##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2005o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934   Commission file number 33-29035
  K&F Industries,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

34-1614845(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification Number)50 Main Street, White Plains,
    New York

10606(Address of principal executive
    offices)

(Zip
    Code)   Registrants telephone number, including area code:
 (914) 448-2700
  Securities registered pursuant to Section 12(b) of the
    Act: None
  Securities registered pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
       The Registrant meets the conditions set forth in general
    instructions I (1) (a) and (b) of Form
    10-K and is
    therefore filing this form with the reduced disclosure
    format.
  DOCUMENTS
    INCORPORATED BY REFERENCE: None




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##### 



K&F
    INDUSTRIES, INC.
  FORM 10-K
    For the Fiscal Year Ended December 31, 2005
  TABLE OF
    CONTENTS
  PageIntroduction


2Special Note Regarding
    Forward-Looking Statements


3PART IItem 1.

Business


4Item 1A.

Risk Factors


15Item 1B.

Unresolved Staff Comments


22Item 2.

Properties


22Item 3.

Legal
    Proceedings


23Item 4.

Omitted Pursuant to
    General Instructions I (2) (c) of Form 10-K


24PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


24Item 6.

Selected Financial
    Data


25Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


29Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


45Item 8.

Financial
    Statements and Supplementary Data


45Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosures


45Item 9A.

Controls and
    Procedures


45Item 9B.

Other Information


46PART IIIItem 10.

Omitted Pursuant to
    General Instructions I (2) (c) of Form 10-K


46Item 11.

Omitted Pursuant to
    General Instructions I (2) (c) of Form 10-K


46Item 12.

Omitted Pursuant to
    General Instructions I (2) (c) of Form 10-K


46Item 13.

Omitted Pursuant to
    General Instructions I (2) (c) of Form 10-K


46Item 14.

Principal
    Accountant Fees and Services


46PART IVItem 15.

Exhibits and
    Financial Statement Schedules


47Index to Exhibits


47Signatures


50EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION   1




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##### Table of Contents



INTRODUCTION
  References in this Annual Report on
    Form 10-K
    to we, us, our,
    K&F, K&F Industries, and the
    Company refer to K&F Industries, Inc., together
    with its subsidiaries. References to K&F
    Holdings refers to K&F Industries Holdings, Inc., the
    indirect parent company of K&F Industries. References
    to K&F Acquisition refer to K&F Acquisition,
    Inc. prior to the merger of K&F Acquisition with and into
    K&F Industries and to K&F Industries upon and following
    the consummation of such merger. References to
    Intermediate Holdco refer to K&F Intermediate
    Holdco, Inc., a wholly owned subsidiary of K&F Holdings
    and the direct parent company of K&F Industries.
  General
    The
    Acquisition
    3 4
  Basis of
    Presentation
     2




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Market
    Share Estimates
    SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-K,
   3




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PART I  Item 1.
    Business  The
    Company
      
    regional jets,
    business jets, and
    the U.S. military.      FAA-certified
    Industry
    Background and Market Opportunity
   4




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Commercial Transport. point-to-point
  General Aviation.
  Military.
 5




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Competitive
    Strengths
    Leader in Attractive Industry Sectors Poised for
    Growth.
  Significant Aftermarket Sales from Sole Source
    Contracts.
  Well-Balanced Portfolio of Programs with Strong Recurring
    Cash Flows.
  
    increase our sales of replacement parts;
    increase the number of high-cycle aircraft in our portfolio;
    increase revenues per aircraft in our portfolio; and
    decrease the average age of the total fleet using Aircraft
    Braking Systems products.    History of Successful Product Innovation. ®
 6




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##### Table of Contents



Our
    Growth Strategy
    Expanding our Presence on High-Cycle Regional Jets and
    Business Jets.
  Increasing Our Leading Position on Military
    Aircraft.
  Pursuing Continued Growth at Engineered
    Fabrics. ®
  Expanding Presence in Targeted International
    Markets.
  Pursuing Opportunistic Acquisitions.
  Lifecycle
    Stages
   7




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Program
    Lifecycle Stages
  Stage of Lifecycle

Duration of Stage



CharacteristicsDevelopment


3-5 years






Time period from selection up
    through certification of aircraft


Design and development of aircraft
    and Aircraft Braking Systems equipment


No revenues generated by Aircraft
    Braking Systems


Development and cash payments
    costsGrowth


8-15 years






Planes delivered


Investment by Aircraft Braking
    Systems in originalequipment (cash outflows)


Cash inflows to Aircraft Braking
    Systems from initial provisioning and replacement partsMature


10-20 years






Most profitable stage for Aircraft
    Braking Systems


Full program fleet in flight, but
    new aircraft nolonger produced


No program investments by Aircraft
    Braking Systems


Cash inflows to Aircraft Braking
    Systems from
    replacement partsDecline


10-15 years






Planes in fleet gradually taken
    out of service


Continued, but decreasing, cash
    inflows toAircraft Braking Systems   Products
    Year Ended
    December 31,2005


2004


2003Wheels and brakes


75
%


76
%


77
%Brake control systems


8



7



7Fuel tanks


13



13



12Other


4



4



4Total


100
%


100
%


100
%   Aircraft Braking Systems.
   8




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##### Table of Contents



Commercial Transport

General Aviation

MilitaryAero-Commander:

690Airbus:

A-320

Aerospatiale:

SN601

Aermacchi:

M346A-321

Astra:

SPX

Aerospatiale:

SA-360/365ATR:

ATR-42



Galaxy

Augusta:

A-129AVIC 1:

ARJ21

Augusta/Bell:

AB139

AIDC:

IDFBoeing:

B707-320 B/C

Bell:

206/212/230/412DC 3/4/6/7/8

Boeing Vertol:

234

Alenia:

C27JDC9-10/15

Bombardier:

CL600/601/604

Boeing:

A -4DC9-20/30



CL850/870/890



B-1BDC9-40/50



Lear 23/24/25



E-3/E-6/E-8DC10-10/15



Lear 32/35



F-4DC10-30/40



Lear 55/55C



F-15MD-11



Lear 31A



CH-46MD-81/82/87



Lear 60 Series



CH-47SDMD-83/88

Cessna:

Citation 500/550



T-2MD-90



310/401/402



T-2BBombardier:

CRJ-100/200/440



414/421/441



T-33CRJ-700

Dassault:

Falcon 10/100

Bombardier:

CT-114CRJ-705



Falcon 20/200



DHC-5CRJ-900



Falcon 50

CASA:

C-101DHC-4



Falcon 50EX



CASA 212DHC-6



Falcon 900EX

Cessna:

A-37DHC-8-400



Falcon 900DX



AT-37CASA:

C212



Falcon 7X

Fairchild:

A-10Convair:

Convair 340/440

GROB Aerospace:

SP

IAI:

AravaConvair 580

Gulfstream:

GS I

KAI:

T-50Embraer:

ERJ-170



GS II



A-50ERJ-175



GS IIB/III/IV

Kaman:

K-2ERJ-190



GS100

Lockheed Martin:

C-130 SeriesERJ-195



GS150



C-130JFairchild:

Do27/28



GS200



C-141Do228



GS350



F-16Do328



GS450



F-117AMetro III

IAI:

1121,1123,1124

Mitsubishi:

F-2Metro 23

Mitsubishi:

MU-2

Northrop Grumman:

A-6Fokker:

F27



MU-300/300A



B-2FH227

Piper:

PA31 P/T



E-2F28

Raytheon:

B 90/100/200



EA-6BF50



Beechjet 400/400A



F-5 E/F 9




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##### Table of Contents



Commercial Transport

General Aviation

MilitaryF60



Hawker Horizon



F-14F70



Hawker 400XP



OV-1F100

Sabreliner:

Sabreliner 40/60

Panavia:

TornadoLockheed Martin:

L100



Sabreliner 65

Pilatus:

PC-6L1011



Sabreliner 70/75/80

Raytheon:

T-1AMitsubishi:

YS11

Sikorsky:

S61

Saab:

J-35Nord:

Nord 262



S76



J-37Raytheon:

B99

Sino-Swearingen:

SJ30-2



JA-37B1900







JAS-39Saab:

Saab 340





Sikorsky:

CH-53Saab 2000







CH-60SH-60Westland:

LynyxSuper Lynnx   Engineered Fabrics.
       10




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##### Table of Contents



Commercial Transport

General Aviation

MilitaryBoeing:

707-120

Bell:

206B

Bell:

AH-1, OH58707-320



214-ST



V-22, CV-22, MV-22727

Boeing



Boeing:

RC-135, KC-135737

Helicopters:

MD-500 MD-600



E-3, KE-3A,
    E-8C767

Cessna:

310, 320, 340, 401



KC-10A, T43, A3DDC9



402, 411, 414, 421



F-15A/B, C/D, EDC10

ERA:

425, 650, A188

Boeing Helicopters:

AH-64, CH-46DC-10XR



U206, P206, T310



CH-47 C/D, OH-6MD-11

Fargo:

412, BK117, B0105



V-22, CV-22, MV-22MD-80

IAI:

MD900

Lockheed Martin:

C-130, F-16MD-83

Learjet:

1121, 1122, 1123,

Northrop Grumman:

F-14, F-20MD-87



1124



F-18 C/D, E/FC9A

Piper Aircraft:

31, 35, 45



A-10,
    T-38C9B



60, Max 124

Pratt & Whitney:

CH-124Bombardier:

CL-215



PA25, PA31P

Raytheon Missile:

TomahawkRaytheon:

1900



PA 31T,



Tactical TomahawkPA31-310



MALDPA31-325, PA34

Robertson:

Extended RangePA42, PA42-100



CEFSRaytheon:

35-33, 35, 36, 38

Sikorsky:

S-61, HH-3F48, 50, 56TC, 60



ACAP, CH-5365, 65-68, 65-80



CV-Helo, HH6065-90, 68, 70-95



CV-Helo, HH6099, 100, 200, 400A



MHJ3, SH-601900, 200, T-1A



SH3A, SH3DSabreliner:

40, 60, 65, 70, 80



UH60 Blackhawk S70Schweizer:

333C, 300



VH60Twin Commander:

500, 560, 680, 681

Schweizer:

VTUAV685, 690-A, 695B720, 840, 980   Sales and
    Customers
      Year Ended
    December 31,2005


2004


2003Commercial transport


52
%


54
%


53
%Military (U.S. and foreign)


