Advanced Accessory 10-Q 2005 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

Form 10-Q

(Mark one)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2005

OR

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _______________ to ________________

______________

Commission File Number333-114547

______________

ADVANCED ACCESSORY HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	56-2426615
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

12900 Hall Road, Suite 200, Sterling Heights, MI	48313
(Address of principal executive offices)	(Zip Code)

(586) 997-2900

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such a period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

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

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 14, 2005
Membership Units	100

ADVANCED ACCESSORY HOLDINGS CORPORATION

INDEX

	Page No.
Part I.    Financial Information
Item 1.   Financial Statements
Consolidated Condensed Balance Sheets as of September 30, 2005		1
and December 31, 2004
Consolidated Condensed Statements of Operations for the three months and nine months		2
ended September 30, 2005 and 2004
Consolidated Condensed Statements of Cash Flows for the nine months		3
ended September 30, 2005 and 2004
Consolidated Condensed Statement of Changes in Members’ Equity for the nine months		4
ended September 30, 2005
Notes to Consolidated Condensed Financial Statements		5
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations		7
Item 3.   Quantitative and Qualitative Disclosures About Market Risk		13
Item 4.   Controls and Procedures		13
Part II.   Other Information and Signature
Item 1.   Legal Proceedings		13
Item 2.   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		13
Item 3.   Defaults Upon Senior Securities		13
Item 4.    Submission of Matters to a Vote of Security-Holders		13
Item 5.   Other Information		13
Item 6.   Exhibits		14
Signature		15

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

ADVANCED ACCESSORY HOLDINGS CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

As of September 30, 2005 and December 31, 2004

(Dollars in thousands)

	September 30,			December 31,
	2005			2004
ASSETS		(Unaudited)
Current assets
Cash	$	6,116		$	14,960
Accounts receivable, less reserves
of $1,921 and $2,078, respectively		80,582			61,745
Inventories
Raw materials		25,693			25,400
Work-in-process		11,036			12,382
Finished goods		26,050			28,937
Reserves		(5,028	)		(5,325	)
Total inventories		57,751			61,394
Other current assets		10,390			13,976
Total current assets		154,839			152,075
Property and equipment, net		66,939			75,113
Goodwill		39,061			39,061
Other intangible assets, net		96,108			105,022
Deferred income taxes		34			1,047
Other noncurrent assets		1,483			2,194
Total Assets	$	358,464		$	374,512
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities
Current maturities of long-term debt	$	3,685		$	3,068
Accounts payable		46,507			46,664
Accrued liabilities		27,710			22,551
Deferred income taxes		1,718			1,876
Total current liabilities		79,620			74,159
Noncurrent liabilities
Deferred income taxes		6,220			7,203
Other noncurrent liabilities		4,111			4,276
Long-term debt, less current maturities		256,764			253,466
Total noncurrent liabilities		267,095			264,945
Members’ equity
Units		58,582			58,582
Other comprehensive income (loss)		(428	)		2,859
Accumulated deficit		(46,405	)		(26,033	)
Total Members’ Equity		11,749			35,408
Total Liabilities and Members’ Equity	$	358,464		$	374,512

The accompanying notes are an integral part of the

consolidated condensed financial statements.

1

ADVANCED ACCESSORY HOLDINGS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Dollars in thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Net sales	$	109,243		$	93,749		$	348,935		$	298,726
Cost of sales		92,654			74,961			286,047			232,354
Gross profit		16,589			18,788			62,888			66,372
Selling, administrative and product development expenses		15,473			14,411			48,618			45,125
Amortization of intangible assets		2,046			2,045			6,168			6,209
Operating income (loss)		(930	)		2,332			8,102			15,038
Other expense
Interest expense		(7,470	)		(7,146	)		(22,005	)		(20,334	)
Foreign currency gain (loss), net		(371	)		478			(3,899	)		(574	)
Other income (expense)		(245	)		29			(173	)		139
Loss before income taxes		(9,016	)		(4,307	)		(17,975	)		(5,731	)
Provision for (benefit from) income taxes		1,404			(1,239	)		2,397			(1,666	)
Net loss	$	(10,420	)	$	(3,068	)	$	(20,372	)	$	(4,065	)

The accompanying notes are an integral part of the

consolidated condensed financial statements.

