment
for the first and business class sections of their international
fleets.  We believe these international airlines are now beginning to
address their coach class retrofit requirements, which bodes well for future
bookings and revenue growth.
 Growth of Wide-Body Aircraft
Fleet.  According to the Airline Monitor, new deliveries of
wide-body aircraft totaled 197 in 2007 and are expected to total approximately
1,217 aircraft over the 2008-2011 period, averaging approximately 304 such
aircraft per year or a 54% higher delivery level as compared to 2007. The
Airline Monitor also predicts that nearly 3,697 twin-aisle aircraft will be
delivered over the 2008-2017 timeframe or approximately 370 wide-body and super
wide-body aircraft per year or some 88% higher, on average, as compared to
2007.  We expect to benefit from this trend as wide-body aircraft
generally carry more than five to eight times the dollar value of products of
the type that we manufacture as compared to single-aisle, or narrow-body,
aircraft.
 
 Growth of Worldwide Airline
Fleet.  As a result of the current and projected growth in
worldwide air traffic, deliveries of new aircraft are expected to grow.
According to the Airline Monitor, new deliveries of large commercial aircraft
grew to 888 aircraft in 2007 from 820 in 2006 and are expected to increase to
1,005 in 2008, 1,130 in 2009 and 1,220 in 2010. The worldwide fleet of passenger
and cargo aircraft was approximately 19,000 as of December 31, 2007 and,
according to the Airline Monitor, is expected to increase to 39,356 by
December 31, 2025. 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 spares and
fasteners.
 
 Growth in New Aircraft Introductions
Lead to New Cabin Interior Product Introductions and Major Retrofit
Opportunities.Through December
31, 2007, 16 customers have placed orders for 189 of the new Airbus A380 super
wide-body aircraft and 53 customers have placed orders for 817 of the new Boeing
787 wide-body aircraft, which Boeing has indicated is its most successful new
product launch in its history. In addition, during 2007 Airbus announced that it
will develop a new A350 XWB with long term delivery projections similar to those
of the Boeing 787.
 
 Growth in Business Jet and VIP
Aircraft Markets.  Business jet deliveries increased by 24% in
2007 as compared to 2006 and are expected to increase by approximately 8% in
2008 as compared to 2007.  We expect 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 and 550, the
Falcon 900 and the Falcon 2000 and 7x, the Cessna Citation X and Embraer Legacy
to be significant contributors to growth in new general aviation aircraft
deliveries in the future. Industry sources estimate that over 3,500 business
jets will be built during the 2008 through 2010 period, with approximately 42%
projected to be larger business jets. This is important to us because the
typical cost of cabin interior products manufactured for a large business jet
can be 10 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
14,000  general aviation and VIP jet aircraft existing today is
approximately 15 years, we believe significant cabin interior retrofit and
upgrade opportunities exist.
  7
  Opportunity to Substantially Expand
Our Addressable Markets through our Fastener Distribution
Business.  Our fastener distribution business leverages our key
strengths, including marketing and service relationships with most of the
world’s airlines. As 60% of fastener demand is generated by the existing
worldwide fleet, demand for fasteners 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.  The OEMs are increasing their outsourcing of
manufactured parts to aerospace and defense subcontractors, many of which tend
to purchase through distributors.
 
 
 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 manufacturer and encompassing our entire product
      line.
 
 Products
and Services
 
 We conduct
our operations through strategic business units that have been aggregated under
five reportable segments: Seating, Interior Systems, Distribution, Business Jet
and Engineering Services.
 
 The
following is a summary of net sales for each of our segments:
  Fiscal
      Year Ended December 31,($
      in millions)2007
                
                
                2006
                
                
                2005Net
                
                
                %
      of
                
                
                Net
                
                
                %
      of
                
                
                Net
                
                
                %
      ofSales
                
                
                Net
      Sales
                
                
                Sales
                
                
                Net
      Sales
                
                
                Sales
                
                
                Net
      SalesSeating
                
                $
                632.6
                
                
                
                37.8
                %
                
                $
                388.5
                
                
                
                34.4
                %
                
                $
                281.8
                
                
                
                33.4
                %Interior
      Systems
                
                
                348.0
                
                
                
                20.7
                %
                
                
                273.9
                
                
                
                24.3
                %
                
                
                205.5
                
                
                
                24.4
                %Distribution
                
                
                386.5
                
                
                
                23.0
                %
                
                
                251.5
                
                
                
                22.3
                %
                
                
                173.9
                
                
                
                20.6
                %Business
      Jet
                
                
                193.1
                
                
                
                11.5
                %
                
                
                147.5
                
                
                
                13.1
                %
                
                
                120.2
                
                
                
                14.2
                %Engineering
      Services
                
                
                117.5
                
                
                
                7.0
                %
                
                
                66.8
                
                
                
                5.9
                %
                
                
                62.7
                
                
                
                7.4
                %Net
      sales
                
                $
                1,677.7
                
                
                
                100.0
                %
                
                $
                1,128.2
                
                
                
                100.0
                %
                
                $
                844.1
                
                
                
                100.0
                %




Seating
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 oxygen masks. We estimate
that as of December 31, 2007, we had an aggregate installed base of
approximately 1.0 million aircraft seats valued at replacement prices of
approximately $3.8 billion.
  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 fiberoptic 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 experience in the industry,
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.
 
 Interior
Systems Segment
 
 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. We estimate that as of December 31, 2007
we had an aggregate installed base of such equipment valued at replacement
prices of approximately $1.9 billion.
 
 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 Oxygen”
technology.  We believe the Pulse Oxygen system delivers oxygen more
efficiently than traditional passenger systems and reduces overall system weight
and fuel burn and facilitates lower maintenance and cabin reconfiguration costs,
when compared to traditional oxygen systems.Airbus has also
selected us to provide similar “Pulse” 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 tea
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-heat efficiency ovens,
high-heat convection and steam ovens and warming ovens.  Our “DS Steam
Oven” uses a method of preparing in-flight food by maintaining constant
temperature and moisture in the food.  It 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 air chilling systems.
 
 Distribution Segment
 
 Through
our subsidiary, M&M Aerospace Hardware, Inc. (M&M), we are the leading
distributor of aerospace grade fasteners for the aftermarket and we believe we
offer one of the broadest lines of fasteners and inventory management services
worldwide. Approximately 60% of our fastener sales are to the aftermarket, and
nearly 65% of our orders are shipped within 24 hours of receipt of the order.
With over 200,000 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 information technology and automated retrieval systems, provide
the basis for our reputation for high quality and overnight
delivery.
  9
  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, including all design services,
all interior components and program management services for executive aircraft
interiors. We believe we are the preferred supplier of seating products and
direct and indirect lighting systems for most of the business jet manufacturers.
We estimate that as of December 31, 2007, we had an aggregate installed base of
business jet equipment valued at replacement prices of approximately $1.0
billion.
 
 We
believe, based on our experience in the industry, 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 were found only in VIP and head-of-state aircraft until
recently.
 
 Engineering
Services Segment
 
 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 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.
 
 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 Boeing 767, Boeing
747-200 Combi Unit®, Boeing 747-200 (exclusive of door surround) and Airbus A300
B4 aircraft. In addition, China Southern has selected us to convert six of their
A300-600 wide-body passenger aircraft to freighter
aircraft.  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 utilize 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.
 
 Research,
Development and Engineering
 
 We work
closely with commercial airlines to improve existing products and identify
customers' emerging needs. Our expenditures in research, development and
engineering totaled $127.9 million, $88.6 million and $65.6 million representing
7.6%, 7.9% and 7.8% of net sales for the years ending December 31, 2007, 2006,
and 2005, respectively. We employed 1,000 professionals in engineering, research
and development and program management as of December 31, 2007. 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.
 
 10
  Marketing
and Customers
 
 We market
and sell our commercial aircraft products directly to virtually all of the
world's major airlines 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 and 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.
 
 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 over 80% of the purchases of products manufactured by our
Seating, Interior Systems, and Engineering Services segments during the fiscal
year ended December 31, 2007.  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 manager to each significant
contract. The program manager 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.
 
 We market
our aerospace fasteners directly to the airlines, completion centers, 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 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.
 
 As of
December 31, 2007, our direct sales, marketing and product support organizations
consisted of 426 persons. In addition, we currently retain 50 independent sales
representatives. Our sales to non-U.S. customers were approximately $928 million
for the fiscal year ended December 31, 2007 and $645 million for the fiscal year
ended December 31, 2006 or approximately 55% and 57%, respectively, of net sales
during those periods. Approximately 82% of our total revenues were derived from
airlines and other commercial aircraft operators during each of the two fiscal
years ended December 31, 2007. Approximately 60% of our revenues during the
fiscal years ended December 31, 2007 and 2006 were from refurbishment, spares
and upgrade programs. During the fiscal year ended December 31, 2007, 2006 and
2005 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.




11





Backlog
 
 We
estimate that our backlog at December 31, 2007 was approximately $2.2 billion as
compared to $1.7 billion at December 31, 2006 and approximately $1.1 billion at
December 31, 2005.  Approximately 60% of our backlog at December 31,
2007, is scheduled to be deliverable within the next twelve
months.  While 38% of our total backlog is with North American
customers, only 15% of our total backlog is with domestic
airlines.  Approximately 23% of our current backlog is with European
customers.  Importantly, approximately 39% 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 backlog at December 31, 2007 increased by
approximately 30% compared to the backlog at December 31, 2006 despite a nearly
50% year over year increase in revenues.
 
 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:
 
 •
              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
consolidation of the remaining suppliers. We have participated in this consolidation through strategic acquisitions and we
intend to continue to participate in the consolidation.
 
 Our
principal competitors for our seating segment are Groupe Zodiac S.A. and Keiper
Recaro GmbH.  Our primary competitors for interior systems segment are
Groupe Zodiac S.A., JAMCO, and Premium Aircraft Interiors Group (PAIG,
formerly Britax).  Our principal competitors for other product and
service offerings in our engineering services segment include Driessen Aircraft
Interior Systems, JAMCO, PAIG, and TIMCO.  The market for business jet
products is highly fragmented, consisting of numerous competitors, the largest
of which is Decrane Aircraft Holdings.  Our primary competitors in the
fastener distribution market are Honeywell Consumable Solutions, Wesco Aircraft
Hardware and Anixter Pentacon.
  12
  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.
 
 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 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
role.  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 229 U.S. patents and 217 international patents, as well as 114
U.S. patent applications and 209 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.
  13
  Employees
 
 As of
December 31, 2007, we had approximately 6,298 employees. Approximately 70% of
our employees are engaged in manufacturing/distribution operations and
purchasing, 16% in engineering, research and development and program management,
7% in sales, marketing and product support and 7% in finance, information
technology, legal and general administration. Unions represent approximately 20%
of our worldwide employees. One domestic labor contract representing
approximately 6% of our employees expires May, 2009.  The other labor
contract with the only other domestic union, which represents approximately 2%
of our employees, expires 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, 2007, December 31, 2006 and December 31,
2005, is set forth in note 14 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.
 
 14
  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
 
 We
are directly dependent upon the conditions in the airline and business jet
industries and a severe and prolonged downturn could negatively impact our
results of operations.
 
 The
September 11, 2001 terrorist attacks, SARS and the onset of the Iraq war
severely impacted conditions in the airline industry. According to industry
sources, in the aftermath of the attacks most major U.S. and a number of
international carriers substantially reduced their flight schedules, parked or
retired portions of their fleets, reduced their workforces and implemented other
cost reduction initiatives. U.S. airlines further responded by decreasing
domestic airfares. As a result of the decline in both traffic and airfares
following the September 11, 2001 terrorist attacks, 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 $41.0 billion in calendar years 2001-2007. The airline
industry crisis also caused 22 airlines worldwide to declare bankruptcy or cease
operations in the last seven years.
 
 As a
result of the foregoing, through 2007, the domestic U.S. airlines, in large
part, have been seeking to conserve cash by deferring cabin interior
refurbishment programs and deferring or canceling aircraft purchases. This,
together with the reduction of new business jet production, caused a substantial
contraction in our business during the 2001 through 2003 period. Although the
global airline industry began to recover in late 2003 and conditions continue to
improve, and the business jet industry is improving as well, additional events
similar to those described above or other events could cause a deterioration of
conditions in our industry or end the current business cycle. The rate at which
the business jet industry recovers is dependent on corporate profits, the number
of used jets on the market and other factors, which could slow the rate of
recovery.
 
 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 regulation,
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.
  15
 Risks
Relating to Our Business
 
 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, 55% of our net sales for
the year ended December 31, 2007 and 57% of our sales for the year ended
December 31, 2006 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 38% and 35%,
respectively, of our sales during the fiscal years ended December 31, 2007
and 2006 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, 2007, we reported a cumulative foreign
currency translation adjustment of approximately $9.8 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 some of which are still integrating into our
business.  We may 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. 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. 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.
  16
 
 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.  The write-off of
a significant portion of unamortized intangible assets would negatively affect
our financial results.
 
 Our total
assets reflect substantial intangible assets. At December 31, 2007, 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.
 
 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.
 
 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.
 
 17
 
 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.
 
  Our
rights plan and the ability of our board of directors to issue preferred stock
may have the effect of discouraging a takeover attempt not previously approved
by the board of directors.
 
 Our board
of directors has declared a dividend of one preferred share purchase right for
each share of common stock outstanding.  A right will also be attached
to each share of common stock subsequently issued.  The rights will
have certain anti-takeover effects.  If triggered, the rights would
cause substantial dilution to a person or group of persons that acquires more
than 15.0% of our common stock on terms not approved by our board of
directors.  The rights could discourage or make more difficult a
merger, tender offer or other similar transaction.
 
