##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
   Form 10-Q
   þ

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission file number:
    333-124870
  K&F Industries Holdings,
    Inc.
 (Exact name of Registrant as
    specified in its charter)
  Delaware

20-1844325(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)50 Main Street, White
    Plains,
    New York(Address of principal
    executive offices)

10606(Zip
    Code)   Registrants telephone number, including area code
 (914) 448-2700
  þ o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




---



##### 



K&F
    INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Form 10-Q
  For the quarterly period ended June 30, 2006
  INDEX
  
  PagePART I.
    CONDENSED CONSOLIDATED FINANCIAL INFORMATIONItem 1.


Condensed
    Consolidated Financial Statements:a) Condensed
    Consolidated Balance Sheets as of June 30, 2006 (Unaudited)
    and
    December 31, 2005*


1b) Condensed
    Consolidated Statements of Income for the six months ended
    June 30, 2006 and 2005 (Unaudited)


2c) Condensed
    Consolidated Statements of Income for the three months ended
    June 30, 2006 and 2005 (Unaudited)


3d) Condensed
    Consolidated Statements of Cash Flows for the six months ended
    June 30, 2006 and 2005 (Unaudited)


4e) Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)


5Item 2.


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


17Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


28Item 4.


Controls and
    Procedures


29PART II.
    OTHER INFORMATIONItem 4.


Submission of Matters to a Vote of
    Security Holders


29Item 6.


Exhibits


30Signatures


31   *
    Information for the December 31, 2005 balance sheet has
    been derived from audited consolidated financial statements
    included in our Annual Report on
    Form 10-K
    for the year ended December 31, 2005.EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  Item 1.
    Condensed
    Consolidated Financial Statements  K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets  June 30,


December 31,2006


2005(Unaudited)ASSETS:Current Assets:Cash and cash equivalents

$
16,598,000


$
34,816,000Accounts receivable, net


48,997,000



47,586,000Inventory


70,596,000



53,979,000Deferred income taxes and other
    current assets


24,864,000



19,222,000Total current assets


161,055,000



155,603,000Property, plant and equipment


125,132,000



113,248,000Less, accumulated depreciation and
    amortization


17,239,000



11,363,000107,893,000



101,885,000Other long-term assets


2,982,000



1,490,000Debt issuance costs, net of
    accumulated amortization


20,763,000



22,517,000Program participation costs, net
    of accumulated amortization


212,428,000



201,023,000Intangible assets, net of
    accumulated amortization


57,327,000



58,546,000Goodwill


852,770,000



841,049,000Total assets

$
1,415,218,000


$
1,382,113,000LIABILITIES AND
    STOCKHOLDERS EQUITY:Current Liabilities:Accounts payable

$
18,937,000


$
18,223,000Current portion of long-term debt






11,018,000Interest payable


6,793,000



5,171,000Income taxes payable


7,840,000



8,161,000Other current liabilities


50,217,000



49,141,000Total current liabilities


83,787,000



91,714,000Pension liabilities


56,303,000



54,348,000Deferred income tax liabilities


52,892,000



37,935,000Postretirement benefit obligations
    other than pensions


93,813,000



92,625,000Other long-term liabilities


9,860,000



5,491,000Senior term loan


436,000,000



439,982,00073/4% senior
    subordinated notes due 2014


315,000,000



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


577,000



577,000Contingencies (Note 9)Stockholders Equity:Preferred stock, $.01 par
    value  authorized, 20,000 shares; issued and
    outstanding, 0 shares






Common stock, $.01 par
    value  authorized, 250,000,000 shares; issued
    and outstanding, 39,639,432 shares at June 30, 2006
    and 39,585,867 shares at December 31, 2005


396,000



396,000Additional paid-in capital


333,931,000



333,069,000Retained earnings


34,496,000



12,909,000Accumulated other comprehensive
    loss


(1,837,000
)


(1,933,000
)Total stockholders equity


366,986,000



344,441,000Total liabilities and
    stockholders equity

$
1,415,218,000


$
1,382,113,000    1




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##### Table of Contents



K&F
    INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Income  Six Months EndedJune 30,


