UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
  Form
10-Q
 
  þ
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
quarterly period ended April 4, 2010
  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 000-21507
 
 
 POWERWAVE
TECHNOLOGIES, INC.
 (Exact
name of registrant as specified in its charter)
 
 
 Delaware
              11-2723423(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      No.)
  1801
E. St. Andrew Place, Santa Ana, CA 92705
 (Address
of principal executive offices, zip code)
  (714)
466-1000
 (Registrant’s
telephone number, including area code)
  Securities
registered pursuant to Section 12(b) of the Act:
  Common
Stock, Par Value $.0001 NASDAQ Global Select Market
  Securities
registered pursuant to Section 12(g) of the Act: None
 
  Indicate
by check mark whether the Registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such 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  þ    No   ̈
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes   ̈    No   ̈
  Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and
“smaller-reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
  Large
accelerated filer   ̈        Accelerated
filer  þ         Non-accelerated
filer   ̈         Smaller
reporting company   ̈
  Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes   ̈    No  þ
  As of
April 30, 2010, the registrant had 132,729,335 shares of Common Stock
outstanding.
  
   
  POWERWAVE
TECHNOLOGIES, INC.
 QUARTERLY
REPORT ON FORM 10-Q
 FOR
THE THREE MONTHS ENDED APRIL 4, 2010
  TABLE OF CONTENTS
 
 PAGECAUTIONARY STATEMENT RELATED TO FORWARD LOOKING
      STATEMENTS
              3HOW TO OBTAIN POWERWAVE SEC FILINGS
              3PART I – FINANCIAL
      INFORMATION
              4Item 1.
              Financial Statements (Unaudited)
              4Consolidated Balance Sheets
              4Consolidated Statements of Operations
              5Consolidated Statements of Comprehensive Loss
              6Consolidated Statements of Cash Flows
              7Notes to Consolidated Financial Statements
              8Item 2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              19Item 3.
              Quantitative and Qualitative Disclosures About
      Market Risk
              28Item 4.
              Controls and Procedures
              30PART II – OTHER INFORMATION
              31Item 1.
              Legal Proceedings
              31Item 1A.
              Risk Factors
              32Item 2.
              Unregistered Sales of Equity Securities
      and Use of Proceeds
              45Item 6.
              Exhibits
              46SIGNATURES
              47
 
  2
 Table of Contents
  CAUTIONARYSTATEMENT RELATED TO FORWARD LOOKING
STATEMENTS
  This
Quarterly Report on Form 10-Q includes forward-looking statements as defined
within Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, relating to
revenue, revenue composition, market and economic conditions, demand and pricing
trends, future expense levels, competition and growth prospects in our industry,
trends in average selling prices and gross margins, product and infrastructure
development, market demand and acceptance, the timing of and demand for next
generation products, customer relationships, tax rates, employee relations, the
timing of and cost savings from restructuring activities, restructuring charges,
and the level of expected future capital and research and development
expenditures. Such forward-looking statements are based on the beliefs of,
estimates made by, and information currently available to Powerwave
Technologies, Inc.’s (“Powerwave” or the “Company”) management and are subject
to certain risks, uncertainties and assumptions. Any other statements contained
herein (including without limitation statements to the effect that Powerwave or
management “estimates,” “expects,” “anticipates,” “plans,” “believes,”
“projects,” “continues,” “may,” “will,” “could,” or “would” or statements
concerning “potential” or “opportunity” or variations thereof or comparable
terminology or the negative thereof) that are not statements of historical fact
are also forward-looking statements. The actual results of Powerwave may vary
materially from those expected or anticipated in these forward-looking
statements. The realization of such forward-looking statements may be impacted
by certain important unanticipated factors, including those discussed under Part
I, Item 1A, Risk Factors. Because of these and other factors that may
affect Powerwave’s operating results, past performance should not be considered
as an indicator of future performance, and investors should not use historical
results to anticipate results or trends in future periods. We undertake no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Readers should carefully review the risk factors described in this and other
documents that Powerwave files from time to time with the Securities and
Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly
Reports on Form 10-Q and Annual Reports on Form 10-K.
  HOW TO OBTAINPOWERWAVE SEC FILINGS
  All
reports filed by Powerwave with the SEC are available free of charge via EDGAR
through the SEC website at www.sec.gov. In addition, the public may read and
copy materials filed by the Company with the SEC at the SEC’s public reference
room located at 100 F Street, N.E., Washington, D.C. 20549. Powerwave also
provides copies of its Forms 8-K, 10-K, 10-Q, Proxy Statement Annual Report, and
amendments thereto, at no charge to investors upon request and makes electronic
copies of its most recently filed reports available through its website at
www.powerwave.com as soon as reasonably practicable after filing such material
with the SEC.
 
 
  3
 Table of Contents
   
  PART I – FINANCIAL INFORMATION
  ITEM 1.
              FINANCIALSTATEMENTS
  POWERWAVETECHNOLOGIES, INC.
  CONSOLIDATED
BALANCE SHEETS
 (Unaudited)
 (In
thousands, except share data)
 
 April
      4,
                2010
              
              January
      3,
                2010ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              63,030
              
              
              $
              60,439Restricted
      cash
              
              
              2,542
              
              
              
              2,600Accounts
      receivable, net of allowance for sales returns and doubtful accounts of
      $7,029 and $8,349, respectively
              
              
              111,938
              
              
              
              142,949Inventories
              
              
              59,832
              
              
              
              60,544Prepaid
      expenses and other current assets
              
              
              29,569
              
              
              
              21,334Deferred
      income taxes
              
              
              6,449
              
              
              
              6,449Total
      current assets
              
              
              273,360
              
              
              
              294,315Property,
      plant and equipment, net
              
              
              85,392
              
              
              
              89,883Other
      assets
              
              
              6,147
              
              
              
              5,654TOTAL
      ASSETS
              
              $
              364,899
              
              
              $
              389,852LIABILITIES
      AND SHAREHOLDERS’ EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
              
              $
              72,399
              
              
              $
              81,830Accrued
      payroll and employee benefits
              
              
              10,487
              
              
              
              11,322Accrued
      restructuring costs
              
              
              1,148
              
              
              
              1,803Accrued
      expenses and other current liabilities
              
              
              21,363
              
              
              
              23,946Total
      current liabilities
              
              
              105,397
              
              
              
              118,901Long-term
      debt
              
              
              275,251
              
              
              
              268,983Other
      liabilities
              
              
              1,332
              
              
              
              1,356Total
      liabilities
              
              
              381,980
              
              
              
              389,240Commitments
      and contingencies (Notes 8 and 9)Shareholders’
      equity (deficit):Preferred
      Stock, $0.0001 par value, 5,000,000 shares authorized and no shares issued
      or outstanding
              
              
              —
              
              
              
              —Common
      Stock, $0.0001 par value, 250,000,000 shares authorized, 132,724,835 and
      132,357,287 shares issued and outstanding, respectively
              
              
              820,866
              
              
              
              825,354Accumulated
      other comprehensive income
              
              
              8,135
              
              
              
              10,522Accumulated
      deficit
              
              
              (846,082
              )
              
              
              (835,264
              )Net
      shareholders’ equity (deficit)
              
              
              (17,081
              )
              
              
              612TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
              
              $
              364,899
              
              
              $
              389,852
 
 
 
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
  4
 Table of Contents
  POWERWAVETECHNOLOGIES, INC.
  CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 (In
thousands, except per share data)
 
 Three
      Months EndedApril
      4,
                2010
              
              March
      29,
                2009Net
      sales
              
              $
              114,473
              
              
              $
              149,745Cost
      of sales:Cost
      of goods
              
              
              84,641
              
              
              
              114,962Intangible
      asset amortization
              
              
              —
              
              
              
              623Restructuring
      and impairment charges
              
              
              21
              
              
              
              1,408Total
      cost of sales
              
              
              84,662
              
              
              
              116,993Gross
      profit
              
              
              29,811
              
              
              
              32,752Operating
      expenses:Sales
      and marketing
              
              
              9,395
              
              
              
              9,741Research
      and development
              
              
              14,276
              
              
              
              15,147General
      and administrative
              
              
              11,274
              
              
              
              12,099Intangible
      asset amortization
              
              
              —
              
              
              
              327Restructuring
      and impairment charges
              
              
              346
              
              
              
              1,498Total
      operating expenses
              
              
              35,291
              
              
              
              38,812Operating
      loss
              
              
              (5,480
              )
              
              
              (6,060
              )Other
      income (expense), net
              
              
              (3,575
              )
              
              
              3,158Loss
      before income taxes
              
              
              (9,055
              )
              
              
              (2,902
              )Income
      tax provision
              
              
              1,763
              
              
              
              1,470Net
      loss
              
              $
              (10,818
              )
              
              $
              (4,372
              )Loss
      per share, basic and diluted:
              
              $
              (0.08
              )
              
              $
              (0.03
              )Shares
      used in the computation of loss per share:Basic
      and diluted
              
              
              132,423
              
              
              
              131,491
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
  5
 Table of Contents
  POWERWAVE
TECHNOLOGIES, INC.
  CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
 (Unaudited)
 (In
thousands)
 
 Three
      Months EndedApril
      4,
                2010
              
              March
      29,
                2009Net
      loss
              
              $
              (10,818
              )
              
              $
              (4,372
              )Other
      comprehensive loss:Foreign
      currency translation adjustments, net of income taxes
              
              
              (2,387
              )
              
              
              (3,364
              )Comprehensive
      loss
              
              $
              (13,205
              )
              
              $
              (7,736
              )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
  6
 Table of Contents
  POWERWAVETECHNOLOGIES, INC.
  CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In
thousands)
 Three
      Months EndedApril
      4,
                2010
              
              March
      29,
                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (10,818
              )
              
              $
              (4,372
              )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
              
              
              4,637
              
              
              
              4,749Amortization
              
              
              1,671
              
              
              
              2,368Non-cash
      restructuring and impairment charges
              
              
              367
              
              
              
              2,906Provision
      for sales returns and doubtful accounts
              
              
              110
              
              
              
              1,848Provision
      for excess and obsolete inventories
              
              
              2,427
              
              
              
              694Compensation
      costs related to stock-based awards
              
              
              965
              
              
              
              899Gain
      on repurchase of convertible debt
              
              
              —
              
              
              
              (3,368
              )Gain
      on exchange of convertible debt
              
              
              (484
              )
              
              
              —Gain
      on disposal of property, plant and equipment
              
              
              (91
              )
              
              
              17Gain
      on settlement of litigation
              
              
              —
              
              
              
              (645
              )Changes
      in operating assets and liabilities, net of acquisitions:Accounts
      receivable
              
              
              29,250
              
              
              
              33,477Inventories
              
              
              (3,197
              )
              
              
              5,387Prepaid
      expenses and other current assets
              
              
              (8,978
              )
              
              
              (952
              )Accounts
      payable
              
              
              (8,231
              )
              
              
              (30,835
              )Accrued
      expenses and other current liabilities
              
              
              (3,795
              )
              
              
              (6,178
              )Other
      non-current assets
              
              
              (78
              )
              
              
              585Other
      non-current liabilities
              
              
              (3
              )
              
              
              (76
              )Net
      cash provided by operating
      activities
              
              
              3,752
              
              
              
              6,504CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
              
              
              (636
              )
              
              
              (1,687
              )Restricted
      cash
              
              
              58
              
              
              
              583Proceeds
      from the sale of property, plant and equipment
              
              
              136
              
              
              
              —Acquisitions,
      net of cash acquired
              
              
              —
              
              
              
              1,960Net
      cash provided by (used in) investing
      activities
              
              
              (442
              )
              
              
              856CASH
      FLOWS FROM FINANCING ACTIVITIES:Debt
      issuance costs
              
              
              (1,261
              )
              
              
              —Proceeds
      from stock-based compensation arrangements
              
              
              379
              
              
              
              131Repurchase
      of common stock
              
              
              (4
              )
              
              
              —Retirement
      of long-term debt
              
              
              —
              
              
              
              (1,345
              )Net
      cash used in financing
      activities
              
              
              (886
              )
              
              
              (1,214
              )EFFECT
      OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
              
              
              167
              
              
              
              (500
              )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              2,591
              
              
              
              5,646CASH
      AND CASH EQUIVALENTS, beginning of period
              
              
              60,439
              
              
              
              46,906CASH
      AND CASH EQUIVALENTS, end of period
              
              $
              63,030
              
              
              $
              52,552SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid for:Interest
      expense
              
              $
              3,036
              
              
              $
              126Income
      taxes
              
              $
              4,608
              
              
              $
              1,559SUPPLEMENTAL
      SCHEDULE OF NON-CASH ACTIVITIES:Unpaid
      purchases of property and equipment
              
              $
              323
              
              
              $
              660Exchange
      of 1.875% Convertible Subordinated Notes due 2024 (see Note
    4)
              
              $
              60,000
              
              
              $
              —
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
  7
 Table of Contents
 POWERWAVETECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
  
  Note
1. Nature of Operations
  Powerwave
Technologies Inc. (the “Company”) is a global supplier of end-to-end wireless
solutions for wireless communications networks. The Company designs,
manufactures and markets antennas, boosters, combiners, cabinets, shelters,
filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers,
remote radio head transceivers and advanced coverage solutions for use in
cellular, PCS, 3G and 4G networks throughout the world.
  Note
2. Summary of Significant Accounting Policies
  Basis
of Presentation
  The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. These financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include certain footnotes and financial presentations
normally required under accounting principles generally accepted in the United
States of America for complete financial statements. The interim financial
information is unaudited; however, it reflects all normal adjustments and
accruals which are in the opinion of management considered necessary to provide
a fair presentation for the interim periods presented. All significant
intercompany balances and transactions have been eliminated in the accompanying
consolidated financial statements.
  The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the future quarters or full year ending
January 2, 2011, (“fiscal 2010”). The accompanying consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Company’s Amendment No. 1 to Annual Report on Form
10-K for the fiscal year ended January 3, 2010.
  New
Accounting Pronouncements
 In
October 2009, the Financial Accounting Standards Board (FASB) issued an update
to Accounting Standards Codification (ASC) Topic 605, “Revenue
Recognition.”  This Accounting Standards Update (ASU) No.
2009-13, “Multiple Deliverable
Revenue Arrangements – A Consensus of the FASB Emerging Issues Task
Force,” provides accounting principles and application guidance on
whether multiple deliverables exist, how the arrangement should be separated,
and the consideration allocated. This guidance eliminates the requirement to
establish the fair value of undelivered products and services and instead
provides for separate revenue recognition based upon management’s estimate of
the selling price for an undelivered item when there is no other means to
determine the fair value of that undelivered item. Previous accounting guidance
required that the fair value of the undelivered item be the price of the item
either sold in a separate transaction between unrelated third parties or the
price charged for each item when the item is sold separately by the vendor. This
was difficult to determine when the product was not individually sold because of
its unique features. Under previous accounting guidance, if the fair value of
all of the elements in the arrangement was not determinable, then revenue was
deferred until all of the items were delivered or fair value was
determined.
  In
October 2009, the FASB issued an update to ASC Topic 985, ”Software.” This ASU No.
2009-14, “Software – Certain
Revenue Arrangements that Include Software Elements,”modifies the
software revenue recognition guidance to exclude from its scope tangible
products that contain both software and non-software components that functions
together to deliver a product’s essential functionality.  These new
updates are effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15,
2010.  Early adoption is permitted. The Company is currently
evaluating the potential impact of these standards on its business, financial
condition and results of operations.
  Stock-Based
Compensation
  The
Company accounts for stock-based compensation in accordance with accounting
guidance now codified as ASC Topic 718, “Compensation – Stock
Compensation.”  Under the fair value recognition provision of
ASC Topic 718, stock-based compensation cost is estimated at the grant date
based on the fair value of the award. The Company estimates the fair value of
stock options granted using the Black-Scholes-Merton option pricing model and a
multiple option award approach. The fair value of restricted stock awards is
based on the closing market price of the Company’s common stock on the date of
grant.  Stock-based compensation, adjusted for estimated forfeitures,
is amortized on a straight-line basis over the requisite service period of the
award, which is generally the vesting period.
  8
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
   Stock-based
compensation expense was recognized as follows in the consolidated statement of
operations
   (in
thousands):
  Three Months EndedApril
      4,
                2010
              
              March
      29,
                2009Cost
      of sales
              
              $
              107
              
              
              $
              267Sales
      and marketing expenses
              
              
              38
              
              
              
              90Research
      and development expenses
              
              
              191
              
              
              
              247General
      and administrative expenses
              
              
              629
              
              
              
              295Increase
      to operating loss before income taxes
              
              
              965
              
              
              
              899Income
      tax benefit recognized
              
              
              —
              
              
              
              —Increase
      to net loss
              
              $
              965
              
              
              $
              899Increase
      to net loss per share:Basic
      and diluted
              
              $
              0.01
              
              
              $
              0.01
 
  As of
April 4, 2010, unrecognized compensation expense related to the unvested portion
of the Company’s stock-based awards and employee stock purchase plan was
approximately $2.9 million, net of estimated forfeitures of $0.2 million, which
is expected to be recognized over a weighted-average period of 1.4
years.
  The
Black-Scholes-Merton option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. Option valuation methods require the input of highly subjective
assumptions including the weighted average risk-free interest rate, the expected
life, and the expected stock price volatility. The weighted average risk-free
interest rate was determined based upon actual U.S. treasury rates over a one to
ten year horizon and the actual life of options granted. The Company grants
options with either a five year or ten year life. The expected life is based on
the Company’s actual historical option exercise experience. For the employee
stock purchase plan, the actual life of 6 months is utilized in this
calculation. The expected life was determined based upon actual option grant
lives over a 10 year period. The Company has utilized various market sources to
calculate the implied volatility factor utilized in the Black-Scholes-Merton
option valuation model. These included the implied volatility utilized in the
pricing of options on the Company’s Common Stock as well as the implied
volatility utilized in determining market prices of the Company’s outstanding
convertible notes. Using the Black-Scholes-Merton option valuation model, the
estimated weighted average fair value of options granted during the first
quarter of fiscal years 2010 and 2009 were $0.66 per share and $0.43 per share,
respectively.
   The fair
value of options granted under the Company’s stock incentive plans during the
first quarter of 2010 and 2009 was estimated on the date of grant according to
the Black-Scholes-Merton option-pricing model utilizing the multiple option
approach and the following weighted-average assumptions:
  Three Months EndedApril
      4,
                2010
              