 Under our
restated certificate of incorporation, our board of directors also has the
authority to issue preferred stock in one or more series and to fix the powers,
preferences, and rights of any such series without stockholder
approval.  The board of directors could, therefore, issue, without
stockholder approval, preferred stock with voting and other rights that could
adversely affect the voting power of the holders of common stock and could make
it more difficult for a third party to gain control of us.  In
addition, under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for an “interested stockholder”, or
generally a 15% stockholder, to effect various business combinations with a
corporation for a three-year period unless previously approved by our board of
directors.
  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, since the beginning of 2004 through the end of
2007, the closing sale price of our common stock has ranged from a low of $5.20
to a high of $53.91.  The price of our common stock could fluctuate
widely in response to:
 
 ·
              our
      quarterly operating results;
 
 ·
              changes
      in earnings estimates by securities
analysts;
  18
  ·
              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.
  19
 
 ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
 None
 
 ITEM 2.  PROPERTIES
 
 As of
December 31, 2007, we had 16 principal operating facilities and one
administrative facility, which comprised an aggregate of approximately 1.9
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.
  FacilitySizeSegment
                  Location
                  Purpose
                  
                  
                  (Sq.
      Feet)
                  
                  OwernshipSeating
                  Winston-Salem,
      North Carolina
                  Manufacturing
                  
                  
                  268,300
                  
                  LeasedLeighton
      Buzzard, England
                  Manufacturing
                  
                  
                  114,000
                  
                  OwnedKilkeel,
      Northern Ireland
                  Manufacturing
                  
                  
                  176,000
                  
                  Leased/OwnedInterior
      Systems
                  Anaheim,
      California
                  Manufacturing
                  
                  
                  98,000
                  
                  LeasedLenexa,
      Kansas
                  Manufacturing
                  
                  
                  80,000
                  
                  LeasedNieuwegein,
      the Netherlands
                  Manufacturing
                  
                  
                  47,350
                  
                  LeasedWestminster,
      California
                  Manufacturing
                  
                  
                  70,000
                  
                  LeasedLubeck,
      Germany
                  Manufacturing
                  
                  
                  86,100
                  
                  LeasedBusiness
      Jet
                  Miami,
      Florida
                  Manufacturing
                  
                  
                  129,630
                  
                  LeasedHolbrook,
      New York
                  Manufacturing
                  
                  
                  20,100
                  
                  LeasedTucson,
      Arizona
                  Manufacturing
                  
                  
                  90,500
                  
                  LeasedDistribution
                  Miami,
      Florida
                  Distribution
                  
                  
                  355,760
                  
                  LeasedStratford,
      Connecticut
                  Distribution
                  
                  
                  67,000
                  
                  LeasedParamus,
      New Jersey
                  Distribution
                  
                  
                  36,000
                  
                  LeasedWichita,
      Kansas
                  Distribution
                  
                  
                  49,000
                  
                  LeasedEngineering
      Services
                  Marysville,
      Washington
                  Manufacturing
                  
                  
                  155,000
                  
                  LeasedCorporate
                  Wellington,
      Florida
                  Administrative
                  
                  
                  19,620
                  
                  Leased/Owned1,862,360




We believe
that our facilities are suitable for their present intended purposes and
adequate for our present and anticipated level of operations.
 
 20
 
 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.
 
 21
 
 PART
II
  ITEM 5.MARKETFOR 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 tock as reported
by Nasdaq.
  Fiscal
      Year Ended December 31,(Amounts
      in Dollars)2007
                
                
                2006High
                
                
                Low
                
                
                High
                
                
                LowFirst
      Quarter
                
                $
                33.80
                
                
                $
                25.56
                
                
                $
                25.78
                
                
                $
                20.25Second
      Quarter
                
                
                41.65
                
                
                
                31.59
                
                
                
                29.60
                
                
                
                18.28Third
      Quarter
                
                
                44.69
                
                
                
                32.20
                
                
                
                25.25
                
                
                
                17.64Fourth
      Quarter
                
                
                54.09
                
                
                
                40.81
                
                
                
                27.77
                
                
                
                19.09




On
February 14, 2008, the last reported sale price of our common stock as reported
by NASDAQ was $39.82 per share.  As of such date, based on information
provided to us by Computershare, our transfer agent, we had approximately 1,266
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 12/31/2002 and its relative
performance is tracked through 12/31/2007.
 
 We made no
repurchases of our common stock during the last quarter of 2007.
  
  22




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,
2007 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 31,2007
                
                
                2006
                
                
                2005
                
                
                2004
                
                
                2003Statements
      of Operations Data:Net
      sales
                
                $
                1,677.7
                
                
                $
                1,128.2
                
                
                $
                844.1
                
                
                $
                733.5
                
                
                $
                624.4Cost
      of sales (1)
                
                
                1,107.6
                
                
                
                731.7
                
                
                
                548.5
                
                
                
                494.8
                
                
                
                453.6Selling,
      general and administrative
                
                
                195.2
                
                
                
                159.6
                
                
                
                136.4
                
                
                
                119.2
                
                
                
                105.8Research,
      development and engineering
                
                
                127.9
                
                
                
                88.6
                
                
                
                65.6
                
                
                
                55.1
                
                
                
                44.7Operating
      earnings
                
                
                247.0
                
                
                
                148.3
                
                
                
                93.6
                
                
                
                64.4
                
                
                
                20.3Operating
      margin
                
                
                14.7
                %
                
                
                13.1
                %
                
                
                11.1
                %
                
                
                8.8
                %
                
                
                3.3
                %Interest
      expense, net
                
                
                20.9
                
                
                
                38.9
                
                
                
                59.3
                
                
                
                76.1
                
                
                
                70.6Debt
      prepayment costs
                
                
                11.0
                
                
                
                19.4
                
                
                
                --
                
                
                
                8.8
                
                
                
                1.2Earnings
      (loss) before income taxes
                
                
                215.1
                
                
                
                90.0
                
                
                
                34.3
                
                
                
                (20.5
                )
                
                
                (51.5
                )Income
      tax expense (benefit)(2)
                
                
                67.8
                
                
                
                4.4
                
                
                
                (50.3
                )
                
                
                1.5
                
                
                
                2.0Net
      earnings (loss)
                
                $
                147.3
                
                
                $
                85.6
                
                
                $
                84.6
                
                
                $
                (22.0
                )
                
                $
                (53.5
                )Basic
      net earnings (loss) per share:Net
      earnings (loss)
                
                $
                1.67
                
                
                $
                1.11
                
                
                $
                1.44
                
                
                $
                (0.53
                )
                
                $
                (1.49
                )Weighted
      average common shares
                
                
                88.1
                
                
                
                77.1
                
                
                
                58.8
                
                
                
                41.7
                
                
                
                36.0Diluted
      net earnings (loss) per share:Net
      earnings (loss)
                
                $
                1.66
                
                
                $
                1.10
                
                
                $
                1.39
                
                
                $
                (0.53
                )
                
                $
                (1.49
                )Weighted
      average common shares
                
                
                88.8
                
                
                
                78.0
                
                
                
                60.8
                
                
                
                41.7
                
                
                
                36.0Balance
      Sheet Data (end of period):Working
      capital
                
                $
                711.6
                
                
                $
                456.0
                
                
                $
                573.4
                
                
                $
                225.0
                
                
                $
                274.3Goodwill,
      intangible and other assets, net
                
                
                635.6
                
                
                
                636.2
                
                
                
                525.3
                
                
                
                545.5
                
                
                
                541.5Total
      assets
                
                
                1,772.0
                
                
                
                1,497.7
                
                
                
                1,426.5
                
                
                
                1,024.8
                
                
                
                1,052.5Long-term
      debt, net of current portion
                
                
                150.3
                
                
                
                502.0
                
                
                
                677.4
                
                
                
                678.6
                
                
                
                880.1Stockholders'
      equity
                
                
                1,258.1
                
                
                
                706.0
                
                
                
                569.6
                
                
                
                182.8
                
                
                
                31.9




(1)
      During the year ended December 31, 2003 we incurred $19.9 related to
      severance, integration costs, lease termination costs, relocation,
      training and facility preparation costs in connection with consolidation
      of facilities and headcount reductions following the events of September
      11, 2001.  As a result of these events, we also recorded
      write-downs of property, plant, equipment, inventory and other assets of
      $10.9 for the year ended December 31, 2003.(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.




23




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 a leading aftermarket distributor of aerospace fasteners. We sell our
manufactured products directly to virtually all of the world’s major airlines
and airframe manufacturers and a wide variety of business jet customers. 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:
 
  •
                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;•
                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; and•
                a
      broad line of aerospace fasteners, covering over 200,000 Stock Keeping
      Units (SKUs) serving the commercial aircraft, business jet and military
      and defense industries.
  We also
design, develop and manufacture a broad range of cabin interior structures and
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 2007, 2006 and 2005 fiscal years, approximately
60% of our revenues were derived from our aftermarket 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 $6.7 billion as of December 31, 2007
(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
five reportable segments: Seating, Interior Systems, Distribution, Business Jet
and Engineering Services.
 
 Net sales
by reportable segment for the years ended December 31, 2007, December 31, 2006
and December 31, 2005 were as follows:
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005Net
                
                
                %
      of
                
                
                Net
                
                
                %
      of
                
                
                Net
                
                
                %
      ofSales
                
                
                Net
      Sales
                
                
                Sales
                
                
                Net
      Sales
                
                
                Sales
                
                
                Net
      SalesSeating
                
                $
                632.6
                
                
                
                37.8
                %
                
                $
                388.5
                
                
                
                34.4
                %
                
                $
                281.8
                
                
                
                33.4
                %Interior
      Systems
                
                
                348.0
                
                
                
                20.7
                %
                
                
                273.9
                
                
                
                24.3
                %
                
                
                205.5
                
                
                
                24.4
                %Distribution
                
                
                386.5
                
                
                
                23.0
                %
                
                
                251.5
                
                
                
                22.3
                %
                
                
                173.9
                
                
                
                20.6
                %Business
      Jet
                
                
                193.1
                
                
                
                11.5
                %
                
                
                147.5
                
                
                
                13.1
                %
                
                
                120.2
                
                
                
                14.2
                %Engineering
      Services
                
                
                117.5
                
                
                
                7.0
                %
                
                
                66.8
                
                
                
                5.9
                %
                
                
                62.7
                
                
                
                7.4
                %Net
      sales
                
                $
                1,677.7
                
                
                
                100.0
                %
                
                $
                1,128.2
                
                
                
                100.0
                %
                
                $
                844.1
                
                
                
                100.0
                %




24




Net sales
by domestic and foreign operations for the years ended December 31, 2007,
December 31, 2006 and December 31, 2005 were as follows:
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005Domestic
                
                $
                1,036.6
                
                
                $
                732.9
                
                
                $
                588.4Foreign
                
                
                641.1
                
                
                
                395.3
                
                
                
                255.7Total
                
                $
                1,677.7
                
                
                $
                1,128.2
                
                
                $
                844.1




Net sales
by geographic segment (based on destination) for the years ended December 31,
2007, December 31, 2006 and December 31, 2005 were as follows:
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005Net
                
                
                %
      of
                
                
                Net
                
                
                %
      of
                
                
                Net
                
                
                %
      ofSales
                
                
                Net
      Sales
                
                
                Sales
                
                
                Net
      Sales
                
                
                Sales
                
                
                Net
      SalesU.S.
                
                $
                749.5
                
                
                
                44.7
                %
                
                $
                483.0
                
                
                
                42.8
                %
                
                $
                399.4
                
                
                
                47.3
                %Europe
                
                
                468.0
                
                
                
                27.9
                %
                
                
                331.5
                
                
                
                29.4
                %
                
                
                202.2
                
                
                
                24.0
                %Asia,
      Pacific Rim,Middle
      East and other
                
                
                460.2
                
                
                
                27.4
                %
                
                
                313.7
                
                
                
                27.8
                %
                
                
                242.5
                
                
                
                28.7
                %Total
                
                $
                1,677.7
                
                
                
                100.0
                %
                
                $
                1,128.2
                
                
                
                100.0
                %
                
                $
                844.1
                
                
                
                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, $146.7 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 distribution
segment has significantly expanded our overall penetration into the military and
defense sector.
 
 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 has been
approximately 7% - 8% of sales for the past several years and is expected to
comprise a somewhat lower percentage of revenues 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 over the next twelve
months.
 
 International
airline competition for higher margin international travelers and improving
worldwide industry conditions have resulted in increasing demand for our
products and services, as demonstrated by record bookings of approximately $2.1
billion during fiscal 2007.  At December 31, 2007, backlog was
approximately $2.2 billion, an increase of approximately 30% as compared to our
December 31, 2006 backlog. We expect strong demand for the next several years as
industry conditions continue to improve.  As worldwide air traffic
grows and airlines add capacity and upgrade the cabin interiors of existing
active aircraft, we expect our aftermarket activities to continue to grow.
According to IATA, during the year ended December 31, 2007, the global airline
industry expanded airline capacity by approximately 6.2% in response to an
approximately 7.4% increase in global air traffic. In addition, as a result of
the severity of the post-September 11, 2001 downturn, many carriers,
particularly in the United States, have deferred
  25
 
 interior maintenance and
upgrades. The U.S. carriers have just begun the process of upgrading their
international fleets and we believe there are substantial additional growth
opportunities with domestic carriers for retrofit programs, particularly for the
twin-aisle aircraft that service international routes.
 
 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
                
                
                ChangeSeating
                
                $
                632.6
                
                
                $
                388.5
                
                
                $
                244.1
                
                
                
                62.8
                %Interior
      Systems
                
                
                348.0
                
                
                
                273.9
                
                
                
                74.1
                
                
                
                27.1
                %Distribution
                
                
                386.5
                
                
                
                251.5
                
                
                
                135.0
                
                
                
                53.7
                %Business
      Jet
                
                
                193.1
                
                
                
                147.5
                
                
                
                45.6
                
                
                
                30.9
                %Engineering
      Services
                
                
                117.5
                
                
                
                66.8
                
                
                
                50.7
                
                
                
                75.9
                %Total
      Sales
                
                $
                1,677.7
                
                
                $
                1,128.2
                
                
                $
                549.5
                
                
                
                48.7
                %
  The 62.8%
increase in revenue for the Seating 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.  The Interior Systems segment revenue growth of 27.1%
reflected the higher level of new aircraft deliveries as well as substantial
aftermarket demand.
 
 The
Distribution segment revenue growth of 53.7% reflects a higher level of revenues
from first and second tier aerospace manufacturers and from higher military
sales.
 
 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.  Engineering Services segment revenue growth of $50.7 or
75.9% reflects the higher level of engineering design, program management and
certification activities.
 