June 30,2006


2005(Unaudited)Net sales

$
193,715,000


$
178,992,000Cost of sales (includes inventory
    purchase accounting charges of $587,000 and $12,084,000 for the
    six months ended June 30, 2006 and 2005, respectively)


106,680,000



108,665,000Gross profit


87,035,000



70,327,000Independent research and
    development costs


7,877,000



7,586,000Selling, general and
    administrative expenses


17,309,000



15,085,000Amortization of intangible assets


2,715,000



6,028,000Operating income


59,134,000



41,628,000Interest income


1,709,000



317,000Interest expense


(27,601,000
)


(35,770,000
)Income before income taxes


33,242,000



6,175,000Income tax provision


(11,655,000
)


(2,277,000
)Net income


21,587,000



3,898,000Preferred stock dividends






(6,847,000
)Income (loss) applicable to common
    stockholders

$
21,587,000


$
(2,949,000
)Basic and diluted earnings (loss)
    per share:Basic earnings (loss) per common
    share

$
0.54


$
(0.19
)Basic weighted average common
    shares outstanding


39,617,000



15,193,000Diluted earnings (loss) per common
    share

$
0.54


$
(0.19
)Diluted weighted average common
    shares outstanding


40,214,000



15,193,000    2




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##### Table of Contents



K&F
    INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Income  Three Months EndedJune 30,


June 30,2006


2005(Unaudited)Net sales

$
102,653,000


$
90,302,000Cost of sales (includes inventory
    purchase accounting charges of $587,000 for the three months
    ended June 30, 2006)


57,479,000



48,199,000Gross profit


45,174,000



42,103,000Independent research and
    development costs


3,838,000



3,753,000Selling, general and
    administrative expenses


10,167,000



7,537,000Amortization of intangible assets


1,005,000



3,014,000Operating income


30,164,000



27,799,000Interest income


1,388,000



254,000Interest expense


(14,165,000
)


(17,395,000
)Income before income taxes


17,387,000



10,658,000Income tax provision


(6,099,000
)


(3,788,000
)Net income


11,288,000



6,870,000Preferred stock dividends






(3,784,000
)Income applicable to common
    stockholders

$
11,288,000


$
3,086,000Basic and diluted earnings per
    share:Basic earnings per common share

$
0.28


$
0.18Basic weighted average common
    shares outstanding


39,631,000



17,086,000Diluted earnings per common share

$
0.28


$
0.18Diluted weighted average common
    shares outstanding


40,230,000



17,544,000    3




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##### Table of Contents



K&F
    INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows  Six Months EndedJune 30,


June 30,2006


2005(Unaudited)Cash flows from operating
    activities:Net income

$
21,587,000


$
3,898,000Adjustments to reconcile net income
    to net cash provided by operating activities:Depreciation and amortization


5,924,000



5,151,000Amortization of program
    participation costs


4,362,000



1,190,000Amortization of intangible assets


3,603,000



6,028,000Stock-based compensation


575,000



65,000Non-cash interest
    expense  amortization/write-off of debt issuance costs


1,754,000



5,001,000Non-cash interest
    expense 
    111/2% senior
    PIK notes






2,460,000(Gain) loss on change in fair
    market value of interest rate swaps and caps


(1,492,000
)


264,000Inventory purchase accounting
    charges


587,000



12,084,000Deferred income taxes


7,609,000



1,988,000Changes in assets and liabilities,
    net of the effect of an acquisition:Accounts receivable


(368,000
)


(500,000
)Inventory


(13,341,000
)


(9,267,000
)Other current assets


829,000



795,000Program participation
    costs  equipment


(14,267,000
)


(12,562,000
)Program participation
    costs  cash


(1,500,000
)


(1,000,000
)Accounts payable, interest payable
    and other current liabilities


4,940,000



14,516,000Pension liabilities


1,955,000



2,000,000Postretirement benefit obligations
    other than pensions


1,188,000



1,344,000Other long-term liabilities


869,000



(52,000
)Net cash provided by operating
    activities


24,814,000



33,403,000Cash flows from investing
    activities:Payment for acquisition, net of
    cash acquired