              March
      29,
                2009Weighted
      average risk-free interest rate
              
              
              2.5
              %
              
              
              1.7
              %Weighted
      average expected life (in years)
              
              
              3.3
              
              
              
              3.2Expected
      stock volatility
              
              
              68
              %
              
              
              148
              %Dividend
      yield
              
              None
              
              
              None
  
  9
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
   Note
3. Supplemental Balance Sheet Information
  Inventories
  Net
inventories are as follows:
  April
      4,
                2010
              
              January
      3,
                2010Parts
      and components
              
              $
              25,725
              
              
              $
              27,937Work-in-process
              
              
              2,767
              
              
              
              1,363Finished
      goods
              
              
              31,340
              
              
              
              31,244Total
      inventories
              
              $
              59,832
              
              
              $
              60,544
  Inventories
are net of an allowance for excess and obsolete inventory of approximately $24.2
million and $22.6 million as of April 4, 2010 and January 3, 2010,
respectively.
  Accrued
Expenses and Other Current Liabilities
  Accrued
expenses and other current liabilities are as follows:
  
 April
      4,
                2010
              
              January
      3,
                2010Accrued
      warranty costs
              
              $
              6,752
              
              
              $
              7,038Other
      accrued expenses and other current liabilities
              
              
              14,611
              
              
              
              16,908Total
      accrued expenses and other current liabilities
              
              $
              21,363
              
              
              $
              23,946
  Warranty
  Accrued
warranty costs are as follows:
  Three
      Months EndedDescription
              
              April
      4,
                2010
              
              March
      29,
                2009Warranty
      reserve beginning balance
              
              $
              7,038
              
              
              $
              10,763Reductions
      for warranty costs incurred
              
              
              (3,089
              )
              
              
              (2,501
              )Warranty
      accrual related to current period sales
              
              
              2,803
              
              
              
              1,444Effect
      of exchange rates
              
              
              —
              
              
              
              (2
              )Warranty
      reserve ending balance
              
              $
              6,752
              
              
              $
              9,704
  Note
4. Financing Arrangements and Long-Term Debt
  Long-term
debt
  April
      4,
                  2010
                
                January
      3,
                  20103.875%
      Convertible Subordinated Notes due 2027
                
                $
                150,000
                
                
                $
                150,0001.875%
      Convertible Subordinated Notes due 2024
                
                
                70,887
                
                
                
                130,8871.875%
      Convertible Senior Subordinated Notes due 2024
                
                
                60,000
                
                
                
                —Subtotal
                
                
                280,887
                
                
                
                280,887Less
      unamortized discount
                
                
                (5,636
                )
                
                
                (11,904
                )Total
      long-term debt
                
                $
                275,251
                
                
                $
                268,983
  10
 Table of
Contents
  On March
15, 2010, the Company completed separate privately negotiated exchange
agreements under which $60.0 million in aggregate principal amount of its
outstanding 1.875% Convertible Subordinated Notes due 2024 (the “Existing
Notes”) were exchanged for $60.0 million in aggregate principal amount of new
1.875% Convertible Senior Subordinated Notes due 2024 (the “New
Notes”).  The New Notes were issued under an Indenture between the
Company, as issuer, and Deutsche Bank Trust Company Americas, as trustee (the
“Indenture”). The New Notes are convertible into the Company’s common stock at a
conversion price of $1.70 per share and accrue interest at an annual rate of
1.875%, which is payable semi-annually on June 15 and December 15 of each year
commencing on June 15, 2010.  Holders may convert the New Notes at any
time prior to the maturity date, which is November 15, 2024.  The
Company may redeem the notes beginning on November 21, 2012.  Holders
of the notes may require the Company to repurchase all or a portion of their
notes for cash on November 15, 2013, 2014 and 2019 at 100% of the principal
amount of the notes, plus accrued and unpaid interest up to but not including
the date of such repurchase.  The Company may elect to automatically
convert the New Notes in whole or in part at any time on or prior to the
maturity date if the closing price of the Company’s Common Stock has exceeded
125% of the conversion price then in effect for at least 20 trading days in any
30 day trading period.  However, if the Company elects to
automatically convert the New Notes in this manner, it must make a cash payment
to each holder in an amount equal to the aggregate interest payments that would
have been payable on the New Notes from the last day through which interest was
paid through November 15, 2011, discounted at the interest rate of US Treasury
bonds with an equivalent remaining term to November 15, 2011. Holders of the New
Notes may also require the Company to repurchase all or a portion of their New
Notes in the case of a change in control, as defined in the
Indenture.  In the event of a repurchase of the New Notes as a result
of a change in control, under certain circumstances, the Company may be
obligated to issue additional shares to holders as a “make-whole premium” on the
New Notes, which share amounts are set forth in a table to the
Indenture.  The Indenture was not qualified under the Trust Indenture
Act and the Company does not expect to qualify the Indenture.
   The
exchange was accounted for as an extinguishment of the Existing
Notes.  The difference between the fair value of the Existing Notes
and the carrying amount of the Existing Notes, which included approximately $5.0
million in unamortized debt discount, was recorded as a gain on extinguishment
of convertible debt of $0.5 million, net of unamortized debt issuance costs of
$0.3 million in the accompanying Consolidated Statement of Operations. In
addition, $5.8 million was allocated to the extinguishment of the equity
component of the Existing Notes, and was recorded as a reduction to common stock
in the accompanying Consolidated Balance Sheet.
   The
following tables provide additional information about the Company’s Existing
Notes that are subject to accounting guidance now codified as ASC Topic 470-20,
“Debt with Conversion and
Other Options”:
 
 April 4,
                2010
              
              
              January 3,
                2010Carrying
      amount of equity component
              
              $
              49,703
              
              
              $
              55,529Liability
      component:Principal
      amount
              
              
              70,887
              
              
              
              130,887Unamortized
      discount
              
              
              (5,636
              )
              
              
              (11,904
              )Net
      carrying amount
              
              $
              65,251
              
              
              $
              118,983
  
 Three
      Months EndedApril
      4,
                2010
              
              March
      29,
                2009Effective
      interest rate on liability component
              
              
              7.07
              %
              
              
              7.07
              %Contractual
      interest expense recognized
              
              $
              520
              
              
              $
              733Amortization
      of the discount on liability component
              
              $
              1,268
              
              
              $
              1,667
  The
unamortized discount will be recognized using the effective interest method
through November 15, 2011.  As of April 4, 2010, the if-converted
value of the Existing Notes did not exceed the principal amount.
   11
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
   Credit
Agreement
  On
April 3, 2009, the Company entered into a Credit Agreement (the “Credit
Agreement”), with Wells Fargo Capital Finance, LLC (formerly Wells Fargo
Foothill, LLC) (“Wells Fargo”), as arranger and administrative agent and the
lenders named therein (the “Lenders”). Pursuant to the Credit Agreement, the
Lenders made available to the Company a senior secured revolving credit facility
up to a maximum of $50.0 million. Availability under the Credit Agreement is
based on the calculation of the Company’s borrowing base as defined in the
Credit Agreement.  The Credit Agreement is secured by a first priority
security interest on a majority of the Company’s assets, including without
limitation, all accounts, equipment, inventory, chattel paper, records,
intangibles, deposit accounts and cash and cash equivalents. The Credit
Agreement expires on August 15, 2011. The Credit Agreement contains
customary affirmative and negative covenants for credit facilities of this type,
including limitations on the Company with respect to indebtedness, liens,
investments, distributions, mergers and acquisitions and dispositions of
assets.  The Credit Agreement also includes financial covenants
including minimum EBITDA and maximum capital expenditures that are applicable
only if the availability under the Company’s line of credit falls below $20.0
million.
  On March
11, 2010, the Company entered into Amendment Number Two to the Credit Agreement
with Wells Fargo, which amendment updated the Credit Agreement to make
appropriate references to and provisions for the New Notes.
  On April
1, 2010, the Company entered into a Waiver, Amendment Number Three to Credit
Agreement and Amendment Number Two to Security Agreement with Wells
Fargo.  This amendment amends certain provisions of the Credit
Agreement and Security Agreement entered into on April 3, 2009, by and among the
Company, the Lenders and Wells Fargo. The amendment waives certain technical
defaults under the Credit Agreement relating to the Company’s obligation to
deliver certain reports. In addition, the amendment makes minor changes to
certain defined terms and modifies the thresholds for certain
covenants.
  As of
April 4, 2010, the Company is in compliance with all covenants.  As of
April 4, 2010, the Company had approximately $31.7 million of availability under
the Credit Agreement, of which approximately $5.3 million was utilized by
outstanding letters of credit.
  Note
5. Restructuring and Impairment Charges
  2009
Restructuring Plan
  In
January 2009, the Company formulated and began to implement a plan to further
reduce manufacturing overhead costs and operating expenses. As part of this
plan, the Company initiated personnel reductions in both its domestic and
foreign locations, with primary reductions in the United States, Finland and
Sweden. These reductions were undertaken in response to current economic
conditions and the global macro-economic slowdown that began in the fourth
quarter of 2008. The Company finalized this plan in the fourth quarter of 2009;
however, additional amounts may be accrued in 2010 related to actions associated
with this plan.
  A summary
of the activity affecting its accrued restructuring liability related to the
2009 Restructuring Plan for the first quarter of 2010 is as
follows:
  Workforce
      Reductions
              
              Facility
      Closures
                  &
      Equipment Write-downs
              
              TotalBalance
      at January 3, 2010
              
              $
              501
              
              
              $
              —
              
              
              $
              501Amounts
      accrued
              
              
              264
              
              
              
              103
              
              
              
              367Amounts
      paid/incurred
              
              
              (415
              )
              
              
              (103
              )
              
              
              (518
              )Effects
      of exchange rates
              
              
              1
              
              
              
              —
              
              
              
              1Balance
      at April 4, 2010
              
              $
              351
              
              
              
              —
              
              
              
              351
  The costs
associated with these exit activities were recorded in accordance with the
accounting guidance now codified as ASC Topic 420, “Exit or Disposal
Obligations.”  Pursuant to this guidance, a liability for a
cost associated with an exit or disposal activity shall be recognized in the
period in which the liability is incurred, except for a liability for one-time
employee termination benefits that is incurred over time.  In the
unusual circumstance in which fair value cannot be reasonably estimated, the
liability shall be recognized initially in the period in which fair value can be
reasonably estimated.
 
 
 12
 Table of Contents
 The
restructuring and integration plan is subject to continued future refinement as
additional information becomes available. The Company expects that the workforce
reduction amounts will be paid through the second quarter of
2011.
  2008
Restructuring Plan
  In June
2008, the Company formulated and began to implement a plan to further
consolidate operations and reduce manufacturing and operating expenses. As part
of this plan, the Company closed its Salisbury, Maryland manufacturing facility
and transferred most of the production to its other manufacturing operations. In
addition, the Company closed its design and development center in Bristol, UK
and discontinued manufacturing operations in Kempele, Finland. These actions
were finalized in the first quarter of 2009.
  A summary
of the activity affecting its accrued restructuring liability related to the
2008 Restructuring Plan for the first quarter of 2010 is as
follows:
  Workforce
      Reductions
              
              Facility
      Closures
                  &
      Equipment Write-downs
              
              TotalBalance
      at January 3, 2010
              
              $
              177
              
              
              $
              334
              
              
              $
              511Amounts
      accrued
              
              
              —
              
              
              
              —
              
              
              
              —Amounts
      paid/incurred
              
              
              (114
              )
              
              
              (181
              )
              
              
              (295
              )Effects
      of exchange rates
              
              
              5
              
              
              
              10
              
              
              
              15Balance
      at April 4, 2010
              
              $
              68
              
              
              $
              163
              
              
              $
              231
  
  The costs
associated with these exit activities were recorded in accordance with the
accounting guidance in ASC Topic 420. The restructuring and integration plan is
subject to continued future refinement as additional information becomes
available. The Company expects that the workforce reductions will be paid out
through the second quarter of 2010, and the facility closure amounts will be
paid out over the remaining lease term, which extends through September
2010.
  Integration
of LGP Allgon and REMEC, Inc.’s Wireless Systems Business
  The
Company recorded liabilities in connection with the acquisitions for estimated
restructuring and integration costs related to the consolidation of LGP Allgon’s
operations and REMEC, Inc.’s wireless systems business, including severance and
future lease obligations on excess facilities. These estimated costs were
included in the allocation of the purchase consideration and resulted in
additional goodwill pursuant to the accounting guidance now codified as ASC
Topic 805, “Business
Combinations.”  The costs associated with these exit activities
were recorded in accordance with the accounting guidance in ASC Topic 420. The
implementation of the restructuring and integration plan is
complete.
  A summary
of the activity affecting the accrued restructuring liability related to the
integration of LGP Allgon’s operations and REMEC, Inc.’s wireless systems
business for the first quarter of 2010 is as follows:
  
 Facility
      Closures
                  &
      Equipment Write-downsBalance
      at January 3, 2010
              
              $
              791Amounts
      accrued
              
              
              —Amounts
      paid/incurred
              
              
              (225
              )Effects
      of exchange rates
              
              
              —Balance
      at April 4, 2010
              
              $
              566
  The
Company expects that the facility closure amounts will be paid out over the
remaining lease term which extends through January 2011.
  13
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
   Restructuring
and Impairment Charges
  In the
first quarter of 2010, the Company incurred severance charges of $0.3 million
related to personnel reductions, primarily in the U.S. and
France.  The Company also recorded a charge of $0.1 million for final
closure costs related to a previously closed site.
  In the
first quarter of 2009, the Company recorded a charge of approximately $0.8
million to write down the Salisbury, Maryland building to its fair value less
the cost to sell. The Company also incurred severance charges of $2.1 million
related to personnel reductions primarily in the United States, Finland and
Sweden.
  Note
6. Other Income (Expense), Net
  The
components of other income (expense), net, are as follows:
  Three Months EndedApril
      4,
                2010
              
              March
      29,
                2009Interest
      income
              
              $
              44
              
              
              $
              398Interest
      expense
              
              
              (3,857
              )
              
              
              (4,348
              )Foreign
      currency gain (loss), net
              
              
              (697
              )
              
              
              2,821Gain
      on repurchase of convertible debt
              
              
              —
              
              
              
              3,368Gain
      on exchange of convertible debt
              
              
              483
              
              
              
              —Other
      income, net
              
              
              452
              
              
              
              919Totalother
      income (expense), net
              
              $
              (3,575
              )
              
              $
              3,158
  Other income (expense),
net, for the first quarter of 2010 includes a gain of approximately $0.5 million
related to the exchange of $60.0 million in aggregate principal amount of the
Company’s outstanding 1.875% Convertible Subordinated Notes due 2024.
 Other income
(expense), net, for the first quarter of 2009 includes a gain of approximately
$3.4 million related to the repurchase of $5.4 million in aggregate par
value of the Company’s outstanding 1.875% Convertible Subordinated Notes due
2024 that were purchased at a discount.  Included in interest
expense are non-cash charges related to the amortization of debt issuance costs
and debt discount of $1.7 million and $1.4 million for the first quarter of 2010
and 2009, respectively.
  Note
7. Loss Per Share
  In
accordance with ASC Topic 260, ”Earnings per Share,” basic
earnings (loss) per share is based upon the weighted average number of common
shares outstanding. Diluted earnings (loss) per share is based upon the weighted
average number of common and potential common shares for each period presented
and income available to common stockholders is adjusted to reflect any changes
in income or loss that would result from the issuance of the dilutive common
shares. The Company’s potential common shares include stock options under the
treasury stock method and convertible subordinated debt under the if-converted
method. Potential common shares of 61,766,334 and 31,190,392 related to the
Company’s stock option programs and convertible debt have been excluded from
diluted weighted average common shares for the first quarter of 2010 and 2009,
respectively, as the effect would be anti-dilutive.
  14
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
   The
following details the calculation of basic and diluted loss per
share:
  Three
      Months EndedApril
      4,
                2010
              
              March
      29,
                2009Basic:Loss
              
              $
              (10,818
              )
              
              $
              (4,372
              )Weighted
      average common shares
              
              
              132,423
              
              
              
              131,491Basic
      loss per share
              
              $
              (0.08
              )
              
              $
              (0.03
              )Diluted:Loss
              
              $
              (10,818
              )
              
              $
              (4,372
              )Interest
      expense of convertible debt, net of tax
              
              
              —
              
              
              
              —Loss,
      as adjusted
              
              $
              (10,818
              )
              
              $
              (4,372
              )Weighted
      average common shares
              
              
              132,423
              
              
              
              131,491Potential
      common shares
              
              
              —
              
              
              
              —Weighted
      average common shares, as adjusted
              
              
              132,423
              
              
              
              131,491Diluted
      loss per share
              
              $
              (0.08
              )
              
              $
              (0.03
              )
  Note
8. Commitments and Contingencies
  The
Company is subject to legal proceedings and claims in the normal course of
business.  Although the outcome of legal proceedings is inherently
uncertain presently, the Company anticipates that it will be able to resolve
these matters in a manner that will not have a material adverse effect on the
Company’s consolidated financial position, results of operations or cash
flows.
 
