<PAGE>
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 April 2, 2000
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 number: 333-82713
CHEROKEE INTERNATIONAL, LLC
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0696451
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2841 DOW AVENUE
TUSTIN, CALIFORNIA 92780
(Address of principal executive offices)
(714) 544-6665
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(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 past 12 months (or for such shorter 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
--- ---
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CHEROKEE INTERNATIONAL, LLC
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
<S> <C>
Consolidated Balance Sheets--
March 31, 2000 and December 31, 1999. . . . . . . . . . . . . . 3
Consolidated Statements of Income--
For the Three Months Ended March 31, 2000 and 1999. . . . . . . 4
Consolidated Statements of Cash Flows--
For the Three Months Ended March 31, 2000 and 1999. . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . 11
PART II--OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------- -----------------------
2000 1999
----------------------- -----------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 6,828,700 $ 7,968,576
Accounts receivable, net of allowance for doubtful accounts
of $175,000 as of March 31, 2000 and December 31, 1999. . . . 15,118,808 14,108,596
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . 18,213,249 18,911,652
Prepaid expenses and other current assets. . . . . . . . . . . . 112,197 50,475
----------------------- -----------------------
Total current assets . . . . . . . . . . . . . . . . . . . . 40,272,954 41,039,299
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $7,026,569 and $6,374,122 as of
March 31, 2000 and December 31, 1999, respectively . . . . . . 8,593,152 8,761,516
DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,186 274,697
DEFERRED FINANCING COSTS, net of accumulated amortization
of $780,738 and $555,919 as of March 31, 2000 and
December 31, 1999, respectively . . . . . . . . . . . . . . 4,575,685 4,800,504
----------------------- -----------------------
$ 53,657,977 $ 54,876,016
----------------------- -----------------------
----------------------- -----------------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 3,460,538 $ 5,468,043
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 964,196 1,085,686
Accrued compensation and benefits . . . . . . . . . . . . . . . 1,535,729 2,211,193
Accrued interest payable . . . . . . . . . . . . . . . . . . . . 5,039,915 2,406,054
Accrued distribution payable . . . . . . . . . . . . . . . . . . 2,113,000 1,730,000
Current portion of long-term debt . . . . . . . . . . . . . . . 4,774,683 4,545,004
Current portion of capital lease obligations . . . . . . . . . . 733,062 835,947
----------------------- -----------------------
Total current liabilities . . . . . . . . . . . . . . . . . . 18,621,123 18,281,927
LONG-TERM DEBT, net of current portion . . . . . . . . . . . . . 140,060,760 141,458,228
CAPITAL LEASE OBLIGATIONS, net of current portion . . . . . . . 2,626,051 2,811,367
MEMBERS' EQUITY (DEFICIT)
Class A units: 300,000 units issued and outstanding
in 2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . 14,000 14,000
Class B units: 30,002,000 units issued and outstanding in
2000 and 1999, respectively . . . . . . . . . . . . . . . . . 2,594,000 2,594,000
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 5,330,000 5,330,000
Retained Earnings (Deficit). . . . . . . . . . . . . . . . . . . (115,587,957) (115,613,506)
----------------------- -----------------------
Total members' equity (deficit) . . . . . . . . . . . . . . . (107,649,957) (107,675,506)
----------------------- -----------------------
$ 53,657,977 $ 54,876,016
----------------------- -----------------------
----------------------- -----------------------
</TABLE>
See notes to consolidated financial statements.