(16,016,000
)


Capital expenditures


(12,304,000
)


(3,129,000
)Payment of deferred purchase price






(14,773,000
)Net cash used in investing
    activities


(28,320,000
)


(17,902,000
)Cash flows from financing
    activities:Proceeds from exercise of common
    stock options


280,000



Payments of long-term debt


(15,000,000
)


(19,000,000
)Excess tax benefit from stock-based
    compensation


8,000



Proceeds from issuance of
    111/2% senior
    PIK notes






55,000,000Net proceeds from private placement
    equity offerings






93,450,000Redemption of senior redeemable
    preferred stock






(94,196,000
)Debt issuance costs






(2,096,000
)Net cash (used in) provided by
    financing activities


(14,712,000
)


33,158,000Net (decrease) increase in cash and
    cash equivalents


(18,218,000
)


48,659,000Cash and cash equivalents,
    beginning of period


34,816,000



15,009,000Cash and cash equivalents, end of
    period

$
16,598,000


$
63,668,000Supplemental cash flow information:Interest paid during period

$
26,171,000


$
23,237,000Income taxes paid during the period

$
4,136,000


$
767,000Income tax refund received during
    the period

$



$
15,425,000Business acquisition:Fair value of assets acquired,
    including goodwill

$
21,618,000Cash paid, net of cash acquired


(16,016,000
)Issuance of note payable


(3,000,000
)Liabilities assumed

$
2,602,000    4




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##### Table of Contents



K&F
    INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements
 (Unaudited)
  1.
    Description
    of the Business, Acquisitions and Initial Public
    Offering  Description
    of Business
      Initial
    Public Offering and Other Financing Developments
  1 2
           5




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
     Acquisition
    of K&F Industries
    3 4
  Acquisition
    of Nasco Aircraft Brake, Inc.
    2.
    Unaudited
    Interim Condensed Consolidated Financial Statements  Form 10-K.
   6




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
   3.
    Recent
    Accounting Pronouncements and Accounting Changes  Accounting
    Pronouncements
      Accounting
    Changes
      4.
    Accounts
    Receivable consists of the follows:  June 30,


December 31,2006


2005Accounts receivable, principally
    from commercial and general aviation customers

$
45,355,000


$
43,626,000Accounts receivable on
    U.S. Government and other long-term contracts


5,284,000



5,587,000Allowances


(1,642,000
)


(1,627,000
)$
48,997,000


$
47,586,000  7




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
   5.
    Inventory
    consists of the following:  June 30,


December 31,2006


2005Raw materials and
    work-in-process

$
38,573,000


$
29,689,000Finished goods


14,505,000



11,920,000Inventoried costs related to
    U.S. Government and other long-term contracts


17,518,000



12,370,000$
70,596,000


$
53,979,000   6.
    Other
    current liabilities consist of the following:  June 30,


December 31,2006


2005Accrued payroll and payroll
    related costs

$
12,077,000


$
14,128,000Accrued property and other taxes


3,121,000



2,507,000Accrued costs on long-term
    contracts


2,961,000



3,963,000Accrued warranty costs


13,083,000



12,327,000Customer credits


6,855,000



7,264,000Postretirement benefit obligations
    other than pensions


6,000,000



6,000,000Other


6,120,000



2,952,000$
50,217,000


$
49,141,000   7.
    Stock
    Options         8




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
     Three Months EndedJune 30, 2005Reported net income

$
6,870,000Deduct: Total stock-based employee
    and director compensation expense determined under fair value
    method for all awards, net of related tax effects


(127,000
)Pro forma net income


6,743,000Less preferred stock dividends


(3,784,000
)Pro forma income applicable to
    common stockholders

$
2,959,000Earnings per share:Basic  as reported

$
0.18Basic  pro forma

$
0.17Diluted  as reported

$
0.18Diluted  pro forma

$
0.17   Six Months EndedJune 30, 2005Reported net income

$
3,898,000Add: Stock-based compensation
    included in net income, net of related tax effects