 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 Engineering Services segment revenues,
which has gross margins which are lower than the company average.  The
$50.7 increase in Engineering Services revenues accounted for 40 basis
points of this increase.  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 Seating 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), and 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 Seating and Interior Systems segments),
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 Seating, Business Jet and
Engineering Services 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
                    
                    
                    ChangeSeating
                    
                    $
                    72.8
                    
                    
                    $
                    37.6
                    
                    
                    $
                    35.2
                    
                    
                    
                    93.6
                    %Interior
      Systems
                    
                    
                    64.8
                    
                    
                    
                    51.2
                    
                    
                    
                    13.6
                    
                    
                    
                    26.6
                    %Distribution
                    
                    
                    85.5
                    
                    
                    
                    50.4
                    
                    
                    
                    35.1
                    
                    
                    
                    69.6
                    %Business
      Jet
                    
                    
                    19.7
                    
                    
                    
                    9.4
                    
                    
                    
                    10.3
                    
                    
                    
                    109.6
                    %Engineering
      Services
                    
                    
                    4.2
                    
                    
                    
                    (0.3
                    )
                    
                    
                    4.5
                    
                    
                    NMTotal
      Sales
                    
                    $
                    247.0
                    
                    
                    $
                    148.3
                    
                    
                    $
                    98.7
                    
                    
                    
                    66.6
                    %


For the
year ended December 31, 2007, Seating segment operating earnings of $72.8
increased by $35.2, or 93.6%, due to both a 62.8% increase in revenue and a 180
basis point expansion in operating margin.  Interior Systems segment
operating earnings of $64.8, or 18.6% of sales, increased by $13.6, or 26.6%, as
compared with the same period in the prior year primarily due to a 27.1%
increase in revenue.  The Draeger acquisition integration costs
negatively impacted Interior Systems segment margin.  The operating
margins at the Seating and Interior Systems segments 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.





Distribution
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 Distribution 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.   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.  Engineering
Services segment operating earnings improved by $4.5 as this segment continued
its transition to a profit contributor.





Interest
expense was $23.5 for 2007 and decreased by $19.3 as compared to 2006, due to
the redemption of our $250 8-7/8% 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





RESULTS
OF OPERATIONS





Year
Ended December 31, 2006 Compared to the Year Ended December 31,
2005





Net sales
for the year ended December 31, 2006 were $1,128.2, an increase of $284.1 or
33.7% as compared to the prior year.  Sales in 2006 increased over the
2005 level primarily due to a higher level of customer demand for products
offered by each of our five segments, market share gains and recent
acquisitions.





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





Fiscal
      Year Ended December 31,2006
            
            
            2005
            
            
            Change
            
            
            Percent
              ChangeSeating
            
            $
            388.5
            
            
            $
            281.8
            
            
            $
            106.7
            
            
            
            37.9
            %Interior
      Systems
            
            
            273.9
            
            
            
            205.5
            
            
            
            68.4
            
            
            
            33.3
            %Distribution
            
            
            251.5
            
            
            
            173.9
            
            
            
            77.6
            
            
            
            44.6
            %Business
      Jet
            
            
            147.5
            
            
            
            120.2
            
            
            
            27.3
            
            
            
            22.7
            %Engineering
      Services
            
            
            66.8
            
            
            
            62.7
            
            
            
            4.1
            
            
            
            6.5
            %Total
      Sales
            
            $
            1,128.2
            
            
            $
            844.1
            
            
            $
            284.1
            
            
            
            33.7
            %





The
increase in sales volume for the Seating, Interior Systems, and Engineering
Services segments was driven by a higher level of retrofit activity, demand
created by new deliveries of large commercial jets (which increased by 24%
versus deliveries in 2005), and market share gains.  Interior Systems
segment’s revenue growth rate exclusive of the impact of the Draeger acquisition
was 20.5%.  The Distribution segment delivered revenue growth of 44.6%
in 2006, primarily due to a broad-based increase in aftermarket demand for
aerospace fasteners, continued market share gains and the acquisition of New
York Fasteners.  The Distribution segment’s revenue growth rate
exclusive of the impact of the New York Fasteners acquisition was
29.7%.  Business Jet segment revenues increased by 22.7% in 2006,
reflecting strong business jet deliveries, offset by a lower level of super
first class revenues associated with A380 delivery delays.  The
acquisitions of Draeger (interior systems) and New York Fasteners (distribution)
accounted for approximately $52.1 of the consolidated revenue
growth.  Revenue growth during 2006, exclusive of these acquisitions,
was approximately 27.5%.





Cost of
sales during 2006 of $731.7, or 64.9%, of sales, increased by $183.2 or 33.4%,
as compared to 2005.





Selling,
general and administrative expenses in 2006 were $159.6, or 14.2% of sales,
versus $136.4 or 16.2% in 2005 reflecting the higher level of selling, marketing
and product support costs ($4.9), the acquisitions of Draeger and New York
Fasteners ($4.5), and higher salaries, benefits, incentive compensation and
commissions ($10.3) associated with the 33.7% increase in revenues and the over
60% increase in backlog from December 31, 2005.  Selling, general and
administrative expenses for 2005 were reduced by $1.8 of net reimbursed legal
fees in connection with the resolution of two legal matters.  Selling,
general and administrative expenses as a percentage of sales decreased by 200
basis points, reflecting the operating leverage in our business.





Research,
development and engineering expenses for 2006 were $88.6, or 7.9% of sales,
versus $65.6 or 7.8% of sales in 2005 and reflect the higher level of spending
associated with customer specific engineering, new product development
activities (primarily at the Seating and Interior Systems segments), and
acquisitions.  During 2006, we applied for 73 U.S. and foreign patents
versus 43 during 2005.





Operating
earnings of $148.3 for 2006 were $54.7 or 58.4% greater than 2005 due to both
the 33.7% revenue growth and a 200 basis point expansion in operating margin to
13.1% of sales.  Operating earnings growth, exclusive of acquisitions
was 51.2%.  The substantial increase in operating earnings was driven
primarily by continued revenue growth ($284.1), earnings growth ($54.7) and
margin expansion in the Seating, Interior Systems and Engineering Services
segments.  The consolidated 200 basis point expansion in operating
margin was achieved in spite of very poor absorption of overhead costs due to
delays in the A380 deliveries and the initially lower margins from
acquisitions.





29




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





Fiscal
      Year Ended December 31,2006
            
            
            2005
            
            
            Change
            
            
            Percent
              ChangeSeating
            
            $
            37.6
            
            
            $
            25.5
            
            
            $
            12.1
            
            
            
            47.5
            %Interior
      Systems
            
            
            51.2
            
            
            
            32.3
            
            
            
            18.9
            
            
            
            58.5
            %Distribution
            
            
            50.4
            
            
            
            34.9
            
            
            
            15.5
            
            
            
            44.4
            %Business
      Jet
            
            
            9.4
            
            
            
            7.8
            
            
            
            1.6
            
            
            
            20.5
            %Engineering
      Services
            
            
            (0.3
            )
            
            
            (6.9
            )
            
            
            6.6
            
            
            NMTotal
            
            $
            148.3
            
            
            $
            93.6
            
            
            $
            54.7
            
            
            
            58.4
            %





For 2006,
the Seating segment’s operating earnings of $37.6 increased by 47.5%, due to
both a 37.9% increase in revenue and continued expansion in operating margin to
9.7% of sales.  Operating earnings at the Interior Systems segment of
$51.2 increased by $18.9 or 58.5% as compared to 2005, due both to a 33.3%
increase in revenue and a 300 basis point expansion in operating margin to 18.7%
of sales.  The margin expansion at the Seating and Interior Systems
segments was primarily due to ongoing manufacturing efficiencies, product mix
and operating leverage at the higher sales volume.





The
Distribution segment’s operating earnings of $50.4 during 2006 increased by
$15.5 or 44.4% on a 44.6% increase in sales, reflecting further operating
efficiencies at the higher sales level and despite the temporary drag on margins
caused by the New York Fasteners acquisition.  The Business Jet
segment’s operating earnings were $9.4 in 2006, up 20.5% versus 2005, reflecting
the solid operating performance from the Company’s core Business Jet operating
results, offset by the improving, but still unsatisfactory super first class
product line operating results.  The operating results at the
Engineering Services segment improved by $6.6 as compared to 2005 due to higher
sales volume, better product mix and ongoing operational
efficiencies.





Interest
expense was $42.8 for 2006 and decreased by $18.0 as compared to 2005, due to
the redemption of $250 of our senior subordinated notes due 2008, the redemption
of approximately $175 of senior notes and the prepayment of $50.0 of bank term
debt, which together generated $19.4 of debt prepayment costs.





Earnings
before income taxes were $90.0 (and which reflected $19.4 of debt prepayment
costs), as compared to pre-tax earnings of $34.3 for 2005.  The large
increase in earnings before income taxes was due to the $54.7 or 58.4% increase
in operating earnings and the $18.0 decrease in interest expense which was
partially offset by $19.4 of debt prepayment costs.





We
recognized our U.K. deferred tax asset during the third quarter of 2006,
resulting in a tax benefit of approximately $22.9.  The deferred tax
asset was recorded as a result of the improving financial performance and
improving outlook for our U.K. operations (including substantially increased
backlog during 2006 related to U.K. operations).  Previously, we were
unable to conclude that this asset would be realized due to cumulative losses
and lower levels of backlog.  At December 31, 2006 we had net
operating loss carryforwards in the United States, United Kingdom and Germany of
approximately $305, $75 and $7, respectively, available to offset future taxable
income.





Net
earnings for 2006 were $85.6, or $1.10 per diluted share, based on approximately
78.0 million diluted shares and include one-time debt prepayment costs of $19.4
and a one-time tax benefit of $22.9 associated with the recognition of our U.K.
deferred tax asset.  Net earnings for 2005 were $84.6, or $1.39 per
diluted share, on 60.8 million diluted shares and included a one-time tax
benefit of $51.9 associated with the recognition of our U.S. net operating loss
carryforward.





30





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 primarily consists of accounts
receivable and inventories, which fluctuate with the sales of our products. Our
working capital was $711.6 as of December 31, 2007, as compared to $456.0 as of
December 31, 2006 consistent with the nearly 50% increase in
revenues. Factors impacting the change in working capital include a $215.4
increase in inventories associated with product line expansion in the
distribution segment and to support the delivery of our record backlog, and a
$45.1 increase in accounts receivable related to our 48.7% revenue growth, which
were offset by a $39.0 increase in accounts payable and accrued liabilities. At
December 31, 2007, our debt to capital ratio was 11%.  Long term debt,
less cash and cash equivalents, at December 31, 2007 stood at $70.3, which
represents total debt of $151.9 less cash and cash equivalents of
$81.6.   At December 31, 2007, there was $150.0 in term debt
outstanding under the senior secured credit facility, which consists of a $200.0
revolving credit facility and a $300.0 term loan.  There were no
borrowings outstanding under the revolving credit component of our senior
secured credit facility.  In May 2007 we redeemed the $250.0 aggregate
principal amount of 8-7/8% senior subordinated notes due 2011.





Cash
Flows





At
December 31, 2007, cash and cash equivalents was $81.6 as compared to $65.0 at
December 31, 2006.  Cash provided by operating activities was $22.0
for the year ended December 31, 2007 as compared to $41.0 during the year ended
December 31, 2006.  The primary sources of cash provided by operating
activities during 2007 were net earnings of $147.3, non-cash charges for
depreciation and amortization of $35.0, reduction in deferred income taxes
totaling $58.5, non-cash compensation aggregating $11.0 and the non-cash impact
from debt prepayment costs 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 substantial
investments in inventories offset by an increase in our accounts
payable.  The primary source of cash provided by operating activities
during 2006 were net earnings of $85.6 plus non-cash charges for depreciation
and amortization of $29.4, plus the non-cash impact from loss on debt
extinguishment of $19.4.  The primary use of cash in operating
activities during the year ended December 31, 2006 was $97.1 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 year ended December 31,
2007 was related to capital expenditures of $32.1.  The primary use of
cash from investing activities during the year ended December 31, 2006 was
related to cash paid for acquisitions, net of cash acquired, of $145.3 and
capital expenditures of $24.1.




During
2007, we redeemed $250.0 of our 8-7/8% senior subordinated notes and repaid
$100.0 of our bank term loan with proceeds from our March 2007 common stock
offering.  During 2006, we redeemed $250.0 of our 8% senior
subordinated notes with the proceeds from our December 2005 common stock
offering.





Capital
Spending





Our
capital expenditures were $32.1 and $24.1 during the years ended December 31,
2007 and 2006, respectively.  Taking into consideration our record
backlog, targeted capacity utilization levels, recent capital expenditure
investments, recent acquisitions and current industry conditions, we anticipate
capital expenditures of approximately $40 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 2001, we completed 22 acquisitions for an aggregate purchase price of
approximately $1,000.  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 in Note
2 to our Consolidated Financial Statements we recently completed two
strategic acquisitions for $146.7 in cash.





31





Outstanding
Debt and Other Financing Arrangements




Long-term
debt at December 31, 2007 consisted principally of $150.0 term loan borrowings
under our senior secured credit facility. Long term debt at December 31, 2006
consisted principally of $250 of 8-7/8% senior subordinated notes, which were
redeemed in full on May 1, 2007, and $250.0 of term borrowings under our senior
secured credit facility.





Revolving
credit borrowings under the senior secured credit facility bear interest at an
annual rate equal to the London interbank offered rate (LIBOR) plus 125 basis
points. There are no amounts outstanding under the revolving credit facility at
December 31, 2007.  Term loan borrowings under the senior secured
credit facility bear interest at an annual rate equal to LIBOR plus 175 basis
points (6.73% at December 31, 2007).





Contractual
Obligations





The
following charts reflect our contractual obligations and commercial commitments
as of December 31, 2007. 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)
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              Thereafter
              
              
              TotalLong-term
      debt and other non-current liabilities
              
              $
              1.9
              
              
              $
              1.4
              
              
              $
              1.9
              
              
              $
              1.9
              
              
              $
              146.9
              
              
              $
              9.0
              
              
              $
              163.0Operating
      leases
              
              
              20.1
              
              
              
              14.2
              
              
              
              11.4
              
              
              
              10.4
              
              
              
              9.4
              
              
              
              71.3
              
              
              
              136.8Purchase
      obligations (2)
              
              
              18.2
              
              
              
              5.1
              
              
              
              1.5
              
              
              
              0.5
              
              
              
              0.5
              
              
              
              0.5
              
              
              
              26.3Future
      interest payment on outstanding debt (3)
              
              
              11.0
              
              
              
              10.8
              
              
              
              10.8
              
              
              
              10.8
              
              
              
              5.7
              
              
              
              0.1
              
              
              
              49.2Total
              
              $
              51.2
              
              
              $
              31.5
              
              
              $
              25.6
              
              
              $
              23.6
              
              
              $
              162.5
              
              
              $
              80.9
              
              
              $
              375.3Commercial
      CommitmentsLetters
      of Credit
              
              $
              24.0
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              $
              24.0




(1)
              Our
      liability for unrecognized tax benefits of $9.2 at December 31, 2007 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 the $150.0 outstanding on the
      term loan of our senior secured credit facility based on the actual
      interest rate at December 31, 2007.  Actual interest payments
      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.
 