3
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CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ------------------
2000 1999
--------------------- ------------------
<S> <C> <C>
NET SALES. . . . . . . . . . . . . . $ 25,431,363 $ 34,811,043
COST OF SALES. . . . . . . . . . . . 16,632,751 21,656,628
--------------------- ------------------
GROSS PROFIT . . . . . . . . . . . . 8,798,612 13,154,415
OPERATING EXPENSES:
Engineering and development. . . . . 1,137,621 945,095
Selling and marketing. . . . . . . . 615,476 593,174
General and administrative . . . . . 1,028,124 863,183
--------------------- ------------------
Total operating expenses. . . . . 2,781,221 2,401,452
--------------------- ------------------
OPERATING INCOME . . . . . . . . . . 6,017,391 10,752,963
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . (3,921,103) (43,090)
Other income (expense) . . . . . . . 42,261 12,396
--------------------- ------------------
Total other income (expense) . . . (3,878,842) (30,694)
--------------------- ------------------
NET INCOME . . . . . . . . . . . . . $ 2,138,549 $ 10,722,269
--------------------- ------------------
--------------------- ------------------
NET INCOME PER UNIT:
Basic. . . . . . . . . . . . . . . $ .07 $ .36
--------------------- ------------------
--------------------- ------------------
Diluted. . . . . . . . . . . . . . $ .07 $ .36
--------------------- ------------------
--------------------- ------------------
WEIGHTED AVERAGE
UNITS OUTSTANDING:
Basic. . . . . . . . . . . . . . . 30,302,000 30,000,000
--------------------- ------------------
--------------------- ------------------
Diluted. . . . . . . . . . . . . . 30,468,579 30,000,000
--------------------- ------------------
--------------------- ------------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH 31, MARCH 31,
-------------------- --------------------
2000 1999
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,138,549 $ 10,722,269
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 652,447 507,777
Amortization of deferred financing costs. . . . . . . . . . . . . . . . 224,819 0
Net change in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . (1,010,212) (5,309,670)
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . 698,403 (3,408,958)
Prepaid expenses and other current assets. . . . . . . . . . . . . . (61,722) 6,499
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,511 (11,050)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . (2,007,505) 2,335,773
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . (121,490) 147,704
Accrued compensation and benefits. . . . . . . . . . . . . . . . . . (675,464) (1,253,241)
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . 2,633,861 0
Accrued distribution payable . . . . . . . . . . . . . . . . . . . . 383,000 0
-------------------- --------------------
Net cash provided by operating activities . . . . . . . . . . . . 2,913,197 3,737,103
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment . . . . . . . . . . . . . . . . . . (484,083) (2,353,572)
-------------------- --------------------
Net cash used in investing activities. . . . . . . . . . . . . (484,083) (2,353,572)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving line of credit and term loan. . . . . . . . . . . (585,510) 0
Payments on obligations under capital leases. . . . . . . . . . . . . . (288,201) (159,055)
Payment on long-term debt . . . . . . . . . . . . . . . . . . . . . . . (582,279) (80,000)
Equity distribution . . . . . . . . . . . . . . . . . . . . . . . . . (2,113,000) (2,320,000)
-------------------- --------------------
Net cash used in financing activities . . . . . . . . . . . . . (3,568,990) (2,559,055)
-------------------- --------------------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . . (1,139,876) (1,175,524)
CASH AND CASH EQUIVALENTS, beginning of period. . . . . . . . . . . . . 7,968,576 2,784,828
-------------------- --------------------
CASH AND CASH EQUIVALENTS, end of period. . . . . . . . . . . . . . . . $ 6,828,700 $ 1,609,304
-------------------- --------------------
-------------------- --------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,080,444 $ 43,090
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
1. Basis of Presentation
The information set forth in the accompanying consolidated
financial statements is unaudited and may be subject to normal
year-end adjustments. In the opinion of management, the unaudited
financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
financial position, results of operations and cash flows of
Cherokee International, LLC (the "Company") for the periods
indicated.
Results of operations for the interim three months ended March 31, 2000
and 1999 are not necessarily indicative of the results of operations
for the full fiscal year. The Company's first quarter represented the
13-week period ended on April 2 in 2000 and April 4 in 1999. For
presentation purposes, these fiscal quarters have been referred to as
March 31.
The consolidated financial statements include the financial statements
of the Company and its wholly-owned subsidiaries Cherokee Electronica,
S.A. DE C.V. (Electronica), Cherokee India Pvt. Ltd. (India), Powertel
India Pvt. Ltd. (Powertel) and Cherokee International Finance, Inc.