 Note
9. Contractual Guarantees and Indemnities
  During
the normal course of its business, the Company makes certain contractual
guarantees and indemnities pursuant to which the Company may be required to make
future payments under specific circumstances. The Company has not recorded any
liability for these contractual guarantees and indemnities in the accompanying
consolidated financial statements. A description of significant contractual
guarantees and indemnities existing as of April 4, 2010 is included
below:
  Intellectual
Property Indemnities
  The
Company indemnifies certain customers and its contract manufacturers against
liability arising from third-party claims of intellectual property rights
infringement related to the Company’s products. These indemnities appear in
development and supply agreements with the Company’s customers as well as
manufacturing service agreements with the Company’s contract manufacturers, are
not limited in amount or duration and generally survive the expiration of the
contract. Given that the amount of any potential liabilities related to such
indemnities cannot be determined until an infringement claim has been made, the
Company is unable to determine the maximum amount of losses that it could incur
related to such indemnifications. Historically, any amounts payable pursuant to
such intellectual property indemnifications have not had a material effect on
the Company’s business, financial condition or results of
operations.
  Director
and Officer Indemnities and Contractual Guarantees
  The
Company has entered into indemnification agreements with its directors and
executive officers which require the Company to indemnify such individuals to
the fullest extent permitted by Delaware law. The Company’s indemnification
obligations under such agreements are not limited in amount or duration. Certain
costs incurred in connection with such indemnifications may be recovered under
certain circumstances under various insurance policies. Given that the amount of
any potential liabilities related to such indemnities cannot be determined until
a lawsuit has been filed against a director or executive officer, the Company is
unable to determine the maximum amount of losses that it could incur relating to
such indemnifications. Historically, any amounts payable pursuant to such
director and officer indemnifications have not had a material negative effect on
the Company’s business, financial condition or results of
operations.
   15
 Table of Contents
  The
Company has also entered into severance agreements and change in control
agreements with certain of its executives. These agreements provide for the
payment of specific compensation benefits to such executives upon the
termination of their employment with the Company.
  General
Contractual Indemnities/Products Liability
  During
the normal course of business, the Company enters into contracts with customers
where it has agreed to indemnify the other party for personal injury or property
damage caused by the Company’s products and in certain cases for damages
resulting from a breach of the Company’s product warranties. The Company’s
indemnification obligations under such agreements are not limited in duration
and are generally not limited in amount. Historically, any amounts payable
pursuant to such contractual indemnities have not had a material negative effect
on the Company’s business, financial condition or results of operations. The
Company maintains product liability insurance as well as errors and omissions
insurance which may provide a source of recovery to the Company in the event of
an indemnification claim.
  Other
Guarantees and Indemnities
  The
Company occasionally issues guarantees for certain contingent liabilities under
various contractual arrangements, including customer contracts, self-insured
retentions under certain insurance policies, and governmental value-added tax
compliance programs. These guarantees normally take the form of standby letters
of credit issued by the Company’s banks, which may be secured by cash deposits
or pledges, or performance bonds issued by an insurance company. Historically,
any amounts payable pursuant to such guarantees have not had a material negative
effect on the Company’s business, financial condition or results of operations.
In addition, the Company, as part of the agreements to register the convertible
notes it issued in March 2010, September 2007 and November 2004, agreed to
indemnify the selling security holders against certain liabilities, including
liabilities under the Securities Act of 1933. The Company’s indemnification
obligations under such agreements are not limited in duration and generally not
limited in amount.
  Note
10. Income Taxes
  The
Company provides for income taxes in interim periods based on the estimated
effective income tax rate for the complete fiscal year. The income tax provision
is computed on the pretax income of the consolidated entities located within
each taxing jurisdiction based on current tax law. Deferred tax assets and
liabilities are determined based on the future tax consequences associated with
temporary differences between income and expenses reported for financial
accounting and tax reporting purposes. A valuation allowance for deferred tax
assets is recorded to the extent that the Company cannot determine that the
ultimate realization of the net deferred tax assets is more likely than
not.
  Realization
of deferred tax assets is principally dependent upon the achievement of future
taxable income, the estimation of which requires significant management
judgment. The Company’s judgment regarding future profitability may change due
to many factors, including future market conditions and the Company’s ability to
successfully execute its business plans and/or tax planning strategies. These
changes, if any, may require material adjustments to these deferred tax asset
balances. Due to uncertainties surrounding the realization of the Company’s
cumulative federal and state net operating losses and other factors, the Company
has recorded a valuation allowance against a portion of its gross deferred tax
assets. For the foreseeable future, the Federal tax provision related to future
earnings will be offset substantially by a reduction in the valuation allowance.
Accordingly, current and future tax expense will consist primarily of certain
required state income taxes and taxes in certain foreign
jurisdictions.
  In
addition to unrecognized tax benefits, the Company has recorded valuation
allowances against its net tax benefits in certain jurisdictions arising from
net operating losses. On a quarterly basis, the Company reassesses the need for
these valuation allowances based on operating results and its assessment of the
likelihood of future taxable income and developments in the relevant tax
jurisdictions. The Company continues to maintain a valuation allowance against
its net deferred tax assets in the U.S. and various foreign jurisdictions in
2010 where the Company believes it is more likely than not that deferred tax
assets will not be realized.
  As of
April 4, 2010, the liability for income taxes associated with uncertain tax
positions was $14.7 million, including accrued penalties, interest, and foreign
currency fluctuations of $0.4 million.  Of this amount, $6.2 million,
if recognized, would affect the Company’s effective tax rate.  The
Company records interest and penalties associated with income tax obligations as
income tax expense.  Such amounts were not material in the first quarter of
2010.
   16
 Table of Contents
  As a
result of the ongoing tax audits, the total liability for unrecognized tax
benefits may change within the next twelve months due to either settlement of
audits or expiration of statutes of limitations.  As of April 4, 2010,
the Company has concluded all United States federal income tax matters for years
through 2006. All other material state, local and foreign income tax matters
have been concluded for years through 2005.
  Note
11. Fair Value of Financial Instruments
  The
estimated fair value of the Company’s financial instruments has been determined
using available market information and valuation methodologies. Considerable
judgment is required in estimating fair values. Accordingly, the estimates may
not be indicative of the amounts the Company could realize in a current market
exchange.
  The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it was practicable to estimate that
value.
  Cash
and Cash Equivalents and Restricted Cash
  The
carrying amount approximates fair value because of the short maturity (less than
90 days) and high credit quality of these instruments.
  Long-Term
Debt
  The fair
value of the Company’s long-term debt is estimated based on the quoted market
prices for the debt.  The Company’s long-term debt consists of
convertible subordinated notes, which are not actively traded as an investment
instrument and therefore, the quoted market prices may not reflect actual sales
prices at which these notes would be traded.
  The
estimated fair values of the Company’s financial instruments were as
follows:
  April
      4, 2010
              
              January
      3, 2010Carrying
                Amount
              
              Fair
                Value
              
              Carrying
                Amount
              
              Fair
                ValueCash
      and cash
      equivalents
              
              $
              63,030
              
              
              $
              63,030
              
              
              $
              60,439
              
              
              $
              60,439Restricted
      cash
              
              
              2,542
              
              
              
              2,542
              
              
              
              2,600
              
              
              
              2,600Long-term
      debt3.875%
      Convertible Subordinated Notes due 2027
              
              $
              150,000
              
              
              $
              105,938
              
              
              $
              150,000
              
              
              $
              99,0001.875%
      Convertible Subordinated Notes due 2024
              
              
              70,887
              
              
              
              66,014
              
              
              
              130,887
              
              
              
              113,5441.875%
      Convertible Senior Subordinated Notes due 2024
              
              
              60,000
              
              
              
              55,500
              
              
              
              —
              
              
              
              —Subtotal
              
              
              280,887
              
              
              
              
              
              
              
              280,887Less
      unamortized discount
              
              
              (5,636
              )
              
              
              
              
              
              
              (11,904
              )Total
      long-term
      debt
              
              $
              275,251
              
              
              
              
              
              
              $
              268,983
  Note
12. Gain on Settlement of Litigation
  As part
of the Company’s acquisition of REMEC, Inc’s wireless systems business, $15
million of the purchase price was held in escrow to cover any potential
indemnification claims. In March 2009, the Company settled a dispute arising out
of certain claims made against the escrow. As a result of this settlement, the
Company received approximately $2 million in cash. This payment was accounted
for as an adjustment to the total consideration paid for this acquisition. As a
result, the remaining net book value of the intangible assets and fixed assets
acquired in this acquisition was eliminated and the Company recorded a net gain
of approximately $0.6 million. This amount is included in other income (expense), net
in the accompanying consolidated statement of operations for the first quarter
of 2009.
  Note
13. Customer Concentrations
  The
Company’s product sales have historically been concentrated in a small number of
customers. For the first quarter of 2010 and 2009, sales to customers that
accounted for 10% or more of revenues totaled $46.0 million and $53.6 million,
respectively. For the first quarter of 2010, Nokia Siemens accounted for
approximately 28% of total net sales and Samsung
 
 17
 Table of Contents
 accounted
for approximately 12% of total net sales.  Nokia Siemens accounted for
approximately 36% of total net sales for the first quarter of
2009.
  As of
April 4, 2010, approximately 35% of total accounts receivable related to
customers that accounted for 10% or more of the Company’s total revenue during
the first quarter of 2010. For the first quarter of 2010, Nokia Siemens
accounted for approximately 29% of total accounts receivable and Samsung
accounted for approximately 6% of total accounts receivable. The inability to
collect outstanding receivables from these customers or any other significant
customers, the delay in collecting outstanding receivables within the
contractual payment terms, or the loss of, or reduction in, sales to any of
these customers could have a material adverse effect on the Company’s business,
financial condition and results of operations.
  Note
14. Supplier Concentrations
  Certain
of the Company’s products, as well as components utilized in such products, are
available in the short-term only from a single or a limited number of sources.
In addition, in order to take advantage of volume pricing discounts, the Company
purchases certain customized components from single-source suppliers as well as
finished products from single-source contract manufacturers. The inability to
obtain single-source components or finished products in the amounts needed on a
timely basis or at commercially reasonable prices has resulted in delays in
product introductions, interruption in product shipments and increases in
product costs, which have had a material adverse effect on the Company’s
business, financial condition and results of operations and may continue to do
so until alternative sources could be developed at a reasonable
cost.
  Note
15. Segments and Geographic Data
  The
Company operates in one reportable business segment: “Wireless Communications.”
The Company’s revenues are derived from the sale of wireless communications
network products and coverage solutions, including antennas, boosters,
combiners, cabinets, shelters, filters, radio frequency power amplifiers,
repeaters, tower-mounted amplifiers and advanced coverage solutions for use in
cellular, PCS, 3G and 4G wireless communications networks throughout the
world.
  The
Company manufactures multiple product categories at its manufacturing locations
and produces certain products at more than one location. With regards to sales,
the Company sells its products through two major sales channels. The largest
channel is the original equipment manufacturers channel, which consists of large
global companies such as Alcatel-Lucent, Ericsson, Huawei, Motorola, Nokia
Siemens and Samsung. The other major channel is direct to wireless network
operators, such as AT&T, Bouygues, Clearwire, Orange, Sprint, T-Mobile,
Verizon Wireless and Vodafone. A majority of the Company’s products are sold to
both sales channels. The Company maintains global relationships with most of the
Company’s customers. The Company’s original equipment manufacturer customers
normally purchase on a global basis and the sales to these customers, while
recognized in various reporting regions, are managed on a global basis. For
network operator customers, where they have a global presence, the Company
typically maintains a global purchasing agreement. Individual sales are made on
a regional basis.
  The
Company measures its performance by monitoring its net sales by product and
consolidated gross margins, with a short-term goal of maintaining a positive
operating cash flow while striving to achieve long-term operating
profits.
    18
 Table of Contents
  ITEM 2.
              MANAGEMENT’S
      DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS
  The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included under Item 1, Financial Statements
(Unaudited). This discussion contains forward-looking statements, the
realization of which may be impacted by certain important factors including, but
not limited to, those discussed in Risk Factors, in Part II,
Item 1A included herein.
  Introduction
and Overview
  We are a
global supplier of end-to-end wireless solutions for wireless communications
networks. Our business consists of the design, manufacture, marketing and sale
of products to improve coverage, capacity and data speed in wireless
communications networks, including antennas, boosters, combiners, cabinets,
shelters, filters, radio frequency power amplifiers, remote radio head
transceivers, repeaters, tower-mounted amplifiers and advanced coverage
solutions. These products are utilized in major wireless networks throughout the
world which support voice and data communications by use of cell phones and
other wireless communication devices. We sell our products to both original
equipment manufacturers, who incorporate our products into their proprietary
base stations (which they then sell to wireless network operators), and directly
to individual wireless network operators for deployment into their existing
networks.
  During
the last ten years, demand for wireless communications infrastructure equipment
has fluctuated dramatically. While demand for wireless infrastructure was strong
during 2005, it weakened for us during 2006 and 2007 due to significant
reductions at three major customers, as well as a general slowdown in overall
demand within the wireless infrastructure industry. For most of 2008, demand
once again increased. However, in the fourth quarter of 2008, demand for our
products was negatively impacted by the global economic recession. This
significantly impacted demand during 2009 and our revenues fell by 36% from 2008
levels, thus negatively impacting our financial results. During 2008 and 2009,
we initiated several cost cutting measures aimed at lowering our operating
expenses. These initiatives will continue, and we may be required to further
reduce operating expenses if there is a significant or prolonged reduction in
spending by our customers.
  In the
past there have been significant deferrals in capital spending by wireless
network operators due to delays in the expected deployment of infrastructure
equipment and financial difficulties on the part of the wireless network
operators who were forced to consolidate and reduce spending to strengthen their
balance sheets and improve their profitability. Economic conditions, such as the
turmoil in the global equity and credit markets, as well as the global
recession, and the rise of inflationary pressures related to rising commodity
prices, have also had a negative impact on capital spending by wireless network
operators, and will likely have a negative impact going forward in the near
term. All of these factors can have a significant negative impact on overall
demand for wireless infrastructure products, and at various times, have directly
reduced demand for our products and increased price competition within our
industry which has in the past led to reductions in our revenues and contributed
to our reported operating losses. In addition to the significant reduction in
revenues during 2009, an example of prior reductions was during fiscal 2006 and
2007, when we experienced a significant slowdown in demand from one of our
direct network operator customers, AT&T, as well as reduced demand from
several of our original equipment manufacturing customers, including Nokia
Siemens and Nortel Networks, all of which combined to result in directly reduced
demand for our products and contributed to our operating losses for both fiscal
2006 and 2007.
  We
believe that we have maintained our overall market share within the wireless
communications infrastructure equipment market during this period of changing
demand for wireless communications infrastructure equipment. We continue to
invest in the research and development of wireless communications network
technology and the diversification of our product offerings, and we believe that
we have one of our industry’s leading product portfolios in terms of performance
and features. We believe that our proprietary design technology is a further
differentiator for our products.
  Looking
back over the last six years, beginning in fiscal 2004, we focused on cost
savings while we expanded our market presence, as evidenced by our acquisition
of LGP Allgon. This acquisition involved the integration of two companies based
in different countries that previously operated independently, and it was a
complex, costly and time-consuming process. During fiscal 2005, we continued to
focus on cost savings while we expanded our market presence, as evidenced by our
acquisition of selected assets and liabilities of REMEC, Inc.’s wireless systems
business (the “REMEC Wireless Acquisition.”) We believe that this acquisition
further strengthened our position in the global wireless infrastructure market.
In October 2006, we completed the Filtronic plc wireless acquisition. We believe
that this strategic acquisition provided us with the leading position in
transmit and receive filter products, as well as broadening our RF conditioning
and base station solutions product portfolio and added significant additional
technology to our intellectual property portfolio. For fiscal years 2007, 2008
and 2009, we completed the integration of this acquisition, as well as focused
on consolidating operations and reducing our overall cost structure. During this
same time, we encountered a significant unanticipated reduction in revenues,
which caused us to revise our integration and consolidation plans with a goal of
further reducing our operating costs and significantly lowering our breakeven
operating structure. As has been demonstrated during the last six years, these
 
 19
 Table of Contents
 acquisitions
do not provide any guarantee that our revenues will increase. We currently have
a small number of ongoing restructuring activities which are aimed at further
reducing our overall operating cost structure.
 
 We measure our success by
monitoring our net sales by product and consolidated gross margins, with a
short-term goal of maintaining a positive operating cash flow while striving to
achieve long-term operating profits. We believe that there continues to be
long-term growth opportunities within the wireless communications infrastructure
marketplace, and we are focused on positioning Powerwave to benefit from these
long-term opportunities.
  Critical
Accounting Policies and Estimates
  Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
based on our unaudited consolidated financial statements included in this
Quarterly Report on Form 10-Q, which have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The preparation of these financial statements
requires our management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and related 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. On an ongoing
basis, we evaluate these estimates and assumptions, including those related to
revenue recognition, allowances for doubtful accounts, inventory reserves,
warranty obligations, restructuring reserves, asset impairment, income taxes and
stock-based compensation expense. We base these estimates on our historical
experience and on various other factors which we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the amounts of certain
expenses that are not readily apparent from other sources. These estimates and
assumptions by their nature involve risks and uncertainties, and may prove to be
inaccurate. In the event that any of our estimates or assumptions are inaccurate
in any material respect, it could have a material adverse effect on our reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
periods.
  For a
summary of our critical accounting policies and estimates, see Item 7,
Management’s Discussion and
Analysis of Financial Condition and Results of Operations, of Part II of
our Amendment No. 1 to Annual Report on Form 10-K for the year ended January 3,
2010.
  Accruals
for Restructuring and Impairment Charges
  In the
first quarters of 2010 and 2009, the Company recorded restructuring and
impairment charges of approximately $0.4 million and $2.9 million, respectively.
Such charges relate to our Restructuring Plans. See further discussion of these
plans in Note 5 of the Notes
to Consolidated Financial Statements under Part I, Item I, Financial
Information.
  Restructuring
and impairment accruals related primarily to workforce reductions, consolidation
of facilities, and the discontinuation of certain product lines, including the
associated write-downs of inventory, manufacturing and test equipment, and
certain intangible assets. Such accruals were based on estimates and assumptions
made by management about matters which were uncertain at the time, including the
timing and amount of sublease income that will be recovered on vacated property
and the net realizable value of used equipment that is no longer needed in our
continuing operations. While we used our best current estimates based on facts
and circumstances available at the time to quantify these charges, different
estimates could reasonably be used in the relevant periods to arrive at
different accruals and/or the actual amounts incurred or recovered may be
substantially different from the assumptions utilized, either of which could
have a material impact on the presentation of our financial condition or results
of operations for a given period. As a result, we periodically review the
estimates and assumptions used and reflect the effects of those revisions in the
period that they become known.
  New
Accounting Pronouncements
  For a
summary of our New Accounting Pronouncements, see Note 2 of the Notes to Consolidated Financial
Statements under Part I, Item I, Financial
Information.
 
