**SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

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**FORM10-Q**

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**(markone)**
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

** **

**For the quarterly period ended September 30, 2001**

** **

**OR**

** **
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

**For the transition period from______ to _______**

**Commission file number:333-82713**

**CHEROKEEINTERNATIONAL, LLC******(Exact name of registrant as specified inits charter)
| **CALIFORNIA**                                                   | ** 33-0696451**                  |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |

**2841 DOW AVENUETUSTIN, CALIFORNIA 92780**(Address of principal executive offices)

**(714) 544-6665**(Registrant's telephone number, includingarea code)
| **N/A**                                                                              |
|--------------------------------------------------------------------------------------|
| (Former name, former  address and former fiscal year,  if changed since last report) |

 

             Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ý             No o  

 

CHEROKEE INTERNATIONAL, LLC

TABLEOF CONTENTS
| PART I—FINANCIAL INFORMATION

                                                             |
|------------------------------------------------------------------------------------------------------|
| Item 1. Consolidated Financial  Statements:                                                          |
|                                                                                                 | Condensed Consolidated Balance  Sheets—September 30, 2001 and December 31, 2000 |
|                                                                                                 |
|                                                                                                 | Condensed  Consolidated Statements of Operations—For the Three and Nine Months Ended  September 30, 2001 and 2000 |
|                                                                                                 |
|                                                                                                 | Condensed  Consolidated Statements of Cash Flows—For the Nine Months Ended September 30,  2001 and 2000 |
|                                                                                                 |
|                                                                                                 | Notes to  Condensed Consolidated Financial Statements |
|                                                                                                 |
| Item 2.  Management's Discussion and Analysis of Financial  Condition and Results of Operations |
|                                                                                                 |
| Item 3.  Quantitative and Qualitative Disclosures About  Market Risk                            |
|                                                                                                 |
| PART II—OTHER INFORMATION                                                                       |
|                                                                                                 |
| Item 1.  Legal Proceedings                                                                      |
|                                                                                                 |
| Item 6.  Exhibits and Reports on Form 8-K                                                       |
|                                                                                                 |
| SIGNATURES                                                                                           |

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)
|                                                                                                                                                                         |   | **September 30,  2001** |        | **December 31,****2000** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-------------|-------------------------------|--------|
|                                                                                                                                                                         |   |                         |        |
|                                                                                                                                                                         |   |                         |        |                          |   |
| ASSETS                                                                                                                                                                       |   |                         |        |                          |   |
| CURRENT  ASSETS:                                                                                                                                                             |   |                         |        |                          |   |
| Cash  and cash equivalents                                                                                                                                                   |   | $                            | 3,231,259   |                          | $      | 1,752,826 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $307,000 and $259,886  as of  September 30, 2001 and December  31, 2000, respectively                   |   | 21,403,399                   |        | 32,819,473                    |   |
| Inventories,  net                                                                                                                                                            |   | 25,191,174                   |        | 36,275,745                    |   |
| Prepaid  expenses and other current assets                                                                                                                                   |   | 917,731                      |        | 628,512                       |   |
|                                                                                                                                                                         |   |                         |        |                          |   |
| Total  current assets                                                                                                                                                        |   | 50,743,563                   |        | 71,476,556                    |   |
| PROPERTY  AND EQUIPMENT, net of accumulated depreciation and amortization of  $12,298,764 and $9,574,286 as of   September 30, 2001 and December 31, 2000, respectively |   | 14,993,002                   |        | 17,062,279                    |   |
| DEPOSITS                                                                                                                                                                     |   | 433,569                      |        | 306,046                       |   |
| DEFERRED  FINANCING COSTS, net of accumulated amortization of $2,238,757 and $1,510,504  as of  September 30, 2001 and December  31, 2000, respectively                 |   | 3,668,748                    |        | 4,219,184                     |   |
| GOODWILL  AND OTHER RELATED INTANGIBLES, net of accumulated amortization of $3,929,000  and $1,648,000 as of September 30, 2001 and December 31, 2000, respectively          |   | 41,679,000                   |        | 43,956,000                    |   |
|                                                                                                                                                                         |   |                         |        |                          |   |
|                                                                                                                                                                         |   | $                            | 111,517,882 |                          | $      | 137,020,065 |   |
|                                                                                                                                                                         |   |                         |        |                          |   |
| LIABILITIES  AND MEMBERS' EQUITY (DEFICIT)                                                                                                                                   |   |                         |        |                          |   |
| CURRENT  LIABILITIES:                                                                                                                                                        |   |                         |        |                          |   |
| Accounts  payable                                                                                                                                                            |   | $                            | 8,255,089   |                          | $      | 19,616,135 |   |
| Accrued  liabilities                                                                                                                                                         |   | 4,911,948                    |        | 4,818,026                     |   |
| Accrued  compensation and benefits                                                                                                                                           |   | 6,509,564                    |        | 7,688,487                     |   |
| Accrued  interest payable                                                                                                                                                    |   | 5,113,567                    |        | 2,707,091                     |   |
| Accrued  distribution payable                                                                                                                                                |   | 0                            |        | 2,118,000                     |   |
| Current  portion of long-term debt                                                                                                                                           |   | 19,351,325                   |        | 23,013,841                    |   |
| Current  portion of capital lease obligations                                                                                                                                |   | 1,148,068                    |        | 1,178,446                     |   |
|                                                                                                                                                                         |   |                         |        |                          |   |
| Total  current liabilities                                                                                                                                                   |   | 45,289,561                   |        | 61,140,026                    |   |
| LONG-TERM  DEBT, net of current portion                                                                                                                                      |   | 136,107,015                  |        | 141,801,265                   |   |
| CAPITAL  LEASE OBLIGATIONS, net of current portion                                                                                                                           |   | 2,242,322                    |        | 3,139,813                     |   |
| MEMBERS'  EQUITY (DEFICIT)                                                                                                                                                   |   |                         |        |                          |   |
| Class  A units: 347,671 units issued and outstanding in 2001 and 2000                                                                                                        |   | 354,371                      |        | 354,371                       |   |
| Class  B units: 36,035,065 units issued and outstanding in 2001 and 2000                                                                                                     |   | 37,037,827                   |        | 37,037,827                    |   |
| Paid-in  capital                                                                                                                                                             |   | 5,330,000                    |        | 5,330,000                     |   |
| Retained  earnings (deficit)                                                                                                                                                 |   | (114,356,654                 | )           | (111,570,983                  | )      |
| Accumulated  other comprehensive loss                                                                                                                                        |   | (486,560                     | )           | (212,254                      | )      |
|                                                                                                                                                                         |   |                         |        |                          |   |
| Total  members' deficit                                                                                                                                                      |   | (72,121,016                  | )           | (69,061,039                   | )      |
|                                                                                                                                                                         |   |                         |        |                          |   |
|                                                                                                                                                                         |   | $                            | 111,517,882 |                          | $      | 137,020,065 |   |