2

ADVANCED ACCESSORY HOLDINGS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(20,372	)	$	(4,065	)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization		19,211			16,327
Deferred taxes		537			(6,700	)
Foreign currency loss		3,772			268
Loss on disposal of assets		93			206
Interest accretion on notes		6,262			5,463
Changes in assets and liabilities, net:
Accounts receivable		(16,121	)		(10,078	)
Inventories		270			(7,258	)
Other current assets		(1,889	)		(3,505	)
Other noncurrent assets		(1,299	)		(534	)
Accounts payable		1,795			8,908
Accrued liabilities		6,611			9,902
Other noncurrent liabilities		1,223			(15	)
Net cash provided by operating activities		93			8,919
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Acquisition of CHAAS Acquisitions, net of cash acquired		—			(84,396	)
Acquisition of property and equipment		(8,467	)		(8,266	)
Proceeds from disposals of property and equipment		294			88
Net cash used for investing activities		(8,173	)		(92,574	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt		—			50,273
Debt issuance costs		(92	)		(2,379	)
Net increase (decrease) in revolving loan		1,955			(7,044	)
Repayment of debt		(1,811	)		(6,312	)
Issuance of membership units		—			101,082
Distributions to members		—			(42,500	)
Net cash provided by financing activities		52			93,120
Effect of exchange rate changes		(816	)		(23	)
Net (decrease) increase in cash		(8,844	)		9,442
Cash at beginning of period		14,960			—
Cash at end of period	$	6,116		$	9,442

The accompanying notes are an integral part of the

consolidated condensed financial statements.

3

ADVANCED ACCESSORY HOLDINGS CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN MEMBERS’ EQUITY

For the Nine Months Ended September 30, 2005

(Dollars in thousands)

(Unaudited)

			Other						Total
	Members’		comprehensive			Accumulated			members’
	capital		income (loss)			deficit			equity
Balance at December 31, 2004	$	58,582	$	2,859		$	(26,033	)	$	35,408
Currency translation adjustment		—		(3,287	)		—			(3,287	)
Net loss		—		—			(20,372	)		(20,372	)
Balance at September 30, 2005	$	58,582	$	(428	)	$	(46,405	)	$	11,749

The accompanying notes are an integral part of the

consolidated condensed financial statements.

4

ADVANCED ACCESSORY HOLDINGS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

1.BASIS OF PRESENTATION

On April 15, 2003, substantially all of the equity interests of Advanced Accessory Systems, LLC (the "Predecessor") were acquired by Castle Harlan Partners IV, L.P. (the "Acquisition"), a private equity investment fund organized and managed by Castle Harlan Inc., a private New York based equity firm. CHAAS Holdings, LLC ("CHAAS Holdings") was formed in April 2003 in connection with the Acquisition and was the direct parent of CHAAS Acquisitions, LLC, ("CHAAS Acquisitions") which was also formed pursuant to the Acquisition.

In January 2004, Advanced Accessory Holdings Corporation ("AAHC" or "the Company") was formed by our direct parent, CHAAS Holdings, in connection with an offering of our $88,000 aggregate principal amount at maturity, 13¼% Senior Discount Notes due 2011 (the "Senior Discount Notes"). At that time, CHAAS Holdings made a contribution of all of its equity interests in CHAAS Acquisitions to AAHC in exchange for all the outstanding membership units of AAHC. Subsequent to this transaction, CHAAS Holdings is the direct parent of AAHC and AAHC is the direct parent of CHAAS Acquisitions, LLC and the indirect parent of the Predecessor. Unless the context otherwise requires, all information which refers to "we," "our" or "us" refers to AAHC and its subsidiaries.

The Acquisition was accounted for in accordance with the purchase method of accounting. Accordingly, the purchase price of the Acquisition has been allocated to identifiable assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date.