 32
 
 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 $136.8 at December 31, 2007.
 
 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
 
 During the
third quarter of 2006 we recognized our U.K. deferred tax asset resulting in a
tax benefit of approximately $22.9.  The deferred tax asset was
recorded as a result of our improved performance and outlook for our U.K.
operations.
 
 We
maintained a valuation allowance of $9.8 as of December 31, 2007 primarily
related to our domestic capital loss carryforwards because of uncertainties that
preclude us from determining that it is more likely than not that we will be
able to generate sufficient capital gain income and realize this tax benefit
during the applicable carryforward period.
 
 33
 
 RECENT
ACCOUNTING PRONOUNCEMENTS
 
 In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS
157) which provides guidance for measuring assets and liabilities at fair
value.  SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007.  The adoption of SFAS
157 is not expected to have a material impact on our 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 is effective for fiscal years beginning after November 15,
2007.  The adoption of SFAS 159 is not expected to have a material
impact on the Company’s consolidated financial statements.
 
 On
December 4, 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), “Business Combinations” (FAS 141 (R)) and No. 160,
“Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 (FAS 160)”.  FAS 141(R) will change how business
acquisitions are accounted for and FAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity.  FAS
141(R) and FAS 160 are effective for fiscal years beginning on or after December
15, 2008 (January 1, 2009 for our company).The adoption of FAS
141(R) and FAS 160 are not expected to have a material impact on the Company’s
consolidated financial statements.
 
 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, generally using the
cost-to-cost method. The percentage-of-completion method requires the use of
estimates of costs to complete long-term contracts. The estimation of these
costs requires judgment on the part of management due to the duration of these
contracts as well as the technical nature of the products involved. Adjustments
to these estimated costs are made on a consistent basis. 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.  A provision for contract losses is recorded when such
facts are determinable.
 
 We sell
our products primarily to airlines and aircraft manufacturers worldwide,
including occasional sales collateralized by letters of credit. We perform
ongoing credit evaluations of our customers and maintain reserves for estimated
credit losses. Actual losses have been within management's expectations. We
apply judgment to ensure that the criteria for recognizing sales are
consistently applied and achieved for all recognized sales
transactions.
  34
 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 (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.  As
demonstrated since the events of September 11, 2001, 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. 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.
 
 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 $9.8 as of December 31, 2007,
due to uncertainties related to our ability to utilize our deferred tax assets,
primarily consisting of our domestic capital loss 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.
  35
  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, 2007, 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, 2007, we had adjustable rate debt of $150.0. The weighted average interest
rate for the adjustable rate debt was approximately 6.7% at December 31, 2007.
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 pretax income
by $1.0. We do not engage in transactions intended to hedge our exposure to
changes in interest rates.
 
 As of
December 31, 2007, 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
$0.3.
 
 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, 2007, 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.
 
 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 2007 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
 
 36
 
 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, 2007.  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, 2007, 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, Chief
      Financial Officer and TreasurerFebruary
      15, 2008
                
                
                February
      15, 2008




37





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, 2007, based on criteria
established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. 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, 2007, 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,
2007, of the Company and our report dated February 15, 2008, 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 LLPCosta
      Mesa, CaliforniaFebruary
      15, 2008




38




ITEM
9B.                     OTHER
INFORMATION





On
February 15, 2008, our compensation committee unanimously approved amendments to
the 2005 B/E Aerospace, Inc. Management Incentive Plan (the "Plan"), under which
the following individuals are eligible to receive bonuses with respect to
calendar year 2008:  the Chairman and Chief Executive Officer; the
President and Chief Operating Officer; the Senior Vice President, Chief
Financial Officer and Treasurer; and the other Vice Presidents (including all of
the named executive officers),  General Managers, and other members of
management.  The Plan is intended to reward and encourage significant
contributions to the success of the Company and its respective businesses. The
Plan was amended to provide that the 2008 bonuses will be based upon the
achievement of two components: performance objectives (weighted at 80%) and
individual strategic initiatives (weighted at 20%). The performance objectives
for 2008 are EBIT (weighted at 30%), Operating Cash Flow (as defined) (weighted
at 30%), Bookings (weighted at 20%) and Operating Margin (weighted at
20%).
  The 2008
targets for each performance measure were approved by our compensation
committee. The Plan now provides that, in general, no payments will be made
under the Plan with respect to a particular performance objective unless the
Company or the participant’s business unit exceeds 80% of the targets for the
applicable performance objective.  Previously this threshold level for
performance objectives was 90%, and bonuses were awarded based on achievement of
the performance objectives.
  Named
executive officer participants in the Plan will be eligible to receive a target
bonus of 68-85% of their base salaries and a targeted maximum bonus of 80-100%
of base salary, depending on their title and position,    If
the Company or the participant’s business unit (as appropriate) exceeds the
target performance objectives by 110% or more, and the participant’s individual
performance is at a superior level, the participant will be eligible to receive
up to an additional 10% or 20% of his or her base salary (depending on the
participant’s title), resulting in a maximum bonus of up to 100%-120% of the
participant's base salary, depending on their title and position. Previously, a
participant could realize up to an additional 5% for each financial performance
objective which exceeded targeted levels, resulting in a maximum bonus of up to
120% of their base salary.


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 15, 2008. Officers of the Company are elected annually
by the Board of Directors.




Title
              Age
              
              PositionAmin
      J. Khoury
              
              68
              
              Chairman
      of the Board and Chief Executive OfficerCharles
      L. Chadwell
              
              67
              
              Director
      (2),(3)Jim
      C. Cowart
              
              56
              
              Director
      (1),(3)Richard
      G. Hamermesh
              
              60
              
              Director
      (1),(3)Robert
      J. Khoury
              
              65
              
              DirectorJonathan
      M. Schofield
              
              67
              
              Director
      (2),(3)Arthur
      E. Wegner
              
              64
              
              Director
      (1),(3)Michael
      B. Baughan
              
              48
              
              President
      and Chief Operating OfficerThomas
      P. McCaffrey
              
              53
              
              Senior
      Vice President, Chief Financial Officer and TreasurerWayne
      Exton
              
              44
              
              Vice
      President and General Manager, Business Jet SegmentWerner
      Lieberherr
              
              49
              
              Vice
      President and General Manager, Commercial Aircraft Products
      GroupRobert
      A. Marchetti
              
              65
              
              Vice
      President and General Manager, Distribution SegmentEdmund
      J. Moriarty
              
              64
              
              Vice
      President-Law, General Counsel and SecretaryStephen
      R. Swisher
              
              49
              
              Vice
      President-Finance and
Controller




________(1)
              Member,
      Audit Committee(2)
              Member,
      Compensation Committee(3)
              Member,
      Nominating and Governance Committee




39




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.
 
 Jim C. Cowart has been a
Director since November 1989.  Since September 2005, Mr. Cowart has
been a Director of EAG Limited, a company listed on the London Stock Exchange,
which is a provider of 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 Industrie, 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.
  40
  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.
 
 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 of our Commercial Aircraft Products Group,
which is comprised of our Seating, Interior Products and Engineering Systems
segments; 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 of the super first class division of the Business
Jet Segment.  Prior to joining our company, Mr. Exton spent nine years
at the 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
Britax 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 of Fastener Distribution 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 of Finance from 1994 to 1996. Prior
to 1994, Mr. Swisher held various management positions at Burger King
Corporation and Deloitte & Touche LLP.
 
 41
  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.
 
 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, 2007,
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.
 
 42
 
 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.
 
 43
 
 PART
IV
 
 ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
  (a)
                Documents
      filed as part of report on Form 10-K1.
      Financial StatementsReport
      of Independent Registered Public Accounting FirmConsolidated
      Balance Sheets, December 31, 2007 and December 31, 2006Consolidated
      Statements of Earnings and Comprehensive Income for the Fiscal Years Ended
      December 31, 2007, 2006, and 2005Consolidated
      Statements of Stockholders' Equity for the Fiscal Years Ended December 31,
      2007, 2006, and 2005Consolidated
      Statements of Cash Flows for the Fiscal Years Ended December 31, 2007,
      2006, and 2005Notes
      to Consolidated Financial Statements for the Fiscal Years Ended December
      31, 2007, 2006, and 20052.
      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 byreference
      as set forth below.(c)
                Additional
      Financial Statement Schedules –
None.




44




INDEX TO EXHIBITSExhibit
              DescriptionNumberExhibit
      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
    (4)3.4
              Certificate
      of Amendment of the Restated Certificate of Incorporation
    (12)3.5
              Amended
      and Restated By-Laws (13)3.6
              Certificate
      of Amendment of the Restated Certificate of Incorporation
    (15)Exhibit
      4
              Instruments
      Defining the Rights of Security Holders, including
    debentures4.1
              Specimen
      Common Stock Certificate (1)4.2
              Rights
      Agreement between the Registrant and BankBoston, N.A., as rights agent,
      dated as of November 12, 1998 (5)Exhibit
      10(i)
              Material
      Contracts10.1
              Credit
      Agreement, dated as of July 26, 2006, among the Registrant, J.P. Morgan
      Securities Inc., UBS Securities LLC and Credit Suisse Securities (USA)
      LLC, as Joint Lead Arrangers and Joint Bookrunners, and JPMorgan Chase
      Bank, N.A., as Administrative Agent (16)10.2
              Amended
      and Restated Credit Agreement, dated as of August 24, 2006, among the
      Registrant, J.P. Morgan Securities Inc., UBS Securities LLC and Credit
      Suisse Securities (USA) LLC, as Joint Lead Arrangers and Joint
      Bookrunners, and JPMorgan Chase Bank, N.A., as Administrative Agent
      (17)Exhibit
      10(iii)
              Management
      Contracts and Executive Compensation Plans, Contracts and
      Arrangements10.3
              Amended
      and Restated Employment Agreement for Amin J. Khoury dated as of April 27,
      2007 (20)10.4
              Amended
      and Restated Employment Agreement for Thomas P. McCaffrey dated as of
      April 27, 2007 (20)10.5
              Amended
      and Restated Employment Agreement for Michael B. Baughan dated as of April
      27, 2007 (20)10.6
              Employment
      Agreement dated as of January 15, 2001 between the Registrant and Mark D.
      Krosney (11)10.7
              Employment
      Agreement dated as of February 26, 2001 between the Registrant and Robert
      A. Marchetti (11)10.8
              Retirement
      Agreement dated as of December 31, 2005 between the Registrant and Robert
      J. Khoury (19)10.9
              Consulting
      Agreement dated as of December 31, 2005 between the Registrant and Robert
      J. Khoury (19)10.10
              Amended
      and Restated 1989 Stock Option Plan (9)10.11
              Amendment
      No. 1 to Amended and Restated 1989 Stock Option Plan
(7)10.12
              1991
      Directors' Stock Option Plan (3)10.13
              United
      Kingdom 1992 Employee Share Option Scheme (2)10.14
              1996
      Stock Option Plan (9)10.15
              Amendment
      No. 1 to the 1996 Stock Option Plan (7)10.16
              Amendment
      No. 2 to the 1996 Stock Option Plan (8)10.17
              2001
      Stock Option Plan (10)10.18
              2001
      Directors' Stock Option Plan (10)10.19
              Supplemental
      Executive Deferred Compensation Plan III (6)10.20
              BE
      Aerospace, Inc. Management Incentive Plan (100%) - FY
  2008*10.21
              BE
      Aerospace, Inc. Management Incentive Plan (80%) - FY
      2008*10.22
              BE
      Aerospace, Inc. Management Incentive Plan (60%) - FY
      2008*10.23
              2005
      Long-Term Incentive Plan (14)10.24
              Standard
      Form of Restricted Stock Award Agreement (20)10.25
              Form
      of Restricted Stock Award Agreement for Amin J. Khoury
  (20)10.26
              Form
      of Restricted Stock Award Agreement for Thomas P. McCaffrey
      (20)10.27
              Form
      of Restricted Stock Award Agreement for Michael B. Baughan
      (20)




45




10.28
              Form
      of Restricted Stock Award Agreement for Robert A. Marchetti
      (20)10.29
              Amended
      and Restated 1994 Employee Stock Purchase Plan (18)Exhibit
      14
              Code
      of Ethics14.1
              Code
      of Business Conduct (13)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-8 (No.
      333-48010), filed with the Commission on May 26, 1992.(4)
              Incorporated
      by reference to the Company’s Registration Statement on Form S-3 (No.
      333-60209), filed with the Commission on July 30, 1998.(5)
              Incorporated
      by reference to the Company’s Current Report on Form 8-K dated November
      12, 1998, filed with the Commission on November 18,
  1998.(6)
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended May 29, 1999, filed with the Commission on July 9,
      1999.(7)
              Incorporated
      by reference to the Company’s Registration Statement on Form S-8 (No.
      333-89145), filed with the Commission on October 15,
  1999.(8)
              Incorporated
      by reference to the Company’s Registration Statement on Form S-8 (No.
      333-30578), filed with the Commission on February 16,
  2000.(9)
              Incorporated
      by reference to the Company's Registration Statement on Form S-8 (No.
      333-14037), filed with the Commission on October 15,
  1996.(10)
              Incorporated
      by reference to the Company's Registration Statement on Form S-8 (No.
      333-71442), filed with the Commission on October 11,
  2001.(11)
              Incorporated
      by reference to the Company's Annual Report on Form 10-K/A for the fiscal
      year ended February 23, 2002, filed with the Commission on May 29,
      2002.(12)
              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.(13)
              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.