29



28



31General aviation


19



18



16Total


100
%


100
%


100
%   Commercial Transport.
 11




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General Aviation.
  Military. E-3, E-8 A-10, E-2 T-1A. JAS-39 A-129 JAS-39,
  Domestic
    and Foreign Sales
    Year Ended
    December 31,2005


2004


2003Domestic sales


61
%


59
%


61
%Foreign sales


39



41



39Total


100
%


100
%


100
%   Independent
    Research and Development
      Patents
    and Licenses
    Competition
   12




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Backlog
      Government
    Contracts
        Government
    Regulation
   13




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Supplies
    and Materials
    Personnel
      Securities
    Exchange Act Reports
     14




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Executive
    Officers
  Kenneth
    M. Schwartz; age 54; President and Chief Executive
    Officer
  Kenneth M. Schwartz
  Dirkson
    R. Charles; age 42; Executive Vice President and Chief
    Financial Officer
  Dirkson Charles
  Ronald
    H. Kisner; age 57; Executive Vice President, Secretary and
    General Counsel
  Ronald H. Kisner
  Frank
    P. Crampton; age 62; Senior Vice President, Marketing of
    Aircraft Braking Systems
  Frank P. Crampton
  Richard
    W. Johnson; age 62; Senior Vice President, Finance and
    Administration of Aircraft Braking Systems
  Richard W. Johnson
  James
    J. Williams; age 50; Senior Vice President, Operations of
    Aircraft Braking Systems
  James J. Williams
  John
    A. Skubina; age 51; President of Engineered Fabrics
    Corporation
  John A. Skubina
 Item 1A.  Risk
    Factors  Risks
    Relating to Our Business
  Our
    commercial transport business is sensitive to our
    customers usage of planes, which are, in turn, affected by
    general economic conditions.
     15




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Program
    Participation Costs negatively affect our cash flow during the
    earlier stages of the lifecycle of an aircraft
    platform.
    We may
    be unable to execute our growth strategy, and our failure to do
    so could have a negative impact on our business.
    
    our ability to win and retain sole source contracts and expand
    the number of our platforms;
    the health and future levels of business in the commercial
    transport, general aviation and military market sectors;
    whether high-cycle regional jets and high-end business jets,
    market sectors we have chosen to focus upon, perform as we have
    predicted;
    our ability to develop, innovate, introduce and improve our
    products and services while maintaining our margins and
    profitability;
    our ability to realize cost savings from our productivity
    initiatives;
    our ability to access available capital, whether through cash
    flow or borrowings, in order to fund operating expenses,
    potential acquisitions or other corporate purposes;
    our ability to identify, acquire and integrate acquisition
    candidates; and 16




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
    competition in our industries and general economic conditions.    The
    U.S. government is a significant customer, the loss of
    which could adversely affect us.
          A
    decline in the U.S. defense budget or limitations on sales
    to foreign governments may adversely affect our
    sales.
    We
    could be adversely affected if one of our components causes an
    aircraft to crash.
   17




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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 negatively
    impact our results of operations.
      Any
    problem or interruption in our supply from key vendors could
    delay production and adversely affect our sales.
    
    the destruction of our suppliers facilities or their
    distribution infrastructures;
    a work stoppage or strike by our suppliers employees;
    the failure of our suppliers to provide materials of the
    requisite quality;
    the failure of essential equipment at our suppliers plants;
    the failure or shortage of supply of raw materials to our
    suppliers; and
    contractual amendments and disputes with our suppliers.    We
    operate in a very competitive business
    environment.
   18




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##### Table of Contents



The
    uncertainties relating to our foreign operations could affect
    our operating results.
    
    the difficulty of enforcing agreements and collecting
    receivables through some foreign legal systems;
    foreign customers may pay more slowly than customers in the
    United States;
    unexpected changes in regulatory requirements or geopolitical
    conditions;
    the risk that foreign governments may adopt regulations or take
    other actions that would have a direct or indirect adverse
    impact on our business and market opportunities; and
    the potential difficulty in enforcing intellectual property
    rights in some foreign countries.        We are
    subject to environmental regulations and our operations may
    expose us to environmental liabilities.
   19




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We
    have been included, and may in the future be included, in claims
    against prior owners of our facilities relating to asbestos
    exposure.
    Products Liability.
  Employee Exposure.
   20




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Risks
    Relating to Our Indebtedness
  Our
    substantial debt may adversely affect our financial condition
    and operations.
      
    requiring us to use a substantial portion of our cash flow from
    operations to pay interest and principal on our debt, thereby
    reducing the availability of our cash flow to fund working
    capital, capital expenditures, acquisitions and other general
    corporate purposes;
    limiting our ability to obtain additional financing in the
    future for working capital, capital expenditures, acquisitions
    and other general corporate purposes;
    subjecting us to the risk of interest rate increases on our
    indebtedness with variable interest rates;
    subjecting us to the possibility of an event of default under
    the financial and operating covenants contained in the
    agreements governing our indebtedness; and
    limiting our ability to adjust to rapidly changing market
    conditions, reducing our ability to withstand competitive
    pressures and making us more vulnerable to a downturn in general
    economic conditions than our competitors with less debt.  To
    service our indebtedness, we will require a significant amount
    of cash and our inability to generate sufficient cash flow may
    require us to seek additional or replacement
    financing.
    We are
    subject to restrictive debt covenants, which may restrict our
    operational flexibility.
  3 4
  
    incur indebtedness or issue disqualified stock or preferred
    stock;
    pay dividends or make other distributions on, redeem or
    repurchase their capital stock;
    incur Program Participation Costs;
    make investments or acquisitions;
    create liens;
    sell assets;
    engage in sale and lease back transactions;
    restrict dividends or other payments to K&F; 21




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
    guarantee indebtedness;
    engage in transactions with affiliates; and
    consolidate, merge or transfer all or substantially all of their
    assets.    3 4
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  United States Facilities.
  Foreign Facilities.
  Akron Facility Arrangements.
 22




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Item 3.
    Legal
    Proceedings  Litigation
    Environmental
        Products Liability.
  Employee Exposure.
 23




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Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    3 4
 24




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Item 6.
    Selected
    Financial Data        November 18,



January 1,Year Ended


2004 through



2004 throughDecember 31,


December 31,



November 17,


Year Ended December
    31,2005(a)


2004(a)



2004


2003


2002


2001(Predecessor)


(Predecessor)


(Predecessor)


(Predecessor)(In thousands)Statement of Operations
    Data:Net sales

$
384,630


$
53,448



$
299,868


$
342,818


$
348,649


$
355,334Cost of sales(b)


215,710



33,315




174,223



197,812



204,819



204,036Gross margin


168,920



20,133




125,645



145,006



143,830



151,298Independent research and development


15,974



1,770




12,048



14,936



14,600



16,188Selling, general and administrative
    expenses(c)(d)


36,934



4,519




27,650



30,499



40,238



30,273Amortization of intangible assets(e)


10,753



1,440




4,196



4,264



3,935



8,837Acquisition expenses(f)






5,350




101,533











Operating income (loss)


105,259



7,054




(19,782
)


95,307



85,057



96,000Interest expense, net(g)


56,149



6,410




34,287



44,186



26,194



32,569Income (loss) before income taxes


49,110



644




(54,069
)


51,121



58,863



63,431Income tax (provision) benefit


(15,989
)


236




25,082



(10,488
)


(16,730
)


(27,447
)Net income (loss)(e)

$
33,121


$
880



$
(28,987
)

$
40,633


$
42,133


$
35,984Other Data (for the
    period):Capital expenditures

$
12,826


$
1,810



$
2,902


$
5,468


$
4,084


$
5,057Depreciation and amortization(e)


25,532



2,910




10,467



12,200



12,012



16,889Cash flows from (used for):Operating activities


76,898



(3,650
)



55,623



47,197



80,816



65,753Investing activities


(27,508
)


(695,902
)



(2,902
)


(5,468
)


(4,084
)


(5,594
)Financing activities


(24,295
)


632,003








(40,000
)


(59,133
)


(61,500
)EBITDA(h)


130,791



9,964




(9,315
)


107,507



97,069



112,889Non-recurring and certain other
    items included in EBITDA(i)


17,084



12,934




129,213



26,828



33,374



25,170   As of
    December 31,2005


2004



2003


2002


2001(Predecessor)


(Predecessor)


(Predecessor)(In thousands)Balance Sheet Data:Working capital

$
66,625


$
34,201



$
50,077


$
35,547


$
39,223Total assets


1,383,918



1,349,905




419,585



422,045



404,008Long term debt (includes current
    maturities(d)(h)


766,577



790,577




395,000



435,000



285,625Stockholders equity
    (deficiency)(d)


341,878



310,739




(186,971
)


(227,656
)


(58,253
)  25




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(a)
    
    Our consolidated financial statements for all periods after
    November 17, 2004: (i) utilize a different accounting
    treatment for Program Participation Costs than that used in the
    periods prior to the Acquisition and (ii) reflect the fair
    value adjustments made to our assets and liabilities in
    recording the Acquisition. See Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Critical Accounting Policies and
    Estimates  Program Participation Costs and
    Notes 1 and 2 to our audited consolidated financial statements
    included elsewhere in this Annual Report.(b)
    
    Cost of sales for the year ended December 31, 2005
    includes: (i) a charge of $12.1 million resulting from
    inventory purchase accounting adjustments; (ii) a non-cash
    charge of approximately $3.3 million for incremental
    depreciation due to the
    step-up in
    fixed assets as a result of purchase accounting adjustments and;
    (iii) a non-cash charge of $4.0 million relating to
    the amortization of Program Participation Costs. Cost of sales
    for the year ended December 31, 2005 does not include
    $26.3 million of Program Participation Costs, which are
    capitalized in accordance with our accounting treatment for such
    costs after November 17, 2004. Cost of sales for the period
    November 18, 2004 through December 31, 2004 includes:
    (i) a charge of $6.7 million resulting from inventory
    purchase accounting adjustments; (ii) a non-cash charge of
    $0.3 million for incremental depreciation due to the
    step-up in
    fixed assets as a result of purchase accounting adjustments and;
    (iii) a non-cash charge of $0.2 million relating to
    the amortization of Program Participation Costs. Cost of sales
    for the period November 18, 2004 through December 31,
    2004 does not include $2.8 million of Program Participation
    Costs, which are capitalized in accordance with our accounting
    treatment for such costs after November  17, 2004.(c)
    