The North American subsidiaries of the Company use a fiscal month-end that corresponds to two four-week months and one five-week month per quarter, each ending on Saturday. The exception to this rule is at year-end, when the subsidiaries close on December 31. The Company’s Brink subsidiary uses the calendar month-end and year-end. The Company’s financial statements are dated as of the end of the calendar period, although they reflect the different closing dates identified above.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly its financial position as of September 30, 2005 and December 31, 2004 and the results of its operations for the three and nine months ended September 30, 2005 and 2004. The Company has reclassified certain prior year amounts to conform to the presentation of our current consolidated financial statements.

2.COMPREHENSIVE LOSS

Comprehensive loss for the Company is as follows:

	Three months ended						Nine months ended
	September 30, 2005			September 30, 2004			September 30, 2005			September 30, 2004
Net loss	$	(10,420	)	$	(3,068	)	$	(20,372	)	$	(4,065	)
Change in the cumulative translation adjustment, net of tax		511			1,112			(3,287	)		(174	)
Comprehensive loss	$	(9,909	)	$	(1,956	)	$	(23,659	)	$	(4,239	)

5

ADVANCED ACCESSORY HOLDINGS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

3.CURRENCY CONTRACTS

The Company has significant operations in Europe where the functional currency is the Euro. On February 12, 2004, when the Euro to the US Dollar exchange rate was 1.28:1.00, the Company entered into a series of foreign currency forward option contracts related to the Euro ("Euro Collar"), which matured quarterly on a staggered basis. On May 12, 2004 when the Euro to US Dollar exchange rate was 1.19:1.00, the Company entered into additional foreign currency option contracts. The Company provided a $1,900 letter of credit in support of the foreign currency option contracts. To the extent that the quarter end exchange rate fell between the Euro collar exchange rates, fulfillment of the Euro collar exchange contracts would have resulted in offsetting foreign currency gains and losses upon expiration. For each reporting period, the Company recorded the fair value, as determined by independent financial institutions, of open obligations and the resultant gains and losses were recorded in the Statement of Operations. The final option contracts expired during the second quarter of 2005. Three option contracts expired during the third quarter of 2004 and nine option contracts expired during the first nine months of 2004. For the three and nine months ended September 30, 2005, the Company recorded unrealized gains on foreign currency options of $0 and $164, respectively. This compares with unrealized gains (losses) on foreign currency options recorded by the Company for the three and nine months ended September 30, 2004 of $215 and ($80), respectively.

One of the options that expired in the second quarter of 2005 was the sale of a call option and was based on the average exchange rate of the period for which the option was active. The option expired in the money, requiring us to make a payment of $75. This amount was accrued at June 30, 2005 and was paid subsequent to that date.

Upon expiration of the option contracts in the second quarter of 2005, the $1,900 letter of credit described above expired.

4.GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill was $39,061 at September 30, 2005 and December 31, 2004. A summary of intangible assets identified by the Company in the allocation of the April 15, 2003 purchase consideration follows:

	Customer Contracts			Customer Relationships			Technology			Intangible Pension Asset		Tradename / Trademark			Deferred Financing Costs			Total
Amortization period in years		8 - 10			18 - 21			10			15		Indefinite			7 - 8
Balance at December 31, 2004	$	35,475		$	34,206		$	14,992		$	514	$	11,477		$	8,358		$	105,022
Additions		—			—			26			—		—			92			118
Foreign currency translation		(150	)		(1,257	)		(30	)		—		(321	)		(53	)		(1,811	)
Amortization		(3,240	)		(1,575	)		(1,353	)		—		—			(1,053	)		(7,221	)
Balance at September 30, 2005	$	32,085		$	31,374		$	13,635		$	514	$	11,156		$	7,344		$	96,108

Amortization expense of identifiable intangible assets for the three and nine months ended September 30, 2005 was $2,401 and $7,221, respectively, of which $355 and $1,053 of amortization of deferred financing costs was included in interest expense.