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


(294,000
)Pro forma net income


3,644,000Less preferred stock dividends


(6,847,000
)Pro forma loss applicable to
    common stockholders

$
(3,203,000
)Loss per share:Basic  as reported

$
(0.19
)Basic  pro forma

$
(0.21
)Diluted  as reported

$
(0.19
)Diluted  pro forma

$
(0.21
)     Volatility


32.88%Risk free interest rate


3.97%Dividend yield


0.0%Expected life


7.0 years  9




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
     Volatility


23.86%Risk free interest rate


5.03%Dividend yield


0.0%Expected life


7.0 years     Weighted AverageNumber of Options


Exercise PriceOutstanding at December 31,
    2005


1,404,821


$
5.50Granted


235,250



17.80Exercised


(53,565
)


5.22Forfeited or expired






Outstanding at June 30, 2006


1,586,506



7.33       Options Outstanding


Options ExercisableNumber


Weighted Average


Weighted Average


Number


Weighted Average


Weighted AverageExercise Price

Outstanding


Life (Years)


Exercise Price


Exercisable


Life (Years)


Exercise Price$ 5.22


1,317,175



8.5


$
5.22



243,570



8.5


$
5.2215.16


5,000



9.3



15.16











17.00


29,081



9.4



17.00











17.80


235,250



9.8



17.80











1,586,506



8.7



7.33



243,570



8.5



5.22       8.
    Income
    Taxes   10




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
       9.
    Contingencies    10.
    Comprehensive
    Income  Three Months EndedJune 30,


June 30,2006


2005Net income

$
11,288,000


$
6,870,000Other comprehensive income (loss):Cumulative translation adjustments


89,000



(118,000
)Comprehensive income

$
11,377,000


$
6,752,000   Six Months EndedJune 30,


June 30,2006


2005Net income

$
21,587,000


$
3,898,000Other comprehensive income (loss):Cumulative translation adjustments


96,000



(150,000
)Comprehensive income

$
21,683,000


$
3,748,000   11.
    Goodwill,
    Intangible Assets, Debt Issuance Costs and Program Participation
    Costs    June 30,


December 31,2006


2005Goodwill

$
852,770,000


$
841,049,000Trademarks


6,205,000



5,588,000Total unamortizable intangible
    assets

$
858,975,000


$
846,637,000  11




---



##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
     Aircraft BrakingSystems


Engineered Fabrics


TotalBalance at December 31, 2005

$
765,380,000


$
75,669,000


$
841,049,000Increase


11,721,000







11,721,000Balance at June 30, 2006

$
777,101,000


$
75,669,000


$
852,770,000       EstimatedJune 30, 2006


WeightedGross Carrying


Accumulated





AverageAmount


Amortization


Net


Useful LifeDebt issuance costs

$
26,599,000


$
(5,836,000
)

$
20,763,000



9 yearsProgram participation costs

$
220,992,000


$
(8,564,000
)

$
212,428,000



25 yearsAmortized intangible assets:Customer relationships

$
13,857,000


$
(5,228,000
)

$
8,629,000



22 yearsEngineering drawings


20,881,000



(1,878,000
)


19,003,000



18 yearsContract backlog


12,401,000



(6,163,000
)


6,238,000



3 yearsIn-house libraries


8,297,000



(746,000
)


7,551,000



18 yearsTechnology licenses


7,464,000



(1,158,000
)


6,306,000



10 yearsPatents


4,017,000



(622,000
)


3,395,000



11 yearsTotal amortizable intangible assets

$
66,917,000


$
(15,795,000
)

$
51,122,000    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  12




---



##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
           Program


DebtIntangible


Participation


IssuanceAsset -


Costs -


Costs -Year Ending December 31,

Amortization


Amortization


AmortizationRemainder of 2006

$
3,800,000


$
4,400,000


$
1,700,0002007


7,000,000



8,800,000



3,400,0002008


4,100,000



8,800,000



3,200,0002009


3,300,000



8,800,000



3,100,0002010


3,300,000



8,800,000



3,000,0002011


3,100,000



8,800,000



2,700,000  13




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
   12.
    Segments    Three Months EndedJune 30,