Seenotes to condensed consolidated financial statements.

CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS (Unaudited)

 
|                                                    |   | **Three Months Ended** |       | **Nine Months Ended**  |   |
|---------------------------------------------------------|--------|------------------------|------------|------------------------|--------|
|                                                    |   | **September 30,** |       | **September 30,** |   | **September 30,** |   | **September 30,** |   |
|                                                    |   | **2001**               |       | **2000**               |   | **2001** |   | **2000** |   |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| NET  SALES                                              |   | $                      | 25,994,675 |                   | $      | 43,205,357 |   | $ | 98,277,765 |   | $ | 97,300,946 |   |
| COST  OF SALES                                          |   | 18,840,104             |       | 28,385,364             |   | 70,030,232 |   | 63,513,126 |   |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| GROSS  PROFIT                                           |   | 7,154,571              |       | 14,819,993             |   | 28,247,533 |   | 33,787,820 |   |
| OPERATING  EXPENSES:                                    |   |                   |       |                   |   |   |   |   |   |
| Engineering  and development                            |   | 1,530,561              |       | 1,855,283              |   | 5,021,763 |   | 4,225,136 |   |
| Selling  and marketing                                  |   | 900,736                |       | 1,667,600              |   | 2,789,427 |   | 3,077,384 |   |
| General  and administrative                             |   | 2,757,049              |       | 3,235,008              |   | 8,303,855 |   | 5,741,773 |   |
| Amortization  of goodwill and other related intangibles |   | 761,000                |       | 723,000                |   | 2,281,000 |   | 840,000 |   |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| Total  operating expenses                               |   | 5,949,346              |       | 7,480,891              |   | 18,396,045 |   | 13,884,293 |   |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| OPERATING  INCOME                                       |   | 1,205,225              |       | 7,339,102              |   | 9,851,488 |   | 19,903,527 |   |
| OTHER  INCOME (EXPENSE):                                |   |                   |       |                   |   |   |   |   |   |
| Interest  expense                                       |   | (4,066,543             | )          | (4,363,326             | )      | (12,608,115 | ) | (12,358,267 | ) |
| Other  income                                           |   | 111,894                |       | 42,772                 |   | 192,380 |   | 152,548 |   |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| Total  other income (expense)                           |   | (3,954,649             | )          | (4,320,554             | )      | (12,415,735 | ) | (12,205,719 | ) |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| Income  (loss) before income taxes                      |   | (2,749,424             | )          | 3,018,548              |   | (2,564,247 | ) | 7,697,808 |   |
| Provision  for income taxes                             |   | 66,820                 |       | 0                      |   | 221,424 |   | 0 |   |
| NET  INCOME (LOSS)                                      |   | $                      | (2,816,244 | )                      | $      | 3,018,548 |   | $ | (2,785,671 | ) | $ | 7,697,808 |   |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| NET  INCOME (LOSS) PER UNIT:                            |   |                   |       |                   |   |   |   |   |   |
| Basic                                                   |   | $                      | (.08       | )                      | $      | .08 |   | $ | (.08 | ) | $ | 0.24 |   |
| Diluted                                                 |   | $                      | (.08       | )                      | $      | .08 |   | $ | (.08 | ) | $ | 0.23 |   |
|                                                    |   |                   |       |                   |   |   |   |   |   |
| WEIGHTED  AVERAGE UNITS OUTSTANDING:                    |   |                   |       |                   |   |   |   |   |   |
| Basic                                                   |   | 36,382,736             |       | 36,297,935             |   | 36,382,736 |   | 32,735,337 |   |
| Diluted                                                 |   | 36,382,736             |       | 36,643,071             |   | 36,382,736 |   | 33,020,954 |   |
|                                                         |        |                        |            |                        |        |  |  |  |  |  |  |  |  |  |  |  |  |

