UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







Form
10-Q/A




(Amendment
No. 1)







þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
quarterly period ended March 29, 2009




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, 2009, the registrant had 131,978,122 shares of Common Stock
outstanding.










POWERWAVE
TECHNOLOGIES, INC.


QUARTERLY
REPORT ON FORM 10-Q


FOR
THE THREE MONTHS ENDED MARCH 29, 2009




TABLE OF CONTENTS





PAGECAUTIONARY STATEMENT RELATED TO FORWARD LOOKING
      STATEMENTS
            3HOW TO OBTAIN POWERWAVE SEC FILINGS
            3EXPLANATORY NOTE
            4PART I – FINANCIAL
      INFORMATION
            5Item 1.
            Financial Statements (Unaudited) (As Restated)
            5Consolidated Balance Sheets (As Restated)
            5Consolidated Statements of Operations (As Restated)
            6Consolidated Statements of Comprehensive Income (Loss)
      (As Restated)
            7Consolidated Statements of Cash Flows (As Restated)
            8Notes to Consolidated Financial Statements
            9Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            22Item 3.
            Quantitative and Qualitative Disclosures About
      Market Risk
            34Item 4.
            Controls and Procedures
            36PART II – OTHER INFORMATION
            37Item 1.
            Legal Proceedings
            37Item 1A.
            Risk Factors
            38Item 2.
            Unregistered Sales of Equity Securities
      and Use of Proceeds
            49Item 3.
            Defaults Upon Senior Securities
            49Item 4.
            Submission of Matters to a Vote of Security
      Holders
            49Item 5.
            Other Information
            49Item 6.
            Exhibits
            50SIGNATURES
            51





2
 Table of Contents


CAUTIONARY STATEMENTRELATED 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 OBTAIN POWERWAVE 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


EXPLANATORYNOTE







Powerwave
Technologies Inc. (the “Company” or “Powerwave”) is filing this Amendment No. 1
to its Form 10-Q for the fiscal quarter ended March 29, 2009 to amend and
restate the Form 10-Q in its entirety.  This Amendment No. 1 includes
a restatement of the Company’s previously issued financial statements to reflect
the correction of an error relating to the accounting treatment for the
Company’s 1.875% convertible subordinated notes due 2024 (“2024 Notes”), as
discussed in Note 5 of the Notes to Consolidated Financial Statements under Part
I, Item 1, Financial
Statements.  The Company’s 2024 Notes should have been
accounted for as set forth under FASB Staff Position (FSP) Accounting Principles
Board Opinion (APB) 14-1, which became effective at the beginning of the 2009
fiscal year.  FASB FSP APB 14-1 requires retrospective application to
the terms of the 2024 Notes as they existed for all periods presented and this
retrospective application is included herein. The items that include changes
are: Part I, Item 1, Financial
Statements,Part I, Item 2, Management’s Discussion and Analysis
of Financial Condition and Results of Operations,Part I, Item 4, Controls and Procedures,and
Part II, Item 1A, Risk
Factors.







4
 Table of Contents


PART I – FINANCIALINFORMATION




ITEM 1.
            FINANCIAL STATEMENTS





POWERWAVE
TECHNOLOGIES, INC.




CONSOLIDATED
BALANCE SHEETS


(Unaudited)


(In
thousands, except share data)





March
      29,
              2009
              (As
      Restated)
            
            December 28,
              2008
              (As
      Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            52,552
            
            
            $
            46,906Restricted
      cash
            
            
            2,850
            
            
            
            3,433Accounts
      receivable, net of allowance for sales returns and doubtful accounts of
      $11,143 and $9,478, respectively
            
            
            178,107
            
            
            
            213,871Inventories
            
            
            72,918
            
            
            
            81,098Prepaid
      expenses and other current assets
            
            
            25,590
            
            
            
            25,303Deferred
      income taxes
            
            
            3,204
            
            
            
            3,204Total
      current assets
            
            
            335,221
            
            
            