June 30,2006


2005Net Sales:Aircraft Braking Systems

$
84,234,000
(a)

$
73,737,000Engineered Fabrics


18,419,000



16,565,000$
102,653,000


$
90,302,000Operating Profit:Aircraft Braking Systems

$
27,706,000
(b)

$
26,159,000Engineered Fabrics


2,458,000



1,640,000Operating income


30,164,000



27,799,000Interest expense, net of interest
    income


(12,777,000
)


(17,141,000
)Income before income taxes

$
17,387,000


$
10,658,000     (a)
    
    Includes $2.4 million of sales relating to past due amounts
    owed under a licensing agreement.(b)
    
    Includes a $2.2 million charge related to a retroactive
    price increase for certain materials purchased over the 12
    months ended June 30, 2006. Six Months EndedJune 30,


June 30,2006


2005Net Sales:Aircraft Braking Systems

$
160,176,000
(a)

$
147,661,000Engineered Fabrics


33,539,000



31,331,000$
193,715,000


$
178,992,000Operating Profit:Aircraft Braking Systems

$
55,120,000
(b)

$
39,585,000Engineered Fabrics


4,014,000



2,043,000Operating income


59,134,000



41,628,000Interest expense, net of interest
    income


(25,892,000
)


(35,453,000
)Income before income taxes

$
33,242,000


$
6,175,000     (a)
    
    Includes $2.4 million of sales relating to past due amounts
    owed under a licensing agreement.(b)
    
    Includes a $2.2 million charge related to a retroactive
    price increase for certain materials purchased over the 12
    months ended June 30, 2006.  June 30,


December 31,2006


2005Total Assets:Aircraft Braking Systems

$
1,250,411,000


$
1,221,962,000Engineered Fabrics


138,030,000



133,731,000Debt issuance costs, net, not
    allocated to segments


20,763,000



22,517,000Corporate assets


6,014,000



3,903,000$
1,415,218,000


$
1,382,113,000  14




---



##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
     13.
    Earnings
    Per Share  Three Months EndedJune 30,


June 30,2006


2005Basic Earnings Per Common Share:Net income

$
11,288,000


$
6,870,000Less preferred stock dividends






(3,784,000
)Income applicable to common
    stockholders (numerator)


11,288,000



3,086,000Weighted average common shares
    outstanding (denominator)


39,631,000



17,086,000Basic earnings per common share

$
0.28


$
0.18Diluted Earnings Per Common Share:Income applicable to common
    stockholders (numerator)

$
11,288,000


$
3,086,000Weighted average common shares
    outstanding


39,631,000



17,086,000Effect of dilutive stock options


599,000



458,000Total diluted weighted average
    common shares outstanding (denominator)


40,230,000



17,544,000Diluted earnings per common share

$
0.28


$
0.18   Six Months EndedJune 30,


June 30,2006


2005Basic Earnings (Loss) Per Common
    Share:Net income

$
21,587,000


$
3,898,000Less preferred stock dividends






(6,847,000
)Income (loss) applicable to common
    stockholders (numerator)


21,587,000



(2,949,000
)Weighted average common shares
    outstanding (denominator)


39,617,000



15,193,000Basic earnings (loss) per common
    share

$
0.54


$
(0.19
)Diluted Earnings (Loss) Per Common
    Share:Income (loss) applicable to common
    stockholders (numerator)

$
21,587,000


$
(2,949,000
)Weighted average common shares
    outstanding


39,617,000



15,193,000Effect of dilutive stock options


597,000



Total diluted weighted average
    common shares outstanding (denominator)


40,214,000



15,193,000Diluted earnings (loss) per common
    share

$
0.54


$
(0.19
)    15




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##### Table of Contents



K&F INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
   14.
    Product
    Warranty    Balance at December 31, 2005