Seenotes to condensed consolidated financial statements

CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS(Unaudited)
|                                                                                             |   | **Nine Months Ended** |       |
|--------------------------------------------------------------------------------------------------|--------|-----------------------|------------|
|                                                                                             |   | **September 30,**     |       | **September 30,** |   |
|                                                                                             |   | **2001**              | ** ** | **2000** |   |
|                                                                                             |   |                  |       |   |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                                           |   |                  |       |   |   |
| Net  income (loss)                                                                               |   | $                     | (2,785,671 | ) | $ | 7,697,808 |   |
| Adjustments  to reconcile net income (loss) to net cash   provided by operating activities: |   |                  |       |   |   |
| Depreciation  and amortization                                                                   |   | 5,044,438             |       | 3,067,137 |   |
| Amortization  of deferred financing costs                                                        |   | 728,253               |       | 710,300 |   |
| Net  change in operating assets and liabilities:                                                 |   |                  |       |   |   |
| Accounts  receivable, net                                                                        |   | 11,006,074            |       | (6,022,126 | ) |
| Inventories,  net                                                                                |   | 10,658,571            |       | (2,896,091 | ) |
| Prepaid  expenses and other current assets                                                       |   | (297,219              | )          | (463,060 | ) |
| Deposits                                                                                         |   | (127,523              | )          | (77,587 | ) |
| Accounts  payable                                                                                |   | (10,998,352           | )          | 253,799 |   |
| Accrued  liabilities                                                                             |   | 201,922               |       | 384,438 |   |
| Accrued  compensation and benefits                                                               |   | (1,024,923            | )          | (137,115 | ) |
| Accrued  interest payable                                                                        |   | 2,407,476             |       | 2,592,299 |   |
| Net  cash provided by operating activities                                                       |   | 14,813,046            |       | 5,109,802 |   |
|                                                                                             |   |                  |       |   |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                                           |   |                  |       |   |   |
| Additions  to property and equipment                                                             |   | (955,161              | )          | (1,558,449 | ) |
| Investment  in ITS, net of cash acquired                                                         |   | 0                     |       | (51,895,775 | ) |
|                                                                                             |   |                  |       |   |   |
| Net  cash used in investing activities                                                           |   | (955,161              | )          | (53,454,224 | ) |
|                                                                                             |   |                  |       |   |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                                           |   |                  |       |   |   |
| Borrowings  on revolving line of credit                                                          |   | 14,675,736            |       | 15,585,894 |   |
| Payments  on revolving line of credit                                                            |   | (19,376,000           | )          | (8,477,974 | ) |
| Payments  on obligations under capital leases                                                    |   | (804,869              | )          | (648,182 | ) |
| Borrowings  on long-term debt                                                                    |   | 0                     |       | 8,000,000 |   |
| Payments  on long-term debt                                                                      |   | (4,585,502            | )          | (3,823,104 | ) |
| Deferred  financing costs                                                                        |   | (177,817              | )          | (346,984 | ) |
| Proceeds  from sale of units                                                                     |   | 0                     |       | 34,299,998 |   |
| Equity  distribution                                                                             |   | (2,118,000            | )          | (3,843,000 | ) |
|                                                                                             |   |                  |       |   |   |
| Net  cash provided by (used in) financing activities                                             |   | (12,386,452           | )          | 40,746,648 |   |
| Cash  effect of exchange rate changes                                                            |   | 7,000                 |       | (234,000 | ) |
|                                                                                             |   |                  |       |   |   |
| NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                            |   | 1,478,433             |       | (7,831,774 | ) |
| CASH  AND CASH EQUIVALENTS, beginning of period                                                  |   | 1,752,826             |       | 7,968,576 |   |
|                                                                                             |   |                  |       |   |   |
| CASH  AND CASH EQUIVALENTS, end of period                                                        |   | $                     | 3,231,259  |   | $ | 136,802 |   |
|                                                                                                  |        |                       |            |  |  |  |  |  |

Seenotes to condensed consolidated financial statements.

CHEROKEEINTERNATIONAL, LLC AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)
| 1. | Basis  of Presentation |
|----|------------------------|

The information set forth in the accompanyingcondensed consolidated financial statements is unaudited and, in the opinion ofmanagement, reflects all adjustments, consisting only of normal recurringadjustments, necessary to present fairly the financial position, results ofoperations and cash flows of Cherokee International, LLC (the"Company") for the periods indicated.

Results of operations for the interimnine months ended September 30, 2001 and 2000 are not necessarily indicative ofthe results of operations for the full fiscal year. The Company's third quarterrepresented the 13-week periods ended on September 30 in 2001 and October 1 in2000. For presentation purposes, these fiscal quarters have been referred to asending on September 30.

The condensed consolidated financialstatements include the financial statements of the Company and its wholly-ownedsubsidiaries. One such subsidiary, Cherokee International Finance, Inc., wasformed in April 1999 as a wholly-owned finance subsidiary to act as aco-obligor of the 10 1/2% senior subordinated notes and has no independentassets or operations. All significant intercompany accounts and transactionshave been eliminated.

