ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

        The Fairchild Corporation was incorporated in October 1969, under the laws of the State of Delaware. We have 100% ownership interests (directly and indirectly) in Fairchild Holding Corp. and Banner Aerospace Holding Company I, Inc. Fairchild Holding Corp. is the owner (directly and indirectly) of Republic Thunderbolt, LLC and effective November 1, 2003 and January 2, 2004, acquired ownership interests in Hein Gericke, PoloExpress, and Intersport Fashions West. Our principal operations are conducted through these entities. Our consolidated financial statements present, as discontinued operations, the results of our former fastener business (sold December 3, 2002), Fairchild Aerostructures (sold June 24, 2005), and APS (sold January 2004).

        The following discussion and analysis provide information which management believes is relevant to the assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto.

CAUTIONARY STATEMENT

        Certain statements in this filing contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operation and business. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions. These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries, backlog and other trend estimates that may cause our actual future activities and results of operations to be materially different from those suggested or described in this financial discussion and analysis by management. These risks include: our ability to find, finance, acquire and successfully operate one or more new businesses; product demand; weather conditions in Europe during peak business season and on weekends; timely deliveries from vendors; our ability to raise cash to meet seasonal demands; our dependence on the aerospace industry; customer satisfaction and quality issues; labor disputes; competition; our ability to attract and retain highly qualified executive management; our ability to achieve and execute internal business plans; worldwide political instability and economic growth; military conflicts; reduced airline revenues as a result of the September 11, 2001 terrorist attacks on the United States, and their aftermath; reduced airline travel due to infectious diseases; and the impact of any economic downturns and inflation.

        If one or more of these and other risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this financial discussion and analysis by management, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update the forward-looking statements included in this filing, even if new information, future events or other circumstances have made them incorrect or misleading.

EXECUTIVE OVERVIEW

        Our business consists of three segments: sports & leisure, aerospace, and real estate operations. Our sports & leisure segment is engaged in the design and retail sale of protective clothing, helmets and technical accessories for motorcyclists in Europe and the design and distribution of such apparel and helmets in the United States. Our aerospace segment stocks a wide variety of aircraft parts, then distributes them to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies worldwide, and also manufactures airframe components. Our real estate operations segment owns and leases a shopping center located in Farmingdale, New York, and owns and rents to Alcoa, an improved parcel located in Southern California.

        On November 1, 2003, we acquired substantially all of the worldwide operations of Hein Gericke, PoloExpress, and Intersport Fashions West (IFW), collectively now known as Fairchild Sports. Hein Gericke currently operates 147 retail shops in Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, and the United Kingdom. PoloExpress (also known as Polo) currently operates 85 retail shops in Germany and one retail shop in Switzerland. IFW, located in Tustin, California, is a designer and distributor of motorcycle apparel, boots and helmets under several labels, including First Gear and Hein Gericke. In addition, IFW designs and produces apparel under private labels for third parties. IFW also distributes in the United States, products manufactured for other companies, under their own labels. Fairchild Sports is a seasonal business, with an historic trend of a higher volume of sales and profits during the months of March through September.

        On December 26, 2003, we obtained a $55 million, ten-year term loan financing of our shopping center on a non-recourse basis.

        On January 2, 2004, we acquired all but 7.5% of the remaining interest in PoloExpress.

        In January 2004, we obtained a $20.0 million asset based revolving credit facility with CIT. The amount that we can borrow under the facility is based upon the inventory and accounts receivable on-hand at our aerospace segment. The loan bears interest at a rate of 1.0% over prime and we pay a non-usage fee of 0.5%.

        On May 5, 2004, we obtained financing of €41.0 million at the sports & leisure segment from two German banks and satisfied a €46.5 million note payable which had become due. Interest is based on the three-month Euribor rate.

        On August 26, 2004, we obtained a $13.0 million, three-year term loan financing on the real estate we own in Fullerton, California; Huntington Beach, California; and Wichita, Kansas. The loan bears interest at a rate of 6.0% over LIBOR.