$
12,674,000Current provisions


3,595,000Expenditures


(2,085,000
)Balance at June 30, 2006

$
14,184,000     June 30,


December 31,2006


2005Current liabilities

$
13,083,000


$
12,327,000Long-term liabilities


1,101,000



347,000Total

$
14,184,000


$
12,674,000   15.
    Employee
    Benefit Plans    Pension BenefitsThree Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Service cost

$
1,083,000


$
836,000


$
2,166,000


$
2,061,000Interest cost


2,285,000



2,192,000



4,570,000



4,385,000Expected return on plan assets


(2,280,000
)


(2,228,000
)


(4,560,000
)


(4,446,000
)Net periodic benefit cost

$
1,088,000


$
800,000


$
2,176,000


$
2,000,000   Postretirement BenefitsThree Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Service cost

$
448,000


$
478,000


$
896,000


$
956,000Interest cost


1,400,000



1,396,000



2,800,000



2,792,000Net periodic benefit cost

$
1,848,000


$
1,874,000


$
3,696,000


$
3,748,000    16




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##### Table of Contents



16.
    Financial
    Instruments    3 4
    
    a 3 month LIBOR interest rate cap at 6% from December 2005
    to December 2007 for an increasing notional amount starting at
    $144.6 million, increasing to $161.2 million;
    a swap arrangement for a portion of our term loans from a
    variable 3 month LIBOR interest rate to a fixed rate of
    4.0375%, beginning January 24, 2006. The notional amount of
    the swap is initially $95.4 million and declines to
    $78.8 million on January 24, 2008 at the termination
    of the swap agreement; and
    a swap arrangement for a portion of our term loans from a
    variable 3 month LIBOR interest rate to a fixed rate of
    4.506%, beginning January 24, 2006. The notional amount of
    the swap is initially $47.7 million and declines to
    $39.4 million on January 24, 2008 at the termination
    of the swap agreement.           Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Special
    Note Regarding Forward-Looking Statements
  Form 10-Q
 17




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##### Table of Contents



Form 10-K
    General
    Performance
    Evaluation
      Certain
    Market Trends, Challenges and Opportunities
      point-to-point
 18




---



##### Table of Contents



Initial
    Public Offering
        Acquisition
    of K&F Industries
   19




---



##### Table of Contents



3 4
  Acquisition
    of Nasco Aircraft Brake, Inc.
    Non-GAAP Financial
    Information
      Three Months EndedJune 31, 2006


June 31, 2005Net income

$
11,288,000


$
6,870,000Adjustments:Depreciation and amortization
    expense


7,135,000



6,236,000Interest expense, net of interest
    income


12,777,000



17,141,000Income tax provision


6,099,000



3,788,000EBITDA

$
37,299,000
(a)(b)

$
34,035,000
(a)     (a)
    
    Includes pre-tax non-cash stock-based compensation expense of
    $0.3 million and $0.1 million during the three months
    ended June 30, 2006 and 2005, respectively.(b)
    
    Includes pre-tax inventory purchase accounting charges of
    $0.6 million during the three months ended June 30,
    2006.  20




---



##### Table of Contents



Six Months EndedJune 30, 2006


June 30, 2005Net income

$
21,587,000


$
3,898,000Adjustments:Depreciation and amortization
    expense


13,889,000



12,369,000Interest expense, net of interest
    income


25,892,000



35,453,000Income tax provision


11,655,000



2,277,000EBITDA

$
73,023,000
(a)(b)

$
53,997,000
(a)(b)     (a)
    
    Includes pre-tax non-cash stock-based compensation of
    $0.6 million and $0.1 million during the six months
    ended June 30, 2006 and 2005, respectively.(b)
    
    Includes pre-tax inventory purchase accounting charges of
    $0.6 million and $12.1 million during the six months
    ended June 30, 2006 and 2005, respectively.  Critical
    Accounting Policies and Estimates
    Revenue Recognition.
  Inventory.
    Evaluation of Long-Lived Assets.
  Goodwill and Other Intangible Assets.
 21




---



##### Table of Contents



Program Participation Costs.
      Warranty.
  Pension and Other Postretirement Benefits.
 22