6

ADVANCED ACCESSORY HOLDINGS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and notes thereto included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements. Discussions containing forward-looking statements may be found in the material set forth above, in the material set forth below, as well as in this Form 10-Q generally. Forward-looking statements generally can be identified by the use of terms such as "may," "will," "should," "expect," "anticipate," "believe," "intend," "plan," "estimate," "predict," "potential," "forecast," "project," "will be," "continue" or variations of such terms, or the use of these terms in the negative.  Our actual results may differ significantly from the results discussed in the forward-looking statements and such differences may be material.  General risks that may impact the achievement of such forecasts include, but are not limited to: compliance with new laws and regulations, general economic conditions in the markets in which we operate, fluctuation in demand for our products and in the production of vehicles for which we are a supplier, significant raw material price fluctuations, labor disputes with our employees or those of our significant customers or suppliers, changes in consumer preferences, dependence on significant automotive customers, the level of competition in the automotive supply industry, pricing pressure from automotive customers, our substantial leverage, limitations imposed by our debt facilities, changes in the popularity of particular vehicle models or towing and rack systems, the loss of programs on particular vehicle models, risks associated with conducting business in foreign countries, other business factors and other risks detailed from time to time in the Company’s reports filed with the Securities & Exchange Commission.  Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties.  Actual events or results may differ materially from those discussed in the forward-looking statements.  All of these forward-looking statements are based on estimates and assumptions made by our management which, although believed to be reasonable, are inherently uncertain.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements.  We disclaim any obligation to update any forward-looking statements.

OVERVIEW

We are one of the world’s leading designers and manufacturers of exterior accessories for automotive original equipment manufacturers and the aftermarket. We design and manufacture a wide array of both rack systems and towing systems and related accessories. Our broad offering of rack systems includes fixed and detachable racks and accessories, which can be installed on vehicles to carry items such as bicycles, skis, luggage, surfboards and sailboards. Our towing products and accessories include trailer hitches, trailer balls, ball mounts, electrical harnesses, safety chains and locking pins. Our products are sold to OEM’s as standard accessories or options for a variety of light vehicles and to the aftermarket.

Company Background

On April 15, 2003, substantially all of the equity interests of Advanced Accessory Systems, LLC (the "Predecessor") were acquired by Castle Harlan Partners IV, L.P. (the "Acquisition"), a private equity investment fund organized and managed by Castle Harlan Inc., a private New York based equity firm. CHAAS Holdings, LLC ("CHAAS Holdings") was formed in April 2003 in connection with the Acquisition and was the direct parent of CHAAS Acquisitions, LLC ("CHAAS Acquisitions"), which was also formed pursuant to the Acquisition.

In January 2004, Advanced Accessory Holdings Corporation ("AAHC" or "the Company") was formed by CHAAS Holdings in connection with an offering of our $88.0 million aggregate principal amount at maturity, 13¼% Senior Discount Notes due 2011 (the "Senior Discount Notes"). At that time, CHAAS Holdings made a contribution of all of its equity interests in CHAAS Acquisitions to AAHC in exchange for all the outstanding membership units of AAHC. Subsequent to this transaction, CHAAS Holdings is the direct parent of AAHC and AAHC is the direct parent of CHAAS Acquisitions and the indirect parent of the Predecessor. Unless the context otherwise requires, all information which refers to "we", "our" or "us" refers to AAHC and its subsidiaries.

7

ADVANCED ACCESSORY HOLDINGS CORPORATION

RESULTS OF OPERATIONS

Three Months Ended September 30, 2005 Compared to the Three Months Ended September 30, 2004

Net sales. Net sales for the third quarter of 2005 were $109.2 million, representing an increase of $15.5 million, or 16.5%, compared with net sales of $93.7 million for the third quarter of 2004. North American OEM sales increased approximately $10.9 million, primarily as a result of new program launches at SportRack. Sales to our aftermarket customers in both North America and Europe increased by $3.7 million, of which approximately $2.1 million represented revenue from price increases related to steel economics with the remainder attributable to other volume increases. The sales increase includes approximately $0.5 million due to the increase of the average exchange rates between the US Dollar and primarily the Euro, the functional currency of Brink and SportRack Europe.

Gross profit. Gross profit for the third quarter of 2005 was $16.6 million, which represents a decrease of $2.2 million, or 11.7%, compared with gross profit of $18.8 million for the third quarter of 2004. Gross profit as a percentage of net sales was 15.2% for the third quarter of 2005 and 20.1% for the third quarter of 2004. The decrease in gross profit and margin reflects the impact of higher volumes offset by the net impact of material price increases after any applicable recovery, manufacturing performance, product complexity and mix and increased depreciation related to capital investments. In addition, we recorded a charge of $1.3 million related to a recall action by one of our OEM customers. Increases in raw material costs on aftermarket products have been substantially recovered through price increases in the third quarter of 2005.