(Finance). Finance was formed in April 1999 as a wholly-owned finance
subsidiary to act as a co-obligor of the 10 1/2% Senior Subordinated
Notes (see Note 4) and has no independent assets or operations. All
material intercompany accounts and transactions have been eliminated.
Certain information normally included in footnote disclosure to the
financial statements has been condensed or omitted in accordance with
the rules and regulations of the Securities and Exchange Commission,
and do not include all the information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America. These
unaudited consolidated financial statements should be read in
conjunction with the other disclosures contained herein and with the
Company's audited consolidated financial statements and notes thereto
contained in the Company's Form 10-K for the year ended December 31,
1999.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from these estimates.
2. Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventory costs include the cost of material, labor and
manufacturing overhead and consist of the following:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Raw Material $ 16,298,274 $ 16,630,304
Work-in-process 1,931,416 2,699,689
Finished goods 979,869 577,969
Reserve for obsolescence (996,310) (996,310)
------------------ -----------------
$ 18,213,249 $ 18,911,652
------------------ -----------------
------------------ -----------------
</TABLE>
6
<PAGE>
3. Income Taxes
The Company is taxed as a limited liability company under the
provisions of the United States federal and state tax codes. Under
United States federal law, taxes based on income of a limited liability
company are payable by the Company's members individually. Accordingly,
no provision for United States federal income taxes or for California
franchise taxes has been provided in the accompanying financial
statements.
4. Long-term debt
During 1999, the Company entered into a new credit facility and issued
$100.0 million of 10.5% senior subordinated notes. The credit
agreement provides for a $50 million term loan facility and a $25
million revolving credit facility. As of March 31, 2000, there was
$44.8 million outstanding under the term loan and no borrowings were
outstanding under the revolving credit facility.
5. Membership Units
Effective June 28, 1999, the Company's management committee approved a
75-for-1 split of the outstanding Class A Units and Class B Units.
Accordingly, all unit and income per unit figures have been restated to
reflect this split.
6. Comprehensive Income
Comprehensive income is defined as all changes in a company's net
assets except changes resulting from transactions with shareholders.
It differs from net income in that certain items currently recorded
through equity are included in comprehensive income. The Company's
net income was the same as comprehensive income for all periods
presented.
7. Income Per Unit
The following table sets forth the computation of basic and diluted
income per unit:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
<S> <C> <C>
Net Income. . . . . . . . . . . . . . . . . . . . $ 2,138,549 $ 10,722,269
-------------- --------------
-------------- --------------
Units:
Weighted-average units outstanding - basic. . . . 30,302,000 30,000,000
Effect of dilutive options. . . . . . . . . . . . 166,579
-------------- --------------
Weighted-average units outstanding - diluted. . . 30,468,579 30,000,000
-------------- --------------
-------------- --------------
Net income per unit:
Basic . . . . . . . . . . . . . . . . . . . . . . $ 0.07 $ 0.36
-------------- ---------------
-------------- ---------------
Diluted . . . . . . . . . . . . . . . . . . . . . $ 0.07 $ 0.36
-------------- ---------------
-------------- ---------------
</TABLE>
8. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, which the Company is required to adopt effective in its
fiscal year 2001. SFAS No. 133 will require the Company to record
all derivatives on the balance sheet at fair value. The Company has
not completed its evaluation of the effect of adopting SFAS No. 133.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
Cherokee is a leading designer and manufacturer of a broad range of
switch mode power supplies for original equipment manufacturers primarily in the
high growth telecommunications, networking and high-end workstation industries.
The Company produces its products and related components in sophisticated
manufacturing facilities located in Tustin, California, Irvine, California,
Guadalajara, Mexico and Bombay, India.
The Company's net sales are principally driven by growth in its
customers' industries. The telecommunications, networking and high-end
workstation segments are benefiting from the proliferation of internet/intranet,
wireless and other communications.
The principal elements comprising cost of sales are raw materials,
labor and manufacturing overhead. During 1999 and 2000, raw materials accounted
for a large majority of cost of sales. Raw materials include magnetic
subassemblies, sheet metal, electronic and other components, mechanical parts
and electrical wires. Labor costs include employee costs of salaried and hourly
employees. Manufacturing overhead includes lease costs, depreciation on
property, plant and equipment, utilities, property taxes and repairs and
maintenance.