        On January 21, 2005, we obtained €7.0 million ($9.0 million) seasonal loan financing at the sports & leisure segment, which was repaid during the quarter ended June 30, 2005.

During the next several months, we will endeavor to:

• Improve the operating performance of Hein Gericke in Europe.
• Obtain seasonal financing at Fairchild Sports for the 2006 season.
•  Seek additional or replacement of executive personnel for the Fairchild Sports businesses.
• Complete Sarbanes-Oxley Section 404 internal control compliance efforts on a worldwide basis.
• Generate cash from borrowings and sale of non-core assets to support our operations and corporate needs.
•  Complete a settlement of the stockholders litigation.

RESULTS OF OPERATIONS

      Business Transactions

        On November 1, 2003, we acquired for $45.5 million (€39.0 million) substantially all of the worldwide business of Hein Gericke and the capital stock of Intersport Fashions West (IFW) from the Administrator for Eurobike AG in Germany. Also on November 1, 2003, we acquired for $23.4 million (€20.0 million) from the Administrator for Eurobike AG and from two subsidiaries of Eurobike AG all of their respective ownership interests in PoloExpress and receivables owed to them by PoloExpress. We used available cash from investments that were sold to pay the Administrator $14.8 million (€12.5 million) on November 1, 2003 and borrowed $54.1 million (€46.5 million) from the Administrator at a rate of 8%, per annum. On May 5, 2004 we received financing from two German banks and paid the note due to the Administrator. The aggregate purchase price for these acquisitions was approximately $68.9 million (€59.0 million), including $15.0 million (€12.9 million) of cash acquired.

        On January 2, 2004, we acquired for $18.8 million (€15.0 million) all but 7.5% of the interest owned by Mr. Klaus Esser in PoloExpress. Mr. Esser retained a 7.5% ownership interest in PoloExpress, but Fairchild has the right to call this interest at any time from March 2007 to October 2008, for a fixed purchase price of €12.3 million ($14.8 million at June 30, 2005). Mr. Esser has the right to put such interest to us at any time during April of 2008 for €12.0 million ($14.5 million at June 30, 2005). On January 2, 2004, we used available cash to pay Mr. Esser $18.8 million (€15.0 million) and provided collateral of $15.0 million (€12.0 million) to a German bank to issue a guarantee to Mr. Esser to secure the price for the put Mr. Esser has a right to exercise in April of 2008. The transaction includes an agreement with Mr. Esser under which he agrees with us not to compete with PoloExpress for five years. We also signed an employment agreement with Mr. Esser through December 31, 2005. Mr. Esser informed us that he has elected not to renew the term of his employment agreement. Through June 30, 2005, in addition to his base salary, Mr. Esser received a profit distribution of approximately €0.6 million, which reduces the 2008 put option. As of June 30, 2005, the €11.4 million ($13.8 million) collateralized obligation for the put option, net of distributions, was included in other long-term liabilities. The €11.4 million ($13.8 million) restricted cash is invested in a capital protected investment and money market funds, and is included in long-term investments.

        In April 2005, Mr. Esser tendered his resignation as general manager of PoloExpress, effective December 31, 2005. Subsequently, several other management level employees of PoloExpress also tendered their resignations, effective one year hence. We expect that all or most of these resignation will be rescinded or, if not, that we will be in a position to replace the departing employees with other qualified employees prior to the effective dates of the resignations.

        The total purchase price exceeded the estimated fair value of the net assets acquired by approximately $34.0 million. The excess of the purchase price over net tangible assets was all allocated to identifiable intangible assets, including brand names “Hein Gericke” and “Polo”, and reflected in goodwill and intangible assets in the consolidated financial statements as of June 30, 2005. Since their acquisition on November 1, 2003, we have consolidated the results of Hein Gericke, PoloExpress and IFW into our financial statements.