    We amended our management services agreement with Aurora
    Management Partners LLC. The amendment eliminated the
    $1.0 million annual fee payable over the 10 year term
    of the agreement in exchange for a $5.0 million fee that
    was charged to selling, general and administrative expenses
    during the year ended December 31, 2005.(d)
    
    On December 20, 2002, K&F Industries completed a
    recapitalization that included the issuance of
    $250.0 million of
    95/8% senior
    subordinated notes due 2010. The net proceeds of those notes
    were used to pay a $200.0 million dividend to the then
    stockholders of K&F Industries, pay off the former credit
    facility of K&F Industries, pay transaction fees of
    $8.5 million and pay $9.4 million to the holders of
    common stock options of K&F Industries. As a result of the
    recapitalization, K&F Industries recorded a
    $9.4 million charge to selling, general and administrative
    expenses for the payment to the holders of common stock options
    and it capitalized $8.5 million for the transaction fees.(e)
    
    On January 1, 2002, we adopted SFAS No. 142 and
    ceased amortization of goodwill. Assuming we adopted
    SFAS No. 142 on January 1, 2001, amortization
    would have decreased by $6.1 million and net income would
    have increased to $39.4 million, respectively, for the year
    ended December 31, 2001.(f)
    
    Our results of operations for the period from January 1,
    2004 through November 17, 2004 and from November 18,
    2004 through December 31, 2004 include one-time charges of
    $101.5 million and $5.4 million, respectively. These
    charges were a result of the Acquisition, and are as follows:  November 18,


January 1,2004 through


2004 throughDecember 31,


November 17,2004


2004(Predecessor)(In thousands)Compensation costs recognized for
    the cancellation of stock options

$
46,156


$
Premiums paid to redeem
    95/8% senior
    subordinated notes due 2010 and
    91/4% senior
    subordinated notes due 2007


45,282



Write-off of debt issuance costs
    associated with the redemption of
    95/8% senior
    subordinated notes due 2010 and
    91/4%
    senior subordinated notes due 2007


6,551



Professional fees and other
    expenses


3,544



Write-off of interim loan facility
    commitment fee and other fees and expenses






5,350$
101,533


$
5,350  26




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##### Table of Contents



(g)
    
    On October 15, 2003, K&F Industries redeemed
    $40.0 million of its
    91/4%
    senior subordinated notes due 2007. In 2003, K&F Industries
    took a $1.6 million charge to interest expense for the
    redemption premiums and the write-off of a portion of
    unamortized financing costs associated with the redemption.(h)
    
    EBITDA represents net income before interest
    expense, income tax provision and depreciation and amortization.
    EBITDA does not represent and should not be considered as an
    alternative to net income or cash flow from operations, as
    determined in accordance with GAAP and our calculations thereof
    may not be comparable to similarly entitled measures reported by
    other companies. We present EBITDA because we believe it is a
    useful indicator of our profitability. Our management uses
    EBITDA principally as a measure of our operating performance and
    believes that EBITDA is useful to investors because it is
    frequently used by securities analysts, investors and other
    interested parties in their evaluation of companies in
    industries similar to ours. We also believe EBITDA is useful to
    our management and investors as a measure of comparative
    operating performance between time periods and among companies
    as it is reflective of changes in pricing decisions, cost
    controls and other factors that affect operating performance.
    Our management also uses EBITDA for planning purposes, including
    the preparation of our annual operating budget and financial
    projections.EBITDA does not represent and should not be considered as an
    alternative to results of operations under GAAP and has
    significant limitations as an analytical tool. Although we use
    EBITDA as a measure to assess the performance of our business,
    the use of EBITDA is limited because it excludes certain
    material costs. For example, it does not include interest
    expense, which is a necessary element of our costs and ability
    to generate revenue, because we have borrowed money in order to
    finance our operations. Because we use capital assets,
    depreciation expense is a necessary element of our costs and
    ability to generate revenue. In addition, the omission of the
    substantial amortization expense associated with our intangible
    assets further limits the usefulness of this measure. EBITDA
    also does not include the payment of taxes, which is also a
    necessary element of our operations. Because EBITDA does not
    account for these expenses, its utility as a measure of our
    operating performance has material limitations. Because of these
    limitations management does not view EBITDA in isolation or as a
    primary performance measure and also uses other measures, such
    as net income, sales, bookings and operating profit, to measure
    operating performance.The following is a reconciliation of EBITDA to net income (loss):  November 18,



January 1,Year Ended


2004 through



2004 throughDecember 31,


December 31,



November 17,


Year Ended
    December 31,2005


2004



2004


2003


2002


2001(Predecessor)


(Predecessor)


(Predecessor)


(Predecessor)(In thousands)Net income (loss)

$
33,121


$
880



$
(28,987
)

$
40,633


$
42,133


$
35,984Interest expense, net


56,149



6,410




34,287



44,186



26,194



32,569Income tax provision (benefit)


15,989



(236
)



(25,082
)


10,488



16,730



27,447Depreciation and amortization


25,532



2,910




10,467



12,200



12,012



16,889EBITDA

$
130,791


$
9,964



$
(9,315
)

$
107,507


$
97,069


$
112,889   (i)
    
    The following table shows certain non-recurring and similar
    items, which are included in EBITDA but whose exclusion would in
    the opinion of management, make period-to-period comparison more
    meaningful. These include: non-recurring Acquisition expenses,
    non-recurring inventory purchase accounting adjustments,
    non-recurring management services termination fee, non-recurring
    salary and benefit expense, headcount reduction, non-recurring
    non-cash charge (income), payment to optionholders and
    capitalization of Program Participation Costs. This table does
    not represent and should not be considered as an alternative to
    net income or cash flow from operations, as determined in
    accordance with GAAP and our calculations thereof may not be
    comparable to similarly entitled measures reported by other
    companies. We believe this table, when reviewed in 27




---



##### Table of Contents



connection with our presentation of EBITDA provides another
    useful tool to investors and our management for measuring
    comparative operating performance between time periods and among
    companies as it is further reflective of changes in pricing
    decisions, cost controls and other factors that affect operating
    performance. In addition to EBITDA, our management assesses the
    adjustments presented in this table when preparing our annual
    operating budget and financial projections. Specifically,
    because this table excludes non-recurring salary and benefit
    expense, non-recurring non-cash charge (income) and payment to
    optionholders, we believe that this table allows our investors
    to assess our operating performance during the periods these
    charges were incurred on a consistent basis with the periods
    during which these unusual charges were not incurred. Further,
    because of the significant changes in our capital structure
    resulting from the Acquisition, including the post-Acquisition
    capitalization of our Program Participation Costs, we believe
    that the presentation of the adjustments relating to
    non-recurring Acquisition expenses, non-recurring inventory
    purchase accounting adjustments and capitalization of Program
    Participation Costs enables our management and investors to
    assess the impact of the Acquisition on our operating
    performance and provides a consistent measure of our operating
    performance for periods subsequent to the Acquisition as
    compared to the Predecessor periods.This table is not intended to comply with GAAP and has
    significant limitations as an analytical tool, and you should
    not consider it in isolation, or as a substitute for analysis of
    our results of operations under GAAP. Although we use this table
    as a financial measure to assess the performance of our
    business, the use of this table is limited because, in addition
    to the costs excluded in our presentation of EBITDA, it excludes
    certain material costs that we have incurred over the periods
    presented. Because this table does not account for these
    expenses, its utility as a measure of our operating performance
    has material limitations.  EBITDA, as defined above, was (increased) reduced by the
    following non-recurring and certain other items, each of which
    is further discussed below:  November 18,



January 1,Year Ended


2004 through



2004 throughDecember 31,


December 31,



November 17,


Year Ended
    December 31,2005


2004



2004


2003


2002


2001(Predecessor)


(Predecessor)


(Predecessor)


(Predecessor)(In thousands)Non-recurring Acquisition
    expenses(1)

$



$
5,350



$
101,533


$



$



$
Non-recurring inventory purchase
    accounting adjustments(2)


12,084



6,748
















Non-recurring management services
    termination fee(3)


5,000




















Non-recurring salary and benefit
    expense(4)






836




8,180



6,197



7,500



8,115Headcount reduction(5)















1,099



1,465



1,465Non-recurring non-cash charge
    (income)(6)











(2,350
)


2,350







Payment to optionholders(7)



















9,405



Program Participation Costs
    previously expensed(8)











21,850



17,182



15,004



15,590$
17,084


$
12,934



$
129,213


$
26,828


$
33,374


$
25,170     (1)
    
    See Note (f).(2)
    
    Represents charges resulting from inventory purchase accounting
    adjustments related to the Acquisition.(3)
    
    Represents a non-recurring charge for a one-time payment of
    management services fees in connection with the amendment and
    restatement of our management services agreement with Aurora
    Management Partners, LLC.(4)
    
    Non-recurring salary and benefit expense of Mr. Bernard
    Schwartz (the Chairman of the Board and a principal stockholder
    of K&F Industries prior to the Acquisition), whose prior
    employment and other related agreements were terminated upon
    consummation of the Acquisition. Gives effect to compensation
    ($100,000) due to 28




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##### Table of Contents



Mr. B. Schwartz under a one-year employment agreement
    that was entered into at the closing of the Acquisition.(5)
    
    Represents the pro forma effect on prior periods of a headcount
    reduction in September 2003.(6)
    
    Amounts represent estimated non-recurring, non-cash contract
    charges.(7)
    
    Represents a non-recurring payment to holders of our common
    stock options in connection with a recapitalization undertaken
    in 2002.(8)
    
    Represents the Program Participation Costs expensed in the
    Predecessor periods that would have been capitalized under the
    accounting treatment for Program Participation Costs used by us
    after November 17, 2004. See Note (a).  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
      
    regional jets,
    business jets, and
    the U.S. military.       29




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##### Table of Contents



Performance
    Evaluation
        Certain
    Market Trends, Challenges and Opportunities
      point-to-point
 30




---



##### Table of Contents



Productivity
    Initiatives
    The
    Acquisition
    3 4
   31




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
    Inventory.
    (b) work-in-process
  Evaluation of Long-Lived Assets.
  Goodwill.
     32




---



##### Table of Contents



Program Participation Costs. FAA-certification
        Warranty.
  Pension and Other Postretirement Benefits.
 33