Operating expenses include engineering costs, selling and marketing
costs and administrative expenses. Engineering costs primarily include salaries
and benefits of engineering personnel, safety approval and quality certification
fees, depreciation on equipment and subcontract costs for third party
contracting services. Selling and marketing expenses primarily include salaries
and benefits to account managers and commissions to independent sales
representatives. Administrative expenses primarily include salaries and benefits
for certain management and administrative personnel, professional fees and
information system costs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999
NET SALES
Net sales decreased by approximately 26.9% or $9.4 million to $25.4
million for the three months ended March 31, 2000 from last year's record
$34.8 million for the three months ended March 31, 1999.
The lower sales were primarily attributable to decreased demand from
certain major customers in the current year's first quarter compared to
particularly strong demand from those same customers in the prior year's
first quarter. A decline in sales to our largest customer accounted for the
majority of the sales decrease from last year. We believe that the slowdown
in sales to that customer resulted from increased competition faced by that
customer's high-end server products.
8
<PAGE>
GROSS PROFIT
Gross profit decreased by approximately 33.1% or $4.4 million to $8.8
million for the three months ended March 31, 2000 from $13.2 million for the
three months ended March 31, 1999. Gross margin for the quarter decreased to
34.6% from 37.8% in the prior year.
The decrease in gross profit was primarily due to the decrease in
sales. The decrease in gross margin compared to the prior year was primarily
due to an increase in factory overhead expenses as a percentage of net sales due
to having certain fixed manufacturing resources in place to support higher sales
levels commensurate with those achieved in the immediately preceding quarters.
OPERATING EXPENSES
Operating expenses increased by approximately 15.8% or $.4 million to
$2.8 million for the three months ended March 31, 2000 from $2.4 million for the
three months ended March 31, 1999. As a percentage of sales, operating expenses
increased to 10.9% from 6.9% in the first quarter of the prior year.
The increase in operating expenses, as expressed in dollars as well as a
percentage of net sales, was primarily attributable to having the resources in
place to support sales levels commensurate with those achieved in the
immediately preceding quarters.
OPERATING INCOME
Operating income decreased by approximately 44.0% or $4.7 million to
$6.0 million for the three months ended March 31, 2000 from the record $10.8
million for the three months ended March 31, 1999. Operating margin for the
current quarter decreased to 23.7% from 30.9% in the prior year.
The decrease in operating income was primarily due to the decrease in
gross profit and higher operating expenses. The decrease in operating
margin was primarily attributable to the decrease in gross margin combined with
higher operating expenses as a percentage of sales discussed above.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 2000 was
$3.9 million compared to a nominal amount for the three months ended March 31,
1999. This substantial increase was primarily due to the issuance of $100
million of 10 1/2% senior subordinated notes and a new $50 million term loan,
all of which occurred in April 1999.
NET INCOME
Net income decreased by approximately 80.0% or $8.6 million to $2.1
million for the three months ended March 31, 2000 from $10.7 million for the
three months ended March 31, 1999. Net income margin for the current quarter was
8.4% compared to 30.8% in the prior period.
The decreases in net income and net income margin were primarily due to
the lower sales, higher operating expenses, and substantially higher interest
expense discussed above.
9
<PAGE>
LIQUIDITY AND CAPITAL
CASH FLOWS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net cash provided by operating activities was $2.9 million for the
three months ended March 31, 2000 compared to $3.7 million for the three months
ended March 31, 1999. Cash provided by operating activities for 2000 reflects
net income of $2.1 million and a $2.6 million increase in accrued interest
payable, offset by an increase of $1.0 million in accounts receivable and a
decrease of $2.0 million in accounts payable. Cash provided by operating
activities for 1999 reflects net income of $10.7 million and a $2.3 million
increase in accounts payable, offset by increases of $5.3 million in accounts
receivable and $3.4 million in inventory and a decrease of $1.2 million in
accrued compensation and benefits.