46




(14)
              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.(15)
              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.(16)
              Incorporated
      by reference to the Company’s Current Report on Form 8-K dated July 26,
      2006, filed with the Commission on July 31, 2006.(17)
              Incorporated
      by reference to the Company’s Current Report on Form 8-K dated August 24,
      2006, filed with the Commission on August 29, 2006.(18)
              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.(19)
              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.(20)
              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




47




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
15, 2008





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
      15, 2008Amin
      J. Khoury/s/
      Thomas P. McCaffrey
              
              Senior
      Vice President, Chief Financial Officer and Treasurer
              February
      15, 2008Thomas
      P. McCaffrey
              
              (principal
      financial and accounting officer)/s/
      Charles L. Chadwell
              
              Director
              February
      15, 2008Charles
      L. Chadwell/s/
      Jim C. Cowart
              
              Director
              February
      15, 2008Jim
      C. Cowart/s/
      Richard G. Hamermesh
              
              Director
              February
      15, 2008Richard
      G. Hamermesh/s/
      Robert J. Khoury
              
              Director
              February
      15, 2008Robert
      J. Khoury/s/
      Jonathan M. Schofield
              
              Director
              February
      15, 2008Jonathan
      M. Schofield/s/
      Arthur E. Wegner
              
              Director
              February
      15, 2008Arthur
      E. Wegner




48




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, 2007 and
      2006
              
              F-3Consolidated Statements of Earnings and Comprehensive
      Income for the Fiscal Years Ended December 31, 2007, 2006, and
      2005
              
              F-4Consolidated Statements of Stockholders' Equity
      for the Fiscal Years Ended December 31, 2007, 2006, and
      2005
              
              F-5Consolidated Statements of Cash Flows for the
      Fiscal Years Ended December 31, 2007, 2006, and 2005
              
              F-6Notes to Consolidated Financial Statements for the
      Fiscal Years Ended December 31, 2007, 2006, and 2005
              
              F-7Consolidated
      Financial Statement Schedule:Schedule II - Valuation and Qualifying Accounts for the
      Fiscal Years Ended December 31, 2007, 2006, and 2005
              
              F-24




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, 2007 and 2006, and the
related consolidated statements of earnings and comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2007. 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, 2007 and 2006, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2007, 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 10 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes, in 2007.
 
 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, 2007, 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 15, 2008 expressed an
unqualified opinion on the Company's internal control over financial
reporting.
  
  /s/
Deloitte & Touche LLP
 Costa
Mesa, California
 February
15, 2008
  F-2
 CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 2007 AND
2006
 (In
millions, except per share data)
  December
      31,
                
                
                December
      31,2007
                
                
                2006ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                81.6
                
                
                $
                65.0Accounts
      receivable trade, net
                
                
                218.0
                
                
                
                172.9Inventories,
      net
                
                
                636.3
                
                
                
                420.9Deferred
      income taxes, net
                
                
                62.4
                
                
                
                53.1Other
      current assets
                
                
                21.7
                
                
                
                13.8Total
      current assets
                
                
                1,020.0
                
                
                
                725.7Property
      and equipment, net
                
                
                116.4
                
                
                
                107.9Goodwill
                
                
                467.2
                
                
                
                457.2Identifiable
      intangible assets, net
                
                
                142.2
                
                
                
                160.6Deferred
      income taxes, net
                
                
                --
                
                
                
                27.9Other
      assets, net
                
                
                26.2
                
                
                
                18.4$
                1,772.0
                
                
                $
                1,497.7LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                192.1
                
                
                $
                166.9Accrued
      liabilities
                
                
                114.7
                
                
                
                100.9Current
      maturities of long-term debt
                
                
                1.6
                
                
                
                1.9Total
      current liabilities
                
                
                308.4
                
                
                
                269.7Long-term
      debt, net of current maturities
                
                
                150.3
                
                
                
                502.0Deferred
      income taxes, net
                
                
                34.9
                
                
                
                10.0Other
      non-current liabilities
                
                
                20.3
                
                
                
                10.0Commitments,
      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;
      93.1 (December 31, 2007) and79.5
      (December 31, 2006) shares issuedand
      outstanding
                
                
                0.9
                
                
                
                0.8Additional
      paid-in capital
                
                
                1,324.3
                
                
                
                927.2Accumulated
      deficit
                
                
                (89.7
                )
                
                
                (234.8
                )Accumulated
      other comprehensive income
                
                
                22.6
                
                
                
                12.8Total
      stockholders' equity
                
                
                1,258.1
                
                
                
                706.0$
                1,772.0
                
                
                $
                1,497.7
 See
accompanying notes to consolidated financial statements.
 F-3




CONSOLIDATED
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
 FOR THE
FISCAL YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 (In
millions, except per share data)
  Fiscal
      Years Ended December 31,2007
                
                
                2006
                
                
                2005Net
      sales
                
                $
                1,677.7
                
                
                $
                1,128.2
                
                
                $
                844.1Cost
      of sales
                
                
                1,107.6
                
                
                
                731.7
                
                
                
                548.5Selling,
      general and administrative
                
                
                195.2
                
                
                
                159.6
                
                
                
                136.4Research,
      development and engineering
                
                
                127.9
                
                
                
                88.6
                
                
                
                65.6Operating
      earnings
                
                
                247.0
                
                
                
                148.3
                
                
                
                93.6Interest
      expense, net
                
                
                20.9
                
                
                
                38.9
                
                
                
                59.3Debt
      prepayment costs
                
                
                11.0
                
                
                
                19.4
                
                
                
                --Earnings
      before income taxes
                
                
                215.1
                
                
                
                90.0
                
                
                
                34.3Income
      tax expense (benefit)
                
                
                67.8
                
                
                
                4.4
                
                
                
                (50.3
                )Net
      earnings
                
                
                147.3
                
                
                
                85.6
                
                
                
                84.6Other
      comprehensive income:Foreign
      exchange translationadjustment
      and other
                
                
                9.8
                
                
                
                17.5
                
                
                
                (13.7
                )Comprehensive
      income
                
                $
                157.1
                
                
                $
                103.1
                
                
                $
                70.9Net
      earnings per share - basic
                
                $
                1.67
                
                
                $
                1.11
                
                
                $
                1.44Net
      earnings per share - diluted
                
                $
                1.66
                
                
                $
                1.10
                
                
                $
                1.39Weighted
      average common shares - basic
                
                
                88.1
                
                
                
                77.1
                
                
                
                58.8Weighted
      average common shares - diluted
                
                
                88.8
                
                
                
                78.0
                
                
                
                60.8




See
accompanying notes to consolidated financial statements.
  F-4




CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
 FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006, AND 2005
 (In
millions)
  AccumulatedAdditional
                
                
                
                
                
                Other
                
                
                TotalCommon Stock
                
                
                Paid-in
                
                
                Accumulated
                
                
                Comprehensive
                
                
                Stockholders'Shares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                Income (Loss)
                
                
                EquityBalance,
      December 31, 2004
                
                
                56.6
                
                
                $
                0.6
                
                
                $
                578.2
                
                
                $
                (405.0
                )
                
                $
                9.0
                
                
                $
                182.8Sale
      of common stockunder
      public offering
                
                
                15.0
                
                
                
                0.1
                
                
                
                268.6
                
                
                
                --
                
                
                
                --
                
                
                
                268.7Sale
      of stock underemployee
      stock purchase plan
                
                
                0.2
                
                
                
                --
                
                
                
                2.8
                
                
                
                --
                
                
                
                --
                
                
                
                2.8Exercise
      of stock options
                
                
                2.3
                
                
                
                --
                
                
                
                13.5
                
                
                
                --
                
                
                
                --
                
                
                
                13.5Employee
      benefit planmatching
      contribution
                
                
                0.2
                
                
                
                --
                
                
                
                2.9
                
                
                
                --
                
                
                
                --
                
                
                
                2.9Deferred
      income tax benefitfrom
      shared based payments
                
                
                --
                
                
                
                --
                
                
                
                28.0
                
                
                
                --
                
                
                
                --
                
                
                
                28.0Net
      earnings
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                84.6
                
                
                
                --
                
                
                
                84.6Foreign
      currency translationadjustment
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (13.7
                )
                
                
                (13.7
                )Balance,
      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 benefit (cost)from
      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 FIN48
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (2.3
                )
                
                
                --
                
                
                
                (2.3
                )Balance,
      December 31, 2007
                
                
                93.1
                
                
                $
                0.9
                
                
                $
                1,324.3
                
                
                $
                (89.7
                )
                
                $
                22.6
                
                
                $
                1,258.1




See
accompanying notes to consolidated financial statements.
  F-5




CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006, AND 2005
 (In
millions)
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      earnings
                
                $
                147.3
                
                
                $
                85.6
                
                
                $
                84.6Adjustments
      to reconcile net earnings tonet
      cash flows provided by operating activities:Depreciation
      and amortization
                
                
                35.0
                
                
                
                29.4
                
                
                
                28.6Deferred
      income taxes
                
                
                58.5
                
                
                
                (0.6
                )
                
                
                (51.9
                )Excess
      tax benefits (cost) from share-based payments
                
                
                --
                
                
                
                (0.7
                )
                
                
                28.0Non-cash
      compensation
                
                
                11.0
                
                
                
                2.7
                
                
                
                4.1Provision
      for doubtful accounts
                
                
                0.6
                
                
                
                1.8
                
                
                
                0.5Loss
      on disposal of property and equipment
                
                
                0.5
                
                
                
                0.5
                
                
                
                1.0Debt
      prepayment costs
                
                
                11.0
                
                
                
                19.4
                
                
                
                --Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (43.2
                )
                
                
                (16.2
                )
                
                
                (46.7
                )Inventories
                
                
                (212.9
                )
                
                
                (155.7
                )
                
                
                (28.9
                )Other
      current assets and other assets
                
                
                (19.2
                )
                
                
                8.3
                
                
                
                (30.8
                )Payables,
      accruals and other liabilities
                
                
                33.4
                
                
                
                66.5
                
                
                
                24.1Net
      cash flows provided by operating activities
                
                
                22.0
                
                
                
                41.0
                
                
                
                12.6CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
                
                
                (32.1
                )
                
                
                (24.1
                )
                
                
                (16.9
                )Acquisitions,
      net of cash acquired
                
                
                (0.4
                )
                
                
                (145.3
                )
                
                
                --Other
                
                
                (0.1
                )
                
                
                --
                
                
                
                1.6Net
      cash flows used in investing activities
                
                
                (32.6
                )
                
                
                (169.4
                )
                
                
                (15.3
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from common stock issued, net of expenses
                
                
                386.1
                
                
                
                30.0
                
                
                
                285.1Principal
      payments on long term debt
                
                
                (352.8
                )
                
                
                (549.5
                )
                
                
                (0.9
                )Debt
      facility and prepayment costs
                
                
                (7.4
                )
                
                
                (19.2
                )
                
                
                --Proceeds
      from long-term debt
                
                
                --
                
                
                
                373.6
                
                
                
                --Borrowings
      on line of credit
                
                
                93.0
                
                
                
                150.0
                
                
                
                --Repayments
      on line of credit
                
                
                (93.0
                )
                
                
                (150.0
                )
                
                
                --Net
      cash flows provided by (used in) financing activities
                
                
                25.9
                
                
                
                (165.1
                )
                
                
                284.2Effect
      of foreign exchange rate changes on cash and cash
    equivalents
                
                
                1.3
                
                
                
                2.5
                
                
                
                (1.8
                )Net
      increase (decrease) in cash and cash equivalents
                
                
                16.6
                
                
                
                (291.0
                )
                
                
                279.7Cash
      and cash equivalents, beginning of year
                
                
                65.0
                
                
                
                356.0
                
                
                
                76.3Cash
      and cash equivalents, end of year
                
                $
                81.6
                
                
                $
                65.0
                
                
                $
                356.0Supplemental
      disclosures of cash flow information:Cash
      paid during period for:Interest
                
                $
                26.6
                
                
                $
                49.0
                
                
                $
                57.8Income
      taxes
                
                
                8.0
                
                
                
                1.6
                
                
                
                3.2




See accompanying
notes to consolidated financial statements.




F-6




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006 AND 2005
 (In
millions, except 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.  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, the Company recognizes 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, generally using the
cost-to-cost method.  The percentage-of-completion method requires the
use of estimates of costs to complete long-term contracts.  The
estimation of these costs requires judgment on the part of management due to the
duration of these contracts as well as the technical nature of the products
involved.  Adjustments to these estimated costs are made on a
consistent basis.  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.  A provision for
contract losses is recorded when such facts are determinable.
 
 Income Taxes– The Company provides
deferred income taxes for temporary differences between 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.
 
 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.  Credit losses have historically been within management's
expectations and the provisions established.  Our allowance for
doubtful accounts at December 31, 2007 and 2006 was $4.5 and $4.7,
respectively.
 
 F-7
 
 Inventories –The Company
values inventory at the lower of cost (FIFO or weighted average cost method) or
market.  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.
  Debt Issuance Costs – Costs
incurred to issue debt are deferred and amortized as interest expense over the
term of the related debt.
  Goodwill and Identified Intangible
Assets– Under
Statement of Financial Accounting Standards (“SFAS”) No. 142, "Goodwill and
Other Intangible Assets”, 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.  In addition to
goodwill, intangible assets with indefinite lives consist of the M & M
trademark.  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 would be recognized if the implied fair value of the
asset being tested was less than its carrying value.  In this event,
the asset is written down accordingly.  In accordance with SFAS No.
142, the Company completed step one of the impairment tests and fair value
analysis for goodwill and other intangible assets, and there were no impairments
or impairment indicators present and no impairment loss was recorded during the
fiscal years ended December 31, 2007, 2006 or 2005.
  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.  The following table provides a
reconciliation of the activity related to the Company's accrued warranty
expense:
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005Balance
      at beginning of period
                
                $
                18.4
                
                
                $
                14.3
                
                
                $
                13.2Accruals
      for warranties issued during the period
                
                
                24.5
                
                
                
                12.7
                
                
                
                13.6Settlement
      made
                
                
                (22.3
                )
                
                
                (9.2
                )
                
                
                (12.5
                )Acquistions
                
                
                --
                
                
                
                0.6
                
                
                
                --Balance
      at end of period
                
                $
                20.6
                
                
                $
                18.4
                
                
                $
                14.3




Accounting for Stock-Based
Compensation– Prior to January 1, 2006 the Company applied Accounting
Principles Board Opinion No. 25 “Accounting for Stock Issues to Employees”, and
related interpretations in accounting for its stock option and purchase
plans.  Effective January 1, 2006, the Company began accounting for
share-based compensation arrangements in accordance with the provisions of SFAS
No. 123(R), “Share Based Payment” (SFAS No. 123(R)) whereby share-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. The Company
elected to use the modified prospective transition method as permitted by SFAS
No. 123(R) and therefore has not restated the financial results for prior
periods.
 