  20
 Table of Contents
  Results
of Operations
  The
following table summarizes Powerwave’s results of operations as a percentage of
net sales for the first quarter of 2010 and 2009:
  Three Months
      EndedApril
      4,
                2010
              
              March
      29,
                2009Net
      sales
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of sales:Cost
      of goods
              
              
              73.9
              
              
              
              76.8Intangible
      asset amortization
              
              
              —
              
              
              
              0.4Restructuring
      and impairment charges
              
              
              0.1
              
              
              
              0.9Total
      cost of sales
              
              
              74.0
              
              
              
              78.1Gross
      profit
              
              
              26.0
              
              
              
              21.9Operating
      expenses:Sales
      and marketing
              
              
              8.2
              
              
              
              6.5Research
      and development
              
              
              12.5
              
              
              
              10.1General
      and administrative
              
              
              9.8
              
              
              
              8.1Intangible
      asset amortization
              
              
              —
              
              
              
              0.2Restructuring
      and impairment charges
              
              
              0.3
              
              
              
              1.0Total
      operating expenses
              
              
              30.8
              
              
              
              25.9Operating
      loss
              
              
              (4.8
              )
              
              
              (4.0
              )Other
      income (expense), net
              
              
              (3.1
              )
              
              
              2.1Loss
      before income taxes
              
              
              (7.9
              )
              
              
              (1.9
              )Income
      tax provision
              
              
              1.6
              
              
              
              1.0Net
      loss
              
              
              (9.5
              )%
              
              
              (2.9
              )%
  Three
Months ended April 4, 2010 and March 29, 2009
  Net
Sales
  Our sales
are derived from the sale of wireless communications network products and
coverage solutions, including antennas, boosters, combiners, cabinets, shelters,
filters, radio frequency power amplifiers, remote radio head transceivers,
repeaters, tower-mounted amplifiers and advanced coverage solutions for use in
cellular, PCS, 3G and 4G wireless communications networks throughout the
world.
  The
following table presents a further analysis of our sales based upon our various
customer groups:
  Three
      Months Ended
                (in
      thousands)Customer Group
              
              April
      4, 2010
              
              March 29, 2009Wireless
      network operators and other
              
              $
              51,386
              
              
              
              45
              %
              
              $
              54,565
              
              
              
              36
              %Original
      equipment manufacturers
              
              
              63,087
              
              
              
              55
              %
              
              
              95,180
              
              
              
              64
              %Total
              
              $
              114,473
              
              
              
              100
              %
              
              $
              149,745
              
              
              
              100
              %
 
 Sales
decreased by 24% to $114.5 million for the first quarter of 2010, from $149.7
million, for the first quarter of 2009. This decrease was due to several
factors, including decreased demand from both our direct operator customers and
our original equipment manufacturer customers, which decreased by approximately
6% and 34%, respectively, for the first quarter of 2010 from the first quarter
of 2009. While a portion of the reduced demand was related to the global
macro-economic crisis and associated global credit crisis and economic recession
that began in the fall of 2008, we also experienced component supply constraints
during the first quarter of 2010 which impacted our revenue for the quarter.
These component supply constraints resulted in longer than anticipated lead
times, which impacted our ability to meet customer requirements in the first
quarter of 2010.  We have taken actions to adjust our procurement
activities, but despite these actions, we expect to encounter supply constraints
for the next few fiscal quarters.
  21
 Table of Contents
  The
following table presents a further analysis of our sales based upon our various
product groups:
  Three
      Months Ended
                (in
      thousands)Wireless Communications Product
      Group
              
              April
      4, 2010
              
              March 29, 2009Antenna
      systems
              
              $
              39,421
              
              
              
              34
              %
              
              $
              35,756
              
              
              
              24
              %Base
      station systems
              
              
              65,217
              
              
              
              57
              %
              
              
              102,418
              
              
              
              68
              %Coverage
      systems
              
              
              9,835
              
              
              
              9
              %
              
              
              11,571
              
              
              
              8
              %Total
              
              $
              114,473
              
              
              
              100
              %
              
              $
              149,745
              
              
              
              100
              %
  Antenna systems consist of
base station antennas and tower-mounted amplifiers. Base station systems consist
of products that are installed into or around the base station of wireless
networks and include products such as boosters, combiners, filters, radio
frequency power amplifiers and VersaFlex cabinets. Coverage systems consist
primarily of repeaters and advanced coverage solutions.  The decrease
in base station systems sales during the first quarter of 2010 as compared with
the first quarter of 2009 is due to the significantly reduced demand
related to the global economic crisis impacting both our original equipment
manufacturer and direct operator customers and the component supply constraints
that reduced our revenues in the first quarter of 2010.
  We track
the geographic location of our sales based upon the location of our customers to
which we ship our products. Since many of our original equipment manufacturer
customers purchase products from us at central locations and then re-ship the
product with other base station equipment to locations throughout the world, we
are unable to identify the final installation location of many of our
products.
  The
following table presents an analysis of our net sales based upon the geographic
area to which a product
   was
shipped:
  Three
      Months Ended
                (in
      thousands)Geographic Area
              
              April
      4, 2010
              
              March 29, 2009Americas
              
              $
              34,173
              
              
              
              30
              %
              
              $
              35,601
              
              
              
              24
              %Asia
      Pacific
              
              
              45,670
              
              
              
              40
              %
              
              
              58,520
              
              
              
              39
              %Europe
              
              
              32,186
              
              
              
              28
              %
              
              
              43,488
              
              
              
              29
              %Other
      international
              
              
              2,444
              
              
              
              2
              %
              
              
              12,136
              
              
              
              8
              %Total
              
              $
              114,473
              
              
              
              100
              %
              
              $
              149,745
              
              
              
              100
              %
  Revenues
decreased in all regions in the first quarter of 2010 as compared to the first
quarter of 2009. The decrease was due to contraction in both the operator direct
channel and the original equipment manufacturer sales channel, resulting from
the global macro-economic crisis and the component supply constraints that we
experienced. Since wireless network infrastructure spending is dependent on
individual network coverage and capacity demands, we do not believe that our
revenue fluctuations for any geographic region are necessarily indicative of a
trend for our future revenues by geographic area.
  A large
portion of our revenues are generated in currencies other than the U.S. Dollar.
During the last year, the value of the U.S. Dollar has fluctuated
significantly against many other currencies. We have calculated that when
comparing exchange rates in effect for the first quarter of 2009 to those in
effect for the first quarter of 2010, the change in the value of foreign
currencies as compared with the U.S. Dollar did not have a material impact
on our net sales.
  For the
first quarter of 2010, total sales to Nokia Siemens accounted for approximately
28% of total net sales, and sales to Samsung accounted for approximately 12% of
total net sales.  For the first quarter of 2009, total sales to Nokia
Siemens accounted for approximately 36% of sales. Notwithstanding our
acquisitions, our business remains largely dependent upon a limited number of
customers within the wireless communications market and we cannot guarantee that
we will continue to be successful in attracting new customers or retaining or
increasing business with our existing customers.
  A number
of factors have caused delays and may cause future delays in new wireless
infrastructure and upgrade deployment schedules throughout the world, including
deployments in the United States, Europe, Asia, South America and other areas.
In addition, a number of factors may cause original equipment manufacturers to
alter their outsourcing strategy concerning certain wireless communications
network products, which could cause such original equipment manufacturers to
reduce or eliminate their demand for external supplies of such products or shift
their demand to alternative suppliers or internal suppliers. Such factors
include lower perceived internal manufacturing costs and competitive reasons to
remain vertically integrated. Due to the possible uncertainties associated with
wireless infrastructure deployments and original equipment manufacturer demand,
we have experienced and expect to continue to experience significant
fluctuations in
 
 22
 Table of Contents
 demand
from our original equipment manufacturer and network operator customers. Such
fluctuations have caused and may continue to cause significant reductions in our
revenues and/or operating results, which has adversely impacted and may continue
to adversely impact our business, financial condition and results of
operations.
  Cost
of Sales and Gross Profit
  Our cost
of sales includes both fixed and variable cost components and consists primarily
of materials, assembly and test labor, overhead, which includes equipment and
facility depreciation, transportation costs, warranty costs and amortization of
product-related intangibles. Components of our fixed cost structure include test
equipment and facility depreciation, purchasing and procurement expenses and
quality assurance costs. Given the fixed nature of such costs, the absorption of
our overhead costs into inventory decreases and the amount of overhead variances
expensed to cost of sales increases as volumes decline since we have fewer units
to absorb our overhead costs against. Conversely, the absorption of our overhead
costs into inventory increases and the amount of overhead variances expensed to
cost of sales decreases as volumes increase since we have more units to absorb
our overhead costs against. As a result, our gross profit margins generally
decrease as revenue and volumes decline due to lower sales volume and higher
amounts of overhead variances expensed to cost of sales. Our gross profit
margins generally increase as our revenue and volumes increase due to higher
sales volume and lower amounts of overhead variances expensed to cost of
sales.
  The
following table presents an analysis of our gross profit:
  Three
      Months Ended
                  (in
      thousands)April
      4, 2010
              
              March 29, 2009Net
      sales
              
              $
              114,473
              
              
              
              100.0
              %
              
              $
              149,745
              
              
              
              100.0
              %Cost
      of sales:Cost
      of sales
              
              
              84,641
              
              
              
              73.9
              %
              
              
              114,962
              
              
              
              76.8
              %Intangible
      amortization
              
              
              —
              
              
              
              —
              
              
              
              623
              
              
              
              0.4
              %Restructuring
      and impairment charges
              
              
              21
              
              
              
              0.1
              %
              
              
              1,408
              
              
              
              0.9
              %Total
      cost of sales
              
              
              84,662
              
              
              
              74.0
              %
              
              
              116,993
              
              
              
              78.1
              %Gross
      profit
              
              $
              29,811
              
              
              
              26.0
              %
              
              $
              32,752
              
              
              
              21.9
              %
  Our
actual total gross profit decreased during the first quarter of fiscal 2010,
compared to the first quarter of fiscal 2009, primarily as a result of our
decreased revenues. As a percentage of revenue, our gross profit margin
increased during the first quarter of fiscal 2010 compared to the first quarter
of fiscal 2009, the result of no intangible amortization costs and lower
restructuring costs as well as the improved manufacturing cost structure due to
our previous restructuring activities. The last of the intangible assets were
fully amortized in the fourth quarter of 2009. We incurred less than $0.1
million of restructuring and impairment charges during the first quarter of
fiscal 2010, related to severance charges in the United States. For the first
quarter of 2009, we incurred restructuring and impairment charges totaling $1.4
million.
  The
wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. Certain of our competitors
have aggressively lowered prices in an attempt to gain market share. Due to
these competitive pressures and the pressures of our customers to continually
lower product costs, we expect that the average sales prices of our products
will continue to decrease and negatively impact our gross margins. In addition,
we have introduced new products at lower sales prices and these lower sales
prices have impacted the average sales prices of our products. We have also
reduced prices on our existing products in response to our competitors and
customer demands. We currently expect that pricing pressures will remain strong
in our industry. Future pricing actions by our competitors and us may adversely
impact our gross profit margins and profitability, which could result in
decreased liquidity and adversely affect our business, financial condition and
results of operations.
   We
continue to strive for manufacturing and engineering cost reductions to offset
pricing pressures on our products, as evidenced by our decisions to close or
transfer our Salisbury, Maryland, Finland, Hungary, Shanghai and Wuxi, China
manufacturing operations as part of our restructuring plans to reduce our
manufacturing costs. However, we cannot guarantee that these cost reductions,
and our outsourcing or product redesign efforts will keep pace with price
declines and cost increases. If we are unable to further reduce our costs
through our manufacturing, outsourcing and/or engineering efforts, our gross
margins and profitability will be adversely affected.
  23
 Table of Contents
   Operating
Expenses
  The
following table presents a breakdown of our operating expenses by functional
category and as a percentage of
   net
sales:
  Three
      Months Ended
                  (in
      thousands)April
      4, 2010
              
              March 29, 2009Operating ExpensesSales
      and marketing
              
              $
              9,395
              
              
              
              8.2
              %
              
              $
              9,741
              
              
              
              6.5
              %Research
      and development
              
              
              14,276
              
              
              
              12.5
              %
              
              
              15,147
              
              
              
              10.1
              %General
      and administrative
              
              
              11,274
              
              
              
              9.8
              %
              
              
              12,099
              
              
              
              8.1
              %Intangible
      amortization
              
              
              —
              
              
              
              —
              
              
              
              327
              
              
              
              0.2
              %Restructuring
      and impairment charges
              
              
              346
              
              
              
              0.3
              %
              
              
              1,498
              
              
              
              1.0
              %Total
      operating expenses
              
              $
              35,291
              
              
              
              30.8
              %
              
              $
              38,812
              
              
              
              25.9
              %
  Sales and
marketing expenses consist primarily of salaries and commissions, travel
expenses, advertising and marketing expenses, selling expenses, charges for
customer demonstration units and trade show expenses. Sales and marketing
expenses decreased by $0.3 million, or 4%, during the first quarter of 2010 as
compared to the first quarter of 2009. The decrease was due to lower bad debt
expense, partially offset by higher trade show expenses in the first quarter of
2010.
  Research
and development expenses consist primarily of ongoing design and development
expenses for new wireless communications network products, as well as for
advanced coverage solutions. We also incur design expenses associated with
reducing the cost and improving the manufacturability of our existing products.
Research and development expenses can fluctuate dramatically from period to
period depending on numerous factors including new product introduction
schedules, prototype developments and hiring patterns. Research and development
expenses decreased by $0.9 million, or 6%, during the first quarter of 2010 as
compared to the first quarter of 2009 due to lower professional fees for
research and development costs.
  General
and administrative expenses consist primarily of salaries and other expenses for
management, finance, information systems, legal fees, facilities and human
resources. General and administrative expenses decreased $0.8 million, or 7%,
during the first quarter of 2010 as compared to the first quarter of 2009. This
decrease was due to lower tax, audit and professional fees, as well as a
decrease in our insurance expenses.
  Our
intangible assets were fully amortized during the fourth quarter of 2009, and
therefore, there was no expense in the first quarter of
2010.  Amortization of customer-related intangibles from our
acquisitions, amounted to $0.3 million for the first quarter of fiscal
2009.
  Restructuring
charges of $0.3 million were recorded in the first quarter of fiscal 2010,
primarily for severance costs in the U.S. and France, compared to charges of
$1.5 million in the first quarter of fiscal 2009.
 