Certain information normally included infootnote disclosure to the financial statements has been condensed or omitted inaccordance with the rules and regulations of the Securities and ExchangeCommission. Accordingly, the financial statements do not include all theinformation and note disclosures normally included in annual consolidatedfinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America. These unaudited condensedconsolidated financial statements should be read in conjunction with the otherdisclosures contained herein and with the Company's audited consolidatedfinancial statements and notes thereto contained in the Company's Form 10-K forthe year ended December 31, 2000.

The preparation of financial statementsin conformity with generally accepted accounting principles necessarilyrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting periods. Actual results could differfrom these estimates.

Reclassifications have been made to the2000 presentation to conform with the 2001 presentation.
| 2. | Inventories |
|----|-------------|

Inventories are valued at the lower ofcost (first-in, first-out) or market. Inventory costs include the cost ofmaterial, labor and manufacturing overhead and consist of the following:
|            | **September 30, 2001** |       | **December 31, 2000** |   |
|-----------------|------------------------|------------|-----------------------|--------|
|            |                   |       |                  |   |
| Raw Material    | $                      | 16,036,792 |                  | $      | 26,593,294 |   |
| Work-in-process | 5,728,622              |       | 6,495,045             |   |
| Finished goods  | 3,425,760              |       | 3,187,406             |   |
|            |                   |       |                  |   |
|            | $                      | 25,191,174 |                  | $      | 36,275,745 |   |
|            |                   |       |                  |   |

 
| 3. | Income  Taxes |
|----|---------------|

The Company is a limited liabilitycompany under the provisions of the federal and state tax codes. Under federallaws, taxes based  on income of alimited liability company are payable by the Company’s  individual members. Accordingly, noprovision for U.S. federal income taxes has been provided in the accompanying financial statements. Provisionsfor California franchise tax and fees are not significant for any periodpresented. The Company’s provision for income taxes primarily relates tooperations in Mexico and Belgium which are subject  to income taxes on earnings generated in those countries.
| 4. | Comprehensive  Income (Loss) |
|----|------------------------------|

Comprehensive income (loss) is defined asall changes in a company's net assets except changes resulting fromtransactions with shareholders. It differs from net income (loss) in thatcertain items currently recorded through equity are included in comprehensiveincome (loss). Comprehensive loss for the nine months ended September 30, 2001was $3,059,977, which included net loss of $2,785,671 and a loss from foreigncurrency translation adjustments of $274,306. Comprehensive income for the ninemonths ended September 30, 2000 was $6,870,257, which included net income of$7,697,808 and a loss from foreign currency translation adjustments of  $827,551.
| 5. | Net  Income (Loss) Per Unit |
|----|-----------------------------|

The following table sets forth thecomputation of basic and diluted income (loss) per unit:
|                                               | **Three Months Ended**  |       | **Nine Months Ended**   |   |
|----------------------------------------------------|-------------------------|------------|-------------------------|--------|
|                                               | **September 30,  2001** |       | **September 30,  2000** |   | **September 30,  2001** |   | **September 30,  2000** |   |
|                                               |                    |       |                    |   |   |   |   |   |
| Net Income (Loss)                                  | $                       | (2,816,244 | )                       | $      | 3,018,548 |   | $ | (2,785,671 | ) | $ | 7,697,808 |   |
|                                               |                    |       |                    |   |   |   |   |   |
| Units:                                             |                    |       |                    |   |   |   |   |   |
| Weighted-average units  outstanding – basic   | 36,382,736              |       | 36,297,935              |   | 36,382,736 |   | 32,735,337 |   |
| Effect of dilutive  options                        | 0                       |       | 345,136                 |   | 0 |   | 285,617 |   |
|                                               |                    |       |                    |   |   |   |   |   |
| Weighted-average units  outstanding – diluted | 36,382,736              |       | 36,643,071              |   | 36,382,736 |   | 33,020,954 |   |
|                                               |                    |       |                    |   |   |   |   |   |
| Net income (loss) per  unit:                       |                    |       |                    |   |   |   |   |   |
| Basic                                              | $                       | (.08       | )                       | $      | .08 |   | $ | (.08 | ) | $ | .24 |   |
|                                               |                    |       |                    |   |   |   |   |   |
| Diluted                                            | $                       | (.08       | )                       | $      | .08 |   | $ | (.08 | ) | $ | .23 |   |

In calculating net loss per unit for thethree and nine months ended September 30, 2001, the effect of dilutive optionsis excluded because it is antidilutive.
| 6. | New  Accounting Pronouncements |
|----|--------------------------------|

Statement of Financial AccountingStandards (SFAS) No. 133, “Accounting for Derivative Instruments and HedgingActivities”, is effective for all fiscal years beginning after June 15, 2000.SFAS No. 133, as amended, establishes accounting and reporting standards forderivative instruments, including certain derivative instruments embedded inother contracts and for hedging activities. Under SFAS No. 133, certaincontracts that were not formerly considered derivatives may now meet thedefinition of a derivative and all derivatives are to be reported on thebalance sheet at fair market value. The Company adopted SFAS No. 133 effectiveJanuary 1, 2001. The adoption of SFAS No. 133 did not have a significant impacton the financial position, results of operations, or cash flows of the Company.