            373,815Property,
      plant and equipment, net
            
            
            94,639
            
            
            
            98,616Intangible
      assets, net
            
            
            2,490
            
            
            
            3,803Asset
      held for sale
            
            
            4,085
            
            
            
            4,845Other
      assets
            
            
            5,830
            
            
            
            6,215TOTAL
      ASSETS
            
            $
            442,265
            
            
            $
            487,294LIABILITIES
      AND SHAREHOLDERS’ EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
            
            $
            108,881
            
            
            $
            139,267Accrued
      payroll and employee benefits
            
            
            11,817
            
            
            
            12,286Accrued
      restructuring costs
            
            
            5,029
            
            
            
            5,813Accrued
      expenses and other current liabilities
            
            
            33,923
            
            
            
            37,390Total
      current liabilities
            
            
            159,650
            
            
            
            194,756Long-term
      debt
            
            
            282,163
            
            
            
            285,256Other
      liabilities
            
            
            1,774
            
            
            
            1,898Total
      liabilities
            
            
            443,587
            
            
            
            481,910Commitments
      and contingencies (Notes 9 and 10)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, 131,978,122 and
      131,637,460 shares issued and outstanding, respectively
            
            
            821,763
            
            
            
            820,733Accumulated
      other comprehensive income
            
            
            10,881
            
            
            
            14,245Accumulated
      deficit
            
            
            (833,966
            )
            
            
            (829,594
            )Net
      shareholders’ equity (deficit)
            
            
            (1,322
            )
            
            
            5,384TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
            
            $
            442,265
            
            
            $
            487,294

















The
accompanying notes are an integral part of these consolidated financial
statements.





5
 Table of Contents


POWERWAVETECHNOLOGIES, INC.




CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)


(In
thousands, except per share data)





Three
      Months EndedMarch
      29,
              2009
              (As
      Restated)
            
            March
      30,
              2008
              (As
      Restated)Net
      sales
            
            $
            149,745
            
            
            $
            226,302Cost
      of sales:Cost
      of goods
            
            
            114,962
            
            
            
            172,764Intangible
      asset amortization
            
            
            623
            
            
            
            6,110Restructuring
      and impairment charges
            
            
            1,408
            
            
            
            5,372Total
      cost of sales
            
            
            116,993
            
            
            
            184,246Gross
      profit
            
            
            32,752
            
            
            
            42,056Operating
      expenses:Sales
      and marketing
            
            
            9,741
            
            
            
            12,546Research
      and development
            
            
            15,147
            
            
            
            19,672General
      and administrative
            
            
            12,099
            
            
            
            15,097Intangible
      asset amortization
            
            
            327
            
            
            
            2,597Restructuring
      and impairment charges
            
            
            1,498
            
            
            
            113Total
      operating expenses
            
            
            38,812
            
            
            
            50,025Operating
      loss
            
            
            (6,060
            )
            
            
            (7,969
            )Other
      income (expense), net
            
            
            3,158
            
            
            
            (7,235
            )Loss
      before income taxes
            
            
            (2,902
            )
            
            
            (15,204
            )Income
      tax provision
            
            
            1,470
            
            
            
            968Net
      loss
            
            $
            (4,372
            )
            
            $
            (16,172
            )Loss
      per share, basic and diluted:
            
            $
            (0.03
            )
            
            $
            (0.12
            )Shares
      used in the computation of loss per share:Basic
      and diluted
            
            
            131,491
            
            
            
            130,927





















































The
accompanying notes are an integral part of these consolidated financial
statements.





6
 Table of Contents


POWERWAVETECHNOLOGIES, INC.




CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


(Unaudited)


(In
thousands)





Three
      Months EndedMarch
      29,
              2009
              (As
      Restated)
            
            March
      30,
              2008
              (As
      Restated)Net
      loss
            
            $
            (4,372
            )
            
            $
            (16,172
            )Other
      comprehensive income (loss):Foreign
      currency translation adjustments, net of income taxes
            
            
            (3,364
            )
            
            
            36,544Comprehensive
      income (loss)
            
            $
            (7,736
            )
            
            $
            20,372













































The
accompanying notes are an integral part of these consolidated financial
statements.