        Hein Gericke, PoloExpress and IFW are now included in our segment known as sports & leisure. Our sports & leisure segment is a highly seasonal business, with a historic trend for higher volumes of sales and profits during March through September when the weather in Europe is more favorable for individuals to use their motorcycles than October to February. We acquired these companies because we believe they have potential upside, and may provide a platform for other entrees into related leisure businesses. The acquired companies are European leaders of this industry and opportunities for expansion are significant in Europe and the United States. Hein Gericke currently operates 147 retail shops in Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, and the United Kingdom. PoloExpress currently operates 85 retail shops in Germany and one shop in Switzerland. IFW, located in Tustin, California, is a designer and distributor of motorcycle accessories, protective and other apparel, and helmets, under several labels, including First Gear and Hein Gericke. In addition, IFW designs and produces apparel under private labels for third parties. IFW also distributes in the United States, products manufactured by or for other companies, under their own label. The acquisition has lessened our dependence on the aerospace industry.

        On June 24, 2005, we completed the sale of our Fairchild Aerostructures business for $6.0 million to PCA Aerospace. The cash received from PCA Aerospace is subject to a post-closing adjustment based upon the net working capital of the business on January 1, 2005, compared with its net working capital as of June 24, 2005, which we have estimated to be approximately $1.5 million, net of certain liabilities. In connection with the sale, we have deposited with an escrow agent approximately $0.4 million to secure indemnification obligations we may have to PCA Aerospace. The escrow period is eighteen months.

        We decided to sell Fairchild Aerostructures because we believe we received adequate fair value for a business whose performance was below our expectations and its business was unrelated to other businesses we own. We used $0.9 million of the proceeds from the sale to repay a portion of our CIT revolving credit facility and we plan to use the remaining proceeds from the sale in our existing operations. In the three and nine months ended June 30, 2005, we recorded a $1.2 million gain on the disposal of discontinued operations, as a result of the sale of Fairchild Aerostructures. Fairchild Aerostructures was previously included in our aerospace segment.

      Consolidated Results

        Because Fairchild Sports is a highly seasonal business, with an historic trend of a higher volume of sales and profits during the months of March through September, the discussion below should not be relied upon as a trend of our future results.

        We currently report in three principal business segments: sports & leisure, aerospace, and real estate operations. The following table provides the revenues and operating income (loss) of our segments on a historical and pro forma basis for the three and nine months ended June 30, 2005 and June 30, 2004, respectively. The pro forma results represent the impact of our acquisition of Hein Gericke, PoloExpress, and IFW, as if this transaction had occurred on October 1, 2003. The pro forma information is based on the historical financial statements of these companies, giving effect to the aforementioned transactions. The pro forma information is not necessarily indicative of the results of operations, that would actually have occurred if the transactions had been in effect since the beginning of each fiscal period, nor are they necessarily indicative of our future results.

(a)     – Actual results for the nine months ended June 30, 2004, include only eight months of results from our sports & leisure segment since its acquisition on November 1, 2003.

        Revenues increased by $1.0 million, or 0.9%, in the third quarter of fiscal 2005, as compared to the third quarter of fiscal 2004. Revenues increased by $30.6 million, or 13.1%, in the first nine months of fiscal 2005, as compared to the first nine months of fiscal 2004. The increase in the first nine months was due to the prior period only including eight months of activity from our acquisition of Hein Gericke, PoloExpress and IFW on November 1, 2003, our foreign sales benefiting from a stronger euro as compared to the dollar, and increased sales at our aerospace segment. Revenues in the third quarter of fiscal 2005 benefited from increased revenues at our aerospace segment.

        Gross margin as a percentage of sales was 38.3% in both the first nine months of fiscal 2005 and fiscal 2004. A slight decrease in margins at our sports & leisure segment reflects increased incentive discounts in a highly competitive market place, offset by a 1.7% increase in margins at our aerospace segment. Gross margin as a percentage of rental revenue decreased to 30.9% in the first nine months of fiscal 2005 as compared to 35.0% in the first nine months of fiscal 2004, due primarily to higher real estate taxes and professional fees and the sale of the Chatsworth, California facility in July 2004.