Selling, administrative and product development expenses. Selling, administrative and product development expenses for the third quarter of 2005 were $15.5 million, representing an increase of $1.1 million, or 7.6%, compared with $14.4 million for the third quarter of 2004. Excluding the impact of exchange of $0.3 million, the increase was primarily due to higher selling costs as a result of higher overall volumes and engineering costs to support customer programs.

Operating income (loss). Our operating loss for the third quarter of 2005 was $0.9 million representing a decrease of $3.2 million, or 139.1%, compared with operating income of $2.3 million for the third quarter of 2004. The decrease resulted from decreased gross profit and increased selling, administrative and product development expenses, as discussed above.

Interest expense. Interest expense for the third quarter of 2005 was $7.5 million, which compares with interest expense of $7.1 million for the third quarter of 2004. The increase is a result of higher overall variable rate indebtedness and the impact of higher rates.

Foreign currency gain (loss). Foreign currency loss in the third quarter of 2005 was $0.4 million compared to a foreign currency gain of $0.5 million in the third quarter of 2004. Both the loss and gain were primarily attributable to the US Dollar denominated intercompany indebtedness of Brink, whose functional currency is the Euro. The intercompany indebtedness for our Canadian subsidiaries is deemed to be permanently invested and therefore changes in the intercompany balances for these subsidiaries caused by foreign currency fluctuations have been recorded in the currency translation adjustment account and included in other comprehensive income.

Provision for (benefit from) income taxes. During the third quarter of 2005 we recorded a loss before income taxes of $9.0 million and recorded an income tax provision of $1.4 million. The effective tax rate differs from the US federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets (including current net operating losses) of all North American operations, the addition of a valuation allowance for certain SportRack European operations and differences in the tax rates of other foreign operations. During the third quarter of 2004 we had a net loss before taxes of $4.3 million and recorded an income tax benefit of $1.2 million.

Net loss. We recorded a net loss of $10.4 million in the third quarter of 2005 and a net loss of $3.1 million in the third quarter of 2004. The net losses were a result of the items discussed above related to net sales, gross profit, foreign currency loss and the other expense and income items.

8

Nine Months Ended September 30, 2005 Compared to the Nine Months Ended September 30, 2004

Net sales. Net sales for the first nine months of 2005 were $348.9 million, representing an increase of $50.2 million, or 16.8%, compared with net sales of $298.7 million for the first nine months of 2004. Additionally, North American OEM sales increased by approximately $29.7 million, primarily as a result of new program launches at SportRack. Offsetting increased sales were agreed-upon price concessions with certain large North American OEM customers of $1.9 million. Sales to our aftermarket customers in both North America and Europe increased by $16.0 million partially attributable to price increases to offset raw material economics of $8.9 million. The sales increase includes approximately $5.4 million due to the increase of the average exchange rates between the US Dollar and primarily the Euro, the functional currency of Brink and SportRack Europe.

Gross profit. Gross profit for the first nine months of 2005 was $62.9 million, which represents a decrease of $3.5 million, or 5.3%, compared with gross profit of $66.4 million for the first nine months of 2004. Gross profit as a percentage of net sales was 18.0% for the first nine months of 2005 versus 22.2% for the first nine months of 2004. The overall decrease in gross profit reflects OEM price reductions, plant operating manufacturing performance, product launches, depreciation related to capital investments and product mix. The decreases were offset by the impact of higher volumes and favorable exchange rates between the US Dollar and local currencies. In addition, we recorded a charge of $1.3 million related to a recall action by one of our OEM customers. Increases in raw material costs on aftermarket products have been substantially recovered through price increases in the first nine months of 2005.

Selling, administrative and product development expenses. Selling, administrative and product development expenses for the first nine months of 2005 were $48.6 million representing an increase of $3.5 million, or 7.8%, compared with $45.1 million for the first nine months of 2004. This increase is due to the change in average exchange rates between the US Dollar and local currencies of $1.3 million, higher selling expenses related to volume increases and engineering expense increases to support customer programs.