 Other
Income (Expense), net
  The
following table presents an analysis of other income (expense),
net:
  Three
      Months Ended
                  (in
      thousands)April
      4, 2010
              
              March 29, 2009Interest
      income
              
              $
              44
              
              
              
              —
              
              
              $
              398
              
              
              
              0.2
              %Interest
      expense
              
              
              (3,857
              )
              
              
              (3.3
              )%
              
              
              (4,348
              )
              
              
              (2.9
              )%Foreign
      currency gain (loss), net
              
              
              (697
              )
              
              
              (0.6
              )%
              
              
              2,821
              
              
              
              1.9
              %Gain
      on repurchase of convertible debt
              
              
              —
              
              
              
              —
              
              
              
              3,368
              
              
              
              2.3
              %Gain
      on exchange of convertible debt
              
              
              483
              
              
              
              0.4
              %
              
              
              —
              
              
              
              —Other
      income, net
              
              
              452
              
              
              
              0.4
              %
              
              
              919
              
              
              
              0.6
              %Other
      income (expense), net
              
              $
              (3,575
              )
              
              
              (3.1
              )%
              
              $
              3,158
              
              
              
              2.1
              %
  Interest
income decreased by $0.4 million during the first quarter of 2010 compared to
the first quarter of 2009 due to lower interest rates on our cash balances.
Interest expense decreased by $0.5 million during the first quarter of fiscal
2010 as compared to the first quarter of 2009 due to the retirement of
approximately $25.4 million of our long-term debt during fiscal 2009. Also
included in other income (expense), net, is a gain of $0.5 million that we
recognized on the exchange of $60.0
 
 24
 Table of Contents
 million
in aggregate principal amount of our outstanding 1.875% Convertible Subordinated
Notes due 2024.  Included in interest expense are non-cash charges
related to the amortization of debt issuance costs and debt discount of $1.7 and
$1.9 million for the first fiscal quarters of 2010 and 2009, respectively.
Additionally, we recognized a net foreign currency translation loss of $0.7
million in the first quarter of 2010, primarily due to the fluctuations of the
U.S. Dollar versus several other currencies, as compared to the first
quarter of 2009 when we recognized a foreign currency translation gain of $2.8
million.
  Income
Tax Provision
  Our
effective tax rate for the first quarter of 2010 was an expense of approximately
19.5% of our pre-tax loss of $9.1 million. We have recorded a valuation
allowance against a portion of our deferred tax assets pursuant to Accounting
Standards Codification (ASC) Topic 740, “Income Taxes,” due to the
uncertainty as to the timing and ultimate realization of those assets. As such,
for the foreseeable future, the tax provision or tax benefit related to future
U.S. earnings or losses will be offset substantially by a reduction in the
valuation allowance. Accordingly, for the first quarter of 2010, tax expense
consisted primarily of taxes or tax benefits in certain foreign jurisdictions,
primarily China and India.
  Net
Loss
  The
following table presents a reconciliation of operating loss to net
loss:
  Three
      Months Ended
                (in
      thousands)April
      4, 2010
              
              March 29, 2009Operating
      loss
              
              $
              (5,480
              )
              
              $
              (6,060
              )Other
      income (expense), net
              
              
              (3,575
              )
              
              
              3,158Loss
      before income taxes
              
              
              (9,055
              )
              
              
              (2,902
              )Income
      tax provision
              
              
              1,763
              
              
              
              1,470Net
      loss
              
              $
              (10,818
              )
              
              $
              (4,372
              )
  Our net
loss for the first quarter of 2010 was $10.8 million, compared to our net loss
of $4.4 million for the first quarter of 2009. The increase in our net loss
during the first quarter of 2010 as compared to the first quarter of 2009 is
primarily the result of our decreased revenues, foreign exchange translation
loss and the lower gain recognized on the debt exchange in the first quarter of
2010 versus the gain recognized on the debt repurchase during the first quarter
of 2009.
  Liquidity
and Capital Resources
  We have
historically financed our operations through a combination of cash on hand, cash
provided from operations, equipment lease financings, available borrowings under
our bank line of credit, private debt placements and both private and public
equity offerings. Our principal sources of liquidity consist of existing cash
balances, funds expected to be generated from future operations and borrowings
under our receivables credit facility. As of April 4, 2010, we had working
capital of $168.0 million, including $63.0 million in unrestricted cash and cash
equivalents as compared to working capital of $175.6 million at March 29,
2009, which included $52.6 million in unrestricted cash and cash
equivalents. We currently invest our excess cash in short-term,
investment-grade, money-market instruments with maturities of three months or
less. We typically hold such investments until maturity and then reinvest the
proceeds in similar money market instruments. We believe that all of our cash
investments would be readily available to us should the need arise.
  Cash
Flows
  The
following table summarizes our cash flows for the first quarter of 2010 and
2009:
  Three
      Months Ended
                (in
      thousands)April
      4, 2010
              
              March 29, 2009Net
      cash provided by (used in):Operating
      activities
              
              $
              3,752
              
              
              $
              6,504Investing
      activities
              
              
              (442
              )
              
              
              856Financing
      activities
              
              
              (886
              )
              
              
              (1,214
              )Effect
      of foreign currency translation on cash and cash
    equivalents
              
              
              167
              
              
              
              (500
              )Net
      increase in cash and cash equivalents
              
              $
              2,591
              
              
              $
              5,646
  
 
 25
 Table of Contents
 Operating
Activities
  Net cash
provided by operations in the first quarter of 2010 was $3.8 million as compared
to $6.5 million in the first quarter of 2009. The reduction in cash flow from
operations from the prior year is due primarily to lower revenues in the first
quarter of 2010.
  Investing
Activities
  Net cash
used in investing activities during the first quarter of 2010 was $0.4 million
as compared to net cash provided by investing activities of $0.9 million during
the first quarter of 2009. The $0.4 million in net cash used in investing
activities during the first quarter of 2010 represents capital expenditures of
$0.6 million, partially offset by a reduction in our restricted cash of $0.1
million and proceeds from the sale of property, plant and equipment of $0.1
million. Total capital expenditures during the first quarter of 2010 and 2009
were approximately $0.6 million and $1.7 million, respectively. The majority of
the capital spending during both periods related to computer hardware and test
equipment utilized in our manufacturing and research and development areas. We
expect our capital spending requirements for the remainder of this year to range
between $5 million and $7 million, consisting of test and production
equipment, as well as computer hardware and software.
  Financing
Activities
  Net cash
used in financing activities of $0.9 million during the first quarter of 2010
relates primarily to the $1.3 million debt issuance costs related to the
exchange of our 1.875% Convertible Subordinated Notes, partially offset by $0.4
million in proceeds related to our employee stock purchase plan. Net cash used
in financing activities of $1.2 million during the first quarter of 2009 relates
primarily to the repurchase of $5.4 million in aggregate par value of our 1.875%
Convertible Subordinated Notes due 2024.
  Future
Cash Requirements
  We
currently believe that our existing cash balances, funds expected to be
generated from operations and borrowings under our Credit Agreement will provide
us with sufficient funds to finance our current operations for at least the next
twelve months. Our principal sources of liquidity consist of our existing cash
balances, funds expected to be generated from operations and our Credit
Agreement with Wells Fargo, described below. We regularly review our cash
funding requirements and attempt to meet those requirements through a
combination of cash on hand and cash provided by operations. Our ability to
increase revenues and generate profits is subject to numerous risks and
uncertainties, and any significant decrease in our revenues or profitability
would reduce our operating cash flows and erode our existing cash balances. No
assurances can be given that we will be able to generate positive operating cash
flows in the future or maintain and/or grow our existing cash
balances.
  In the
first quarter of 2010, we entered into separate privately negotiated exchange
agreements under which $60.0 million in aggregate principal amount of our
outstanding 1.875% Convertible Subordinated Notes due 2024 (the “Existing
Notes”) were exchanged for $60.0 million in aggregate principal amount of new
1.875% Convertible Senior Subordinated Notes due 2024 (the "New Notes").
 The New Notes were issued under an Indenture between us, as issuer, and
Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). The New
Notes are convertible into our common stock at a conversion price of $1.70 per
share and accrue interest at an annual rate of 1.875%, which is payable
semi-annually on June 15 and December 15 of each year commencing on June 15,
2010.  Holders may convert the New Notes at any time prior to the
maturity date, which is November 15, 2024.  We may redeem the notes
beginning on November 21, 2012.  Holders of the New Notes may require
the Company to repurchase all or a portion of their notes for cash on November
15, 2013, 2014 and 2019 at 100% of the principal amount of the notes, plus
accrued and unpaid interest up to but not including the date of such
repurchase.
  We had a
total of $280.9 million of long-term convertible subordinated notes outstanding
at April 4, 2010, consisting of $70.9 million of 1.875% Convertible Subordinated
Notes due 2024, $60.0 million of 1.875% Convertible Senior Subordinated Notes
due 2024 and $150.0 million of 3.875% Convertible Subordinated Notes due 2027
(“2027 Notes”). Holders of the Existing Notes may require us to repurchase all
or a portion of their notes for cash on November 15, 2011, 2014 and 2019 at
100% of the principal amount of the notes, plus accrued and unpaid interest.
Holders of the New Notes may require us to repurchase all or a portion of their
notes for cash on November 15, 2013, 2014 and 2019 at 100% of the principal
amount of the notes, plus accrued and unpaid interest. Holders of the 2027 Notes
may require us to repurchase all or a portion of their notes for cash on
October 1, 2014, 2017 and 2022 at 100% of the principal amount of the
notes, plus accrued and unpaid interest. No assurance can be given that we will
be able to generate positive operating cash flows in the future or maintain
and/or grow our existing cash balances. If we do not generate sufficient cash
from operations, or improve our ability to generate cash, we may not have
sufficient funds available to pay our maturing debt. If we have not retired the
debt prior to maturity, and if we do not have adequate cash available at that
time, we would be required to refinance the notes and no assurance can be given
that we will be able to refinance the notes on terms acceptable to us or at all
given current
 
 26
 Table of Contents
 conditions
in the credit markets. If our financial performance is poor or if credit markets
remain tight, we will likely encounter a more difficult environment in terms of
raising additional financing. If we are not able to repay or refinance the notes
or if we experience a prolonged period of reduced customer demand for our
products, our ability to maintain operations may be impacted.
  Credit
Agreement
  As
indicated in Note 4 of the Notes to Consolidated Financial
Statementsunder Part I, Item I, Financial Information, the
Company entered into a Credit Agreement on April 3, 2009. Pursuant to the
Credit Agreement, the lenders thereunder have made available to us a senior
secured credit facility in the form of a revolving line of credit up to a
maximum of $50.0 million. Availability under the Credit Agreement is based on
the calculation of our borrowing base as defined in the Credit Agreement. The
Credit Agreement is secured by a first priority security interest on a majority
of our assets, including without limitation, all accounts, equipment, inventory,
chattel paper, records, intangibles, deposit accounts, cash and cash equivalents
and proceeds of the foregoing. The Credit Agreement expires on August 15,
2011. The Credit Agreement contains customary affirmative and negative covenants
for credit facilities of this type, including limitations on us with respect to
indebtedness, liens, investments, distributions, mergers and acquisitions and
dispositions of assets. The Credit Agreement also includes financial covenants
including minimum EBITDA and maximum capital expenditures that are applicable
only if the availability under our line of credit falls below $20.0
million.
  On March
11, 2010, we entered into Amendment Number Two to the Credit Agreement with
Wells Fargo Capital Finance, LLC, which amendment updated the Credit Agreement
to make appropriate references to and provisions for the New Notes.
  On April
1, 2010, we entered into a Waiver, Amendment Number Three to Credit Agreement
and Amendment Number Two to Security Agreement with Wells Fargo.  This
amendment amends certain provisions of the Credit Agreement and Security
Agreement entered into on April 3, 2009, by and among us, the Lenders and Wells
Fargo. The amendment waives certain technical defaults under the Credit
Agreement relating to our obligation to deliver certain reports. In
addition, the amendment makes minor changes to certain defined terms and
modifies the thresholds for certain covenants.
  As of
April 4, 2010, we are in compliance with all covenants.  As of April
4, 2010, we had approximately $31.7 million of availability under the Credit
Agreement, of which approximately $5.3 million was utilized by outstanding
letters of credit.
  On
occasion, we have previously utilized both operating and capital lease financing
for certain equipment purchases used in our manufacturing and research and
development operations and may selectively continue to do so in the future. We
may also require additional funds in the future to support our working capital
requirements or for other purposes such as acquisitions, and we may seek to
raise such additional funds through the sale of public or private equity and/or
debt financing, as well as from other sources. Our ability to secure additional
financing or sources of funding is dependent upon our financial performance,
credit rating and the market price for our Common Stock, which are all directly
impacted by our ability to grow revenues and generate profits. In addition, our
ability to obtain financing is directly dependent upon the availability of
financial markets to provide sources of financing on reasonable terms and
conditions.  During the last half of fiscal 2008 and throughout fiscal
2009, the capital and credit markets experienced extreme volatility and
disruption.  In several cases, the markets exerted downward pressure
on stock prices and credit capacity for certain issuers. Given current market
conditions, we can make no guarantee that we will be able to obtain additional
financing or secure new financing arrangements in the future. If our operating
performance was to deteriorate and our cash balances were to be significantly
reduced, we would likely encounter a more difficult environment in terms of
raising additional funding to support our business, the cost of additional
funding or borrowing could increase, and we may be required to further reduce
operating expenses or scale back operations.
  Off-Balance
Sheet Arrangements
  Our
off-balance sheet arrangements consist primarily of conventional operating
leases, purchase commitments and other commitments arising in the normal course
of business, as further discussed in our Amendment No. 1 to Form 10-K for the
year ended January 3, 2010, in Part II, Item 7 under the heading Contractual Obligations and
Commercial Commitments. As of April 4, 2010, we did not have any other
relationships with unconsolidated entities or financial partners, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually-narrow or limited
purposes.
  27
 Table of Contents
  ITEM 3.
              QUANTITATIVE
      AND QUALITATIVEDISCLOSURES ABOUT MARKET
      RISK
  Our
financial instruments include cash and cash equivalents, restricted cash,
short-term investments, capital leases and long-term debt. As of April 4, 2010,
the carrying values of our financial instruments approximated their fair values
based upon current market prices and rates except for long-term debt for which
the fair value is estimated based on the quoted market price for the
debt.
  We are
exposed to a number of market risks in the ordinary course of business. These
risks, which include foreign currency risk, interest rate risk and commodity
price risk, arise in the normal course of business rather than from trading. We
have examined our exposures to these risks and have concluded, as we similarly
concluded in our Amendment No. 1 to Form 10-K for the preceding fiscal year,
that none of our exposures in these areas are material to fair values, cash
flows or earnings.
  Foreign
Currency Risk
  Our
international operations represent a substantial portion of our operating
results and asset base. We maintain various operations in multiple foreign
locations including Brazil, China, Estonia, Finland, France, Germany, India,
Singapore, Sweden, Thailand and the United Kingdom. These international
operations generally incur local operating costs and generate third-party
revenues in currencies other than the U.S. Dollar. These foreign currency
revenues and expenses expose us to foreign currency risk and give rise to
foreign currency exchange gains and losses. We do not presently hedge
against the risks of foreign currently fluctuations.  In the event of
significant fluctuations in foreign currencies, we may experience declines in
revenue and adverse impacts on operating results and such changes could be
material.
  We
regularly pursue new customers in various international locations where new
deployments or upgrades to existing wireless communication networks are planned.
As a result, a significant portion of our revenues are derived from
international sources (excluding North America), with our international
customers accounting for approximately 71% of our net sales during the first
quarter of 2010, 73% of our net sales during fiscal 2009 and 70% of our net
sales during fiscal 2008. International sources include Europe, Asia and South
America, where there has been historical volatility in several of the regions’
currencies. Changes in the value of the U.S. Dollar versus the local
currency in which our products are sold exposes us to foreign currency risk
since the weakening of an international customer’s local currency and banking
market may negatively impact such customer’s ability to meet their payment
obligations to us. Alternatively, if a sale price is denominated in U.S. Dollars
and the value of the Dollar falls, we may suffer a loss due to the lower value
of the Dollar. In addition, some of our international customers require that we
transact business with them in their own local currency, regardless of the
location of our operations, which also exposes us to foreign currency risk.
Since we sell products or services in foreign currencies, we are required to
convert the payments received into U.S. Dollars, which gives rise to foreign
currency gains or losses. Given the uncertainty as to when and what specific
foreign currencies we may be required or choose to accept as payment from our
international customers, we cannot predict the ultimate impact that such a
decision would have on our business, financial condition and results of
operations. For the first quarter of 2010, we recorded a foreign exchange
translation loss of $0.7 million due to fluctuations in the value of the U.S.
Dollar. There can be no assurance that we will not incur foreign exchange
translation losses in the future as the value of the Dollar
fluctuates.
  Interest
Rate Risk
  As of
April 4, 2010, we had cash equivalents of approximately $65.6 million in both
interest and non-interest bearing accounts, including restricted cash. We also
had a total of $130.9 million of Convertible Subordinated Notes due November
2024 at a fixed annual interest rate of 1.875% and $150.0 million of Convertible
Subordinated Notes due October 2027 at a fixed annual interest rate of 3.875%.
We have exposure to interest rate risk primarily through our convertible
subordinated debt, our Credit Agreement and our cash investment portfolio.
Short-term investment rates decreased significantly during 2009 and have
remained low in 2010 as the U.S. Federal Reserve has attempted to mitigate the
impact of the recession. Despite this exposure, we believe that we are not
subject to material fluctuations in principal given the short-term maturities
and high-grade investment quality of our investment portfolio, and the fact that
the effective interest rate of our portfolio tracks closely to various
short-term money market interest rate benchmarks. Therefore, we currently do not
use derivative instruments to manage our interest rate risk. Based on our
overall interest rate exposure at April 4, 2010, we do not believe that a 100
basis point change in interest rates would have a material effect on our
consolidated business, financial condition or results of
operations.
  Commodity
Price Risk
  Our
internal manufacturing operations and contract manufacturers require significant
quantities of transistors, semiconductors and various metals for use in the
manufacture of our products. Therefore, we are exposed to certain commodity
price risks associated with variations in the market prices for these electronic
components as these prices directly
 