        Selling, general and administrative expense as a percentage of sales increased 3.0% to 43.5% for the nine months ended June 30, 2005, as compared to the first nine months of fiscal 2004. Selling, general and administrative expense for the nine months ended June 30, 2004, included only eight months of expense from our sports & leisure segment acquired on November 1, 2003.

        Other income increased $2.5 million for the nine months ended June 30, 2005 as compared to the nine months ended June 30, 2004. The results for the nine months ended June 30, 2004 included impairment charges of $1.2 million to write down the long-lived assets of a limited partnership interest which we are required to consolidate in accordance with FASB Interpretation 46, and restructuring charges of $0.6 million for costs to close all fifteen of the GoTo Helmstudio retail locations in Germany.

        Net interest expense was $16.7 million and $15.5 million for the nine months ended June 30, 2005 and June 30, 2004, respectively, and the increase reflected higher debt outstanding in the current period.

        Investment income increased $7.3 million for the nine months ended June 30, 2005 as compared to the nine months ended June 30, 2004, and included $5.3 million of stock and dividends received from the demutalization of an insurance company, a $0.7 million increase in other dividend income and a $0.6 million increase in the fair market value of investments classified as trading securities.

        The fair market value adjustment of our position in a ten-year $100 million interest rate contract improved by $4.0 million and $5.8 million in the first nine months of fiscal 2005 and fiscal 2004, respectively. The fair market value adjustment of this agreement will generally fluctuate, based on the implied forward interest rate curve for 3-month LIBOR. If the implied forward interest rate curve decreases, the fair market value of the interest rate contract will increase, and we will record an additional charge. If the implied forward interest rate curve increases, the fair market value of the interest rate contract will decrease, and we will record income. Increasing interest rates have caused the favorable change in fair market value of the contract in these periods.

        The tax provision for the nine months ended June 30, 2005, represents $1.4 million of foreign taxes and $0.2 million of state taxes. No federal tax benefit was accrued due to an annual projected domestic tax loss. The income tax benefit was $3.9 million for the nine months ended June 30, 2004, and reflected a $6.0 million reduction in noncurrent income tax liabilities due to the carryback of our domestic loss and decrease in the valuation allowance, offset partially by income taxes of $1.8 million on foreign earnings and $0.2 million of state taxes.

        Loss from discontinued operations include the results of Fairchild Aerostructures, prior to its sale, certain accounts receivable recovery efforts and legal and environmental expenses associated with our former businesses. The loss from discontinued operations for the first nine months of fiscal 2005 resulted from a $1.2 million loss at Fairchild Aerostructures and $0.9 million of legal expenses, offset by the collection of $2.2 million of receivables that we retained from previously owned businesses. The loss from discontinued operations for the first nine months of fiscal 2004 consists primarily of an accrual of $4.1 million of environmental liabilities at locations of operations previously sold, $0.8 million to cover legal expenses associated with an unfavorable verdict relating to a business we sold several years ago, and $1.0 million of severance costs for a former fastener employee.

        We recognized a $13.7 million gain on the disposal of discontinued operations in the nine months ended June 30, 2005, due to $12.5 million of additional proceeds earned from the sale of the fastener business and the $1.2 million gain recognized on the sale of Fairchild Aerostructures. We recognized a $9.5 million gain on the disposal of discontinued operations, as a result of additional proceeds earned from the sale of the fastener business in the nine months ended June 30, 2004. No income tax expense was recorded due to our overall domestic tax loss.