7
 Table of Contents


POWERWAVETECHNOLOGIES, INC.




CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)


Three
      Months EndedMarch
      29,
              2009
              (As
      Restated)
            
            March
      30,
              2008
              (As
      Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (4,372
            )
            
            $
            (16,172
            )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
            
            
            7,117
            
            
            
            15,719Non-cash
      restructuring and impairment charges
            
            
            2,906
            
            
            
            5,485Provision
      for sales returns and doubtful accounts
            
            
            1,848
            
            
            
            (472
            )Provision
      for excess and obsolete inventories
            
            
            694
            
            
            
            4,279Compensation
      costs related to stock-based awards
            
            
            899
            
            
            
            1,290Gain
      on repurchase of convertible debt
            
            
            (3,368
            )
            
            
            —Gain
      on disposal of property, plant and equipment
            
            
            17
            
            
            
            (88
            )Gain
      on settlement of litigation
            
            
            (645
            )
            
            
            —Changes
      in operating assets and liabilities, net of acquisitions:Accounts
      receivable
            
            
            33,477
            
            
            
            (5,691
            )Inventories
            
            
            5,387
            
            
            
            (6,597
            )Prepaid
      expenses and other current assets
            
            
            (952
            )
            
            
            4,909Accounts
      payable
            
            
            (30,835
            )
            
            
            30,261Accrued
      expenses and other current liabilities
            
            
            (6,178
            )
            
            
            (7,432
            )Other
      non-current assets
            
            
            585
            
            
            
            804Other
      non-current liabilities
            
            
            (76
            )
            
            
            (4,763
            )Net
      cash provided by operating
      activities
            
            
            6,504
            
            
            
            21,532CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
            
            
            (1,687
            )
            
            
            (3,409
            )Restricted
      cash
            
            
            583
            
            
            
            4,177Proceeds
      from the sale of property, plant and equipment
            
            
            —
            
            
            
            250Acquisitions,
      net of cash acquired
            
            
            1,960
            
            
            
            —Net
      cash provided by investing
      activities
            
            
            856
            
            
            
            1,018CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from stock-based compensation arrangements
            
            
            131
            
            
            
            491Repurchase
      of common stock
            
            
            —
            
            
            
            (417
            )Retirement
      of long-term debt
            
            
            (1,345
            )
            
            
            —Net
      cash provided by (used in) financing
      activities
            
            
            (1,214
            )
            
            
            74EFFECT
      OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
            
            
            (500
            )
            
            
            2,260NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            5,646
            
            
            
            24,884CASH
      AND CASH EQUIVALENTS, beginning of period
            
            
            46,906
            
            
            
            58,151CASH
      AND CASH EQUIVALENTS, end of period
            
            $
            52,552
            
            
            $
            83,035SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid for:Interest
      expense
            
            $
            126
            
            
            $
            90Income
      taxes
            
            $
            1,559
            
            
            $
            1,622SUPPLEMENTAL
      SCHEDULE OF NON-CASH ACTIVITIES:Unpaid
      purchases of property and
      equipment
            
            $
            660
            
            
            $
            360





The
accompanying notes are an integral part of these consolidated financial
statements.





8
 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, filters, radio frequency
power amplifiers, repeaters, tower-mounted amplifiers, remote radio head
transceivers and advanced coverage solutions for use in cellular, PCS, 3G and
WiMAX 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 3, 2010, (“fiscal 2009”). The accompanying consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 28, 2008.