In June 2001, the Financial AccountingStandards Board (“FASB”) issued two new pronouncements: SFAS No. 141, “BusinessCombinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”.  SFAS 141 prohibits the use of thepooling-of-interest method for business combinations initiated after June 30,2001 and also applies to all business combinations accounted for by thepurchase method that are completed after June 30, 2001.  There are also transition provisions thatapply to business combinations completed before July 1, 2001, that were accounted for by the purchasemethod.  SFAS 142 is effective forfiscal years beginning after December 15, 2001 to all goodwill and otherintangible assets recognized in an entity’s statement of financial position atthat date, regardless of when those assets were initially recognized.  The Company is currently evaluating theprovisions of SFAS 141 and SFAS 142 and has not adopted such provisions in itsSeptember 30, 2001 financial statements.

In August 2001, FASB issued SFAS No. 144,“Accounting for Impairment or Disposal of Long-Lived Assets.” This statementaddresses financial accounting and reporting for the impairment of long-livedassets and for long-lived assets to be disposed of. SFAS No. 144 supercedesSFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed of,” and is effective for fiscal yearsbeginning after December 15, 2001. The Company is currently evaluating theimpact that the adoption of this standard will have on its financial positionand results of operations.

 
| 7. | Long-Term  Debt |
|----|-----------------|

             OnSeptember 26, 2001, the Company's credit agreement with its lenders was amendedto include provisions that specify among other things, (1) that some of theCompany’s unitholders, or their equity members, will guarantee $10.5 million ofthe Company’s senior debt principal until specific financial ratios areattained, (2) that the Company will be restricted from making cashdistributions to its equity members until specific financial ratios areattained, (3) that the Company will be permitted to make its interest paymentdue in November 2002 relating to its $100 million of senior subordinated notesso long as specified financial ratios are attained, (4) that the maximumavailability under the revolving line of credit is reduced until approximatelyApril 30, 2002, (5) that LIBOR and base rate margins have been increased forrevolver borrowings and term loans, and (6) that financial convenant ratiosrequired in future periods have been modified. As of September 30, 2001, the Company was in compliance with its debtcovenants.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
| ITEM 2. | Management's  Discussion and Analysis of Financial Condition and Results of Operations. |
|---------|-----------------------------------------------------------------------------------------|

OVERVIEW

             Cherokeeis a leading designer and manufacturer of a broad range of switch mode powersupplies for original equipment manufacturers (OEM's) primarily in thetelecommunications, networking and high-end workstation industries. The Companyproduces its products and related components in sophisticated manufacturingfacilities located in Tustin and Irvine, California; Wavre, Belgium;Guadalajara, Mexico; and Bombay, India.

              The principal elements comprising cost ofsales are raw materials, labor and manufacturing overhead. Raw materialsaccount for a majority of cost of sales. Raw materials include magneticsubassemblies, sheet metal, electronic and other components, mechanical partsand electrical wires. Labor costs include employee costs of salaried and hourlyemployees. Manufacturing overhead includes lease costs, depreciation onproperty, plant and equipment, utilities, property taxes and repairs andmaintenance.

              Operating expenses include engineering costs,selling and marketing costs and administrative expenses. Engineering costsprimarily include salaries and benefits of engineering personnel, safetyapproval and quality certification fees, depreciation on equipment andsubcontract costs for third party contracting services. Selling and marketingexpenses primarily include salaries and benefits to account managers andcommissions to independent sales representatives. Administrative expensesprimarily include salaries and benefits for certain management andadministrative personnel, professional fees and information system costs.

              On June 15, 2000, the Company acquiredIndustrial and Telecommunication Systems and related entities ("ITS")for approximately $55 million, including assumption of debt. The acquisitionwas accounted for using the purchase method of accounting.

             Duringthe nine months ended September 30, 2001, the Company continued to generate themajority of its sales from the communications market segment, particularly the networkingand telecommunications sectors.  As aresult of unfavorable economic conditions and reduced capital spending bycommunication service providers that purchase our customers’ products, theCompany’s sales have decreased in each quarter of 2001, compared to theimmediately preceding quarter.  TheCompany believes that unstable and unpredictable economic conditions willcontinue, which may result  in a furtherdecline in revenues in the fourth quarter of 2001.  If these unfavorable economic conditions persist, the Company’soperating results and financial condition would be adversely affected.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2001COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000

NET SALES

             Netsales decreased by approximately 39.8% or $17.2 million to $26.0 million forthe three months ended September 30, 2001 from last year's $43.2 million forthe three months ended September 30, 2000. Sales of our North American operations decreased by approximately 52.6%or $15.5 million compared to the prior year, due to lower customer demand as aresult of unfavorable economic conditions and reduced capital spending bycommunication service providers.

GROSS PROFIT

              Gross profit decreased by approximately 51.7%or $7.7 million to $7.2 million for the three months ended September 30, 2001from $14.8 million for the three months ended September 30, 2000. Gross marginfor the quarter decreased to 27.5% from 34.3% in the prior year.

             Thedecrease in gross profit was primarily due to significantly lower gross profitcontributed by the North American operations which was attributable to thelower sales.   The decrease in grossmargin compared to the prior year was primarily a result of a change in productmix, along with an increase in factory overhead expenses as a percentage of netsales for the North American operations.