 Commencing
January 1, 2006, compensation cost includes all share-based payments granted
subsequent to January 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS No. 123(R).  No compensation
cost has been recognized during 2006 or 2007 for share-based payments granted
prior to January 1, 2006 as the vesting of all remaining unvested awards were
accelerated in December 2005 and no options were granted during the two year
period ended December 31, 2007.  The following table illustrates the
effects of options and employee purchase rights granted prior to January 1, 2006
on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123(R) for the fiscal year ended December
2005.  The fair value of each option grant is estimated on the date of
grant using the Black-Scholes options-pricing model with the following weighted
average assumptions used for options granted during the year ended December 31,
2005; risk free rate of 4.1%, dividend yield of 0%, volatility of 65%, and
expected life (years) of 2.2.
  F-8




As
      reportedNet
      earnings
              
              $
              84.6Add:
      Stock-based compensation expense included inreported
      net earnings, net of tax effects
              
              
              0.7Deduct:
      Expense per SFAS No. 123 (R), fair valuemethod,
      net of related tax effects
              
              
              (6.3
              )Pro
      forma net earnings
              
              $
              79.0Net
      earnings per share - basic:As
      reported
              
              $
              1.44Proforma
              
              $
              1.34Net
      earnings per share - diluted:As
      reported
              
              $
              1.39Proforma
              
              $
              1.30




Prior to
the adoption of SFAS No. 123(R), the Company presented all tax benefits
resulting from the exercise of stock options as operating cash flows in the
Statement of Cash Flows.  SFAS No. 123(R) requires the cash flows
resulting from the tax benefits from tax deductions in excess of deferred tax
asset (hypothetical and actual) recorded for stock compensation costs (excess
tax benefits) to be classified as financing cash flows.
 
 The
Company has established a qualified Employee Stock Purchase Plan.  The
Plan allows qualified employees (as defined) 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 value of employee purchase rights granted pursuant to the
Company’s Employee Stock Purchase Plan during the years ended December 31, 2007,
2006 and 2005 was $0.5, $0.4 and $1.7, respectively.  The fair value
of those 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.
 
 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.
 
 Recent
Accounting Pronouncements
  In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS
157) which provides guidance for measuring assets and liabilities at fair
value.  SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007.  The adoption of SFAS
157 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 is effective for fiscal years beginning after November 15,
2007.  The adoption of SFAS 159 is not expected to have a material
impact on the Company’s consolidated financial statements.
  In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), “Business Combinations” (FAS 141 (R)) and No. 160,
“Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 (FAS 160)”.  FAS 141(R) will change how business
acquisitions are accounted for and FAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity.  FAS
141(R) and FAS 160 are effective for fiscal years beginning on or after December
15, 2008 (January 1, 2009 for the Company).The adoption of FAS
141(R) and FAS 160 will not have a material impact on the Company’s consolidated
financial statements.
 
 F-9
 
 2.  BUSINESS
COMBINATIONS
 
 During
2006, the Company completed two acquisitions which were accounted for as
purchases under SFAS No. 141, “Business Combinations”.  The assets
purchased and liabilities assumed for these acquisitions have been reflected in
the accompanying consolidated balance sheet as of December 31, 2006 and the
results of operations for the acquisitions are included in the accompanying
consolidated statement of earnings from the respective dates of
acquisition.
 
 Draeger
Aerospace GmbH
 On July
26, 2006, the Company acquired Draeger Aerospace GmbH (Draeger), from Cobham PLC
of Dorset, England for $79.4 in cash.
  Draeger
manufactures components and integrated systems to supply chemical and gaseous
oxygen systems for both civil and military aircraft.  The integration
of Draeger with the Company’s existing oxygen systems business will provide for
a broadening of the Company’s oxygen systems product line and an expansion of
its customer base.
  The excess
of the purchase price over the fair value of the identifiable net tangible
assets acquired approximated $57.7 of which $13.7 has been allocated to
intangible assets and $44.0 is included in goodwill.  Adjustments to
identified assets and goodwill relate to changes to deferred tax balances
resulting in part from the finalization of the acquisition appraisal during
2007.
 
 New
York Fasteners Corp.
 On
September 1, 2006, the Company acquired New York Fasteners Corp. (New York
Fasteners), a privately-held company, for $67.3 in cash.
 
 New York
Fasteners is a distributor of aerospace fasteners and hardware primarily to the
military sector.  The integration of New York Fasteners into the
Company’s distribution segment is expected to create procurement and operations
synergies and significantly expand the Company’s overall penetration into the
military sector.
 
 The
estimated excess of the purchase price over the fair value of identifiable net
tangible assets acquired was $48.3 of which $5.5 has been allocated to
intangible assets and $42.8 is included in goodwill.
 
 The
following table summarizes the fair values of assets acquired and liabilities
assumed:
  Cash
      and cash equivalents
                
                $
                1.0Accounts
      receivable-trade
                
                
                19.9Inventories
                
                
                35.3Other
      current assets
                
                
                0.1Property
      and equipment
                
                
                4.4Goodwill
                
                
                86.8Identified
      intangibles
                
                
                19.2Long
      term deferred tax asset
                
                
                1.8Other
      assets
                
                
                1.4Accounts
      payable and accrued liabilities
                
                
                (23.1
                )Other
      liabilities
                
                
                (0.1
                )Total
      purchase price
                
                $
                146.7




F-10




Goodwill
of $42.8 and other intangibles of $5.5 related to the New York Fasteners
acquisition are expected to be deductible for U.S. tax
purposes.
 Consolidated
pro forma revenues for fiscal years 2006 and 2005, giving effect to the New York
Fasteners and Draeger acquisitions as if they had occurred on January 1, 2006
and 2005 were $1,190.0 and $919.6, respectively.  Consolidated pro
forma net earnings, and diluted net earnings per share giving effect to the New
York Fasteners and Draeger acquisitions as if they had occurred on January 1,
2006 and 2005 were $82.8 and $82.5, and $1.06 and $1.36,
respectively.
 
 
 3.       INVENTORIES
 
 Inventories
are stated at the lower of cost or market.  Cost is determined using
FIFO or the weighted average cost method.  Finished goods and
work-in-process inventories include material, labor and manufacturing overhead
costs.  Inventories consist of the following:
  December
      31,
                
                
                December
      31,2007
                
                
                2006Purchased
      materials and component parts
                
                $
                132.2
                
                
                $
                96.8Work-in-process
                
                
                37.7
                
                
                
                21.7Finished
      goods (primarily aftermarket fasteners)
                
                
                466.4
                
                
                
                302.4$
                636.3
                
                
                $
                420.9


4.
            PROPERTY
      AND EQUIPMENT





Property
and equipment are stated at cost and depreciated and amortized generally on 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).  Property and equipment consist of the
following:




Useful
      Life
              
              
              December
      31,
              
              
              December
      31,(Years)
              
              
              2007
              
              
              2006Land,
      buildings and improvements
              
              
              5 - 50
              
              
              $
              48.2
              
              
              $
              42.4Machinery
              
              
              5 - 20
              
              
              
              69.0
              
              
              
              68.0Tooling
              
              
              3 - 20
              
              
              
              30.2
              
              
              
              22.6Computer
      equipment and software
              
              
              3 - 15
              
              
              
              113.1
              
              
              
              103.7Furniture
      and equipment
              
              
              3 - 15
              
              
              
              14.5
              
              
              
              13.3275.0
              
              
              
              250.0Less
      accumulated depreciation
              
              
              
              
              
              
              (158.6
              )
              
              
              (142.1
              )$
              116.4
              
              
              $
              107.9




Aggregate
depreciation expense was $23.9, $19.1 and $18.8 for the fiscal years ended
December 31, 2007, 2006 and 2005 respectively.


5.         GOODWILL
AND INTANGIBLE ASSETS
 
 In
accordance with SFAS No. 142, the Company’s goodwill and indefinite life
intangible assets are not amortized, but are subject to an annual impairment
test.  The following sets forth the intangible assets by major asset
class, all of which were acquired through business acquisition
transactions:
  F-11




December
      31, 2007
              
              
              December
      31, 2006Net
              
              
              
              
              
              
              
              
              NetUseful
      Life
              
              
              Original
              
              
              Accumulated
              
              
              Book
              
              
              Original
              
              
              Accumulated
              
              
              Book(Years)
              
              
              Cost
              
              
              Amortization
              
              
              Value
              
              
              Cost
              
              
              Amortization
              
              
              ValueAcquired
      technologies
              
              
              10-40
              
              
              $
              100.2
              
              
              $
              29.7
              
              
              $
              70.5
              
              
              $
              99.5
              
              
              $
              26.4
              
              
              $
              73.1Trademarks
      and patents
              
              
              1-20
              
              
              
              28.8
              
              
              
              17.0
              
              
              
              11.8
              
              
              
              28.1
              
              
              
              15.2
              
              
              
              12.9Trademarks
      and tradenames (nonamortizing)
              
              
              --
              
              
              
              20.7
              
              
              
              --
              
              
              
              20.7
              
              
              
              20.6
              
              
              
              --
              
              
              
              20.6Technical
      qualifications, plansand
      drawings
              
              
              18-30
              
              
              
              31.7
              
              
              
              20.3
              
              
              
              11.4
              
              
              
              31.5
              
              
              
              18.7
              
              
              
              12.8Replacement
      parts annuityand
      product approvals
              
              
              18-30
              
              
              
              42.9
              
              
              
              30.9
              
              
              
              12.0
              
              
              
              42.4
              
              
              
              28.3
              
              
              
              14.1Covenant
      not to compete andother
      identified intangibles
              
              
              3-14
              
              
              
              27.6
              
              
              
              11.8
              
              
              
              15.8
              
              
              
              43.1
              
              
              
              16.0
              
              
              
              27.1$
              251.9
              
              
              $
              109.7
              
              
              $
              142.2
              
              
              $
              265.2
              
              
              $
              104.6
              
              
              $
              160.6




Aggregate
amortization expense of intangible assets was $11.1, $10.2 and $9.8 for the
fiscal years ended December 31, 2007, 2006 and 2005,
respectively.  Amortization expense associated with identified
intangible assets is expected to be approximately $12 to $13 in each of the next
five years.


Changes to
the original cost basis of goodwill during the calendar year ended December 31,
2007 were due to completing acquisition appraisals and foreign currency
fluctuations.  The changes in the carrying amount of goodwill for the
fiscal years ended December 31, 2007 and 2006 are as follows:
  Interior
                
                
                
                
                
                Business
                
                
                EngineeringSeating
                
                
                Systems
                
                
                Distribution
                
                
                Jet
                
                
                Services
                
                
                TotalBalance
      as ofDecember
      31, 2005
                
                $
                10.1
                
                
                $
                116.1
                
                
                $
                108.0
                
                
                $
                88.1
                
                
                $
                40.6
                
                
                $
                362.9Acquisitions
                
                
                --
                
                
                
                42.4
                
                
                
                42.4
                
                
                
                --
                
                
                
                --
                
                
                
                84.8Effect
      of foreigncurrency
      translation and other
                
                
                2.7
                
                
                
                3.6
                
                
                
                0.2
                
                
                
                0.5
                
                
                
                2.5
                
                
                
                9.5Balance
      as ofDecember
      31, 2006
                
                
                12.8
                
                
                
                162.1
                
                
                
                150.6
                
                
                
                88.6
                
                
                
                43.1
                
                
                
                457.2Transfers
                
                
                --
                
                
                
                18.0
                
                
                
                (18.0
                )
                
                
                --
                
                
                
                --
                
                
                
                --Effect
      of foreigncurrency
      translation and other
                
                
                0.1
                
                
                
                7.3
                
                
                
                0.2
                
                
                
                0.2
                
                
                
                0.2
                
                
                
                8.0Finalization
      of purchase accounting
                
                
                --
                
                
                
                1.6
                
                
                
                0.4
                
                
                
                --
                
                
                
                --
                
                
                
                2.0Balance
      as ofDecember
      31, 2007
                
                $
                12.9
                
                
                $
                189.0
                
                
                $
                133.2
                
                
                $
                88.8
                
                
                $
                43.3
                
                
                $
                467.2




6.
              ACCRUED
      LIABILITIES
 
 Accrued
liabilities consist of the following:
  December
      31,
                
                
                December
      31,2007
                
                
                2006Accrued
      salaries, vacation and related benefits
                
                $
                34.2
                
                
                $
                25.5Accrued
      product warranties
                
                
                20.6
                
                
                
                18.4Deferred
      revenue
                
                
                12.7
                
                
                
                5.0Other
      accrued liabilities
                
                
                47.2
                
                
                
                52.0$
                114.7
                
                
                $
                100.9




F-12




7.
              LONG-TERM
      DEBT
 
 Long-term
debt consists of the following:
  December
      31,
                
                
                December
      31,2007
                
                
                2006Bank
      Credit Facilities
                
                $
                150.0
                
                
                $
                250.08
      7/8% Senior Subordinated Notes
                
                
                --
                
                
                
                250.0Other
      long-term debt
                
                
                1.9
                
                
                
                3.9151.9
                
                
                
                503.9Less
      current portion of long-term debt
                
                
                (1.6
                )
                
                
                (1.9
                )$
                150.3
                
                
                $
                502.0




8
7/8% Senior Subordinated Notes
 
 The 8-7/8%
senior subordinated notes were redeemed in full on May 1, 2007.
 
 Bank
Credit Facilities
 
  On July
26, 2006 and, as amended and restated, on August 24, 2006, the Company entered
into a senior secured credit facility (the “Senior Secured Credit Facility”),
consisting of a $200.0 revolving credit facility and a $300.0 term
loan.  The revolving credit facility terminates on August 24, 2011 and
the term loan terminates on August 24, 2012.  The Senior Secured
Credit Facility provides for the ability of the Company to add additional term
loans in the amount of up to $75.0 upon satisfaction of certain customary
conditions, including commitments from lenders.
 Revolving
credit borrowings under the Senior Secured Credit Facility bear interest at an
annual rate equal to the London interbank offered rate (LIBOR) plus 125 basis
points.  Term loan borrowings under the Senior Secured Credit Facility
bear interest at an annual rate equal to LIBOR plus 175 basis points (6.73% at
December 31, 2007).
  The Senior
Secured Credit Facility contains an interest coverage ratio (as defined in the
Credit Agreement) maintenance financial covenant that currently must be
maintained at a level greater than 2.25 to 1 through December 31, 2007 and 2.50
to 1 thereafter.  The Senior Secured Credit Facility 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, 2007 and 4.00 to 1 thereafter.  The Senior
Secured Credit Facility 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,
2007.
  There are
no borrowings outstanding on the revolving credit facility portion of the Senior
Secured Credit Facility at December 31, 2007. Term loan borrowings at December
31, 2007 were $150.0.  Letters of credit outstanding under the Senior
Secured Credit Facility aggregated approximately $24.0 at December 31,
2007.
  Royal
Inventum B.V., one of the Company’s subsidiaries, has a revolving credit
agreement aggregating $0.7 that renews annually.  This credit
agreement is collateralized by accounts receivable and
inventories.  There were no borrowings outstanding under Royal
Invention B.V.’s credit agreement as of December 31, 2007.
  F-13
 
 Maturities
of long-term debt are as follows:
  Fiscal
      Year Ending December 31,2008
                
                $
                1.62009
                
                
                0.62010
                
                
                1.62011
                
                
                1.62012
                
                
                146.5Thereafter
                
                
                --Total
                
                $
                151.9




During the
second quarter of 2007, the Company prepaid $100.0 of bank debt. Interest
expense amounted to $23.5 for the year ended December 31, 2007, $42.8 for the
year ended December 31, 2006 and $60.8 for the year ended December 31,
2005.
 