Net cash used in investing activities, which consists primarily of
additions to property and equipment, was $0.5 million for the three months ended
March 31, 2000 compared to $2.4 million for the three months ended March 31,
1999. Net cash used in financing activities was $3.6 million for the three
months ended March 31, 2000 compared to $2.6 million for the three months ended
March 31, 1999.
LIQUIDITY
Historically, the Company has financed its operations with cash from
operations supplemented by borrowings from credit facilities. As a result of
certain transactions in 1999,the Company's current and future liquidity needs
primarily arise from debt service on indebtedness, working capital
requirements, capital expenditures and distributions to pay taxes. As of
March 31, 2000, the Company's borrowings consisted of $100 million of senior
subordinated notes, $44.8 million of borrowings under a term loan facility,
and $3.4 million under capital leases. As of March 31, 2000, the Company had
no borrowings outstanding under its $25 million revolving credit facility.
The Company is not subject to any amortization requirements under the notes
prior to maturity in 2009, but it is required to make scheduled repayments
under the term loan facility.
Management believes that cash flow from operations and available borrowing
capacity will be adequate to meet the Company's anticipated cash requirements,
including operating requirements, planned capital expenditures, debt service and
distributions to pay taxes, for the next twelve months.
The Company's historical capital expenditures have substantially resulted
from investments in equipment to increase manufacturing capacity and improve
manufacturing efficiencies. For fiscal 2000, the Company expects capital
expenditures to be between $3-4 million.
10
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements in 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 future performance or
events, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, (1) restrictions imposed by the
Company's substantial leverage and restrictive covenants in its debt agreements,
(2) reductions in sales to any of the Company's significant customers or in
customer capacity generally, (3) changes in the Company's sales mix to lower
margin products, (4) increased competition, (5) disruptions of the Company's
established supply channels, and (6) the additional risk factors identified in
the Company's Registration Statement on Form S-4 (No. 333-82713) and those
described from time to time in the Company's other filings with the SEC, press
releases and other communications. The Company disclaims any obligations to
update any such factors or to announce publicly the result of any revisions to
any of the forward-looking statements contained or incorporated by reference
herein to reflect future events or developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from
changes in short-term interest rates. We do not have significant foreign
exchange or other market risk. We did not have any derivative financial
instruments at March 31, 2000.
Our exposure to market risk for changes in interest rates relates
primarily to our current credit facility. In accordance with the credit
facility, we enter into variable rate debt obligations to support general
corporate purposes, including capital expenditures and working capital needs.
We continuously evaluate our level of variable rate debt with respect to
total debt and other factors, including assessment of the current and future
economic environment.
We had approximately $44.8 million and $ 46.0 million in variable rate
debt outstanding at March 31, 2000 and December 31, 1999, respectively. Based
upon these variable rate debt levels, a hypothetical 10% adverse change in
interest rates would increase interest expense by approximately $0.4 million
on an annual basis, and likewise decrease our earnings and cash flows. We
cannot predict market fluctuations in interest rates and their impact on our
variable rate debt, nor can there be any assurance that fixed rate long-term
debt will be available to us at favorable rates, if at all. Consequently,
future results may differ materially from the estimated adverse changes
discussed above.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to disputes and potential claims by third parties that
are incidental to the conduct of our business. We do not believe that the
outcome of any such matters, pending at March 31, 2000, will have a material
adverse effect on our 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.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the 13-week
period ended April 2, 2000.
- ----------------------
* Incorporated by reference to designated exhibit to the Company's Registration
Statement on Form S-4 (File No. 333-82713).
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Cherokee International, LLC
Date: May 15, 2000 /s/ R. Van Ness Holland, Jr.
-------------------------------------
R. Van Ness Holland, Jr.
Chief Financial Officer
13
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<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 6,828,700 1,609,304
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<RECEIVABLES> 15,234,495 20,293,191
<ALLOWANCES> 175,000 175,000
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<PP&E> 15,619,721 13,794,913
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0 0
0 0
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<OTHER-EXPENSES> (42,261) (12,396)
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<INCOME-PRETAX> 2,138,549 10,722,269
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