---



##### Table of Contents



Revenue Recognition.
  Results
    of Operations
      January 1,


November 18,Year Ended


2004 through


2004 through


Year Ended


Year EndedDecember 31,


November 17,


December 31,


December 31,


December 31,2005


2004


2004


2004(a)


2003(Predecessor)





(Combined)


(Predecessor)(In thousands)Net Sales

$
384,630


$
299,868


$
53,448


$
353,316


$
342,818Cost of sales(b)


215,710



174,223



33,315



207,538



197,812Gross profit


168,920



125,645



20,133



145,778



145,006Independent research and
    development


15,974



12,048



1,770



13,818



14,936Selling, general and
    administrative expenses


36,934



27,650



4,519



32,169



30,499Amortization of intangible assets


10,753



4,196



1,440



5,636



4,264Acquisition expenses(c)






101,533



5,350



106,883



Operating income (loss)


105,259



(19,782
)


7,054



(12,728
)


95,307Interest expense, net


56,149



34,287



6,410



40,697



44,186Income (loss) before income taxes


49,110



(54,069
)


644



(53,425
)


51,121Income tax (provision) benefit


(15,989
)


25,082



236



25,318



(10,488
)Net income (loss)

$
33,121


$
(28,987
)

$
880


$
(28,107
)

$
40,633  34




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##### Table of Contents



(a)
    
    The amounts for the year ended December 31, 2004 represent
    a combination of the results for the Predecessor period
    (January 1, 2004 through November 17, 2004) and
    the period subsequent to the Acquisition (November 18, 2004
    through December 31, 2004), to facilitate comparison with
    prior and subsequent years.(b)
    
    As a result of the Acquisition and the change in accounting for
    Program Participation Costs, cost of sales includes (excludes)
    the following:  January 1,


November 18,Year Ended


2004 through


2004 through


Year EndedDecember 31,


November 17,


December 31,


December 31,2005


2004


2004


2004(1)(Predecessor)





(Combined)(In thousands)Non-recurring inventory purchase
    accounting adjustments

$
12,084


$



$
6,748


$
6,748Amortization of Program
    Participation Costs


3,955







247



247Additional depreciation due to
    step-up of
    fixed assets


3,317







281



281Capitalization of Program
    Participation Costs


(26,302
)






(2,787
)


(2,787
)Net (reduction) increase in costs
    of sales

$
(6,946
)

$



$
4,489


$
4,489   (1)
    
    See Note(a) above.  (c)
    
    Our results of operations for the period from January 1,
    2004 through November 17, 2004 and from November 18,
    2004 through December 31, 2004 include one-time charges of
    $101.5 million and $5.4 million, respectively. These
    charges were a result of the Acquisition, and are as follows:  January 1,


November 18,2004 through


2004 through


Year EndedNovember 17,


December 31,


December 31,2004


2004


2004(Predecessor)





(Combined)(In thousands)Compensation costs recognized for
    the cancellation of stock options

$
46,156


$



$
46,156Premiums paid to redeem the
    95/8% senior
    subordinated notes due 2010 and the
    91/4% senior
    subordinated notes due 2007


45,282







45,282Write-off of debt issuance costs
    associated with the redemption of the
    95/8% senior
    subordinated notes due 2010 and the
    91/4%
    senior subordinated notes due 2007


6,551







6,551Professional fees and other
    expenses


3,544







3,544Write-off of interim loan facility
    commitment fee and other fees and expenses






5,350



5,350$
101,533


$
5,350


$
106,883   Comparison
    of Results of Operations for the Years Ended December 31,
    2005 and December 31, 2004
   35




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##### Table of Contents



Year EndedDecember 31,2005


2004(In thousands)Gross Program Participation Costs

$
38,860


$
35,043Amount capitalized during period


(26,302
)


(2,787
)Amortization of Program
    Participation Costs


3,955



247Program Participation Costs
    expensed in period

$
16,513


$
32,503        36




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##### Table of Contents



Comparison
    of Results of Operations for the Years Ended December 31,
    2004 and December 31, 2003
                   37




---



##### Table of Contents



Liquidity
    and Capital Resources
          Credit
    Facility
       38




---



##### Table of Contents



73/4%
    Notes
  3 4 pari passu pari passu
    3 4
 39




---



##### Table of Contents



Cash
    Flow
    January 1,


November 18,Year Ended


2004 through


2004 through


Year Ended


Year EndedDecember 31,


November 17,


December 31,


December 31,


December 31,2005


2004


2004


2004(a)


2003(Predecessor)





(Combined)


(Predecessor)(In thousands)Cash flows provided by
    (Used In):Operating activities

$
76,898


$
55,623


$
(3,650
)

$
51,973


$
47,197Investing activities


(27,508
)


(2,902
)


(695,902
)


(698,804
)


(5,468
)Financing activities


(24,295
)






632,003



632,003



(40,000
)     (a)
    
    The amounts for the year ended December 31, 2004 represent
    a combination of the results for the Predecessor period
    (January 1, 2004 through November 17, 2004) and
    the period subsequent to the Acquisition (November 18, 2004
    through December 31, 2004) to facilitate comparisons,
    with prior and subsequent years.      1 4
 40




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLess Than


1 to 3


4 to 5


More ThanTotal


1 Year


Years


Years


5 Years(In millions)Scheduled debt maturities

$
766.6


$
11.0


$
5.6


$
9.6


$
740.4Scheduled interest payments*


403.4



53.8



107.4



107.2



135.0Letters of credit


1.7











1.7



Purchase commitments**


55.6



55.0



0.6







Operating lease commitments


9.4



1.9



2.4



1.4



3.7Employment contracts


5.5



2.5



2.4



0.6



$
1,242.2


$
124.2


$
118.4


$
120.5


$
879.1     *
    
    Assumes that the variable interest rate on our borrowings under
    the credit facility remains constant at 6.6%, the weighted
    average variable rate that was in effect on December 31,
    2005.**
    
    Represents the value of purchase orders placed with vendors for
    materials and equipment.    Program
    Participation Costs
    Pension
    and Postretirement Benefits
  Pension
    Benefits
     41




---



##### Table of Contents



Long-Term
    Rate of Return on Assets
            Discount
    Rate
       42




---



##### Table of Contents



Unrecognized
    Actuarial Loss
    Postretirement
    Benefits
          Recent
    Accounting Pronouncements
     43




---



##### Table of Contents



No. 106-2, No. 106-1
  No. 106-1. No. 106-2
  FSP No. 106-2.
  Year EndedDecember 31,2004(In thousands)Service cost

$
205Interest cost


660Recognized actuarial gain


715Net periodic postretirement benefit

$
1,580   Inflation
   44




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk      
    a three month LIBOR interest rate cap at 6% from December 2005
    to December 2007 for an increasing notional amount starting at
    $144.6 million and increasing to $161.2 million;
    a swap arrangement for a portion of our term loans from a
    variable three month LIBOR interest rate to a fixed rate of
    4.0375%, beginning January 24, 2006. The notional amount of
    the swap arrangement is initially $95.4 million and
    declines to $78.8 million on January 24, 2008 at the
    termination of the swap arrangement; and
    a swap arrangement for a portion of our term loans from a
    variable three month LIBOR interest rate to a fixed rate of
    4.506%, beginning January 24, 2006. The notional amount of
    the swaps is initially $47.7 million and declines to
    $39.4 million on January 24, 2008 at the termination
    of the swap agreement.          Item 8.
    Financial
    Statements and Supplementary Data  page F-1.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation of Disclosure Controls and
    Procedures
 45




---



##### Table of Contents




    We engaged an outside accounting and tax consulting firm to
    assist management in our review of accounting and reporting for
    income taxes, both quarterly and at year-end, and
    We are considering enhanced training of our personnel in the
    income tax function.    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Form 10-K.
  Item 11.
    Executive
    Compensation  Form 10-K.
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholders Matters  Form 10-K.
  Item 13.
    Certain
    Relationships and Related Transactions  Form 10-K.
  Item 14.
    Principal
    Accountant Fees and Services    2005

2004Audit Fees(1)

$
552,270


$
401,716Audit-Related Fees(2)


95,230



195,049Tax Fees(3)


90,000



91,000All Other Fees(4)


120,500



Total

$
858,000


$
687,765     (1)
    
    The aggregate of fees billed or expected to be billed for the
    audit of our annual financial statements. 46




---



##### Table of Contents



(2)
    
    The aggregate of fees billed or expected to be billed for
    employee benefit plan audits, assistance with registration
    statements, consents and comfort letters related to debt
    issuance and other services approved by the Audit Committee.(3)
    
    The aggregate of fees billed or expected to be billed for
    services related to federal, state and international tax
    compliance and assistance with tax audits and appeals. Other tax
    services consist of fees billed for other miscellaneous tax
    consulting and planning.(4)
    
    The aggregate of fees billed or expected to be billed for due
    diligence services.  Pre-Approval
    Policies and Procedures
     PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  The following documents are filed as part of this
    report:
    PageReport of
    Independent Registered Public Accounting Firm


F-1Consolidated
    Balance Sheets as of December 31, 2005 and 2004


F-2Consolidated
    Statements of Operations for the year ended December 31,
    2005, for the period from November 18, 2004 through
    December 31, 2004, the period from January 1, 2004
    through November 17, 2004 (Predecessor) and for the Year
    Ended December 31, 2003 (Predecessor)


F-3Consolidated
    Statements of Stockholders Equity (Deficiency) for the
    year ended December 31, 2005, for the period from
    November 18, 2004 through December 31, 2004, the
    period from January 1, 2004 through November 17, 2004
    (Predecessor) and for the Year Ended December 31,
    2003(Predecessor)


F-4Consolidated Statements of Cash
    Flows for the year ended December 31, 2005, for the period
    from November 18, 2004 through December 31, 2004, the
    period from January 1, 2004 through November 17, 2004
    (Predecessor) and for the Year Ended December 31, 2003
    (Predecessor)


F-5Notes to Consolidated Financial
    Statements


F-6     2.
    Exhibits  ExhibitNumber



Description of Exhibit2
.1



Stock Purchase Agreement dated as
    of October 15, 2004, entered into by and among K&F
    Industries Holdings, Inc. (K&F Holdings)
    (formerly K&F Parent, Inc. and AAKF Acquisition, Inc.),
    K&F Industries, Inc. (K&F Industries)
    and the stockholders of K&F Industries(1).3
.1