 28
 Table of Contents
 impact
the cost to manufacture products and the price we pay our contract manufacturers
to manufacture our products. We attempt to manage this risk by entering into
supply agreements with our contract manufacturers and various suppliers of these
components in order to mitigate the impact of any fluctuations in commodity
prices. These supply agreements are not long-term supply agreements. If we or
our contract manufacturers become subject to a significant increase in the price
of one of these components, we may be unable to pass such costs onto our
customers. During the first quarter of 2010, we have experienced supply
shortages of various electronic components as well as significantly increased
order lead times for such components.  While we have not experienced
significant price increases for such components, if there continues to be
significant shortages, the prices may increase resulting in a negative impact on
our product costs.  In addition, certain transistors and
semiconductors are regularly revised or changed by their manufacturers, which
may result in a requirement for us to redesign a product that utilizes these
components or cease the production of such products. In such events, our
business, financial condition or results of operations could be adversely
affected. Additionally, we require specialized electronic test equipment, which
is utilized in both the design and manufacture of our products. The electronic
test equipment is available from limited sources and may not be available in the
time periods required for us to meet our customers’ demand. If required, we may
be forced to pay higher prices for equipment and/or we may not be able to obtain
the equipment in the time periods required, which would then delay our
development or production of new products. These delays and any potential
additional costs could have a material adverse effect on our business, financial
condition or results of operations. Prior increases to the price of oil and
energy have translated into higher freight and transportation costs and, in
certain cases, higher raw material supply costs. These higher costs negatively
impacted our production costs. We may not be able to pass on these higher costs
to our customers and if we insist on raising prices, our customers may curtail
their purchases from us. There are significant concerns in the business
community about inflationary pressures on costs. Further increases in energy
prices may negatively impact our business, financial condition and results of
operations.
  29
 Table of Contents
   ITEM 4.
              CONTROLS
      ANDPROCEDURES
  Controls
and Procedures
  We have
established disclosure controls and procedures to ensure that material
information relating to us and our consolidated subsidiaries is made known
to the officers who certify our financial reports, as well as other members of
senior management and the Board of Directors, to allow timely decisions
regarding required disclosures. As of the end of the period covered by this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information related to us that is required to
be included in our annual and periodic SEC filings.
  Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within Powerwave have been detected.
  Internal
Control Over Financial Reporting
  As a
result of the material weakness identified at the end of 2009, we completed the
design and implementation of control activities in the first quarter of 2010
that we believe will prevent or detect material misstatements that might exist
related to our debt agreements.  Specifically, we have thoroughly
reviewed our outstanding debt agreements and have created a process for review
of all new debt agreements.  We also continue the process of reviewing
all new accounting pronouncements and their effect on our financial reporting.
The remediation was completed in the first quarter of 2010 and we believe that
these controls are operating effectively.
  There has
been no other change in our internal control over financial reporting during the
first quarter of 2010 that has materially affected, or is reasonable likely to
materially affect, our internal control over financial
reporting.
  30
 Table of Contents
  PART II – OTHERINFORMATION
  ITEM 1.
              LEGAL
      PROCEEDINGS
  We are
subject to legal proceedings and claims in the normal course of
business.  We are currently defending these proceedings and claims,
and, although the outcome of legal proceedings is inherently uncertain, we
anticipate that we will be able to resolve these matters in a manner that will
not have a material adverse effect on our consolidated financial position,
results of operations or cash flows.
  31
 Table of Contents
  ITEM 1A.
              RISK
      FACTORS
  Our
business faces significant risks. The risks described below may not be the only
risks we face. Additional risks that we do not yet know of or that we currently
think are immaterial also may impair our business operations. If any of the
events or circumstances described in the following risks actually occur, our
business, financial condition and results of operation could suffer, and the
trading price of our Common Stock could decline, and you may lose all or a part
of your investment.
  Risks
Related to the Business
  We
rely upon a few customers for the majority of our revenues and the loss of any
one or more of these customers, or a significant loss, reduction or rescheduling
of orders from any of these customers, would have a material adverse effect on
our business, financial condition and  results of
operations.
  We sell
most of our products to a small number of customers, and while we are
continually seeking to expand our customer base, we expect this will continue.
For the first quarter of 2010, sales to Nokia Siemens accounted for
approximately 28% of revenues, and sales to Samsung accounted for approximately
12% of revenues.  Nokia Siemens accounted for approximately 34% of our
revenues during fiscal 2009.  During fiscal 2009, sales to
Alcatel-Lucent declined below 10% of our revenues. Any decline in business with
our original equipment manufacturer customers, including Nokia Siemens,
Alcatel-Lucent and Samsung, will have an adverse impact on our business,
financial condition and results of operations. For the first quarter of 2010,
our total sales declined by 24% compared with the first quarter of
2009.  During this same period, our sales to Nokia Siemens declined
approximately 40% which has had a negative impact on our business and results of
operations. Our future success is dependent upon the continued purchases of our
products by a small number of customers such as Nokia Siemens, Samsung, other
original equipment manufacturers and network operator customers. Any
fluctuations in demand from such customers or other customers will negatively
impact our business, financial condition and results of operations. If we are
unable to broaden our customer base and expand relationships with major wireless
original equipment manufacturers and major operators of wireless networks, our
business will continue to be impacted by unanticipated demand fluctuations due
to our dependence on a small number of customers. Unanticipated demand
fluctuations can have a negative impact on our revenues and business, and an
adverse effect on our business, financial condition and results of operations.
In addition, our dependence on a small number of major customers exposes us to
numerous other risks, including:
  •
              a
      slowdown or delay in deployment of wireless networks by any one or more
      customers could significantly reduce demand for our
    products;
  •
              reductions
      in a single customer’s forecasts and demand could result in excess
      inventories;
  •
              the
      current economic crisis could negatively affect one or more of our major
      customers and cause them to significantly reduce operations, or file for
      bankruptcy;
  •
              consolidation
      of customers can reduce demand as well as increase pricing pressure on our
      products due to increased purchasing
leverage;
  •
              each
      of our customers has significant purchasing leverage over us to require
      changes in sales terms including pricing, payment terms and product
      delivery schedules;
  •
              direct
      competition should a customer decide to increase its level of internal
      designing and/or manufacturing of wireless communication network products;
      and
  •
              concentration
      of accounts receivable credit risk, which could have a material adverse
      effect on our liquidity and financial condition if one of our major
      customers declared bankruptcy or delayed payment of their
      receivables.
  Our
operating results have been adversely impacted by the worldwide economic crisis
and credit tightening.
  Beginning
in the fourth quarter of 2008, worldwide economic conditions significantly
deteriorated due to the credit crisis and other factors, including slower
economic activity, recessionary concerns, increased energy costs, decreased
consumer confidence, reduced corporate profits, reduced or canceled capital
spending, adverse business conditions and liquidity concerns. All of these
factors combined are having a negative impact on the availability of financial
capital which is contributing to a reduction in demand for infrastructure in the
wireless communication market. These conditions make it difficult for our
customers and vendors to accurately forecast and plan future business
activities, causing domestic and foreign businesses to slow or suspend spending
on our products and services. As customers face this challenging economic time,
they are finding it difficult to gain sufficient credit in a timely manner,
which has resulted in an impairment of their ability to place orders with us or
to make timely payments to us for previous purchases. If this continues to
occur, our revenues will be further reduced, thereby having a negative impact on
our business, financial condition and results of operations. In addition, we may
be forced to increase our allowance for doubtful accounts and our days of sales
outstanding
 
 32
 Table of Contents
 may
increase significantly, which would have a negative impact on our cash position,
liquidity and financial condition. We cannot predict the magnitude, timing or
duration of this economic recession or its impact on the wireless
industry.
  We
have previously experienced significant reductions in demand for our products by
certain customers and if this continues, our operating results will be adversely
impacted.
  We have a
history of significant unanticipated reductions in demand that demonstrate the
risks related to our customer and industry concentration levels. While our
revenues have increased at times during fiscal years 2005, 2006, 2007 and 2008,
a significant portion of this increase was due to our various acquisitions.
During fiscal 2009 and into the first quarter of 2010, the global economic
crisis and related recession continued to have an impact on our customers and
their demand for our products. We currently anticipate that our customers may
continue to reduce their demand for wireless infrastructure products in the near
term, thereby negatively impacting all companies within our industry. This
possible reduction in demand would have a negative impact on our business,
financial condition and results of operations.
  Also, in
the past we have experienced significant unanticipated reductions in wireless
network operator demand as well as significant delays in demand for 3G and 4G,
or next generation service based products, due to the high projected capital
cost of building such networks and market concerns regarding the inoperability
of such network protocols. In combination with these market issues, a majority
of wireless network operators have in the past regularly reduced their capital
spending plans in order to improve their overall cash flow. There is a
substantial likelihood that the global economic recession will continue
throughout 2010 and potentially into 2011, thereby having a negative impact on
network operator deployment spending plans. The impact of any future reduction
in capital spending by wireless network operators, coupled with any delays in
deployment of wireless networks, will result in reduced demand for our products,
which will have a material adverse effect on our business.
  We
depend on single sources or limited sources for key components and products,
which exposes us to risks related to product shortages or delays, as well as
potential product quality issues, all of which could increase the cost of our
products thereby reducing our operating profits.
  During
the first quarter of 2010, we have experienced significant supply shortages of
various electronic components as well as significantly increased order lead
times for such components.  This combined supply shortage and
increased material order lead times have impacted our ability to timely produce
products which negatively impacted our revenues in the first
quarter.  If these shortages and extended lead times continue, our
future revenues will be negatively impacted and our manufacturing costs may
significantly increase.  In addition, a number of our products and the
parts used in our products are available from only one or a limited number of
outside suppliers due to unique component designs, as well as certain quality
and performance requirements. To take advantage of volume pricing discounts, we
also purchase certain products, and along with our contract manufacturers,
purchase certain customized components from single or limited sources. We have
experienced, and expect to continue to experience, shortages of single-source
and limited-source components. Shortages have compelled us to adjust our product
designs and production schedules and have caused us to miss customer requested
delivery dates. Missed customer delivery dates have had a material adverse
impact on our financial results. If single-source or limited-source components
become unavailable in sufficient quantities in the desired time periods, are
discontinued or are available only on unsatisfactory terms, we would be required
to purchase comparable components from other sources and may be required to
redesign our products to use such components which could delay production and
delivery of our products. If production and delivery of our products are delayed
such that we do not meet the agreed upon delivery dates of our customers, such
delays could result in lost revenues due to customer cancellations, as well as
potential financial penalties payable to our customers. Any such loss of revenue
or financial penalties could have a material adverse effect on our business,
financial condition and results of operations.
  Our
reliance on certain single-source and limited-source components and products
also exposes us and our contract manufacturers to quality control risks if these
suppliers experience a failure in their production process or otherwise fail to
meet our quality requirements. A failure in a single-source or limited-source
component or product could force us to repair or replace a product utilizing
replacement components. If we cannot obtain comparable replacements or redesign
our products, we could lose customer orders or incur additional costs, which
would have a material adverse effect on our business, financial condition and
results of operations.
  We
will need additional capital in the future and such additional financing may not
be available on favorable terms or at all.
  As of
April 4, 2010, we had approximately $65.6 million of cash, including $2.5
million in restricted cash. We cannot provide any guarantee that we will
generate sufficient cash in the future to maintain or grow our operations over
the long-term. We rely upon our ability to generate positive cash flow from
operations to fund our business. If we are not able to generate positive cash
flow from operations, we may need to utilize sources of financing such as our
Credit Agreement or other sources of cash. While our Credit Agreement provides
us with additional sources of liquidity, we may need to raise additional funds
through public or private debt or equity financings in order to fund existing
operations or to take advantage
 
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 of
opportunities, including more rapid international expansion or acquisitions of
complementary businesses or technologies.  In addition, if our
business further deteriorates, we might be unable to maintain compliance with
the covenants in our Credit Agreement which could result in reduced availability
under the Credit Agreement or an event of default under the Credit Agreement, or
could make the Credit Agreement unavailable to us. If we are not successful in
growing our businesses, reducing our inventories and accounts receivable and
managing the worldwide aspects of our company, our operations may not generate
positive cash flow, and we may consume our cash resources faster than we
anticipate. Such losses would make it difficult to obtain new sources of
financing. In addition, if we do not generate sufficient cash flow from
operations, we may need to raise additional funds to repay our $280.9 million of
remaining outstanding convertible subordinated debt that we issued. The holders
of this convertible subordinated debt may require us to repurchase $70.9 million
in outstanding debt issued in 2004 on November 15, 2011 and $150.0 million in
outstanding debt issued in 2007 on October 1, 2014.  In addition, we
issued $60.0 million of convertible senior subordinated debt in the first
quarter of 2010 that the holders of which may require us to repurchase on
November 15, 2013.  Our ability to secure additional financing or
sources of funding is dependent upon numerous factors, including the current
outlook of our business, our credit rating and the market price of our Common
Stock, all of which are directly impacted by our ability to increase revenues
and generate profits. In addition, the availability of new financing is
dependent upon functioning debt and equity markets with financing available on
reasonable terms. Given the recent credit crisis, there can be no guarantee that
such a market would be available to us. If such a market is not available, we
may be unable to raise new financing, which would negatively impact our business
and possibly impact our ability to maintain operations as presently
conducted.
  Our
ability to increase revenues and generate profits is subject to numerous risks
and uncertainties including the likelihood of decreased revenues in the current
macroeconomic environment. Any significant decrease in our revenues or
profitability could reduce our operating cash flows and erode our existing cash
balances. Our ability to reduce our inventories and accounts receivable and
improve our cash flow is dependent on numerous risks and uncertainties, and if
we are not able to reduce our inventories, we will not generate the cash
required to operate our business. Our ability to secure additional financing is
also dependent upon not only our business profitability, but also the credit
markets, which have recently become highly constrained due to credit concerns
arising from the subprime mortgage lending market and subsequent worldwide
economic recession. If we are unable to secure additional financing or such
financing is not available on acceptable terms, we may not be able to fund our
operations, otherwise respond to unanticipated competitive pressures, or repay
our convertible debt.
  We
may be adversely affected by the bankruptcy of our customers.
  One of
our original equipment manufacturer customers, Nortel, filed for bankruptcy
protection in the first quarter of 2009, and in the third quarter of 2009, they
received government approval of the sale of their assets.  Given the
current economic climate, it is possible that one or more of our other customers
will suffer significant financial difficulties, including potentially filing for
bankruptcy protection. In such an event, the demand for our products from these
customers may decline significantly or cease completely. We cannot guarantee
that we will be able to continue to generate new demand to offset any such
reductions from existing customers. If we are unable to continue to generate new
demand, our revenues will decrease and our business, financial condition and
results of operations will be negatively impacted.
  We may
not successfully evaluate the creditworthiness of our customers. While we
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments, greater than
anticipated nonpayment and delinquency rates could harm our financial results
and liquidity. Given the current global economic recession, there are potential
risks of greater than anticipated customer defaults. If the financial condition
of any of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances would be required and would
negatively impact our business, financial condition and results of
operations.
  We
may incur unanticipated costs as we complete the restructuring of our
business.
  We have
previously encountered difficulties and delays in integrating and consolidating
operations which have had a negative impact on our business, financial condition
and results of operations. The failure to successfully integrate these
operations could undermine the anticipated benefits and synergies of the
restructuring, which could adversely affect our business, financial condition
and results of operations. The anticipated benefits and synergies of our
restructurings relate to cost savings associated with operational efficiencies
and greater economies of scale. However, these anticipated benefits and
synergies are based on projections and assumptions, not actual experience, and
assume a smooth and successful integration of our business.
  We
may need to undertake restructuring actions in the future.
  We have
previously recognized restructuring charges in response to slowdowns in demand
for our products and in conjunction with cost cutting measures and measures to
improve the efficiency of our operations. As a result of economic conditions, we
may need to initiate additional restructuring actions that could result in
restructuring charges that could have a material impact on our business,
financial condition and results of operations. Such potential restructuring
actions could
 
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 include
cash expenditures that would reduce our available cash balances, which would
have a negative impact on our business.
  The
potential for increased commodity and energy costs may adversely affect our
business, financial condition and results of operations.
  The world
economy has experienced significant fluctuations in the price of oil and energy
during 2008, 2009 and the beginning of 2010. Such fluctuations resulted in
significant price increases which translated into higher freight and
transportation costs and, in certain cases, higher raw material supply costs.
These higher costs negatively impacted our production costs. We were not able to
pass on these higher costs to our customers, and if we insist on raising prices,
our customers may curtail their purchases from us. The costs of energy and items
directly related to the cost of energy will fluctuate due to factors that may
not be predictable, such as the economy, political conditions and the weather.
Further increases in energy prices or the onset of inflationary pressures could
negatively impact our business, financial condition and results of
operations.
  We
have experienced, and will continue to experience, significant fluctuations in
sales and operating results from quarter to quarter.
  Our
quarterly results fluctuate due to a number of factors, including:
  •
              the
      lack of obligation by our customers to purchase their forecasted demand
      for our products;
  •
              costs
      associated with restructuring activities, including severance, inventory
      obsolescence and facility closure
costs;
  •
              variations
      in the timing, cancellation, or rescheduling of customer orders and
      shipments;
  •
              costs
      associated with consolidating
acquisitions;
 
 •
              high
      fixed expenses that increase operating expenses, especially during a
      quarter with a sales shortfall;
  •
              product
      failures and associated warranty and in-field service support
      costs;
  •
              discounts
      given to certain customers for large volume purchases;
  and
  •
              shortages
      of materials and components to manufacture our
  products.
  We have
regularly generated a large percentage of our revenues in the last month of a
quarter. Because we attempt to ship products quickly after we receive orders, we
may not always have a significant backlog of unfilled orders at the start of
each quarter and we may be required to book a substantial portion of our orders
during the quarter in which these orders ship. Our major customers generally
have no obligation to purchase forecasted amounts and may cancel orders, change
delivery schedules or change the mix of products ordered with minimal notice and
without penalty. As a result, we may not be able to accurately predict our
quarterly sales. Because our expense levels are partially based on our
expectations of future sales, our expenses may be disproportionately large
relative to our revenues, and we may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Any shortfall in
sales relative to our quarterly expectations or any delay of customer orders
would adversely affect our business, financial condition and results of
operations.
  Order
deferrals and cancellations by our customers, declining average sales prices,
changes in the mix of products sold, shortages of materials, delays in the
introduction of new products and longer than anticipated sales cycles for our
products have adversely affected our business, financial condition and results
of operations in the past. Despite these factors, we, along with our contract
manufacturers, maintain significant finished goods, work-in-progress and raw
materials inventory to meet estimated order forecasts. If our customers purchase
less than their forecasted orders or cancel or delay existing purchase orders,
there will be higher levels of inventory that face a greater risk of
obsolescence. If our customers choose to purchase products in excess of the
forecasted amounts or in a different product mix, there might be inadequate
inventory or manufacturing capacity to fill their orders.
  Due to
these and other factors, our past results are not reliable indicators of our
future performance. Future revenues and operating results may not meet the
expectations of market analysts or investors. In either case, the price of our
Common Stock could be materially adversely affected.
  Our
average sales prices have declined, and we anticipate that the average sales
prices for our products will continue to decline and negatively impact our gross
profit margins.
  Wireless
service providers are continuing to place pricing pressure on wireless
infrastructure manufacturers, which in turn, has resulted in lower selling
prices for our products, with certain competitors aggressively reducing prices
in an effort to increase their market share. The consolidation of original
equipment manufacturers such as Alcatel-Lucent and Nokia Siemens is
concentrating purchasing power at the surviving entities, placing further
pricing pressures on the products we sell to such customers. Moreover, the
current economic downturn has caused wireless service providers to become more
 