OPERATING EXPENSES

              Operating expenses for the three months endedSeptember 30, 2001 decreased by approximately 20.5% or $1.5 million to $5.9million from $7.5 million for the three months ended September 30, 2000. As apercentage of sales, operating expenses increased to 22.9% from 17.3% in thethird quarter of the prior year.

             Thedecrease in operating expenses was primarily attributable to reductions in ourworkforce and other cost control measures implemented during 2001 in responseto unfavorable economic conditions.

OPERATING INCOME

             Operatingincome decreased by approximately 83.6% or $6.1 million to $1.2 million for thethree months ended September 30, 2001 from $7.3 million for the three monthsended September 30, 2000. Operating margin decreased to 4.6% for the thirdquarter from 17.0% in the prior year.

             Thedecrease in operating income was primarily attributable to a decrease in theoperating income of the North American operations  which decreased in the third quarter primarily due to the lowersales and decreased gross margin. Operating income contributed by ITS in the third quarter increased fromthe prior year due to a favorable change in product mix. The decrease inoperating margin was primarily attributable to the decrease in gross margincombined with higher operating expenses as a percentage of sales discussedabove.

INTEREST EXPENSE

             Interestexpense for the three months ended September 30, 2001 was $4.1 million comparedto $4.4 million for the three months ended September 30, 2000. The effect ofincreased debt during the three months ended September 30, 2001 compared to theprior year's quarter was offset by lower interest rates on the Company'srevolver borrowings and term loans in the current year compared to the prioryear.

NET INCOME (LOSS)

             Asa result of the items discussed above, the Company recorded a net loss of $2.8million for the three months ended September 30, 2001 compared to net income of$3.0 million for the three months ended September 30, 2000.NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER30, 2000

NET SALES

             Netsales increased by approximately 1.0% or $1.0 million to $98.3 million for thenine months ended September 30, 2001 from last year's $97.3 million for thenine months ended September 30, 2000.

             Thehigher sales were primarily attributable to the acquisition of ITS, whichcontributed $40.5 million of sales for the nine months ended September 30,2001, compared to $17.1 million of sales contributed for the period June 15 toSeptember 30, 2000.  Sales of our NorthAmerican operations decreased by approximately 28.0% or $22.5 million comparedto the prior year, due to lower customer demand as a result of unfavorableeconomic conditions and reduced capital spending by communication serviceproviders.

GROSS PROFIT

             Grossprofit decreased by approximately 16.4% or $5.5 million to $28.2 million forthe nine months ended September 30, 2001 from $33.8 million for the nine monthsended September 30, 2000.  Gross marginfor the nine months ended September 30, 2001 decreased to 28.7% from 34.7% inthe prior year.

             Thedecrease in gross profit was primarily due to a decrease in gross profitcontributed by the North American operations resulting  primarily from lower sales, partially offsetby an increase in gross profit contributed by the European operations acquiredin June 2000. The decrease in gross margin compared to the prior year wasprimarily due to lower gross margin for the North American operations primarilyas a result of a change in product mix and increased factory overhead expensesas a percentage of net sales.

OPERATING EXPENSES

             Operatingexpenses for the nine months ended September 30, 2001 increased by approximately32.5% or $4.5 million to $18.4 million from $13.9 million for the nine monthsended September 30, 2000. As a percentage of sales, operating expensesincreased to 18.7% from 14.3% in the prior year.

             Theincrease in operating expenses, as expressed in dollars as well as a percentageof net sales, was primarily attributable to the inclusion in 2001 of a fullnine months of ITS operations and amortization of goodwill and other relatedintangibles associated with the ITS acquisition.  Partially offsetting the increase in dollars relating to the ITSoperations was a decrease in operating expenses for the North Americanoperations resulting primarily from reductions in our workforce and other costcontrol measures implemented during 2001.

OPERATING INCOME

             Operatingincome decreased by approximately 50.5% or $10.0 million to $9.9 million forthe nine months ended September 30, 2001 from $19.9 million for the nine monthsended September 30, 2000. Operating margin decreased to 10.0% for the currentyear's period from 20.5% in the prior year.

             Thedecrease in operating income was primarily attributable to a decrease in theoperating income of the North American operations resulting primarily fromlower sales and decreased gross margin. Operating income contributed by ITS inthe current year's period was offset by amortization of goodwill and otherrelated intangibles associated with the ITS acquisition. The decrease inoperating margin was primarily attributable to the decrease in gross margincombined with higher operating expenses as a percentage of sales discussedabove.INTEREST EXPENSE

             Interestexpense for the nine months ended September 30, 2001 was $12.6 million comparedto $12.4 million for the nine months ended September 30, 2000. This increasewas primarily due to the additional debt incurred in June 2000 in connectionwith the ITS acquisition, partially offset by lower interest rates on theCompany’s revolver borrowings and term loans in the current year’s period.