Amended and Restated Certificate
    of Incorporation of the Registrant(3).3
.2



Amended and Restated By-Laws of
    the Registrant(3). 47




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##### Table of Contents



|        |    |     |  |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | --- |  | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |                       
|Number  |    |     |  | Description of Exhibit
|       
|        | 4  | .2  |  |                       |  | Supplemental Indenture dated as of
    November 8, 2004 for the
    91/4% Senior
    Subordinated Notes between the Registrant and U.S. Bank
    National Association (as successor to State Street Bank and
    Trust Company), as Trustee(3).                                                                                                                                                                                                                                                                                                                                                                                 
|        | 4  | .3  |  |                       |  | Indenture dated as of
    December 20, 2002 for the
    95/8% Senior
    Subordinated Notes between the Registrant and U.S. Bank
    National Association (successor to State Street Bank and Trust
    Company), as Trustee(2).                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4  | .4  |  |                       |  | Supplemental Indenture dated as of
    November 8, 2004 for the
    95/8% Senior
    Subordinated Notes between the Registrant and U.S. Bank
    National Association (as successor to State Street Bank and
    Trust Company), as Trustee(3).                                                                                                                                                                                                                                                                                                                                                                                 
|        | 4  | .5  |  |                       |  | Indenture dated as of
    November 18, 2004 between K&F Acquisition, Inc., and
    U.S. Bank National Association, as Trustee(1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 4  | .6  |  |                       |  | First Supplemental Indenture dated
    as of November 18, 2004 between the Registrant and
    U.S. Bank National Association, as Trustee(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4  | .7  |  |                       |  | Second Supplemental Indenture
    dated as of November 18, 2004 among Aircraft Braking
    Systems Corporation, Engineered Fabrics Corporation, Aircraft
    Braking Services, Inc. and U.S. Bank National Association,
    as Trustee(3).                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .1  |  |                       |  | Employment Agreement dated as of
    November 15, 2004 between the Registrant and Bernard L.
    Schwartz(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .2  |  |                       |  | Employment Agreement dated as of
    November 15, 2004 between the Registrant and Kenneth
    Schwartz(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .3  |  |                       |  | Employment Agreement dated as of
    November 9, 2004 between the Registrant and Dirkson R.
    Charles(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .4  |  |                       |  | Employment Agreement dated as of
    November 18, 2004 between the Registrant and Ronald
    Kisner(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .5  |  |                       |  | Employment Agreement dated as of
    November 18, 2004 between the Registrant and Frank P.
    Crampton(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .6  |  |                       |  | Management Services Agreement
    dated as of November 18, 2004 by and among K&F Parent,
    Registrant and Aurora Management Partners LLC(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .7  |  |                       |  | Airplane Use and Reimbursement
    Agreement dated as of November 18, 2004 by and between the
    Registrant and Bernard L. Schwartz(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .8  |  |                       |  | Credit Agreement, dated as of
    November 18, 2004, among K&F Intermediate Holdco, Inc.,
    a Delaware corporation, K&F Acquisition, Inc., a Delaware
    corporation as Borrower, the several banks and other financial
    institutions or entities from time to time parties to this
    Agreement as the Lenders, Lehman Brothers Inc. and
    J.P. Morgan Securities Inc., as Advisors, J.P. Morgan
    Securities Inc., as Syndication Agent, Goldman Sachs Credit
    Partners L.P. and Citigroup Global Markets Inc., as
    Co-Documentation Agents and Lehman Commercial Paper Inc., as
    Administrative Agent(1).
|        | 10 | .9  |  |                       |  | K&F Industries, Inc.
    Retirement Plan for Salaried Employees(8).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .10 |  |                       |  | K&F Industries, Inc. Savings
    Plan for Salaried Employees(8).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .11 |  |                       |  | K&F Industries, Inc. Executive
    Deferred Bonus Plan(2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .12 |  |                       |  | K&F Industries, Inc.
    Supplemental Executive Retirement Plan(2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .13 |  |                       |  | Registration Rights Agreement,
    dated as of November 18, 2004 by and among K&F
    Acquisition, Lehman Brothers Inc., Goldman, Sachs &
    Co., Citigroup Global Markets Inc., and J.P. Morgan
    Securities Inc(1).                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .14 |  |                       |  | K&F Industries, Inc.
    Supplemental Executive Retirement Plan, as amended(2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .15 |  |                       |  | K&F Holdings 2004 Stock
    Incentive Plan(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .16 |  |                       |  | Form of Management Non-Qualified
    Option Agreement pursuant to the K&F Holdings 2004
    Stock Incentive Plan(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .17 |  |                       |  | Form of Management Incentive
    Option Agreement pursuant to the K&F Holdings 2004
    Stock Incentive Plan(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .18 |  |                       |  | Form of Non-Qualified Aurora
    Advisor Option Agreement pursuant to the K&F Holdings
    2004 Stock Incentive Plan(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .19 |  |                       |  | Form of Non-Qualified Director
    Option Agreement pursuant to the K&F Holdings 2004
    Stock Incentive Plan(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .20 |  |                       |  | Consulting Agreement dated as of
    February 14, 2005 by and between Bernard L. Schwartz and
    K&F Industries, Inc.(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

48



---



##### Table of Contents



|        |    |     |  |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | -- | --- |  | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |                       
|Number  |    |     |  | Description of Exhibit
|       
|        | 10 | .21 |  |                       |  | Securityholders Agreement, dated
    as of November 18, 2004 among the K&F Holdings
    and certain of its Stockholders, Optionholders and
    Warrantholders(4).                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .22 |  |                       |  | Amendment No. 1, dated as of
    December 27, 2004, to Securityholders Agreement among
    K&F Holdings and certain of its Stockholders,
    Optionholders and Warrantholders(4).                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .24 |  |                       |  | Noncompetition Agreement, dated as
    of November 18, 2004 by and among AAKF Acquisition, Inc.
    (as predecessor-in-interest to the Registrant), K&F
    Industries, Inc. and Bernard L. Schwartz(4).                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .25 |  |                       |  | Amendment No. 2, dated as of
    April 27, 2005, to Securityholders Agreement among the
    K&F Holdings and certain of its Stockholders,
    Optionholders and Warrantholders(4).                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .26 |  |                       |  | Form of Director and Officer
    Indemnification Agreements(5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .27 |  |                       |  | Amended and Restated 2004 Stock
    Incentive Plan(6).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .28 |  |                       |  | Amended and Restated Management
    Services Agreement dated as of August 12, 2005 by and among
    K&F Holdings, K&F Industries, Inc. and Aurora
    Management Partners LLC(6).                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .29 |  |                       |  | First Amendment, dated as of
    October 17, 2005, among K&F Intermediate Holdco, Inc.,
    K&F Industries as the Borrower, the several banks and other
    financial institutions or entities from time to time parties
    thereto as the Lenders, Lehman Brothers Inc. and J.P. Morgan
    Securities Inc., as exclusive advisors, joint lead arrangers and
    joint bookrunners, J.P. Morgan Securities Inc., as Syndication
    Agent, Goldman Sachs Credit Partners L.P. and Citigroup Global
    Markets Inc., as
    Co-Documentation
    Agents and Lehman Commerical Paper Inc., as Administrative Agent
    (7).
|        | 12 | .1  |  |                       |  | Statement regarding computation of
    ratio of earnings to fixed charges(5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 21 | .1  |  |                       |  | Subsidiaries of the Registrant(5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 24 | .1* |  |                       |  | Powers of Attorney (included as
    part of the signature pages to this registration statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 31 | .1* |  |                       |  | Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    and
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 31 | .2* |  |                       |  | Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    and
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 32 | .1* |  |                       |  | Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 32 | .2* |  |                       |  | Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             









|    |  |                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|*   |  | Filed herewith                                                                                                                                             
|   
|(1) |  | Previously filed as an exhibit to the Registrants Current
    Report on
    Form 8-K
    dated November 23, 2004 and incorporated herein by
    reference.
|   
|(2) |  | Previously filed as an exhibit to the Registrants
    Registration Statement on
    Form S-4,
    No. 333-102658
    and incorporated herein by reference.
|   
|(3) |  | Previously filed as on exhibit to the Registration Statement on
    Form S-4,
    No. 333-122672
    and incorporated herein by reference.                 
|   
|(4) |  | Previously filed as an exhibit to K&F Holdings
    Registration Statement on Form S-4, No. 333-124870 and
    incorporated herein by reference.           
|   
|(5) |  | Previously filed as an exhibit to K&F Holdings
    Registration Statement on
    Form S-4,
    No. 333-125117
    and incorporated by reference.          
|   
|(6) |  | Previously filed as an exhibit to the Registrants Current
    Report of
    Form 8-K
    dated August 12, 2005 and incorporated herein by reference.      
|   
|(7) |  | Previously filed as an exhibit to the Registrants Current
    Report on Form
    8-K dated
    October 17, 2005 and incorporated herein by reference      
|   
|(8) |  | Filed as an exhibit to K&F Holdings Annual Report on
    Form 10-K
    for the year ended December 31, 2005 and incorporated
    herein by reference.     