Segment Results

Sports & Leisure Segment

        Our sports & leisure segment, which we purchased from the Administrator of Eurobike AG and Mr. Klaus Esser, designs and sells motorcycle apparel, protective clothing, helmets, and technical accessories for motorcyclists. Primary brand names of our products include Polo, Hein Gericke, and First Gear. Hein Gericke currently operates 147 retail shops in Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, and the United Kingdom. Polo currently operates 85 retail shops in Germany and one shop in Switzerland. For the most part, the Hein Gericke retail stores sell Hein Gericke brand items, and the Polo retail stores sell Polo brand products. Both the Hein Gericke and Polo retail stores sell products of other manufacturers, the inventory of which is owned by the Company. IFW, located in Tustin, California, is a designer and distributor of motorcycle apparel, boots and helmets under several labels, including First Gear and Hein Gericke. In addition, IFW designs and produces apparel under private labels for third parties. IFW also distributes in the United States, products manufactured by or for other companies, under their own label. The sports and leisure segment is a seasonal business, with an historic trend of a higher volume of sales and profits during the months of March through September. Unfavorable weather conditions in Europe in March and April adversely effected the current year’s season.

        On a pro forma basis, sales in our sports & leisure segment increased by $8.5 million during the nine months ended June 30, 2005, as compared to the nine months ended June 30, 2004. The increase is due primarily to the strengthening of the euro and British pound as compared to the United States dollar during the nine months ended June 30, 2005, as compared to the nine months ended June 30, 2004. Sales were up only 0.8%, after excluding the effects of the foreign currency, due primarily to an increase in the number of stores in the United Kingdom and Switzerland, which were offset by Hein Gericke stores closed in Germany. Sales of $91.5 million during the three months ended June 30, 2005, were relatively stable as compared to sales of $91.9 million during the three months ended June 30, 2004. However, sales in the current quarter benefited by approximately $3.7 million due to the favorable effects of foreign currency. Our Hein Gericke operations in the United Kingdom have been adversely effected by a sharp decline, which has recently occurred in the retail marketplace within the United Kingdom. On a pro forma basis, operating income (loss) in our sports & leisure segment decreased by $5.9 million during the nine months ended June 30, 2005, as compared to the nine months ended June 30, 2004. The operating loss in the current period was adversely effected by slightly lower gross margins as a percentage of sales and increased operating costs, including rent and commission expense, partially offset by a favorable resolution, which resulted in forgiveness of $0.8 million on a disputed obligation of a bank loan to the previous owner of the group.

        Since the November 1, 2003 acquisition, Hein Gericke has initiated steps to advance its retail business in Germany. Hein Gericke is focusing on more efficient advertising and marketing to restore brand recognition and increase customer traffic previously enjoyed by Hein Gericke in Germany. A new ERP computer system operational at Polo, was expanded to encompass the operations of Hein Gericke. The new ERP computer system will enable the business to operate in a more efficient manner. Hein Gericke and Polo increased the procurement of goods for delivery to meet the seasonal increase in sales. We believe relations with the suppliers of Fairchild Sports have improved since our acquisition. We have initiated a program to focus on optimal store location. This includes closing or relocating low performing stores, and opening new stores in England and elsewhere in Western Europe. We have also redesigned several stores to better present our products to customers.

Aerospace Segment

        Our aerospace segment has five locations in the United States, and is an international supplier to the aerospace industry. Four locations specialize in the distribution of avionics, airframe accessories, and other components, and one location provides overhaul and repair capabilities. The products distributed include: navigation and radar systems, instruments, and communication systems, flat panel technologies and rotables. Our location in Titusville, Florida, overhauls and repairs landing gear, pressurization components, instruments, and avionics. Customers include original equipment manufacturers, commuter and regional airlines, corporate aircraft and fixed-base operators, air cargo carriers, general aviation suppliers and the military. Sales in our aerospace segment increased by $1.5 million, or 7.6%, and $11.1 million, or 20.2% in the third quarter and first nine months of fiscal 2005, respectively, as compared to the third quarter and first nine months of fiscal 2004. Sales in our aerospace segment are not anticipated to sustain a growth rate at these levels in the coming quarters, as demand in the aerospace industry is still adversely affected by continued financial difficulties of commercial airlines.