---



##### Table of Contents



Business
    Segment Financial Information
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2006


2005


2006


2005Sales:Aircraft Braking Systems

$
84,234,000


$
73,737,000


$
160,176,000


$
147,661,000Engineered Fabrics


18,419,000



16,565,000



33,539,000



31,331,000Total

$
102,653,000


$
90,302,000


$
193,715,000


$
178,992,000Gross Profit:Aircraft Braking Systems

$
41,417,000


$
38,441,000


$
80,392,000


$
64,695,000Engineered Fabrics


3,757,000



3,662,000



6,643,000



5,632,000Total

$
45,174,000


$
42,103,000


$
87,035,000


$
70,327,000Gross Profit Margin:Aircraft Braking Systems


49.2%



52.1%



50.2%



43.8%Engineered Fabrics


20.4%



22.1%



19.8%



18.0%Consolidated


44.0%



46.6%



44.9%



39.3%   Consolidated
    Comparison of Results of Operations for the Six Months Ended
    June 30, 2006 and June 30, 2005
   23




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##### Table of Contents



ERJ-170 MD-90 Boeing MD-11 AH-64,
      Six Months EndedJune 30,


June 30,2006


2005Gross Program Participation Costs

$
20,877,000


$
19,931,000Amount capitalized during period


(15,767,000
)


(13,562,000
)Amortization of Program
    Participation Costs


4,362,000



1,190,000Program Participation Costs
    expensed in period

$
9,472,000


$
7,559,000        24




---



##### Table of Contents



Comparison
    of Results of Operations for the Three Months Ended
    June 30, 2006 and June 30, 2005
    Boeing MD-11 FO-100, ERJ-170 MD-90 AH-64,
   25




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##### Table of Contents



Three Months EndedJune 30,


June 30,2006


2005Gross Program Participation Costs

$
11,306,000


$
10,861,000Amount capitalized during period


(8,748,000
)


(7,704,000
)Amortization of Program
    Participation Costs


2,219,000



631,000Program Participation Costs
    expensed in period

$
4,777,000


$
3,788,000              26




---



##### Table of Contents



Liquidity
    and Capital Resources
  3 4 5 8
        1 2
    Form 10-K
  Cash
    Flows
       27




---



##### Table of Contents



Current
    Accounting Pronouncements and Accounting Changes
  Accounting
    Pronouncements
      Accounting
    Changes
       Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk      
    a 3 month LIBOR interest rate cap at 6% from December 2005
    to December 2007 for an increasing notional amount starting at
    $144.6 million, increasing to $161.2 million; 28




---



##### Table of Contents




    a swap arrangement for a portion of our term loans from a
    variable 3 month LIBOR interest rate to a fixed rate of
    4.0375%, beginning January 24, 2006. The notional amount of
    the swap is initially $95.4 million and declines to
    $78.8 million on January 24, 2008 at the termination
    of the swap agreement; and
    a swap arrangement for a portion of our term loans from a
    variable 3 month LIBOR interest rate to a fixed rate of
    4.506%, beginning January 24, 2006. The notional amount of
    the swap is initially $47.7 million and declines to
    $39.4 million on January 24, 2008 at the termination
    of the swap agreement.          Item 4.
    Controls
    and Procedures     PART II.
    OTHER INFORMATION  Item 4.
    Submission
    of Matters to a Vote of Security Holders     29




---



##### Table of Contents



For


WithheldLawrence A. Bossidy


24,058,502



4,552,825Gerald L. Parsky


23,827,491



4,783,836J. Thomas Zusi


27,818,211



793,116       Item 6.
    Exhibits.  Exhibits
  31
.1



Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    and
    Rule 15d-14(a)
    of the Securities Exchange Act, 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, as amended.32
.1



Certification of Chief Executive
    Office pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.2



Certification of Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Items 1,
    1A, 2, 3, and 5 are not applicable and have been
    omitted.
 30




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##### Table of Contents



SIGNATURES    K&F INDUSTRIES HOLDINGS, INC.
    DIRKSON
    R. CHARLES
         31