49



---



##### Table of Contents



SIGNATURES      By:
    /s/  Kenneth
    M. Schwartz            Signature

Title

Date/s/  Lawrence
    A. BossidyLawrence
    A. Bossidy

Chairman of the Board

March 31, 2006/s/  Kenneth
    M. SchwartzKenneth
    M. Schwartz

President, Chief Executive Officer
    and Director (principal executive officer)

March 31, 2006/s/  Dirkson
    R. CharlesDirkson
    R. Charles

Executive Vice President and Chief
    Financial Officer (principal financial and accounting officer)

March 31, 2006/s/  Dale
    F. FreyDale
    F. Frey

Director

March 31, 2006/s/  Thomas
    A. JohnsonThomas
    A. Johnson

Director

March 31, 2006/s/  John
    T. MapesJohn
    T. Mapes

Director

March 31, 2006/s/  Gerald
    L. ParskyGerald
    L. Parsky

Director

March 31, 2006/s/  J.
    Thomas ZusiJ.
    Thomas Zusi

Director

March 31, 2006  50




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             DELOITTE
    & TOUCHE LLP
    F-1




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
  December 31,


December 31,2005


2004ASSETSCurrent assets:Cash and cash equivalents

$
34,731,000


$
9,636,000Accounts
    receivable  net


47,586,000



42,333,000Inventory


53,979,000



61,247,000Deferred income taxes and other
    current assets


21,112,000



4,336,000Total current assets


157,408,000



117,552,000Property, plant and
    equipment  net


101,885,000



99,592,000Other long-term assets


1,490,000



351,000Debt issuance
    costs  net


22,517,000



28,768,000Program participation
    costs  net


201,023,000



51,778,000Intangible
    assets  net


58,546,000



195,196,000Goodwill


841,049,000



856,668,000Total assets

$
1,383,918,000


$
1,349,905,000LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
18,223,000


$
15,030,000Current portion of long-term debt


11,018,000



Interest payable


5,171,000



3,505,000Note payable






14,682,000Income taxes payable


7,230,000



3,714,000Other current liabilities


49,141,000



46,420,000Total current liabilities


90,783,000



83,351,000Pension liabilities


54,348,000



48,248,000Deferred income tax liabilities


43,234,000



19,541,000Postretirement benefit obligations
    other than pensions


92,625,000



92,269,000Other long-term liabilities


5,491,000



5,180,000Long-term debt


755,559,000



790,577,000Commitments and contingencies
    (Notes 12 and 13)Stockholders equity:Preferred stock, $.01 par
    value  authorized, 0 shares and
    9,250 shares; issued and outstanding, 0 shares and
    9,250 shares at December 31, 2005 and 2004,
    respectively






Common stock, $.01 par
    value  authorized, 1,000 shares; issued and
    outstanding, 1,000 shares






Additional paid-in capital


309,810,000



309,790,000Retained earnings


34,001,000



880,000Accumulated other comprehensive
    (loss) income


(1,933,000
)


69,000Total stockholders equity


341,878,000



310,739,000Total liabilities and
    stockholders equity

$
1,383,918,000


$
1,349,905,000    F-2




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF OPERATIONS
  November 18, 2004



January 1, 2004Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)Net sales

$
384,630,000


$
53,448,000



$
299,868,000


$
342,818,000Cost of sales (including inventory
    purchase accounting charges of $12,084,000 and $6,748,000 for
    the year ended December 31, 2005 and for the period
    November 18, 2004 through December 31, 2004,
    respectively)


215,710,000



33,315,000




174,223,000



197,812,000Gross profit


168,920,000



20,133,000




125,645,000



145,006,000Independent research and
    development


15,974,000



1,770,000




12,048,000



14,936,000Selling, general and
    administrative expenses


36,934,000



4,519,000




27,650,000



30,499,000Amortization of intangible assets


10,753,000



1,440,000




4,196,000



4,264,000Acquisition transaction expenses






5,350,000




101,533,000



Operating income (loss)


105,259,000



7,054,000




(19,782,000
)


95,307,000Interest expense, net of interest
    income of $519,000, $41,000, $517,000 and $427,000


56,149,000



6,410,000




34,287,000



44,186,000Income (loss) before income taxes


49,110,000



644,000




(54,069,000
)


51,121,000Income tax (provision) benefit


(15,989,000
)


236,000




25,082,000



(10,488,000
)Net income (loss)

$
33,121,000


$
880,000



$
(28,987,000
)

$
40,633,000    F-3




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY (DEFICIENCY)
  Preferred














AccumulatedStock


Common Stock


Additional


Retained


OtherShares





Shares





Paid-in


Earnings


Comprehensive


ComprehensiveIssued


Amount


Issued


Amount


Capital


(Deficit)


Income (Loss)


Income (Loss)PredecessorBalance, January 1, 2003





$




740,398


$
7,000


$
(263,259,000
)

$
63,406,000


$
(27,810,000
)Net income






















40,633,000






$
40,633,000Cumulative translation adjustments


























199,000



199,000Amortization of transition
    adjustment included in interest expense (net of tax of $126,000)


























182,000



182,000Additional minimum pension
    liability (net of tax of $1,157,000)


























(329,000
)


(329,000
)Balance, December 31, 2003










740,398



7,000



(263,259,000
)


104,039,000



(27,758,000
)

$
40,685,000Net loss






















(28,987,000
)





$
(28,987,000
)Cumulative translation adjustments


























121,000



121,000Additional minimum pension
    liability (net of tax of $3,057,000)


























(4,881,000
)


(4,881,000
)Balance, November 18, 2004










740,398



7,000



(263,259,000
)


75,052,000



(32,518,000
)

$
(33,747,000
)SuccessorElimination of historical
    stockholders deficiency upon consummation of the
    acquisition










(740,398
)


(7,000
)


263,259,000



(75,052,000
)


32,518,000Net income






















880,000






$
880,000Equity contributions from K&F
    Intermediate Holdco, Inc.


9,250







1,000







309,790,000Cumulative translation adjustments


























69,000



69,000Balance, December 31, 2004


9,250







1,000







309,790,000



880,000



69,000


$
949,000Net income






















33,121,000






$
33,121,000Cumulative translation adjustments


























(211,000
)


(211,000
)Additional minimum pension
    liability (net of tax of $1,106,000)


























(1,791,000
)


(1,791,000
)Equity contributions from K&F
    Intermediate Holdco, Inc.


















20,000Balance, December 31, 2005





$




1,000


$



$
309,810,000


$
34,001,000


$
(1,933,000
)

$
31,119,000    F-4




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   CONSOLIDATED STATEMENTS OF CASH FLOWS
  November 18,2004



January 1, 2004Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)Cash Flows From Operating
    Activities:Net income (loss)

$
33,121,000


$
880,000



$
(28,987,000
)

$
40,633,000Adjustments to reconcile net income
    (loss) to net cash provided (used) by operating activities:Depreciation


10,824,000



1,223,000




6,271,000



7,936,000Amortization of program
    participation costs


3,955,000



247,000








Amortization of intangible assets


10,753,000



1,440,000




4,196,000



4,264,000Loss on disposal of assets


841,000












Inventory purchase accounting charge


12,084,000



6,748,000








Non-cash interest
    expense-amortization/write-off
    of debt issuance costs


6,566,000



512,000




8,168,000



2,477,000(Gain) loss on change in fair
    market value of interest rate swaps and caps


(1,125,000
)


5,000








(3,533,000
)Provision for losses on accounts
    receivable


411,000








20,000



170,000Cancellation of stock options











46,156,000



Defeasance costs of senior
    subordinated notes











44,084,000



Deferred income taxes


12,514,000



(631,000
)



(17,502,000
)


1,449,000Changes in assets and liabilities:Accounts receivable


(5,760,000
)


(1,707,000
)



1,059,000



(3,412,000
)Inventory


(4,932,000
)


4,932,000




(3,928,000
)


1,993,000Other current assets


(1,657,000
)


(2,667,000
)



(14,716,000
)


1,584,000Other long-term assets






(351,000
)







Program participation
    costs  equipment(b)


(26,302,000
)


(2,787,000
)







Program participation
    costs  cash payments(b)


(1,000,000
)







(6,283,000
)


(5,548,000
)Accounts payable(a)


(78,000
)


(1,794,000
)



1,795,000



(52,000
)Interest payable


1,666,000



(7,930,000
)



7,638,000



(570,000
)Other current liabilities


21,148,000



(2,296,000
)



1,239,000



(8,600,000
)Pension liability


3,202,000



619,000




6,856,000



8,286,000Postretirement benefit obligations
    other than pensions


356,000



411,000




(1,184,000
)


3,161,000Other long-term liabilities


311,000



(504,000
)



741,000



(3,041,000
)Net cash provided (used) by
    operating activities


76,898,000



(3,650,000
)



55,623,000



47,197,000Cash Flows From Investing
    Activities:Capital expenditures(a)


(12,826,000
)


(1,810,000
)



(2,902,000
)


(5,468,000
)Payment of deferred purchase price


(14,682,000
)











Acquisition






(640,935,000
)







Cancellation of stock options






(42,047,000
)







Other acquisition and transaction
    costs






(11,110,000
)







Net cash used in investing
    activities


(27,508,000
)


(695,902,000
)



(2,902,000
)


(5,468,000
)Cash Flows From Financing
    Activities:Payments of senior term loan


(24,000,000
)











Debt issuance costs


(315,000
)


(29,280,000
)







Proceeds from issuance of senior
    term loan






480,000,000








Proceeds from issuance of senior
    subordinated notes






315,000,000








Equity contributions


20,000



309,790,000








Payments of long-term debt
    including defeasance costs of senior subordinated notes






(443,507,000
)







(40,000,000
)Net cash (used) provided in
    financing activities


(24,295,000
)


632,003,000








(40,000,000
)Net increase (decrease) in cash and
    cash equivalents


25,095,000



(67,549,000
)



52,721,000



1,729,000Cash and cash equivalents,
    beginning of period


9,636,000



77,185,000




24,464,000



22,735,000Cash and cash equivalents, end of
    period

$
34,731,000


$
9,636,000



$
77,185,000


$
24,464,000Supplemental Information:Interest paid during the period

$
49,731,000


$
13,772,000



$
25,549,000


$
46,239,000Income taxes paid during the period

$
767,000


$




$
6,419,000


$
6,552,000Income tax refund received during
    the period

$
15,425,000


$




$



$
     (a)
    
    Approximately $3.3 million of
    non-cash activity has been excluded from accounts payable and
    capital expenditures during the year ended December 31,
    2005. This represents the net increase in accounts payable
    relating to capital expenditures. Prior periods were not
    significant.(b)
    
    During the year ended
    December 31, 2005, the Company finalized the allocation of
    the purchase price relating to the acquisition. This resulted in
    the reallocation of approximately $126 million from
    intangible assets to program participation costs. See
    Note 14.   F-5




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Description
    of Business    The
    Acquisition
    3 4 3 4
      Assets Acquired:Current assets

$
183,467,000Property, plant and equipment


99,005,000Debt issuance costs


29,280,000Program participation costs


49,238,000Other intangible assets


196,636,000Goodwill


856,668,000Total assets acquired


1,414,294,000 F-6




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Liabilities Assumed:Current liabilities


142,242,000Pension liabilities


47,629,000Postretirement benefit obligations


91,858,000Deferred income taxes


20,169,000Other long-term liabilities


5,684,000Long-term debt


796,922,000Total liabilities assumed


1,104,504,000Net assets acquired

$
309,790,000   Transaction
    Expenses
    November 18, 2004


January 1, 2004Through


ThroughDecember 31,


November 17,2004


2004(Predecessor)Compensation costs recognized for
    the cancellation of stock options