Operating income. Our operating income for the first nine months of 2005 was $8.1 million representing a decrease of $6.9 million, or 46.0%, compared with operating income of $15.0 million for the first nine months of 2004. The decrease resulted from decreased gross profit and increased selling, administrative and product development expenses, as discussed above.

Interest expense. Interest expense for the first nine months of 2005 was $22.0 million representing an increase of $1.7 million or 8.4%, compared with interest expense of $20.3 million for the first nine months of 2004. This increase is primarily the result of interest on the Senior Discount Notes for the full nine-month period in 2005 but only eight months in 2004 (issued February 2004), higher overall outstanding variable rate debt and slightly higher interest rates during the first nine months of 2005 relative to the similar period in 2004.

Foreign currency loss. Foreign currency loss in the first nine months of 2005 was $3.9 million compared to a foreign currency loss of $0.3 million in the first nine months of 2004. These losses were primarily attributable to the US Dollar denominated intercompany indebtedness of Brink, whose functional currency is the Euro. During the first nine months of both 2004 and 2005 the US Dollar strengthened in comparison with the Euro. The intercompany indebtedness for our Canadian subsidiaries is deemed to be permanently invested and therefore changes in the intercompany balances for these subsidiaries caused by foreign currency fluctuations have been recorded in the currency translation adjustment account and included in other comprehensive income.

Provision for (benefit from) income taxes. During the first nine months of 2005 we recorded a loss before income taxes of $18.0 million and recorded an income tax provision of $2.4 million. The effective tax rate differs from the US federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets (including current net operating losses) of all North American operations, the addition of a valuation allowance for certain SportRack European operations and differences in the tax rates of foreign operations. During the first nine months of 2004 we had a net loss before taxes of $5.7 million and recorded an income tax benefit of $1.7 million.

9

Net loss. We recorded a net loss of $20.4 million in the first nine months of 2005 and a net loss of $4.1 million in the first nine months of 2004. The net losses were a result of the items discussed above related to net sales, gross profit, foreign currency loss and the other expense and income items.

LIQUIDITY AND CAPITAL RESOURCES

Our principal liquidity requirements are to service our debt and meet our working capital and capital expenditure needs. Our indebtedness at September 30, 2005 was $260.4 million including current maturities of $3.7 million.

In 2004 our operating results and operating cash flows were negatively impacted primarily by the costs associated with launching an unprecedented number of new roof rack programs, the high costs of steel and pricing pressures from certain OEM customers. As a result of these and other factors, our availability under our revolving credit facilities declined to $27.1 million at December 31, 2004 from $38.1 million available at September 30, 2004.  Although we met our covenants for the quarter ended December 31, 2004, we anticipated that we would be unable to meet our fixed charge coverage ratio and senior secured leverage ratio covenants for future quarters. On March 30, 2005, we entered into the Fourth Amendment to the Amended and Restated Credit Agreement (the "Fourth Amendment") with General Electric Capital Corporation individually as a lender and as agent for the lenders referred to therein to modify the fixed charge coverage ratio and the senior secured leverage ratio.

Under the modified fixed charge coverage ratio covenant, the required minimum fixed charge coverage ratio will be determined quarterly for all borrowers for specified quarterly periods and for European borrowers for specified quarterly periods. Prior to this modification the required minimum fixed charge coverage ratios for all borrowers and their subsidiaries were 1.15:1.00. As modified, the required minimum fixed charge coverage ratios for all borrowers and their subsidiaries range from 1.15:1.00 for each fiscal quarter from the fiscal quarter ending June 30, 2004 through and including the fiscal quarter ending December 31, 2004; 1.05:1.00 for the fiscal quarter ending December 31, 2005; and 1.15:1.00 for each fiscal quarter ending thereafter. The required minimum fixed charge coverage ratio for the European borrowers and their subsidiaries is 1.25:1.00 for the fiscal quarters ending March 31, 2005, June 30, 2005 and September 30, 2005. The actual fixed charge coverage ratio for the European borrowers for the fiscal quarter ending September 30, 2005 was 1.90:1.00 and we were in compliance with this covenant as of September 30, 2005.