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 aggressive
in demanding price reductions as they attempt to reduce costs. As a result, we
are forced to further reduce our prices to such customers, which has had a
negative impact on our business, financial condition and results of operations.
If we do not agree to lower our prices as some customers request, those
customers may stop purchasing our products, which would significantly impact our
business. We believe that the average sales prices of our products will continue
to decline for the foreseeable future. The weighted average sales price for our
products declined approximately 2% to 11% from fiscal 2008 to fiscal 2009 and we
expect that this will continue going forward. Since wireless infrastructure
manufacturers frequently negotiate supply arrangements far in advance of
delivery dates, we must often commit to price reductions for our products before
we know how, or if, we can obtain such cost reductions. With ongoing
consolidation in our industry, the increased size of many of our customers
allows them to exert greater pressure on us to reduce prices. In addition,
average sales prices are affected by price discounts negotiated without firm
orders for large volume purchases by certain customers. To offset declining
average sales prices, we must reduce manufacturing costs and ultimately develop
new products with lower costs or higher average sales prices. If we cannot
achieve such cost reductions or increases in average selling prices, our gross
margins will decline.
  Our
suppliers, contract manufacturers or customers could become
competitors.
  Many of
our customers, particularly our original equipment manufacturer customers,
internally design and/or manufacture their own wireless communications network
products. These customers also continuously evaluate whether to manufacture
their own wireless communications network products or utilize contract
manufacturers to produce their own internal designs. Certain of our customers
regularly produce or design wireless communications network products in an
attempt to replace products manufactured by us. In addition, some customers
threaten to undertake such activities if we do not agree to their requested
price reductions. We believe that these practices will continue. In the event
that our customers manufacture or design their own wireless communications
network products, these customers might reduce or eliminate their purchases of
our products, which would result in reduced revenues and would adversely impact
our business, financial condition and results of operations. Wireless
infrastructure equipment manufacturers with internal manufacturing capabilities,
including many of our customers, could also sell wireless communications network
products externally to other manufacturers, thereby competing directly with us.
In addition, our suppliers or contract manufacturers may decide to produce
competing products directly for our customers and, effectively, compete against
us. If, for any reason, our customers produce their wireless communications
network products internally, increase the percentage of their internal
production, require us to participate in joint venture manufacturing with them,
require us to reduce our prices, engage our suppliers or contract manufacturers
to manufacture competing products, or otherwise compete directly against us, our
revenues would decrease, which would adversely impact our business, financial
condition and results of operations.
  Our
success is tied to the growth of the wireless services communications market and
our future revenue growth is dependent upon the expected increase in the size of
this market.
  Our
revenues come from the sale of wireless communications network products and
coverage solutions. Our future success depends solely upon the growth and
increased availability of wireless communications services. Wireless
communications services may not grow at a rate fast enough to create demand for
our products, as we have experienced periodically throughout the past six years.
Some of our network operator customers rely on credit to finance the build-out
or expansion of their wireless networks. The current credit environment and the
worldwide economic recession resulted in lower revenues in fiscal 2009 and will
likely result in a reduction of demand from some of our customers in the near
term. Another example of unanticipated reductions was during fiscal 2006 and
into fiscal 2007, when a major North American wireless network operator
significantly reduced demand for new products. In addition, during the same
period, several major equipment manufacturers began a process of consolidating
their operations, which significantly reduced their demand for our products.
This reduced spending on wireless networks had a negative impact on our
operating results. If wireless network operators delay or reduce levels of
capital spending, our business, financial condition and results of operations
would be negatively impacted.
  Our
reliance on contract manufacturers exposes us to risks of excess inventory or
inventory carrying costs.
  We use
contract manufacturers to produce printed circuit boards for our products, and
in certain cases, to manufacture finished products. If our contract
manufacturers are unable to respond in a timely fashion to changes in customer
demand, we may be unable to produce enough products to respond to sudden
increases in demand, resulting in lost revenues. Alternatively, in the case of
order cancellations or decreases in demand, we may be liable for excess or
obsolete inventory or cancellation charges resulting from contractual purchase
commitments that we have with our contract manufacturers. We regularly provide
rolling forecasts of our requirements to our contract manufacturers for planning
purposes, pursuant to our agreements, a portion of which is binding upon us.
Additionally, we are committed to accept delivery on the forecasted terms for a
portion of the rolling forecast. Cancellations of orders or changes to the
forecasts provided to any of our contract manufacturers may result in
cancellation costs payable by us. In the past, we have been required to take
delivery of materials from our suppliers and subcontractors that were in excess
of our requirements, and we have previously recognized charges and expenses
related to such excess material. We expect that we will incur such costs in the
future.
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  By using
contract manufacturers, our ability to directly control the use of all
inventories is reduced since we do not have full operating control over their
operations. If we are unable to accurately forecast demand for our contract
manufacturers and manage the costs associated with our contract manufacturers,
we may be required to purchase excess inventory and incur additional inventory
carrying costs. If we or our contract manufacturers are unable to utilize such
excess inventory in a timely manner, and are unable to sell excess components or
products due to their customized nature, our  business, financial
condition and results of operations would be negatively impacted.
  Future
additions to, or consolidations of manufacturing operations may present risks,
and we may be unable to achieve the financial and strategic goals associated
with such actions.
  We have
previously added new manufacturing locations, as well as consolidated existing
manufacturing locations in an attempt to achieve operating cost savings and
improved operating results. We continually evaluate these types of
opportunities.  We may acquire or invest in new locations, or we may
consolidate existing locations into either existing or new locations in order to
reduce our manufacturing costs.  In 2009, we established a new
manufacturing location in Thailand.  Such activities subject us to
numerous risks and uncertainties, including the following:
  •
              difficulty
      integrating the new locations into our existing
  operations;
  •
              difficulty
      consolidating existing locations into one
  location;
  •
              inability
      to achieve the anticipated financial and strategic benefits of the
      specific new location or
consolidation;
  •
              significant
      unanticipated additional costs incurred to start up a new manufacturing
      location;
  •
              inability
      to attract key technical and managerial personnel to a new
      location;
  •
              inability
      to retain key technical and managerial personnel due to the consolidation
      of locations to a new location;
  •
              diversion
      of our management’s attention from other business
  issues;
  •
              failure
      of our review and approval process to identify significant issues,
      including issues related to manpower, raw material supplies, legal and
      financial contingencies.
  If we are
unable to manage these risks effectively as part of any investment in a new
manufacturing location or consolidation of locations, our business would be
adversely affected.
  Future
acquisitions, or strategic alliances, may present risks, and we may be unable to
achieve the financial and strategic goals intended at the time of any
acquisition or strategic alliance.
  In the
past, we have acquired and made investments in other companies, products and
technologies and entered into strategic alliances with other companies. We
continually evaluate these types of opportunities. We may acquire or invest in
other companies, products or technologies, or we may enter into joint ventures,
mergers or strategic alliances with other companies. Such transactions subject
us to numerous risks, including the following:
  •
              difficulty
      integrating the operations, technology and personnel of the acquired
      company;
  •
              inability
      to achieve the anticipated financial and strategic benefits of the
      specific acquisition or strategic
alliance;
  •
              significant
      additional warranty costs due to product failures and or design
      differences that were not identified during due diligence, which could
      result in charges to earnings if they are not recoverable from the
      seller;
  •
              inability
      to retain key technical and managerial personnel from the acquired
      company;
  •
              difficulty
      in maintaining controls, procedures and policies during the transition and
      integration process;
  •
              diversion
      of our management’s attention from other business
  concerns;
 
 •
              failure
      of our due diligence process to identify significant issues, including
      issues with respect to product quality, product architecture, legal and
      financial contingencies, and product development;
  and
  •
              significant
      exit charges if products acquired in business combinations are
      unsuccessful.
  If we are
unable to manage these risks effectively as part of any acquisition or joint
venture, our business would be adversely affected.
  We
may fail to develop products that are sufficiently manufacturable, which could
negatively impact our ability to sell our products.
  Manufacturing
our products is a complex process that requires significant time and expertise
to meet customers’ specifications. Successful manufacturing is substantially
dependent upon the ability to assemble and tune these products to meet
specifications in an efficient manner. In this regard, we largely depend on our
staff of assembly workers and trained technicians at our internal manufacturing
operations in the United States, Europe and Asia, as well as our contract
 
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 manufacturers’
staff of assembly workers and trained technicians. If we cannot design our
products to minimize the manual assembly and tuning process, or if we or our
contract manufacturers lose a number of trained assembly workers and technicians
or are unable to attract additional trained assembly workers or technicians, we
may be unable to have our products manufactured in a cost effective
manner.
  We
may fail to develop products that are of adequate quality and reliability, which
could negatively impact our ability to sell our products and could expose us to
significant liabilities.
  We have
had quality problems with our products including those we have acquired in
acquisitions. We may have similar product quality problems in the future. We
have replaced components in some products and replaced entire products in
accordance with our product warranties. We believe that our customers will
demand that our products meet increasingly stringent performance and reliability
standards. If we cannot keep pace with technological developments, evolving
industry standards and new communications protocols, if we fail to adequately
improve product quality and meet the quality standards of our customers, or if
our contract manufacturers fail to achieve the quality standards of our
customers, we risk losing business which would negatively impact our business,
financial condition and results of operations. Design problems could also damage
relationships with existing and prospective customers and could limit our
ability to market our products to large wireless infrastructure manufacturers,
many of which build their own products and have stringent quality control
standards. In addition, we have incurred significant costs addressing quality
issues from products that we have acquired in certain of our acquisitions. We
are also required to honor certain warranty claims for products that we have
acquired in our recent acquisitions. While we seek recovery of amounts that we
have paid, or may pay in the future to resolve warranty claims through
indemnification from the original manufacturer, this can be a costly and time
consuming process.  In our contracts with customers, we negotiate
liability limits but not all of the contracts contain liability limits and some
contracts contain limits which are greater than the price of the products
sold.  As a result, if we have quality problems with our products that
we cannot fix and our customers bring a claim against us, we could incur
significant liabilities which would have a material adverse effect on our
business, financial condition and results of operations.
  If we are unable to hire and retain
highly-qualified technical and managerial personnel, we may not be able to
sustain or grow our business.
  Competition
for personnel, particularly qualified engineers, is intense. The loss of a
significant number of qualified engineers, as well as the failure to recruit and
train additional technical personnel in a timely manner, could have a material
adverse effect on our business, financial condition and results of operations.
The departure of any of our management and technical personnel, the breach of
their confidentiality and non-disclosure obligations to us or the failure to
achieve our intellectual property objectives may also have a material adverse
effect on our business.
  We
believe that our success depends upon the knowledge and experience of our
management and technical personnel and our ability to market our existing
products and to develop new products. Our employees are generally employed on an
at- will basis and do not have non-compete agreements. Therefore, we have had,
and may continue to have, employees leave us and go to work for
competitors.
  There
are significant risks related to our internal and contract manufacturing
operations in Asia and Europe.
  As part
of our manufacturing strategy, we utilize contract manufacturers to make
finished goods and supply printed circuit boards in China, Europe, India,
Singapore and Thailand. We also maintain our own manufacturing operations in
China, Estonia, the United States and our newly established manufacturing
facility in Thailand.
  The
Chinese legal system lacks transparency, which gives the Chinese central and
local government authorities a higher degree of control over our business in
China than is customary in the United States which makes the process of
obtaining necessary regulatory approval in China inherently unpredictable. In
addition, the protection accorded our proprietary technology and know-how under
the Chinese and Thai legal systems is not as strong as in the United States and,
as a result, we may lose valuable trade secrets and competitive advantage. Also,
manufacturing our products and utilizing contract manufacturers, as well as
other suppliers throughout the Asia region, exposes our business to the risk
that our proprietary technology and ownership rights may not be protected or
enforced to the extent that they may be in the United States.
  Although
the Chinese government has been pursuing economic reform and a policy of
welcoming foreign investments during the past two decades, it is possible that
the Chinese government will change its current policies in the future, making
continued business operations in China difficult or unprofitable.
  In
September 2006, Thailand experienced a military coup which overturned the
existing government. In late 2008, anti-government protests and civilian
occupations culminated with a court-ordered ouster of Thailand’s prime minister.
In 2009 and the first quarter of 2010, continued unrest has impacted the
government of Thailand, and at this time, significant civil unrest continues. To
date, this has not had a long-term impact on our operations in Thailand. If
there are future coups or some other type of political unrest, such activity may
impact the ability to manufacture products in this region and may prevent
 
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 shipments
from entering or leaving the country. Any such disruptions could have a material
negative impact on our business, financial condition and results of
operations.
  We
require air or ocean transport to deliver products built in our various
manufacturing locations to our customers. High energy costs have increased our
transportation costs which have had a negative impact on our production costs.
Transportation costs would also escalate if there were a shortage of air or
ocean cargo space and any significant increase in transportation costs would
cause an increase in our expenses and negatively impact our business, financial
condition and results of operations. In addition, if we are unable to obtain
cargo space or secure delivery of components or products due to labor strikes,
lockouts, work slowdowns or work stoppages by longshoremen, dock workers,
airline pilots or other transportation industry workers, our delivery of
products could be delayed.
  The
initial sales cycle associated with our products is typically lengthy, often
lasting from nine to eighteen months, which could cause delays in forecasted
sales and cause us to incur substantial expenses before we record any associated
revenues.
  Our
customers normally conduct significant technical evaluations, trials and
qualifications of our products before making purchase commitments. This
qualification process involves a significant investment of time and resources
from both our customers and us in order to ensure that our product designs are
fully qualified to perform as required. The qualification and evaluation
process, as well as customer field trials, may take longer than initially
forecasted, thereby delaying the shipment of sales forecasted for a specific
customer for a particular quarter and causing our operating results for the
quarter to be less than originally forecasted. Such a sales shortfall would
reduce our profitability and negatively impact our business, financial
condition and results of operations.
  We
conduct a significant portion of our business internationally, which exposes us
to increased business risks.
  For the
first quarter of 2010, and for fiscal years 2009 and 2008, international
revenues (excluding North American sales) accounted for approximately 71%, 73%
and 70% of our net sales, respectively. There are many risks that currently
impact, and will continue to impact, our international business and
multinational operations, including the following:
  •
              compliance
      with multiple and potentially conflicting regulations in Europe, Asia and
      North and South America, including export requirements, tariffs, import
      duties and other trade barriers, as well as health and safety
      requirements;
  •
              potential
      labor strikes, lockouts, work slowdowns and work stoppages at U.S. and
      international ports;
  •
              differences
      in intellectual property protections throughout the
  world;
  •
              difficulties
      in staffing and managing foreign operations in Europe, Asia and South
      America, including relations with unionized labor pools in Europe and in
      Asia;
  •
              longer
      accounts receivable collection cycles in Europe, Asia and South
      America;
  •
              currency
      fluctuations and resulting losses on currency
  translations;
  •
              terrorist
      attacks on American companies;
  •
              economic
      instability, including inflation and interest rate fluctuations, such as
      those previously seen in South Korea and
Brazil;
  •
              competition
      for foreign-based suppliers throughout the
  world;
  •
              overlapping
      or differing tax structures;
  •
              the
      complexity of global tax and transfer pricing rules and regulations and
      our potential inability to benefit/offset losses in one tax jurisdiction
      with income from another;
  •
              cultural
      and language differences between the United States and the rest of the
      world; and
  •
              political
      or civil turmoil, such as that occurring in
  Thailand.
  Any
failure on our part to manage these risks effectively would seriously reduce our
competitiveness in the wireless infrastructure marketplace.
  Protection
of our intellectual property is limited.
  We rely
upon trade secrets and patents to protect our intellectual property. We execute
confidentiality and non-disclosure agreements with certain employees and our
suppliers, as well as limit access to and distribution of our proprietary
information. We have an ongoing program to identify and file applications for
U.S. and other international patents.
  The
departure of any of our management and technical personnel, the breach of their
confidentiality and non-disclosure obligations to us, or the failure to achieve
our intellectual property objectives could have a material adverse effect on our
 