        Operating income increased by $0.4 million, or 25.5% in the third quarter and $2.2 million, or 76.0% in the first nine months of fiscal 2005, as compared to the same periods in fiscal 2004. The results for the three months and nine months ended June 30, 2005, reflect the increase in volume of sales and a slight increase in gross margin as a percentage of sales.

Real Estate Operations Segment

            Our real estate operations segment owns and operates a 451,000 square foot shopping center located in Farmingdale, New York, owns and leases to Alcoa a 208,000 square foot manufacturing facility located in Fullerton, California, and also owns and leases to PCA Aerospace a 58,000 square foot manufacturing facility located in Huntington Beach, California. We have two tenants that each occupy more than 10% of the rentable space in the shopping center. Rental revenue increased by 1.6% in the third quarter and 4.0% in the first nine months of fiscal 2005, as compared to the same periods of fiscal 2004, reflecting tenants paying higher average rents, offset partially by the July 2004 sale of a property located in Chatsworth, California that generated rental revenue of $0.5 million per year. The weighted average occupancy of our shopping center was 96.5% during the first nine months of fiscal 2005, as compared to 96.6% in the first nine months of fiscal 2004. The average effective annual rental rate per square foot was $21.43 and $21.00 during the first nine months of fiscal 2005 and fiscal 2004, respectively. As of June 30, 2005, approximately 98% of the shopping center was leased. We anticipate that rental revenue will increase during 2005, as a result of new tenants occupying approximately 12,000 square feet, in fiscal 2005 and the June 2005 lease of the Huntington Beach, California property to PCA Aerospace that was previously occupied by Fairchild Aerostructures.

        In April 2005, we engaged Eastdil Realty Company, LLC, to explore opportunities for the sale of our shopping center. The Fullerton property is leased to Alcoa through October 2007, and is expected to generate revenues and operating income in excess of $0.5 million per year. The Huntington Beach property is leased to PCA Aerospace through October 2007, and is expected to generate revenues and operating income of $0.4 million per year. We can cause PCA Aerospace to purchase the Huntington Beach property at the greater of fair market value or $6.0 million under a put option we hold which can be exercised upon the earlier of the Beal Bank loan being paid off (currently due in October 2007, but with extension options) or January 31, 2012. PCA Aerospace also holds a similar purchase option. At June 30, 2005, the book value of the Huntington Beach property was $3.0 million and we believe the current fair market value is approximately $5.5 million.

Corporate

        The operating loss at corporate increased by $2.0 million in the first nine months of fiscal 2005, as compared to the first nine months of fiscal 2004, due primarily to the costs of complying with the Sarbanes Oxley Act of 2002. The first nine months of fiscal 2004 included $1.2 million of gains realized on foreign currency on cash we held in euros and investments in a euro denominated account which benefited from the strengthening of the euro against the United States dollar.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

        Total capitalization as of June 30, 2005 and September 30, 2004 was $261.5 million and $277.7 million, respectively. The nine-month change in capitalization included a net decrease of $11.0 million in debt resulting from approximately $10.0 million of repayments net of additional borrowings, and a $1.0 million decrease due to the foreign currency effect on debt denominated in euros. Equity decreased by $5.1 million, due primarily to our $4.1 million reported net loss and a $1.8 million other comprehensive loss, offset partially by $0.9 million received on the repayment of shareholder loans. Our combined cash and investment balances totaled $97.9 million on June 30, 2005, as compared to $109.4 million on September 30, 2004, and included restricted investments of $67.0 million and $75.0 million at June 30, 2005 and September 30, 2004, respectively.

        Net cash used for operating activities for the nine months ended June 30, 2005, was $0.3 million and included a $14.8 million increase in inventory, offset partially by an $12.1 million increase in accounts payable and other accrued liabilities. Net cash used for operating activities for the nine months ended June 30, 2004, was $14.4 million and reflected the $38.1 million liquidation of trading securities used to fund the acquisition of Hein Gericke, PoloExpress, and IFW on November 1, 2003 offset by a $46.9 million increase in working capital in the first nine months of fiscal 2004.