The modified senior secured leverage ratio covenant requires that we meet a senior secured leverage ratio of 1.75:1.00 for the fiscal quarters ending March 31, 2005 and June 30, 2005; 1.50 to 1.00 for the fiscal quarter ending September 30, 2005; and 1.25:1.00 for each fiscal quarter ending thereafter. Prior to this modification, the credit facility required that we meet a senior secured leverage ratio of 1.25:1.00 for each fiscal quarter. The actual leverage ratio for the fiscal quarter ending September 30, 2005 was 1.09:1.00 and we were in compliance with this covenant as of September 30, 2005.

We anticipate that we will be unable to satisfy our fixed charge coverage ratio covenant for the quarter ending December 31, 2005. We currently are seeking a waiver or amendment of this covenant from our lenders, although there can be no assurance that we will be successful in this regard. Absent an amendment or waiver, the failure to comply with this covenant would be a default under our Amended and Restated Credit Agreement. Upon a default, the lenders may declare all of the outstanding obligations immediately due and payable and this may cause our 10 3/4% Notes to become currently due as a result of cross acceleration provisions.

Working Capital and Cash Flows

Working capital and key elements of the consolidated statement of cash flows are:

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	September 30, 2005		December 31, 2004
	(in thousands)
Working Capital	$	75,219	$	77,916

	Nine months ended September 30,
	2005			2004
	(in thousands)
Cash flows provided by operating activities	$	93		$	8,919
Cash flows used for investing activities	$	(8,173	)	$	(92,574	)
Cash flows provided by financing activities	$	52		$	93,120

Working capital

Working capital decreased by $2.7 million to $75.2 million at September 30, 2005 from $77.9 million at December 31, 2004. This decrease is primarily due to decreases in cash, inventory and other current assets of $8.8 million, $3.6 million and $3.6 million, respectively, and increases in current maturities of long-term debt and accrued liabilities of $0.6 million and $5.2 million offset by an increase in accounts receivable of $18.8 million and decreases in accounts payable and deferred income taxes of $0.2 million and $0.2 million, respectively. The net working capital decrease was also negatively impacted by the decreased exchange rate between the US Dollar and local currencies as of September 30, 2005 as compared with the exchange rate as of December 31, 2004.

Two of the major components of the working capital change were accounts receivable and inventory. The increase in accounts receivable was attributable to increased sales levels on a year-to-date basis as compared with the last several months of 2004. Inventory decreased as a result of the seasonal nature of certain segments of the business and an overall company focus on increasing inventory turnover.

Investing activities

Cash flow used for investing activities for the first nine months of 2005 and 2004 included acquisitions of property and equipment of $8.5 million and $8.3 million, respectively, and were primarily for the expansion of capacity, productivity, process improvements and maintenance. Our capital expenditures for the remainder of 2005 are anticipated to be approximately $2.5 million. In conjunction with our Senior Discount Notes offering of January 2004, our direct parent CHAAS Holdings made a contribution of all the outstanding membership units in CHAAS Acquisitions to AAHC for all the outstanding membership units of AAHC.

Financing activities

During the first nine months of 2005, financing cash flows included payment of debt issuance costs of $0.1 million, increased borrowings under the revolving line of credit of $2.0 million and repayment of debt of $1.8 million.

During the first nine months of 2004, financing cash flows included the issuance of our membership units for $101.1 million, proceeds from the issuance of our Senior Discount Notes of $50.3 million, payment of debt issuance costs of $2.4 million, repayment of debt of $6.3 million, a reduction in the revolving line of credit of $7.1 million and a payment to our direct parent of $42.5 million to redeem a portion of their equity interest.

Debt and Credit Sources

Our indebtedness at September 30, 2005 was $260.4 million. We expect that our primary sources of cash will be from operating activities and borrowings under our revolving credit facilities. As of September 30, 2005, we had borrowings under the revolving credit facilities totaling $24.8 million and had $25.0 million of available borrowing capacity. Standby letters of credit totaling $3.3 million providing security for our US workers compensation program reduced borrowing availability.