NET INCOME

             Asa result of the items discussed above, the company reported a net loss of $2.8million for the nine months ended September 30, 2001 compared to net income of$7.7 million for the nine months ended September 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2001COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000

             Netcash provided by operating activities was $14.8 million for the nine monthsended September 30, 2001 compared to $5.1 million for the nine months endedSeptember 30, 2000. Cash provided by operating activities for 2001 reflects netloss of approximately $2.8 million, depreciation and amortization of $5.0million, decreases of $11.0 million in accounts receivable and $10.7 million ininventory and an increase in accrued interest payable of $2.4 million,partially offset by decreases of $11.0 million in accounts payable and $1.0million in accrued compensation and benefits. Cash provided by operatingactivities for 2000 reflects net income of $7.7 million, depreciation andamortization of  $3.1 million, and anincrease of $2.6 million in accrued interest payable, partially offset by anincreases of $6.0 million in accounts receivable and $2.9 million in inventory.

             Netcash used in investing activities for the nine months ended September 30, 2000primarily consists of $51.9  million forthe purchase of ITS, net of acquired cash.

             Netcash used in financing activities of $12.4 million for the nine monthsended  September 30, 2001 primarilyreflects a net reduction of $4.7 million in revolving credit borrowing, and$4.6 million of payments on long-term debt and an equity distribution of $2.1million. Net cash provided by financing activities of  $40.7 million for the nine months ended September 30, 2000primarily reflects proceeds from bank borrowings aggregating $13.0 million and$34.3 million from the sale of units, which were used to finance the purchaseof ITS, partially offset by payments on long-term debt of $3.8 million andequity distributions of $3.8 million.

LIQUIDITY

             Historically,the Company has financed its operations with cash from operations supplementedby borrowings from credit facilities. The Company's current and futureliquidity needs primarily arise from debt service on indebtedness, workingcapital requirements, capital expenditures and distributions to pay taxes.

             TheCompany's historical capital expenditures have substantially resulted frominvestments in equipment to increase manufacturing capacity and improvemanufacturing efficiencies. For fiscal 2001, the Company expects capitalexpenditures to be approximately $2 million to $3 million.

             Asof  September 30, 2001, the Company'sborrowings consisted of $100 million of senior subordinated notes and $58.8million of borrowings under its various credit facilities, including $7.2million drawn under its $25 million domestic revolving credit facility. TheCompany is not subject to any amortization requirements under the seniorsubordinated notes prior to maturity in 2009, but it is required to makescheduled principal payments under certain term loans.

             OnSeptember 26, 2001, the Company's credit agreement with its lenders was amendedto include provisions that specify among other things, (1) that some of theCompany’s unitholders, or their equity members, will guarantee $10.5 million ofthe Company’s senior debt principal until specific financial ratios areattained, (2) that the Company will be restricted from making cashdistributions to its equity members until specific financial ratios areattained, (3) that the Company will be permitted to make its interest paymentdue in November 2002 relating to its $100 million of senior subordinated notesso long as specified financial ratios are attained, (4) that the maximumavailability under the revolving line of credit is reduced until approximatelyApril 30, 2002, (5) that LIBOR and base rate margins have been increased forrevolver borrowings and term loans, and (6) that financial covenant ratiosrequired in future periods have been modified.

NEW ACCOUNTING PRONOUNCEMENTS

             Statementof Financial Accounting Standards (SFAS) No. 133, “Accounting for DerivativeInstruments and Hedging Activities”, is effective for all fiscal yearsbeginning after June 15, 2000.  SFAS No.133, as amended, establishes accounting and reporting standards for derivativeinstruments, including certain derivative instruments embedded in othercontracts and for hedging activities. Under SFAS No. 133, certain contractsthat were not formerly considered derivatives may now meet the definition of aderivative and all derivatives are to be reported on the balance sheet at fairmarket value. The Company adopted SFAS 133 effective January 1, 2001. Theadoption of SFAS No. 133 did not have a significant impact on the financialposition, results of operations, or cash flows of the Company.

             InJune 2001, the Financial Accounting Standards Board ("FASB") issuedtwo new pronouncements: SFAS No. 141, "Business Combinations", andSFAS No. 142, "Goodwill and Other Intangible Assets".  SFAS 141 prohibits the use of the pooling-of-interestmethod for business combinations initiated after June 30, 2001 and also appliesto all business combinations accounted for by the purchase method that arecompleted after June 30, 2001.  There arealso transition provisions that apply to business combinations completed beforeJuly 1, 2001, that were accounted for by the purchase method. SFAS 142 iseffective for fiscal years beginning after December 15, 2001 to all goodwilland other intangible assets recognized in an entity's statement of financialposition at that date, regardless of when those assets were intiallyrecognized.  The Company is currentlyevaluating the provisions of SFAS 141 and SFAS 142 and has not adopted suchprovisions in its September 30, 2001 financial statements.

             InAugust 2001, FASB issued SFAS No. 144, “Accounting for Impairment or Disposalof Long-Lived Assets.” This statement addresses financial accounting andreporting for the impairment of long-lived assets and for long-lived assets tobe disposed of. SFAS No. 144 supercedes SFAS No. 121, “Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,”and is effective for fiscal years beginning after December 15, 2001. TheCompany is currently evaluating the impact that the adoption of this standardwill have on its financial position and results of operations.