$



$
46,156,000Premiums paid to redeem the
    95/8% notes
    and the
    91/4% notes






45,282,000Write-off of debt issuance costs
    associated with the redemption of the
    95/8% notes
    and the
    91/4% notes






6,551,000Investment banker fees






1,525,000Other fees and expenses






2,019,000Write-off of interim loan facility
    commitment fee and other fees and expenses


5,350,000



$
5,350,000


$
101,533,000     2.
    Summary
    of Significant Accounting Policies  Principles of Consolidation
  Cash and Cash Equivalents
  Revenue and Expense Recognition
 F-7




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Inventory
  Property, Plant and Equipment
  Goodwill and Other Intangible Assets
        Derivative Financial Instruments
  Debt Issuance Costs
  Program Participation Costs
 F-8




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  FAA-certification FAA-certification
    Intangible Assets
  Evaluation of Long-Lived
    Assets
  Warranty
  Business and Credit Concentrations
  Use of Estimates
 F-9




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-Based Compensation Plans
    November 18,



January 1,Year Ended


2004 through



2004 through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)Reported net income

$
33,121,000


$
880,000



$
(28,987,000
)

$
40,633,000Deduct: Total stock-based employee
    and director compensation expense determined under fair value
    method for all awards, net of related tax effects


(519,000
)











Pro forma net income

$
32,602,000


$
880,000



$
(28,987,000
)

$
40,633,000         Current Accounting Pronouncements
 F-10




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             No. 106-2, No. 106-1
  No. 106-1. No. 106-2
 F-11




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    3.
    Accounts
    Receivable  December 31,2005


2004Accounts receivable, principally
    from commercial and general aviation customers

$
43,626,000


$
35,885,000Accounts receivable on
    U.S. government and other long-term contracts


5,587,000



7,684,000Allowances


(1,627,000
)


(1,236,000
)Total

$
47,586,000


$
42,333,000     November 18, 2004



January 1, 2004Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)Balance at beginning of period

$
1,236,000


$
1,236,000



$
1,216,000


$
1,056,000Current period provisions


411,000








20,000



170,000Write-off


(20,000
)











(10,000
)Balance at end of period

$
1,627,000


$
1,236,000



$
1,236,000


$
1,216,000   4.
    Inventory  December 31,2005


2004Raw materials and
    work-in-process

$
29,689,000


$
35,356,000Finished goods


11,920,000



16,017,000Inventoried costs related to
    U.S. government and other long-term contracts


12,370,000



9,874,000Total

$
53,979,000


$
61,247,000   5.
    Property,
    Plant and Equipment  December 31,2005


2004Land

$
3,809,000


$
4,493,000Buildings and improvements


36,334,000



30,554,000Machinery, equipment, furniture
    and fixtures


73,105,000



66,036,000Total


113,248,000



101,083,000Less accumulated depreciation and
    amortization


11,363,000



1,491,000Total

$
101,885,000


$
99,592,000  F-12




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   6.
    Other
    Current Liabilities  December 31,2005


2004Accrued payroll costs

$
14,128,000


$
15,919,000Accrued property and other taxes


2,507,000



2,197,000Accrued costs on long-term
    contracts


3,963,000



2,639,000Accrued warranty costs


12,327,000



12,261,000Customer credits


7,264,000



5,402,000Postretirement benefit obligations
    other than pensions


6,000,000



4,000,000Other


2,952,000



4,002,000Total

$
49,141,000


$
46,420,000   7.
    Long-Term
    Debt  December 31,2005


2004Senior term loan

$
439,982,000


$
475,000,00073/4% senior
    subordinated notes due 2014


315,000,000



315,000,00095/8% senior
    subordinated notes due 2010


577,000



577,000Total long-term debt


755,559,000



790,577,000Current portion of long-term debt


11,018,000



Total debt

$
766,577,000


$
790,577,000   Credit Facility
   F-13




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             Senior Subordinated Notes 1 4 1 4 5 8 1 4 5 8
  3 4 3 4 3 4 3 4
  3 4 3 4
  3 4
  1 4
 F-14




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ending
    December 31,

Amount2006

$
11,018,0002007


1,122,0002008


4,490,0002009


4,490,0002010


5,067,000Thereafter


740,390,000Total

$
766,577,000     8.
    Fair
    Value of Financial Instruments    3 4
           F-15




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.
    Capital
    Stock and Stock Options  Common Stock
  Senior Redeemable Preferred
    Stock
  Stock Options
    WeightedAverageNumber of


ExerciseOptions


PriceOutstanding at December 31,
    2004





$
Granted


1,385,665



5.50Exercised






Canceled






Outstanding at December 31,
    2005


1,385,665



5.50     Options Outstanding


Options ExercisableNumber


Weighted Average


Weighted Average


Number


Weighted AverageExercise Price

Outstanding


Life (Years)


Exercise Price


Exercisable


Exercise Price$ 5.22


1,351,584



9.0


$
5.22



9,750


$
5.2215.16


5,000



9.9



15.16



0



15.1617.00


29,081



9.8



17.00



0



17.001,385,665



9.0



5.50



9,750



5.50    F-16




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   10.
    Accumulated
    Other Comprehensive Income (Loss)    AmortizationCumulative


of TransitionEffect of


Adjustment


Additional


AccumulatedCumulative


Change in


Included in


Minimum


OtherTranslation


Accounting


Interest


Pension


ComprehensiveAdjustments


Principle


Expense


Liability


Income (Loss)January 1, 2003 (Predecessor)

$
94,000


$
(550,000
)

$
368,000


$
(27,722,000
)

$
(27,810,000
)2003 change


199,000







182,000



(329,000
)


52,000December 31, 2003 (Predecessor)


293,000



(550,000
)


550,000



(28,051,000
)


(27,758,000
)January 1, 2004 through
    November 17, 2004 change (Predecessor)


121,000











(4,881,000
)


(4,760,000
)November 17, 2004 (Predecessor)


414,000



(550,000
)


550,000



(32,932,000
)


(32,518,000
)November 18, 2004 through
    December 31, 2004 change


(345,000
)


550,000



(550,000
)


32,932,000



32,587,000December 31, 2004


69,000















69,0002005 change


(211,000
)










(1,791,000
)


(2,002,000
)December 31, 2005

$
(142,000
)

$



$



$
(1,791,000
)

$
(1,933,000
)   11.
    Employee
    Benefit Plans       F-17




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Pension Benefits


Postretirement BenefitsDecember 31,


December 31,2005


2004


2005


2004Change in benefit
    obligationBenefit obligation at beginning of
    year

$
150,109,000


$
136,075,000


$
96,076,000


$
109,837,000Service cost


3,903,000



4,951,000



1,563,000



1,681,000Interest cost


8,905,000



8,441,000



5,609,000



5,537,000Plan participants
    contributions


400,000



410,000



1,170,000



1,067,000Amendments






927,000







(8,580,000
)Actuarial loss (gain)


6,926,000



6,241,000



1,984,000



(8,158,000
)Benefits paid


(7,135,000
)


(6,936,000
)


(5,987,000
)


(5,308,000
)Benefit obligation at end of year


163,108,000



150,109,000



100,415,000



96,076,000Change in plan assetsFair value of plan assets at
    beginning of year


102,286,000



102,675,000







Actual return on plan assets


8,793,000



6,056,000







Employer contributions


464,000



81,000



4,817,000



4,241,000Plan participants
    contributions


400,000



410,000



1,170,000



1,067,000Benefits paid


(7,135,000
)


(6,936,000
)


(5,987,000
)


(5,308,000
)Fair value of plan assets at end
    of          
    year


104,808,000



102,286,000







Funded status


(58,300,000
)


(47,823,000
)


(100,415,000
)


(96,076,000
)Unrecognized actuarial loss (gain)


6,849,000



(425,000
)


1,790,000



(194,000
)Unrecognized prior service cost














Net amount recognized

$
(51,451,000
)

$
(48,248,000
)

$
(98,625,000
)

$
(96,270,000
)Amounts recognized in the
    balance sheet consist of:Prepaid benefit cost

$



$



$



$
Accrued benefit liability


(54,348,000
)


(48,248,000
)


(98,625,000
)


(96,270,000
)Intangible asset














Accumulated other comprehensive
    loss


2,897,000











Net amount recognized

$
51,451,000


$
(48,248,000
)

$
(98,625,000
)

$
(96,270,000
)Weighted-average
    assumptions:Discount rate


5.75
%


6.00
%


5.75
%


6.00
%Expected return on plan assets


9.00



9.00







Rate of compensation increase


4.00



4.00



4.00



4.00  F-18




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Pension
    Benefits


Postretirement
    BenefitsNovember 18,



January 1,








November 18,



January 1,2004



2004








2004



2004Year Ended


through



through


Year Ended


Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,


December 31,


December 31,



November 17,


December 31,2005


2004



2004


2003


2005


2004



2004


2003(Predecessor)


(Predecessor)(Predecessor)


(Predecessor)Service cost

$
3,903,000


$
651,000



$
4,300,000


$
4,412,000


$
1,563,000


$
225,000



$
1,456,000


$
2,215,000Interest cost


8,905,000



1,118,000




7,323,000



8,029,000



5,609,000



717,000




4,820,000



6,953,000Expected return on plan assets


(9,142,000
)


(1,142,000
)



(7,994,000
)


(8,272,000
)















Amortization of prior service cost











413,000



393,000












(5,066,000
)


(3,932,000
)Recognized actuarial loss (gain)











2,886,000



3,757,000












1,317,000



1,480,000Net periodic benefit cost

$
3,666,000


$
627,000



$
6,928,000


$
8,319,000


$
7,172,000


$
942,000



$
2,527,000


$
6,716,000           December 31,2005


2004


TargetAsset Category

Percentage of Plan
    AssetsEquity securities


61
%


51
%


60
%Fixed income securities


34
%


44
%


35
%Other


5
%


5
%


5
%Total


100
%


100
%


100
%    F-19




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      No. 106-2, No. 106-1
  No. 106-1. No. 106-2
  No. 106-2.
  November 18, 2004