 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 sheet.  At December 31, 2007,
future minimum lease payments under these arrangements approximated $136.8, of
which $124.8 is related to long-term real estate leases.
  Rent
expense for the years ended December 31, 2007, 2006 and 2005 was $20.4, $16.8
and $15.1, respectively.  Future payments under operating leases with
terms currently greater than one year are as follows:
  Fiscal
      Year Ending December 31,2008
                
                $
                20.12009
                
                
                14.22010
                
                
                11.42011
                
                
                10.42012
                
                
                9.4Thereafter
                
                
                71.3Total
                
                $
                136.8




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 150% of base
salary.


F-14
  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 the product of the number of years worked times
one-half 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, 2007, the Company fully
funded these and other retirement compensation obligations, all of which were
maintained in 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 2008.  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.
 
 9.
              INCOME
      TAXES
 
 The
components of earnings before incomes taxes were:
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005Earnings
      beforeincome
      taxesUnited
      States
                
                $
                127.3
                
                
                $
                43.0
                
                
                $
                23.5Foreign
                
                
                87.8
                
                
                
                47.0
                
                
                
                10.8Earnings
      beforeincome
      taxes
                
                $
                215.1
                
                
                $
                90.0
                
                
                $
                34.3




Income tax
expense (benefit) consists of the following:
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005Current:Federal
                
                $
                2.1
                
                
                $
                --
                
                
                $
                --State
                
                
                --
                
                
                
                --
                
                
                
                --Foreign
                
                
                7.2
                
                
                
                5.6
                
                
                
                1.69.3
                
                
                
                5.6
                
                
                
                1.6Deferred:Federal
                
                
                34.7
                
                
                
                16.4
                
                
                
                (48.7
                )State
                
                
                5.1
                
                
                
                2.9
                
                
                
                (3.2
                )Foreign
                
                
                18.7
                
                
                
                (20.5
                )
                
                
                --58.5
                
                
                
                (1.2
                )
                
                
                (51.9
                )Total
      tax expense (benefit)
                
                $
                67.8
                
                
                $
                4.4
                
                
                $
                (50.3
                )




F-15




The
difference between income tax expense and the amount computed by applying the
statutory U.S. federal income tax rate (35%) to the pretax earnings consists of
the following:
  Fiscal
      Year Ended December 31,2007
                
                
                2006
                
                
                2005Statutory
      federal income tax expense
                
                $
                75.3
                
                
                $
                31.5
                
                
                $
                12.0U.S.
      state income taxes
                
                
                5.9
                
                
                
                2.9
                
                
                
                (2.1
                )Dividend
      income from foreign affiliate
                
                
                2.5
                
                
                
                0.4
                
                
                
                3.0Foreign
      tax rate differential
                
                
                (6.3
                )
                
                
                (1.2
                )
                
                
                (2.2
                )Non-deductible
      charges and other
                
                
                3.9
                
                
                
                2.4
                
                
                
                1.3Research
      and development credit
                
                
                (5.3
                )
                
                
                (4.2
                )
                
                
                --Extraterritorial
      income exclusion
                
                
                (8.2
                )
                
                
                --
                
                
                
                --Change
      in valuation allowance
                
                
                --
                
                
                
                (27.4
                )
                
                
                (62.3
                )$
                67.8
                
                
                $
                4.4
                
                
                $
                (50.3
                )




Through
December 31, 2004, the Company had maintained a valuation allowance to fully
reserve its net deferred tax assets based on the Company’s assessment that the
realization of the net deferred tax assets did not meet the “more likely than
not” criterion under SFAS No. 109, “Accounting for Income
Taxes”.  During 2006 and 2005, the Company reversed 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.


The tax
effects of temporary differences and carryforwards that give rise to deferred
income tax assets and liabilities consist of the following:
  December
      31,2007
                
                
                2006
                
                
                2005Deferred
      tax assets:Inventory
      reserves
                
                $
                10.2
                
                
                $
                9.6
                
                
                $
                9.4Warranty
      reserves
                
                
                5.0
                
                
                
                4.9
                
                
                
                4.1Accrued
      liabilities
                
                
                7.9
                
                
                
                4.2
                
                
                
                6.5Net
      operating loss carryforward
                
                
                58.6
                
                
                
                121.8
                
                
                
                139.1Federal
      capital loss carryforward
                
                
                7.3
                
                
                
                13.0
                
                
                
                13.0Research
      and development
      creditcarryforward
                
                
                19.2
                
                
                
                7.9
                
                
                
                3.7Alternative
      minimumtax
      credit carryforward
                
                
                2.0
                
                
                
                --
                
                
                
                --Depreciation
                
                
                1.3
                
                
                
                --
                
                
                
                --Other
                
                
                6.2
                
                
                
                4.1
                
                
                
                6.0$
                117.7
                
                
                $
                165.5
                
                
                
                181.8Deferred
      tax liabilities:Acquisition
      accruals
                
                $
                (13.4
                )
                
                $
                (12.8
                )
                
                $
                (11.7
                )Intangible
      assets
                
                
                (61.5
                )
                
                
                (58.3
                )
                
                
                (39.1
                )Depreciation
                
                
                --
                
                
                
                (1.5
                )
                
                
                (5.8
                )Software
      development costs
                
                
                (5.7
                )
                
                
                (6.4
                )
                
                
                (7.0
                )(80.6
                )
                
                
                (79.0
                )
                
                
                (63.6
                )Net
      deferred tax asset before valuationallowance
                
                
                37.1
                
                
                
                86.5
                
                
                
                118.2Valuation
      allowance
                
                
                (9.8
                )
                
                
                (15.5
                )
                
                
                (40.5
                )Net
      deferred tax asset
                
                $
                27.3
                
                
                $
                71.0
                
                
                $
                77.7




The
Company maintained a valuation allowance of $9.8 as of December 31, 2007
primarily related to the Company’s domestic capital loss carryforwards because
of uncertainties that preclude the Company from determining that it is more
likely than not that we will be able to generate sufficient capital gain income
and realize this tax benefit during the applicable carryforward
period.  During 2007, both our valuation allowance and deferred tax
assets decreased by $5.7 as a result of tax planning initiatives which utilized
a portion of our capital loss carryforward.




F-16




As of
December 31, 2007, the Company had federal, state and foreign net operating loss
carryforwards of approximately $215, $103 and $24, respectively.  The
federal and state net operating loss carryforwards begin to expire in 2012 and
2008, respectively.  In addition, the Company has a federal capital
loss carryover of approximately $16 which is scheduled to expire in
2008.




As of
December 31, 2007, the Company had a federal research and development tax credit
carryforward of $19.2 which begins to expire in 2008.




The
Company has not provided for any residual U.S. income taxes on the approximately
$74.0 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
2007, the Company recognized cumulative tax deductions of $81.8 related to stock
option exercises and $3.3 related to the vesting of restricted
shares.  In accordance with the Company’s methodology for determining
when these deductions are deemed realized under SFAS No. 123(R), the Company
will assume that it utilizes its net operating loss carryforwards to reduce its
taxes payable during 2007 rather than these deductions.  Pursuant to
the principles of SFAS No. 123(R), these deductions are not deemed realized
until they provide an incremental benefit by reducing taxes
payable.  To the extent deductions of $85.1 are treated as reducing
taxes payable in the future, the Company expects to record a credit to
additional paid-in capital of $33.1.


10.
              ACCOUNTING
      FOR UNCERTAINTY IN INCOME TAXES
  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.  During the year ended December 31, 2007, mainly as a result
of the finalization of a tax credit study related to prior periods and other tax
planning initiatives, the Company’s liability for unrecognized tax benefits
increased by $4.3 to $9.2.  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:
  Balance
      at January 1, 2007
                
                $
                7.4Additions
      based on tax positions related to the current year
                
                
                1.6Additions
      for tax positions of prior years
                
                
                2.5Currency
      fluctuations
                
                
                0.3Balance
      at December 31, 2007
                
                $
                11.8




The
difference between the gross uncertain tax position of $11.8 and the liability
for unrecognized tax benefits of $9.2 is due to the netting of certain items
when calculating the liability for unrecognized tax benefits.




The
Company is not currently undergoing any income tax examinations in the U.S.
federal, state or non-U.S. jurisdictions in which the Company
operates.  With minor exceptions, the Company is currently open to
audit by the tax authorities for the tax years ending December 31, 2004 through
December 31, 2007.




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,
2007.




F-17








11.
            EMPLOYEE
      RETIREMENT PLANS




The
Company sponsors and contributes to a qualified, defined contribution Savings
and Investment Plan covering substantially all U.S. employees.  In
addition, the Company and its subsidiaries participate in government-sponsored
programs in certain European countries.  In general, the Company’s
policy is to fund these plans based on legal requirements, tax considerations,
local practices and investment opportunities.




The BE
Aerospace Savings and Investment Plan was established pursuant to Section 401(k)
of the Internal Revenue Code.  Under the terms of the plan, covered
employees may contribute up to 100% of their pay, limited to certain statutory
maximum contributions for 2007.  Effective July 1, 2006, participants
are vested in matching contributions immediately and the matching percentage was
revised to 100% of the first 3% of employee contributions and 50% on the next 2%
of employee contributions.  Total expense for the plan was $5.6, $3.9
and $3.0 for the calendar years ended December 31, 2007, 2006 and 2005,
respectively.




The BE
Aerospace, Inc. Hourly Tax-Sheltered Retirement Plan was established pursuant to
Section 401(k) of the Internal Revenue Code.  Under terms of the plan,
covered employees may contribute from 1% to 20% of their compensation, limited
to certain statutory maximum contributions for 2007.  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 $0.2, $0.3 and $0.2 for the calendar years ended
December 31, 2007, 2006 and 2005, respectively.




The
Company also has two defined benefit plans, The SMR Technologies, Inc. Defined
Benefit Pension Plan for Union Employees and The Draeger Aerospace GmbH Defined
Benefit Plan.  These plans 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.  The number of employees covered by these plans as of
December 31, 2007 totaled 275.  The Company’s funding contribution to
these plans was $0.5, $0.2 and $0.0 for the calendar years ended December 31,
2007, 2006 and 2005, respectively.





12.
            STOCKHOLDERS'
      EQUITY




Earnings Per
Share.  Basic earnings per common share is computed using the
weighted average of common shares outstanding during the
year.  Diluted earnings per common share is computed by using the
average share price during the year when calculating the dilutive effect of
stock options, shares issued under the Employee Stock Purchase Plan and
restricted shares.




The
following table sets forth the computation of basic and diluted net earnings per
share for the fiscal years ended December 31, 2007, 2006 and 2005:




Fiscal
      Year Ended December 31,2007
              
              
              2006
              
              
              2005Numerator
      - Net earnings
              
              $
              147.3
              
              
              $
              85.6
              
              
              $
              84.6Denominator:Denominator
      for basic earnings per share -
              
              
              88.1
              
              
              
              77.1
              
              
              
              58.8Weighted
      average sharesEffect
      of dilutive securities -Dilutive
      securities
              
              
              0.7
              
              
              
              0.9
              
              
              
              2.0Denominator
      for diluted earnings per share -Adjusted
      weighted average shares
              
              
              88.8
              
              
              
              78.0
              
              
              
              60.8Basic
      net earnings per share
              
              $
              1.67
              
              
              $
              1.11
              
              
              $
              1.44Diluted
      net earnings per share
              
              $
              1.66
              
              
              $
              1.10
              
              
              $
              1.39




Long Term Incentive
Plan.The Company has a Long Term Incentive Plan (“LTIP”)
under which the Company’s Stock Option and 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”).  As further described below, as of December 31, 2007 stock
options and restricted stock have been granted in accordance with the terms of
the LTIP and the Prior Plans.  The number of shares available for
grant under the LTIP as of December 31, 2007 were 1,722,319.


F-18
  Restricted Stock Grants –During 2006 and 2007, the Company granted restricted stock to certain
members of the Company’s Board of Directors and
management.  Restricted stock grants vest over two or four year terms
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 $10.3 and $2.0 was
recorded during 2007 and 2006, respectively.  Unrecognized
compensation cost related to these grants was $41.0 at December 31,
2007.  The following table summarizes shares granted, forfeited and
outstanding:
  December 31,
      2007
                
                
                December 31,
      2006Weighted
                
                
                
                
                
                
                
                
                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
                
                
                1,423
                
                
                $
                26.13
                
                
                
                3.7
                
                
                
                --
                
                
                $
                --
                
                
                
                --Shares
    granted
                
                
                454
                
                
                
                42.43
                
                
                
                --
                
                
                
                1,425
                
                
                
                26.15
                
                
                
                --Shares
    vested
                
                
                (355
                )
                
                
                26.14
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Shares
      forfeited
                
                
                (64
                )
                
                
                27.30
                
                
                
                --
                
                
                
                (2
                )
                
                
                26.99
                
                
                
                --Outstanding, end of
      period
                
                
                1,458
                
                
                
                31.18
                
                
                
                3.1
                
                
                
                1,423
                
                
                
                26.15
                
                
                
                3.7




Stock Option
Grants.  In December 2005, the Compensation Committee of the
Board of Directors approved the acceleration of the vesting of 1.9 million stock
options, which represented all remaining unvested stock options at that
time.  The Company recorded a charge of $1.2 during the fourth quarter
of 2005 as a result of the acceleration of the vesting of such stock
options.  The estimated per share fair value of options granted during
the year ended December 31, 2005 was $4.52.  No stock options were
granted during the years ended December 31, 2006 and 2007.
 