             FORWARD-LOOKINGSTATEMENTS

             Statementsin this report containing the words "believes,""anticipates,", "expects," and words of similar meaning,and any other statements which may be construed as a prediction of futureperformance or events, constitute "forward-looking statements" withinthe meaning of the Private Securities Litigation Reform Act of 1995. Suchforward-looking statements involve known and unknown risks, uncertainties, andother factors that may cause the actual results, performance, or achievementsof the Company, or industry results, to be materially different from any futureresults, performance, or achievements expressed or implied by such forward-lookingstatements. Such factors include, among others, (1) restrictions imposed by theCompany's substantial leverage and restrictive covenants in its debtagreements, (2) reductions in sales to any of the Company's significantcustomers or in customer capacity generally, (3) changes in the Company's salesmix to lower margin products, (4) increased competition, (5) disruptions of theCompany's established supply channels, and (6) the additional risk factorsidentified in the Company's Annual Report on Form 10-K dated December 31, 2000and those described from time to time in the Company's other filings with theSEC, press releases and other communications. The Company disclaims anyobligations to update any such factors or to announce publicly the result of anyrevisions to any of the forward-looking statements contained or incorporated byreference herein to reflect future events or developments.
| ITEM 3. | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|---------|-------------------------------------------------------------|

 

             Marketrisks relating to our operations result primarily from changes in short-terminterest rates. The Company did not have any derivative financial instrumentsat September 30, 2001.

             TheCompany's exposure to market risk for changes in interest rates relatesprimarily to its current domestic credit facility. In accordance with thecredit facility, the Company enters into variable rate debt obligations tosupport general corporate purposes, including capital expenditures and workingcapital needs. The Company continuously evaluates its level of variable ratedebt with respect to total debt and other factors, including assessment of thecurrent and future economic environment.

             TheCompany had approximately $59 million in variable rate debt outstanding atSeptember 30, 2001. Based upon these variable rate debt levels, a hypothetical10% adverse change in interest rates would increase interest expense byapproximately $0.5 million on an annual basis, and likewise decrease ourearnings and cash flows. The Company cannot predict market fluctuations in interestrates and their impact on its variable rate debt, nor can there be anyassurance that fixed rate long-term debt will be available to the Company atfavorable rates, if at all. Consequently, future results may differ materiallyfrom the estimated adverse changes discussed above.

             As a result of the ITS acquisitionin June 2000, the Company has European operations and is, therefore, subject toa certain degree of market risk associated with changes in foreign currencyexchange rates. The Company has not actively engaged in exchange rate hedgingactivities.

 
| PART II. | OTHER  INFORMATION |
|----------|--------------------|
|     |               |
| ITEM 1.  | LEGAL  PROCEEDINGS |

             TheCompany is subject to disputes and potential claims by third parties that areincidental to the conduct of its business. The Company does not believe thatthe outcome of any such matters, pending at September 30, 2001 will have amaterial adverse effect on its financial condition or results of operations.
| ITEM 6.         | EXHIBITS  AND REPORTS ON FORM 8-K                                                                                                                                                        |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a)             | EXHIBITS:                                                                                                                                                                                |
|            |                                                                                                                                                                                     |
| 3.1*            | Second  Amended and Restated Operating Agreement of Cherokee International, LLC,  dated as of April 30, 1999.                                                                            |
|            |                                                                                                                                                                                     |
| 3.2*            | Amendment  No. 1 to the Second Amended and Restated Operating Agreement of Cherokee  International, LLC, dated as of                                                                     |
| June  28, 1999. |
|            |                                                                                                                                                                                     |
| 3.3*            | Amendment  No. 2 to the Second Amended and Restated Operating Agreement of Cherokee  International, LLC, dated as of                                                                     |
| June  28, 1999. |
|            |                                                                                                                                                                                     |
| 3.4**           | Amendment  No. 3 to the Second Amended and Restated Operating Agreement of Cherokee  International, LLC, dated as of                                                                     |
| June  12, 2000. |
|            |                                                                                                                                                                                     |
| 3.5**           | Amendment  No. 4 to the Second Amended and Restated Operating Agreement of Cherokee  International, LLC, dated as of                                                                     |
| June  14, 2000. |
|            |
| 10.1***         | Waiver  and Third Amendment to Credit Agreement dated as of September 26, 2001, by  and between Cherokee International, LLC, Heller Financial, Inc., and the  Lenders signatory thereto. |
|            |                                                                                                                                                                                     |
| (b)             | REPORTS  ON FORM 8-K                                                                                                                                                                     |
|                 |                                                                                                                                                                                          |  |

On October 4, 2001, the Company filed aCurrent Report on Form 8-K, announcing under Item 5 an amendment to theCompany’s credit agreement.

 

----

*Incorporated by reference to designatedexhibit to the Company's Registration Statement on Form S-4 (File No. 333-82713).

**Incorporated by reference to designated exhibit to the Company's Quarterly  Report on Form 10-Q, dated July 2, 2000.

***Incorporated by reference to designated exhibit to the Company's Current Reporton Form 8-K, dated October 4, 2001.

SIGNATURES

             Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|                     |   | Cherokee  International, LLC  |
|--------------------------|--------|-------------------------------|
|                     |   |                          |
| Date:  November 14, 2001 |   | /s/  R. Van Ness Holland, Jr. |
|                     |   |                          |
|                     |   | R.  Van Ness Holland, Jr.     |
|                     |   | Chief  Financial Officer      |