        Net cash provided by investing activities for the nine months ended June 30, 2005 was $5.4 million, and included $8.1 million of proceeds received from investment securities and $6.0 million received from the sale of Fairchild Aerostructures in June 2005, offset by $9.0 million of capital expenditures. Net cash used for investing activities for the nine months ended June 30, 2004 was $87.2 million, and included our acquisition funding of $69.4 million, net of $15.0 million cash acquired, and increase in investments of $17.8 million.

        Net cash used for financing activities was $9.6 million for the nine months ended June 30, 2005, which reflects $10.0 million of debt repayments, net, offset partially by $0.9 million received on repayment of shareholder loans. Net cash provided by financing activities was $106.4 million for the nine months ended June 30, 2004, which reflected $55.0 million borrowed to finance our shopping center, the long-term financing of $43.4 million for our acquisition of Hein Gericke, PoloExpress, and IFW, and $9.0 million borrowed from a revolving credit facility at our aerospace segment.

        Our principal cash requirements include supporting our current operations and general administrative structure, capital expenditures, and the payment of other liabilities including postretirement benefits, environmental investigation and remediation obligations, and litigation settlements and related costs. We expect that cash on hand, cash generated from operations, cash available from borrowings, and proceeds received from dispositions of assets, including investments, will be adequate to satisfy our cash requirements during the next twelve months. On June 30, 2005, our foreign operations had cash of $4.6 million. However, debt agreements in place at our foreign locations restrict the amount of cash that can be transferred to our other subsidiaries. We may consider raising cash to meet the needs of our operations by issuing additional debt, refinancing existing indebtedness, entering into partnership arrangements, liquidating non essential assets or other means.

        The costs of being a small to mid-sized public company have increased substantially with the introduction and implementation of controls and procedures mandated by the Sarbanes Oxley Act of 2002. Audit fees and audit related fees have significantly increased over the past two years. Our increased costs also include the effects of acquisitions and additional costs related to compliance with various financing agreements. We expect the costs to comply with Section 404 of the Sarbanes Oxley Act of 2002 alone may double again our audit and related costs. We estimate that we may incur expenses of approximately $3.5 million in relation to audit and related fees in fiscal 2005. These increases are significant for a company of our size. We are considering all options for reducing costs, including opportunities to take our company private in the coming year.

        In February 2005, we announced our intention to purchase up to 500,000 shares of our outstanding Class A Common Stock. Through June 30, 2005, we acquired 61,800 shares at an average price of $3.12 per share.

        We hold an investment in a partnership that owns a residual permit to operate a landfill. The permit expires in August 2006 and we are looking into possibilities of renewing or revising the permit and certain other opportunities. If these opportunities do not materialize, we may be required to recognize an impairment expense of approximately $2.6 million.

Off Balance Sheet Items

        On June 30, 2005, approximately $3.3 million of bank loans received by retail store partners were guaranteed by our subsidiaries in the sports & leisure segment. These loans have not been assumed by us.

Contractual and Other Obligations

        At June 30, 2005, we had contractual commitments to repay long term debt, including capital lease obligations. Payments due under these long-term obligations for the fiscal years ending September 30 are as follows: $7.6 million for 2005; $19.0 million for 2006; $21.6 million for 2007; $22.0 million for 2008; $5.2 million for 2009; and $51.8 million thereafter.

        We have entered into standby letter of credit arrangements with insurance companies and others, issued primarily to guarantee our future performance of contracts. At June 30, 2005, we had contingent liabilities of $2.0 million on commitments related to outstanding letters of credit.

        On June 30, 2005, we reflected a $7.1 million obligation due under a ten-year $100 million interest rate swap agreement which expires on February 19, 2008. Interest on the swap agreement is settled quarterly.