 The
following table summarizes options granted, canceled, forfeited and
outstanding:


December 31,
      2007
              
              
              December 31,
      2006
              
              
              December 31,
      2005Options
                (in
    thousands)
              
              
              Weighted
                Price per
      Share
              
              
              Options
                (in
    thousands)
              
              
              WeightedPrice
      per Share
              
              
              Options
                (in
    thousands)
              
              
              WeightedPrice
      per ShareOutstanding, beginning of
      period
              
              
              1,170
              
              
              $
              13.53
              
              
              
              4,806
              
              
              $
              8.83
              
              
              
              7,071
              
              
              $
              7.99Options
    granted
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              160
              
              
              
              18.45Options
      exercised
              
              
              (910
              )
              
              
              14.99
              
              
              
              (3,626
              )
              
              
              7.44
              
              
              
              (2,362
              )
              
              
              5.73Options
      forfeited
              
              
              (15
              )
              
              
              29.41
              
              
              
              (10
              )
              
              
              14.55
              
              
              
              (63
              )
              
              
              11.06Outstanding, end of
      period
              
              
              245
              
              
              
              11.16
              
              
              
              1,170
              
              
              
              13.53
              
              
              
              4,806
              
              
              
              8.83Excercisable at end of
      period
              
              
              245
              
              
              $
              11.16
              
              
              
              1,170
              
              
              $
              13.53
              
              
              
              4,806
              
              
              $
              8.83




Options Outstanding at December
      31, 2007WeightedWeighted
              
              AverageOptions
              
              Average
              
              RemainingRange of
              
              Outstanding
              
              Exercise
      Price
              
              Contractual
      LifeExercise
    Price
              
              (in
    thousands)
              
              Outstanding
              
              (years)$4.08 -
    $5.59
              
              85
              
              $4.97
              
              5.296.59 - 9.70
              
              13
              
              7.49
              
              5.0810.42 -
    10.42
              
              67
              
              10.42
              
              6.9010.70 -
    28.13
              
              80
              
              18.88
              
              2.04




The
Company issues new shares of common stock upon exercise of stock
options.  During the year ended December 31, 2007, 0.9 million stock
options were exercised with an aggregate intrinsic value of $20.8 determined as
of the date of option exercise.  The aggregate intrinsic value of
outstanding options as of December 31, 2007 was $10.2.




F-19




13.
              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 67,000, 110,000 and 241,000
shares of common stock during the fiscal years ended December 31, 2007, 2006 and
2005, respectively, pursuant to this plan at a weighted average price per share
of $39.46, $20.51, and $11.45, respectively.
 
 14.
              SEGMENT
      REPORTING
 
 The
Company is organized based on the products and services it
offers.  Under this organizational structure, the Company has five
reportable segments: Seating, Interior Systems, Distribution, Business Jet and
Engineering Services.  The Seating, Interior Systems and Distribution
segments consist of three, five and four principal operating facilities,
respectively.  Business Jet and Engineering Services segments consist
of three and one principal operating facilities, respectively.
 
 Each
segment 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 and aircraft-manufacturing customers.
 
 The
following table presents net sales and other financial information by business
segment:
 
 Fiscal Year Ended December 31,
      2007Interior
              
              
              
              
              
              Business
              
              
              EngineeringSeating
              
              
              Systems
              
              
              Distribution
              
              
              Jet
              
              
              Serivces
              
              
              ConsolidatedNet sales
              
              $
              632.6
              
              
              $
              348.0
              
              
              $
              386.5
              
              
              $
              193.1
              
              
              $
              117.5
              
              
              $
              1,677.7Operating earnings(1)
              
              
              72.8
              
              
              
              64.8
              
              
              
              85.5
              
              
              
              19.7
              
              
              
              4.2
              
              
              
              247.0Total assets(2)
              
              
              357.9
              
              
              
              415.3
              
              
              
              575.2
              
              
              
              256.4
              
              
              
              167.2
              
              
              
              1,772.0Goodwill
              
              
              12.9
              
              
              
              189.0
              
              
              
              133.2
              
              
              
              88.8
              
              
              
              43.3
              
              
              
              467.2Capital
      expenditures
              
              
              9.1
              
              
              
              8.8
              
              
              
              4.4
              
              
              
              5.0
              
              
              
              4.8
              
              
              
              32.1Depreciation and
      amortization
              
              
              11.2
              
              
              
              10.5
              
              
              
              4.3
              
              
              
              5.5
              
              
              
              3.5
              
              
              
              35.0




Fiscal Year Ended December 31,
      2006Interior
              
              
              
              
              
              Business
              
              
              EngineeringSeating
              
              
              Systems
              
              
              Distribution
              
              
              Jet
              
              
              Serivces
              
              
              ConsolidatedNet sales
              
              $
              388.5
              
              
              $
              273.9
              
              
              $
              251.5
              
              
              $
              147.5
              
              
              $
              66.8
              
              
              $
              1,128.2Operating earnings
      (loss)(1)
              
              
              37.6
              
              
              
              51.2
              
              
              
              50.4
              
              
              
              9.4
              
              
              
              (0.3
              )
              
              
              148.3Total assets(2)
              
              
              266.1
              
              
              
              374.7
              
              
              
              492.9
              
              
              
              251.6
              
              
              
              112.4
              
              
              
              1,497.7Goodwill
              
              
              12.8
              
              
              
              162.1
              
              
              
              150.6
              
              
              
              88.6
              
              
              
              43.1
              
              
              
              457.2Capital
      expenditures
              
              
              8.2
              
              
              
              6.1
              
              
              
              3.3
              
              
              
              5.1
              
              
              
              1.4
              
              
              
              24.1Depreciation and
      amortization
              
              
              10.2
              
              
              
              8.8
              
              
              
              3.5
              
              
              
              4.2
              
              
              
              2.7
              
              
              
              29.4




Year Ended December 31,
      2005Interior
              
              
              
              
              
              Business
              
              
              EngineeringSeating
              
              
              Systems
              
              
              Distribution
              
              
              Jet
              
              
              Serivces
              
              
              ConsolidatedNet sales
              
              $
              281.8
              
              
              $
              205.5
              
              
              $
              173.9
              
              
              $
              120.2
              
              
              $
              62.7
              
              
              $
              844.1Operating earnings
      (loss)(1)
              
              
              25.5
              
              
              
              32.3
              
              
              
              34.9
              
              
              
              7.8
              
              
              
              (6.9
              )
              
              
              93.6Total assets(2)
              
              
              223.0
              
              
              
              326.7
              
              
              
              421.0
              
              
              
              286.7
              
              
              
              169.1
              
              
              
              1,426.5Goodwill
              
              
              10.1
              
              
              
              116.1
              
              
              
              108.0
              
              
              
              88.1
              
              
              
              40.6
              
              
              
              362.9Capital
      expenditures
              
              
              6.1
              
              
              
              3.3
              
              
              
              2.4
              
              
              
              4.0
              
              
              
              1.1
              
              
              
              16.9Depreciation and
      amortization
              
              
              9.0
              
              
              
              8.7
              
              
              
              3.7
              
              
              
              4.2
              
              
              
              3.0
              
              
              
              28.6




(1)  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.
 
 (2)  Corporate
assets (including cash and cash equivalents) of $139.2, $117.7 and $462.1 at
December 31, 2007, 2006 and 2005, 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 Distribution to Interior
Systems.




F-20




Net sales
for these business segments for the fiscal years ended December 31, 2007, 2006
and 2005 are presented below:


Fiscal Year Ended December
      31,2007
              
              
              2006
              
              
              2005Net
              
              
              % of
              
              
              Net
              
              
              % of
              
              
              Net
              
              
              % ofSales
              
              
              Net Sales
              
              
              Sales
              
              
              Net Sales
              
              
              Sales
              
              
              Net SalesSeating
              
              $
              632.6
              
              
              
              37.8
              %
              
              $
              388.5
              
              
              
              34.4
              %
              
              $
              281.8
              
              
              
              33.4
              %Interior
      Systems
              
              
              348.0
              
              
              
              20.7
              %
              
              
              273.9
              
              
              
              24.3
              %
              
              
              205.5
              
              
              
              24.4
              %Distribution
              
              
              386.5
              
              
              
              23.0
              %
              
              
              251.5
              
              
              
              22.3
              %
              
              
              173.9
              
              
              
              20.6
              %Business
Jet
              
              
              193.1
              
              
              
              11.5
              %
              
              
              147.5
              
              
              
              13.1
              %
              
              
              120.2
              
              
              
              14.2
              %Engineering
      Services
              
              
              117.5
              
              
              
              7.0
              %
              
              
              66.8
              
              
              
              5.9
              %
              
              
              62.7
              
              
              
              7.4
              %Net
      sales
              
              $
              1,677.7
              
              
              
              100.0
              %
              
              $
              1,128.2
              
              
              
              100.0
              %
              
              $
              844.1
              
              
              
              100.0
              %




Geographic
Origination
 
 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, 2007, 2006 and 2005.  There were no
significant transfers between geographic areas during these periods.
Identifiable assets are those assets of the Company that are identified with the
operations in each geographic area.
 
 The
following table presents net sales and operating earnings for the fiscal years
ended December 31, 2007, 2006 and 2005 and identifiable assets as of December
31, 2007, 2006 and 2005 by geographic area:




Fiscal Year Ended December
      31,2007
              
              
              2006
              
              
              2005Net sales:Domestic
              
              $
              1,036.6
              
              
              $
              732.9
              
              
              $
              588.4Foreign
              
              
              641.1
              
              
              
              395.3
              
              
              
              255.7$
              1,677.7
              
              
              $
              1,128.2
              
              
              $
              844.1Operating
      earnings:Domestic
              
              $
              159.1
              
              
              $
              100.7
              
              
              $
              72.1Foreign
              
              
              87.9
              
              
              
              47.6
              
              
              
              21.5$
              247.0
              
              
              $
              148.3
              
              
              $
              93.6Identifiable
      assets:Domestic
              
              $
              1,306.6
              
              
              $
              1,068.6
              
              
              $
              1,214.2Foreign
              
              
              465.4
              
              
              
              429.1
              
              
              
              212.3$
              1,772.0
              
              
              $
              1,497.7
              
              
              $
              1,426.5






F-21




Geographic
Destination
 
 Export
sales from the United States to customers in foreign countries amounted to
approximately $437.1, $307.6 and $241.9 in the fiscal years ended December 31,
2007, 2006 and 2005, respectively.
 
 Net sales
by geographic area (based on destination) for the fiscal years ended December
31, 2007, December 31, 2006, and 2005 were as follows:
 
 Fiscal Year Ended December
      31,2007
                
                
                2006
                
                
                2005Net
                
                
                % of
                
                
                Net
                
                
                % of
                
                
                Net
                
                
                % ofSales
                
                
                Net Sales
                
                
                Sales
                
                
                Net Sales
                
                
                Sales
                
                
                Net SalesU.S.
                
                $
                749.5
                
                
                
                44.7
                %
                
                $
                483.0
                
                
                
                42.8
                %
                
                $
                399.4
                
                
                
                47.3
                %Europe
                
                
                468.0
                
                
                
                27.9
                %
                
                
                331.5
                
                
                
                29.4
                %
                
                
                202.2
                
                
                
                24.0
                %Asia, Pacific
      Rim,Middle East and
      other
                
                
                460.2
                
                
                
                27.4
                %
                
                
                313.7
                
                
                
                27.8
                %
                
                
                242.5
                
                
                
                28.7
                %$
                1,677.7
                
                
                
                100.0
                %
                
                $
                1,128.2
                
                
                
                100.0
                %
                
                $
                844.1
                
                
                
                100.0
                %
  Major
customers (i.e., customers representing more than 10% of net sales) 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, 2007, 2006 and 2005 no single customer accounted for more than 10%
of our consolidated sales.
 
 
 15.
              FAIR
      VALUE INFORMATION
 
 The
following disclosure of the estimated fair value of financial instruments at
December 31, 2007 and 2006 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 8-7/8% Notes as of
December 31, 2006 was $260.0.
 
 The fair
value information presented herein is based on pertinent information available
to management at December 31, 2007 and December 31, 2006, 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-22
  16.           
SELECTED QUARTERLY DATA
(Unaudited)
 
 Summarized quarterly financial data
for the fiscal years ended December 31, 2007 and December 31, 2006 are as
follows:
  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
  Fiscal Year Ended December 31,
      2006First
                
                
                Second
                
                
                Third
                
                
                FourthQuarter
                
                
                Quarter
                
                
                Quarter
                
                
                QuarterNet sales
                
                $
                247.2
                
                
                $
                271.5
                
                
                $
                287.9
                
                
                $
                321.6Gross
profit
                
                
                86.5
                
                
                
                96.4
                
                
                
                100.8
                
                
                
                112.8Net
earnings
                
                
                13.8
                
                
                
                18.7
                
                
                
                31.4
                
                
                
                21.7Basic net earnings per
      share(1)
                
                
                0.18
                
                
                
                0.24
                
                
                
                0.40
                
                
                
                0.28Diluted net earnings per share(1)
                
                
                0.18
                
                
                
                0.24
                
                
                
                0.40
                
                
                
                0.28
  (1)
              Net
      earnings 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.
  F-23
 
 SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
 FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006, AND 2005
 (In
millions)
 
 BalanceAt
                
                
                
                
                
                
                
                
                
                
                
                BalanceBeginning
                
                
                
                
                
                
                
                
                Write-
                
                
                At EndOf
                
                
                
                
                
                
                
                
                Offs/
                
                
                OfPeriod
                
                
                Expenses
                
                
                Other
                
                
                Disposals
                
                
                PeriodDeducted
      From Assets:Allowance
      for doubtful accounts:Fiscal 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
                
                
                
                4.7Fiscal year ended December 31,
      2005
                
                
                2.8
                
                
                
                0.5
                
                
                
                (0.1
                )
                
                
                0.3
                
                
                
                2.9Reserve
      for obsolete inventories:Fiscal 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
                
                
                
                29.1Fiscal year ended December 31,
      2005
                
                
                26.9
                
                
                
                16.0
                
                
                
                (0.7
                )
                
                
                15.1
                
                
                
                27.1Deferred
      tax asset valuation allowance:Fiscal year ended December 31,
      2007
                
                
                15.5
                
                
                
                --
                
                
                
                (5.7
                )
                
                
                --
                
                
                
                9.8Fiscal year ended December 31,
      2006
                
                
                40.5
                
                
                
                (27.4
                )
                
                
                2.4
                
                
                
                --
                
                
                
                15.5Fiscal year ended December 31,
      2005
                
                
                129.3
                
                
                
                (62.3
                )
                
                
                (26.5
                )
                
                
                --
                
                
                
                40.5
 
 
 F-24