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On March 30, 2005 we entered into the Fourth Amendment to the Amended and Restated Credit Agreement. See the discussion of the amendment to the credit facility in "- Liquidity and Capital Resources".

International operations

We conduct operations in several foreign countries including Canada, the Czech Republic, Denmark, France, Germany, Italy, The Netherlands, Poland, Spain, Sweden and the United Kingdom. Net sales from international operations during the first nine months of 2005 were $130.8 million, or 37.5% of our net sales. At September 30, 2005, assets associated with these operations were approximately 36.0% of total assets, and we had indebtedness denominated in currencies other than the US Dollar of approximately $21.0 million.

Our international operations may be subject to volatility because of currency fluctuations, inflation and changes in political and economic conditions in these countries. Most of the revenues and costs and expenses of our operations in these countries are denominated in the local currencies. The financial position and results of operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency.

Currency contracts

We have significant operations in Europe where the functional currency is the Euro. On February 12, 2004, when the Euro to the US Dollar exchange rate was 1.28:1.00, we entered into a series of foreign currency forward option contracts related to the Euro ("Euro Collar"), which matured quarterly on a staggered basis. On May 12, 2004 when the Euro to US Dollar exchange rate was 1.19:1.00, we entered into additional foreign currency option contracts. We provided a $1.9 million letter of credit in support of the foreign currency option contracts. To the extent that the quarter end exchange rate fell between the Euro collar exchange rates, fulfillment of the Euro collar exchange contracts would have resulted in offsetting foreign currency gains and losses upon expiration. For each reporting period we recorded the fair value, as determined by independent financial institutions, of open obligations and the resultant gains and losses were recorded in the Statement of Operations. The final option contracts expired during the second quarter of 2005. Three option contracts expired during the third quarter of 2004 and nine option contracts expired during the first nine months of 2004. For the three and nine months ended September 30, 2005, we recorded unrealized gains on foreign currency options of $0 and $164,000 respectively. This compares with unrealized gains (losses) on foreign currency options recorded by us for the three and nine months ended September 30, 2004 of $215,000 and ($80,000), respectively.

One of the options that expired in the second quarter of 2005 was the sale of a call option and was based on the average exchange rate of the period for which the option was active. The option expired in the money, requiring us to make a payment of $75,000. This amount was accrued at June 30, 2005 and was paid subsequent to that date.

Upon expiration of the option contracts in the second quarter of 2005, the $1.9 million letter of credit described above expired.

Recently issued accounting standards

In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations." FIN 47 clarifies that a conditional asset retirement obligation, as used in SFAS 143, "Accounting for Asset Retirement Obligations," refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of the settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN 47 is effective January 1, 2006, with early adoption allowed. We have not yet determined the impact, if any, FIN 47 will have on our consolidated financial statements.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

In May 2004, we executed several foreign currency option contracts. See " - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Debt and Credit Sources - Currency Contracts".

Item 4.Controls and Procedures

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of September 30, 2005 and, based on their evaluation, the principal executive officer and principal financial officer have concluded that these controls and procedures are effective. There were no changes in internal controls or in other factors that could significantly affect these controls during the quarter.

Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION AND SIGNATURE

Item 1.Legal Proceedings

From time to time, we are subject to routine legal proceedings incidental to the operation of our business. The outcome of any threatened or pending proceedings is not expected to have a material adverse effect on our financial condition, operating results or cash flows, based on our current understanding of the relevant facts. The Company maintains insurance coverage against claims in an amount that it believes to be adequate.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Security

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security-Holders

None

Item 5.Other Information

None

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Item 6.Exhibits

Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 Certification of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002

Exhibit 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

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ADVANCED ACCESSORY HOLDINGS CORPORATION

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ADVANCED ACCESSORY HOLDINGS CORPORATION
Date: November 14, 2005	/s/ Ronald J. Gardhouse
	Ronald J. Gardhouse
	Chief Financial Officer
	(Principal Financial Officer
	and Authorized Signatory)

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ADVANCED ACCESSORY HOLDINGS CORPORATION

EXHIBIT INDEX

Exhibit	Description
31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer 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.

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