January 1, 2004through


throughDecember 31,


November 17,2004


2004(Predecessor)Service cost

$
30,000


$
175,000Interest cost


90,000



570,000Recognized actuarial gain






715,000Net periodic postretirement benefit

$
120,000


$
1,460,000       One-


One-Percentage-


Percentage-Point Increase


Point DecreaseEffect on total of service cost
    and interest cost components

$
900,000


$
(500,000
)Effect on postretirement benefit
    obligation


11,500,000



(6,500,000
)      F-20




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Expected Benefit
    PaymentsPension


Postretirement


MedicareYear Ending
    December 31,

Benefits


Benefits


Subsidy*2006

$
8,100,000


$
6,300,000


$
500,0002007


8,600,000



6,600,000



600,0002008


9,100,000



7,100,000



700,0002009


9,600,000



7,700,000



700,0002010


10,000,000



8,300,000



800,0002011-2015


58,900,000



45,600,000



5,000,000     *
    
    Represents the expected Medicare Part D subsidy.    12.
    Commitments
    and Product Warranties  Commitments
    Year Ending
    December 31,

Amount2006

$
1,940,0002007


1,651,0002008


745,0002009


715,0002010


639,000Thereafter


3,685,000       Product
    Warranties
   F-21




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    November 18,


January 1,Year Ended


2004 through


2004 through


Year EndedDecember 31,


December 31,


November 17,


December 31,2005


2004


2004


2003(Predecessor)


(Predecessor)Balance at beginning of period

$
12,858,000


$
14,877,000


$
13,924,000


$
15,166,000Current (credits) provisions


6,402,000



(76,000
)


6,422,000



6,925,000Expenditures


(6,586,000
)


(1,943,000
)


(5,469,000
)


(8,167,000
)Balance at end of period

$
12,674,000


$
12,858,000


$
14,877,000


$
13,924,000   13.
    Contingencies    14.
    Goodwill,
    Intangible Assets, Debt Issuance Costs and Program Participation
    Costs    December 31,2005


2004Goodwill

$
841,049,000


$
856,668,000Trademarks


5,588,000



5,588,000Total unamortizable intangible
    assets

$
846,637,000


$
862,256,000     Aircraft Braking


EngineeredSystems


Fabrics


TotalBalance at December 31, 2004

$
779,268,000


$
77,400,000


$
856,668,000Goodwill adjustments


(13,888,000
)


(1,731,000
)


(15,619,000
)Balance at December 31, 2005

$
765,380,000


$
75,669,000


$
841,049,000    F-22




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     EstimatedDecember 31, 2005


WeightedGross Carrying


Accumulated





AverageAmount


Amortization


Net


Useful LifeDebt issuance costs

$
26,599,000


$
(4,082,000
)

$
22,517,000



9 yearsProgram Participation Costs

$
205,225,000


$
(4,202,000
)

$
201,023,000



25 yearsAmortized intangible assets:Customer relationships

$
12,749,000


$
(4,938,000
)

$
7,811,000



24 yearsEngineering drawings


20,881,000



(1,299,000
)


19,582,000



18 yearsContract backlog


12,203,000



(4,225,000
)


7,978,000



3 yearsIn-house libraries


8,297,000



(516,000
)


7,781,000



18 yearsTechnology licenses


7,003,000



(784,000
)


6,219,000



10 yearsPatents


4,017,000



(430,000
)


3,587,000



11 yearsTotal amortizable intangible assets

$
65,150,000


$
(12,192,000
)

$
52,958,000     EstimatedDecember 31, 2004


WeightedGross Carrying


Accumulated





AverageAmount


Amortization


Net


Useful LifeDebt issuance costs

$
29,280,000


$
(512,000
)

$
28,768,000



9 yearsProgram Participation Costs

$
52,025,000


$
(247,000
)

$
51,778,000



25 yearsAmortized intangible assets:Customer relationships

$
138,647,000


$
(666,000
)

$
137,981,000



25 yearsEngineering drawings


20,881,000



(139,000
)


20,742,000



18 yearsContract backlog


12,203,000



(450,000
)


11,753,000



3 yearsIn-house libraries


8,297,000



(55,000
)


8,242,000



18 yearsTechnology licenses


7,003,000



(84,000
)


6,919,000



10 yearsPatents


4,017,000



(46,000
)


3,971,000



11 yearsTotal amortizable intangible assets

$
191,048,000


$
(1,440,000
)

$
189,608,000     F-23




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Program


DebtIntangible


Participation


IssuanceAsset 


Costs 


Costs Amortization


Amortization


AmortizationYear Ending
    December 31,2006

$
7,000,000


$
8,200,000


$
3,500,0002007


6,700,000



8,200,000



3,400,0002008


4,000,000



8,200,000



3,200,0002009


3,200,000



8,200,000



3,100,0002009


3,200,000



8,200,000



3,000,000   15.
    Income
    Taxes    November 18, 2004



January 1, 2004Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)U.S.

$
47,927,000


$
329,000



$
(55,546,000
)

$
48,256,000Foreign


1,183,000



315,000




1,477,000



2,865,000Income (loss) before income taxes

$
49,110,000


$
644,000



$
(54,069,000
)

$
51,121,000     November 18, 2004Year Ended


through



January 1, 2004


Year EndedDecember 31,


December 31,



through


December 31,2005


2004



November 17, 2004


2003(Predecessor)


(Predecessor)Current domestic (provision)
    benefit

$
(3,120,000
)

$
(299,000
)


$
8,023,000


$
(8,300,000
)Foreign provision


(355,000
)


(95,000
)



(443,000
)


(739,000
)Deferred tax (provision) benefit


(12,514,000
)


630,000




17,502,000



(1,449,000
)Income tax (provision) benefit

$
(15,989,000
)

$
236,000



$
25,082,000


$
(10,488,000
)  F-24




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     November 18, 2004



January 1, 2004Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)Statutory federal income tax rate


35.0
%


35.0
%



(35.0
)%


35.0
%State tax


1.1



2.8




(1.2
)


2.0Change in state tax rate


(1.8
)











Tax reserves


3.8








(6.3
)


(5.3
)Extraterritorial income exclusion
    benefit


(4.5
)


(48.9
)



(4.9
)


(5.3
)Tax credits















(3.9
)Foreign taxes and other


(1.0
)


(25.6
)



1.0



(2.0
)Effective income tax rate


32.6
%


(36.7
)%



(46.4
)%


20.5
%              F-25




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,


December 31,2005


2004Deferred tax assets:Federal and state net operating
    loss carryforwards

$
918,000


$
11,385,000Tax credit carryforwards


5,518,000



6,182,000Postretirement and other employee
    benefits


59,890,000



63,623,000Warranty


4,525,000



4,937,000Other


4,936,000



3,777,00075,787,000



89,904,000Deferred tax liabilitiesIntangibles


14,062,000



70,036,000Program participation costs


71,775,000



19,861,000Depreciation


17,287,000



19,507,000Other


764,000



41,000103,888,000



109,445,000Net deferred tax liability

$
28,101,000


$
19,541,000   16.
    Related
    Party Transactions  Indemnification
    Bernard
    L. Schwartz
         F-26




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Commitment
    Fee
    Purchasers
    of
    73/4% Notes
  3 4
  Management
    Services Agreement
    Lehman
    Brothers
  3 4
  17.
    Segments    3 4
 F-27




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3 4
    November 18, 2004Year Ended


through



January 1, 2004


Year EndedDecember 31,


December 31,



through


December 31,2005


2004



November 17, 2004


2003(Predecessor)


(Predecessor)Sales:Aircraft Braking Systems

$
319,885,000


$
46,005,000



$
247,843,000


$
287,522,000Engineered Fabrics


64,745,000



7,443,000




52,025,000



55,296,000$
384,630,000


$
53,448,000



$
299,868,000


$
342,818,000Operating Profits:Aircraft Braking Systems

$
99,616,000


$
11,582,000



$
73,861,000


$
87,824,000Engineered Fabrics


5,643,000



822,000




7,890,000



7,483,000Transaction expenses






(5,350,000
)



(101,533,000
)


Operating income (loss)


105,259,000



7,054,000




(19,782,000
)


95,307,000Interest expense, net


56,149,000



6,410,000




34,287,000



44,186,000Income (loss) before income taxes

$
49,110,000


$
644,000



$
(54,069,000
)

$
51,121,000Depreciation and Amortization:Aircraft Braking Systems

$
22,089,000


$
2,522,000



$
9,557,000


$
11,189,000Engineered Fabrics


3,443,000



388,000




910,000



1,011,000$
25,532,000


$
2,910,000



$
10,467,000


$
12,200,000Capital Expenditures:Aircraft Braking Systems

$
12,156,000


$
1,464,000



$
2,539,000


$
4,734,000Engineered Fabrics


581,000



346,000




353,000



729,000Total segments


12,737,000



1,810,000




2,892,000



5,463,000Corporate


89,000








10,000



5,000$
12,826,000


$
1,810,000



$
2,902,000


$
5,468,000   December 31,2005


2004Total Assets:Aircraft Braking Systems

$
1,221,962,000


$
1,183,123,000Engineered Fabrics


133,731,000



133,750,000$
1,355,693,000


$
1,316,873,000  F-28




---



##### Table of Contents



K&F
    INDUSTRIES, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2005


2004Total Assets:Total assets for reportable
    segments

$
1,355,693,000


$
1,316,873,000Debt issuance costs not allocated
    to segments


22,517,000



28,768,000Corporate assets


5,708,000



4,264,000Consolidated Total

$
1,383,918,000


$
1,349,905,000     November 18, 2004



January 1, 2004Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)Braking systems

$
319,885,000


$
46,005,000



$
247,843,000


$
287,522,000Fuel tanks


49,274,000



5,054,000




40,720,000



39,881,000Other


15,471,000



2,389,000




11,305,000



15,415,000$
384,630,000


$
53,448,000



$
299,868,000


$
342,818,000     November 18, 2004



January 1, 2004Year Ended


through



through


Year EndedDecember 31,


December 31,



November 17,


December 31,2005


2004



2004


2003(Predecessor)


(Predecessor)Sales:United States

$
232,937,000


$
31,681,000



$
176,107,000


$
208,408,000Europe


68,711,000



11,988,000




60,191,000



67,859,000Asia


40,852,000



3,658,000




33,008,000



37,519,000North America


22,746,000



2,197,000




22,690,000



21,081,000South America


17,108,000



3,510,000




6,119,000



5,815,000Australia


2,276,000



414,000




1,753,000



2,136,000$
384,630,000


$
53,448,000



$
299,868,000


$
342,818,000      F-29