 39
 Table of Contents
 business,
financial condition and results of operations. We do not have non-compete
agreements with our employees who are generally employed on an at-will basis.
Therefore, we have had, and may continue to have, employees leave us and go to
work for competitors. If we are not successful in prohibiting the unauthorized
use of our proprietary technology or the use of our processes by a competitor,
our competitive advantage may be significantly reduced which would result in
reduced revenues.
  We
are at risk of third-party claims of infringement that could harm our
competitive position.
  We have
received third-party claims of infringement in the past and have been able to
resolve such claims without having a material impact on our business. As the
number of patents, copyrights and other intellectual property rights in our
industry increases, and as the coverage of these rights and the functionality of
the products in the market further overlap, we believe that we may face
additional infringement claims. These claims, whether valid or not, could result
in substantial cost and diversion of our resources. A third-party claiming
infringement may also obtain an injunction or other equitable relief, which
could effectively block the distribution or sale of allegedly infringing
products, which would adversely affect our customer relationships and negatively
impact our revenues.
  The
communications industry is heavily regulated. We must obtain regulatory
approvals to manufacture and sell our products, and our customers must obtain
approvals to operate our products. Any failure or delay by us or any of our
customers to obtain these approvals could negatively impact our ability to sell
our products.
  Various
governmental agencies have adopted regulations that impose stringent radio
frequency emissions standards on the communications industry. Future regulations
may require that we alter the manner in which radio signals are transmitted or
otherwise alter the equipment transmitting such signals. The enactment by
governments of new laws or regulations or a change in the interpretation of
existing regulations could negatively impact the market for our
products.
  The
increasing demand for wireless communications has exerted pressure on regulatory
bodies worldwide to adopt new standards for such products, generally following
extensive investigation and deliberation over competing technologies. The delays
inherent in this type of governmental approval process have caused, and may
continue to cause, the cancellation, postponement or rescheduling of the
installation of communications systems by our customers. These types of
unanticipated delays would result in delayed or canceled customer
orders.
  We
are subject to numerous governmental regulations concerning the manufacturing
and use of our products.  We must stay in compliance with all such
regulations and any future regulations.  Any failure to comply with
such regulations, and the unanticipated costs of complying with future
regulations, may adversely affect our business, financial condition and results
of operations.
  We
manufacture and sell products which contain electronic components, and as such
components may contain materials that are subject to government regulation in
both the locations that we manufacture and assemble our products, as well as the
locations where we sell our products.  An example of a regulated
material is the use of lead in electronic components.  We maintain
compliance with all current government regulations concerning the materials
utilized in our products, for all the locations in which we
operate.  Since we operate on a global basis, this is a complex
process which requires continual monitoring of regulations and an ongoing
compliance process to ensure that we and our suppliers are in compliance with
all existing regulations.  There are areas where future regulations
may be enacted which could increase our cost of the components that we
utilize.  While we do not currently know of any proposed regulation
regarding components in our products, which would have a material impact on our
business, if there is an unanticipated new regulation which significantly
impacts our use of various components or requires more expensive components,
that would have a material adverse impact on our business, financial condition
and results of operations.
  Our
manufacturing process is also subject to numerous governmental regulations,
which cover both the use of various materials as well as environmental
concerns.  We maintain compliance with all current government
regulations concerning our production processes, for all locations in which we
operate.  Since we operate on a global basis, this is also a complex
process which requires continual monitoring of regulations and an ongoing
compliance process to ensure that we and our suppliers are in compliance with
all existing regulations.  There are areas where future regulations
may be enacted which could increase our manufacturing costs.  One area
which has a large number of potential changes in regulations is the
environmental area.  Environmental areas such as pollution and climate
change have had significant legislative and regulatory efforts on a global
basis, and there are expected to be additional changes to the regulations in
these areas.  These changes could directly increase the cost of energy
which may have an impact on the way we manufacture products or utilize energy to
produce our products.  In addition, any new regulations or laws in the
environmental area might increase the cost of raw materials we use in our
products. While future changes in regulations appears likely, we are currently
unable to predict how any such changes will impact us and if such impacts will
be material to our business.  If there is a new law or regulation that
significantly increases our costs of manufacturing or causes us to significantly
alter the way that we manufacture our products, this would have a material
adverse affect on our business, financial condition and results of
operations.
  40
 Table of Contents
   The
wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, frequent new
product development, rapid product obsolescence, evolving industry standards and
significant price erosion over the life of a product. If we are unable to
compete effectively, our business, financial condition and results of operations
would be adversely affected.
  Our
products compete on the basis of the following characteristics:
  •
              performance;
  •
              functionality;
  •
              reliability;
  •
              pricing;
  •
              quality;
  •
              designs
      that can be efficiently manufactured in large
  volumes;
  •
              time-to-market
      delivery capabilities; and
  •
              compliance
      with industry standards.
  If we
fail to address the above factors, there could be a material adverse effect on
our business, financial condition and results of operations.
  Our
current competitors include ADC Telecommunications, Inc., CommScope, Inc.,
Fujitsu Limited, Hitachi Kokusai Electric Inc., Japan Radio Co., Ltd.,
Kathrein-Werke KG, Mitsubishi Electric Corporation, and Radio Frequency Systems,
in addition to a number of privately held companies throughout the world,
subsidiaries of certain multinational corporations and the internal
manufacturing operations and design groups of the leading wireless
infrastructure manufacturers such as Alcatel-Lucent, Ericsson, Huawei, Motorola,
Nokia Siemens and Samsung. Some competitors have adopted aggressive pricing
strategies in an attempt to gain market share, which in turn, has caused us to
lower our prices in order to remain competitive. Such pricing actions have had
an adverse effect on our business, financial condition and results of
operations. In addition, some competitors have significantly greater financial,
technical, manufacturing, sales, marketing and other resources than we do and
have achieved greater name recognition for their products and technologies than
we have. If we are unable to successfully increase our market penetration or our
overall share of the wireless communications infrastructure equipment market,
our revenues will decline, which would negatively impact our business, financial
condition and results of operations.
  Our
failure to enhance our existing products or to develop and introduce new
products that meet changing customer requirements and evolving technological
standards could have a negative impact on our ability to sell our
products.
  To
succeed, we must improve current products and develop and introduce new products
that are competitive in terms of price, performance and quality. These products
must adequately address the requirements of wireless infrastructure
manufacturing customers and end-users. To develop new products, we invest in the
research and development of wireless communications network products and
coverage solutions. We target our research and development efforts on major
wireless network deployments worldwide, which cover a broad range of frequency
and transmission protocols. In addition, we are currently working on products
for next generation networks, as well as development projects for products
requested by our customers and improvements to our existing products. The
deployment of a wireless network may be delayed which could result in the
failure of a particular research or development effort to generate a revenue
producing product. Additionally, the new products we develop may not achieve
market acceptance or may not be able to be manufactured cost effectively in
sufficient volumes. Our research and development efforts are generally funded
internally and our customers do not normally pay for our research and
development efforts. These costs are expensed as incurred. Therefore, if our
efforts are not successful at creating or improving products that are purchased
by our customers, there will be a negative impact on our business, financial
condition and results of operations due to high research and development
expenses.
  Our
business depends on effective information management systems.
  We rely
on our enterprise resource planning (ERP) systems to support critical business
operations such as invoicing and processing sales orders, inventory control,
purchasing and supply chain management, human resources and financial reporting.
We periodically implement upgrades to the ERP systems or migrate one or more of
our affiliates, facilities or operations from one system to another. If we are
unable to adequately maintain these systems to support our developing business
requirements or effectively manage any upgrade or migration, we could encounter
difficulties that could have a material adverse impact on our business,
financial condition and results of operations.
  41
 Table of Contents
   We
may experience significant variability in our quarterly and annual effective tax
rate.
  Variability
in the mix and profitability of domestic and international activities,
repatriation of earnings from foreign affiliates, identification and resolution
of various tax uncertainties and the inability to realize net operating losses
and other carry-forwards included in deferred tax assets, among other matters,
may significantly impact our effective income tax rate in the future. A
significant increase in our effective income tax rate could have a material
adverse impact on our business, financial condition and results of
operations.
  Our
business is subject to the risks of earthquakes and other natural catastrophic
events, and to interruptions by man-made problems such as computer viruses or
terrorism.
  Our
corporate headquarters and a large portion of our U.S.-based research and
development operations are located in the State of California in regions known
for seismic activity. In addition, we have production facilities and have
outsourced some of our production to contract manufacturers in Asia, another
region known for seismic activity. A significant natural disaster, such as an
earthquake in either of these regions, could have a material adverse effect on
our business, financial condition and results of operations. In addition,
despite our implementation of network security measures, our servers are
vulnerable to computer viruses, break-ins, and similar disruptions from
unauthorized tampering with our computer systems. Any such event could have a
material adverse effect on our business, financial condition and results of
operations.
  At
times during 2008 and 2009, our stock price did not meet the minimum bid price
for continued listing on the NASDAQ Global Select Market. Our ability to
publicly or privately sell equity securities and the liquidity of our Common
Stock could be adversely affected if we are delisted from the NASDAQ Global
Select Market or if we are unable to transfer our listing to another stock
market.
  The bid
price for our Common Stock on the NASDAQ Global Select Market was below $1.00
for a significant period of time during fiscal 2009.  The NASDAQ
Marketplace Rules provide that one of the continuing listing requirements for an
issuer’s common stock is having a minimum bid price of $1.00 per share. 
NASDAQ announced a moratorium on the enforcement of this minimum bid
requirement.  However, this moratorium was rescinded on July 31, 2009,
and NASDAQ has not indicated an intention to reinstate the moratorium.  We
cannot control whether NASDAQ will reinstate the moratorium again in the future
or whether NASDAQ will make any other concessions to allow issuers to avoid
potential delisting.  Accordingly, if the bid price of our Common
Stock does not stay above $1.00 per share, we risk being delisted from the
NASDAQ Global Select Market.
  If our
Common Stock is delisted by NASDAQ, our Common Stock may be eligible to trade on
the OTC Bulletin Board maintained by NASDAQ, another over-the-counter quotation
system, or on the pink sheets. Each of these alternatives will likely result in
it being more difficult for investors to dispose of, or obtain accurate
quotations as to the market value of our Common Stock. In addition, there can be
no assurance that our Common Stock will be eligible for trading on any of such
alternative exchanges or markets.
  In
addition, delisting from NASDAQ could adversely affect our ability to raise
additional capital through the public or private sale of equity securities.
Delisting from NASDAQ also would make trading our Common Stock more difficult
for investors, potentially leading to further declines in our share price and
inhibiting a stockholder’s ability to liquidate all or part of their investment
in Powerwave.
  The
price of our Common Stock has been, and may continue to be, volatile and our
shareholders may not be able to resell shares of our Common Stock at or above
the price paid for such shares.
  The price
for shares of our Common Stock has exhibited high levels of volatility with
significant volume and price fluctuations, which makes our Common Stock
unsuitable for many investors. For example, for the three years ended January 3,
2010, the closing price of our Common Stock ranged from a high of $7.45 to a low
of $0.23 per share. At times, the fluctuations in the price of our Common Stock
may have been unrelated to our operating performance. These broad fluctuations
may negatively impact the market price of shares of our Common Stock. The price
of our Common Stock may also have been influenced by:
  •
              fluctuations
      in our results of operations or the operations of our competitors or
      customers;
  •
              the
      aggregate amount of our outstanding debt and perceptions about our ability
      to make debt service payments;
  •
              failure
      of our results of operations and sales revenues to meet the expectations
      of stock market analysts and
investors;
  •
              reductions
      in wireless infrastructure demand or expectations regarding future
      wireless infrastructure demand by our
customers;
  •
              delays
      or postponement of wireless infrastructure deployments, including new 3G
      deployments;
   42
 Table of Contents
  •
              changes
      in stock market analyst recommendations regarding us, our competitors or
      our customers;
  •
              the
      timing and announcements of technological innovations, new products or
      financial results by us or our
competitors;
  •
              lawsuits
      attempting to allege misconduct by the Company and its
      officers;
  •
              increases
      in the number of shares of our Common Stock outstanding;
    and
  •
              changes
      in the wireless industry.
  In
addition, the potential conversion of our outstanding convertible debt
instruments would add approximately 58.9 million shares of Common Stock to
our outstanding shares. Such an increase may lead to sales of shares or the
perception that sales may occur, either of which may adversely affect the market
for, and the market price of, our Common Stock. Any potential future sale or
issuance of shares of our Common Stock or instruments convertible or
exchangeable into shares of our Common Stock, or the perception that such sales
or transactions could occur, could adversely affect the market price of our
Common Stock.
  Based on
the above, we expect that our stock price will continue to be extremely
volatile. Therefore, we cannot guarantee that our investors will be able to
resell our Common Stock at or above the price at which they purchased
it.
  Failure
to maintain effective internal controls over financial reporting could adversely
affect our business and the market price of our Common Stock.
  Pursuant
to rules adopted by the SEC under the Sarbanes-Oxley Act of 2002, we are
required to assess the effectiveness of our internal controls over financial
reporting and provide a management report on our internal controls over
financial reporting in all annual reports. This report contains, among other
matters, a statement as to whether our internal controls over financial
reporting are effective and the disclosure of any material weaknesses in our
internal controls over financial reporting identified by management.
Section 404 also requires our independent registered public accounting firm
to audit management’s report.
  The
Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides
a framework for companies to assess and improve their internal control systems.
Auditing Standard No. 5 provides the professional standards and related
performance guidance for auditors to report on the effectiveness of internal
control over financial reporting under Section 404. Management’s assessment
of internal controls over financial reporting requires management to make
subjective judgments, and some of these judgments will be in areas that may be
open to interpretation. Therefore, our management’s report on our internal
controls over financial reporting may be difficult to prepare, and our auditors
may not agree with our management’s assessment.
  Subsequent
to the issuance of our consolidated financial statements for the year ended
January 3, 2010, we identified an error in the accounting for our Existing Notes
and the application of ASC Topic 470-20, “Debt with Conversion and Other
Options,” to that instrument. We did not timely adopt this new accounting
standard due to insufficient analysis of the impact of the standard on our
financial statements which resulted in a restatement of the 2009 consolidated
financial statements. This is a material weakness and during the first quarter
of 2010, we completed the design and implementation of control activities to
remediate this issue. As a result, we currently believe our internal controls
over financial reporting are effective. We are required to comply with
Section 404 on an annual basis, and if, in the future, we identify one or
more material weaknesses in our internal controls over financial reporting
during this continuous evaluation process, our management may not be able to
assert that such internal controls are effective. Although we currently
anticipate satisfying the requirements of Section 404 in a timely fashion,
we cannot be certain as to the timing of completion for our future evaluation,
testing and any required remediation due in large part to the fact that there
are limited precedents available by which to measure compliance with these new
requirements. Therefore, if we are unable to assert that our internal
controls over financial reporting are effective in the future, or if our
auditors are unable to attest that our management’s report is fairly stated or
they are unable to express an opinion on the effectiveness of our internal
controls, we could lose investor confidence in the accuracy and completeness of
our financial reports, which would have an adverse effect on our business and
the market price of our Common Stock.
  Negative
conditions in the financial and credit markets may impact our
liquidity.
  Recent
dramatic changes in the global financial markets have weakened global economic
conditions. These changes have had, and we anticipate they will continue to
have, an impact on our liquidity. These impacts include some of our customers
facing liquidity shortages which affect their payments to us, and the general
tightness in the financial credit markets which limits credit available to us as
well as some of our customers. Given our current operating cash flow, financial
assets, access to the capital markets and available lines of credit, we continue
to believe that we will be able to meet our financing needs for the foreseeable
future. However, there can be no assurance that global economic conditions will
not worsen, which could have a corresponding negative effect on our liquidity.
In addition, while we believe that we have invested our financial assets in
sound financial institutions, should these institutions limit access to our
assets, breach their
 
 43
 Table of Contents
 agreements
with us or fail, we may be adversely affected. Furthermore, volatile financial
and credit markets may reduce our ability to raise capital or refinance our debt
on favorable terms, if at all, which could materially impact our ability to meet
our obligations. As market conditions change, we will continue to monitor our
liquidity position.
  Our
shareholder rights plan and charter documents could make it more difficult for a
third-party to acquire us, even if doing so would be beneficial to our
shareholders.
  Our
shareholder rights plan and certain provisions of our certificate of
incorporation and Delaware law are intended to encourage potential acquirers to
negotiate with us and allow our Board of Directors the opportunity to consider
alternative proposals in the interest of maximizing shareholder value. However,
such provisions may also discourage acquisition proposals or delay or prevent a
change in control, which in turn, could harm our stock price and our
shareholders.
 
  44
 Table of Contents
  ITEM 2.
              UNREGISTEREDSALES OF EQUITY SECURITIES
      AND USE OF PROCEEDS
  Issuer
Purchases of Equity Securities
  The
following table details the repurchases that were made during the first quarter
of 2010:
  
 Period
              
              Total
                Number
                of
      Shares
                Purchased
              
              
              Average
                Price
                per
                Share
              
              
              Total Number of
                Shares Purchased
                as Part of Publicly
                Announced
      Plan
              
              
              Approximate Dollar
                Value
      of Shares
                That
      May Yet Be
                Purchased
      Under
                the
      Plan(In thousands)
              
              
              (In thousands)January
      4 – February 7
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —February
      8 – March 7
              
              
              4,260
              (1)
              
              $
              1.18
              
              
              
              —
              
              
              
              —March
      8 – April 4
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
 
 
 
 (1)
              During
      February 2010, 4,260 shares of Common Stock were surrendered to us to
      cover tax withholding obligations with respect to the vesting of 9,688
      shares under restricted stock
grants.
 
  
 
 
  45
 Table of Contents
  ITEM 6.
              EXHIBITS
  The
following exhibits are filed as part of this report:
 
 Exhibit
                Number
              Description4.1
              Indenture,
      dated as of March 15, 2010, by and between Powerwave Technologies, Inc.
      and Deutsche Bank Trust Company Americas, as trustee (incorporated by
      reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed
      with the Securities and Exchange Commission on March 11,
      2010).4.2
              Form
      of Global 1.875% Convertible Senior Subordinated Notes due 2024 (included
      in Exhibit 4.1).4.3
              Form
      of Exchange Agreement relating to the exchange of the Company’s
      outstanding 1.875% Convertible Subordinated Notes due 2024 for 1.875%
      Convertible Senior Subordinated Notes due 2024 (incorporated by reference
      to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on March 11, 2010).10.1
              Amendment
      Number Two to Credit Agreement dated March 11, 2010 between Powerwave
      Technologies, Inc. with the lenders named therein and Wells Fargo Capital
      Finance, LLC, as arranger and administrative agent.10.2
              Waiver,
      Consent, Amendment Number Three to Credit Agreement and Amendment Number
      Two to Security Agreement dated April 1, 2010 with the lenders named
      therein and Wells Fargo Capital Finance, LLC, as arranger and
      administrative agent.31.1
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 1934.31.2
              Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 1934.32.1
              Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.*32.2
              Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
  1350.*
 
 *
              In
      accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit
      shall not be deemed “filed” for the purposes of Section 18 of the
      Securities and Exchange Act of 1934 or otherwise subject to the liability
      of that section, nor shall it be deemed incorporated by reference in any
      filing under the Securities Act of 1933 or the Securities Exchange Act of
      1934.
 
  46
 Table of Contents
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 Date:
      May 6, 2010
              
              POWERWAVE
      TECHNOLOGIES, INC.By:
              /s/    KEVIN
      T. MICHAELSKevin
      T. MichaelsChief
      Financial
Officer