        In addition, we have $22.9 million classified as other long-term liabilities at June 30, 2005, including environmental and other liabilities, which do not have specific payment terms or other similar contractual arrangements.

        Currently, we are not being audited by the IRS for any years, except for an audit of IFW for 2001 to 2003. We have a $43.2 million tax liability at June 30, 2005. However, based on tax planning strategies, we do not anticipate having to satisfy the tax liability over the short-term.

        Should any of these liabilities become immediately due, we would be obligated to obtain financing, raise capital, and/or liquidate assets to satisfy our obligations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment.” Statement 123R amends certain aspects of Statement 123 and now requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be required to be recognized over the period during which an employee is required to provide service in exchange for the award, (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Statement 123R provides some flexibility in allowing entities to determine the valuation model to use in calculating fair value, and whether to implement Statement 123R on a prospective basis, a modified prospective basis or retroactively. The statement becomes effective for us at the beginning of our next fiscal year. We are currently evaluating the effects of Statement 123R. Such effect is not likely to be materially different from amounts we have previously disclosed in our filings since adopting Statement 123.

        In March 2005, The Financial Accounting Standards Board published FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligation”, to clarify that an entity must recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is intended to provide a more consistent recognition of liabilities relating to asset retirement obligations, additional information about expected future cash outflows associated with those obligations, and additional information about investments in long-lived assets, because it recognizes additional asset retirement costs as part of the assets’ carrying amounts. FIN 47 is effective no later than the end of our fiscal year ending September 30, 2006. We are currently assessing the possible impact, if any, of implementing this standard.

        In June 2005, The Financial Accounting Standards Board has published Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections”, which requires retrospective application to prior periods’ financial statements of every voluntary change in accounting principle unless it is impracticable. The Statement replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, although it carries forward some of their provisions. The FASB believes that the Statement’s requirements will enhance the consistency of financial information between periods and is the result of the FASB’s efforts to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board toward development of a single set of high-quality accounting standards. Statement 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although earlier application is permitted for changes and corrections made in fiscal years beginning after June 1, 2005.

        In fiscal 1998, we entered into a ten-year interest rate swap agreement to reduce our cash flow exposure to increases in interest rates on variable rate debt. The ten-year interest rate swap agreement provided us with interest rate protection on $100 million of variable rate debt, with interest being calculated based on a fixed LIBOR rate of 6.24% to February 17, 2003. The variable rate debt that was fixed by the interest rate swap was repaid by us on December 3, 2002. On February 17, 2003, the bank, with which we entered into the interest rate swap agreement, did not exercise a one-time option to cancel the agreement, and accordingly the swap arrangement continues, based on a fixed LIBOR rate of 6.745% from February 17, 2003 to February 19, 2008.

        We have recognized $4.0 million in our income statement for the non-cash increase in the fair market value of the interest rate contract in the nine months ended June 30, 2005, as a result of the reduction in the fair market value for our interest rate swap agreement to $7.1 million.

        The fair market value adjustment of these agreements will generally fluctuate based on the implied forward interest rate curve for 3-month LIBOR. If the implied forward interest rate curve decreases, the fair market value of the interest contract will increase and we will record an additional charge. If the implied forward interest rate curve increases, the fair market value of the interest hedge contract will decrease, and we will record income.

        In May 2004, we issued a floating rate note with a principal amount of €25.0 million. Embedded within the promissory note agreement is an interest rate cap protecting one half of the €25.0 million borrowed. The embedded interest rate cap limits to 6%, the 3-month EURIBOR interest rate that we must pay on the promissory note. We paid approximately $0.1 million to purchase the interest rate cap. In accordance with SFAS 133, the embedded interest rate cap is considered to be clearly and closely related to the debt of the host contract and is not required to be separated and accounted for separately from the host contract. We are accounting for the hybrid contract, comprised of the variable rate note and the embedded interest rate cap, as a single debt instrument.

        The table below provides information about our financial instruments that are sensitive to changes in interest rates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.