Newly
Adopted Accounting Pronouncements




In
November 2008, the Financial Accounting Standards Board (“FASB”) ratified
Emerging Issues Task Force (EITF) No. 08-7, Accounting for Defensive Intangible
Assets (EITF 08-7). EITF 08-7 applies to defensive intangible
assets, which are acquired intangible assets that the acquirer does not intend
to actively use but intends to hold to prevent its competitors from obtaining
access to them. As these assets are separately identifiable, EITF 08-7
requires an acquiring entity to account for defensive intangible assets as a
separate unit of accounting, and such assets should be amortized to expense over
the period such assets diminish in value. Defensive intangible assets must be
recognized at fair value in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141R (revised 2007), Business Combinations(SFAS
141R) and SFAS No. 157, Fair Value Measurement (SFAS
157). EITF 08-7 is effective for financial statements in the first quarter
of 2009. The adoption of EITF 08-7 did not have a material impact on the
Company’s business, results of operations or financial
condition.


In May 2008,
the FASB issued FASB FSP APB 14-1,Accounting for Convertible Debt
Instruments that May be Settled in Cash upon Conversion (Including Partial Cash
Settlement), which clarifies how a convertible debt instrument must be
accounted for if the instrument may be settled in cash or some combination of
cash and stock upon conversion of the debt.  The Company is required
to account for the liability and equity components of the convertible debt
separately.The
liability component is measured at its estimated fair value such that the
effective interest expense associated with the convertible debt reflects the
issuer’s borrowing rate at the time of issuance for similar debt instruments
without the conversion feature. The difference between the cash proceeds
associated with the convertible debt and the estimated fair value is recorded as
a debt discount and amortized to interest expense over the life of the
convertible debt using the effective interest rate method.  In
addition, direct issuance costs associated with the convertible debt instruments
are required to be allocated to the liability and equity components in
proportion to the allocation of proceeds and accounted for as debt issuance
costs and equity issuance costs, respectively. The Company has restated its
previously issued financial statements to reflect the retrospective adoption of
this guidance for its 1.875% Convertible Subordinated Notes due 2024 (“2024
Notes”). See Note 5 for information on the impact of the restatement on the
consolidated financial statements related to the adoption of the new
standard.


9
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




In April
2008, the FASB issued FASB Staff Position (FSP) No. 142-3,Determination of the Useful Life of
Intangible Assets, (FSP 142-3). FSP 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and
Intangible Assets (SFAS 142). FSP 142-3 is effective in the first quarter
of 2009. The adoption of FSP 142-3 did not have a material impact on the
Company’s business, results of operations or financial condition.




In
December 2007, the FASB issued SFAS 141R and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(SFAS 160), an amendment of Accounting
Research Bulletin (ARB) No. 51, Consolidated Financial
Statements (ARB 51). SFAS 141R will change how business acquisitions are
accounted for and SFAS 160 will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS 141R and SFAS 160 are effective
in the first quarter of 2009. The adoption of SFAS 141R and SFAS 160
did not have a material impact on the Company’s business, results of operations
or financial condition.




New
Accounting Pronouncements




In
April 2009, the FASB issued related Staff Positions: (i) FSP
No. 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability have
Significantly Decreased and Identifying Transactions That Are Not Orderly
(FSP 157-4) and (ii) FSP No. 107-1 and Accounting Principles Board
(APB) No. 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP 107-1 and APB
28-1), both of which are effective for interim and annual periods ending after
June 15, 2009. FSP 157-4 provides guidance on how to determine the fair
value of assets and liabilities under SFAS 157 in the current economic
environment and reemphasizes that the objective of a fair value measurement
remains an exit price. FSP 107-1 and APB 28-1 enhance the disclosure of
instruments under the scope of SFAS 157 for both interim and annual periods. The
Company does not expect the adoption of either of these Staff Positions to have
a material effect on its business, results of operations or financial
condition.




Stock-Based
Compensation




The
Company accounts for stock-based compensation in accordance with SFAS
No. 123 (Revised 2004), Share-Based Payment(SFAS 123R). Under the fair value recognition provision of SFAS
123R, 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 according to the Black-Scholes-Merton option pricing model and a single
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 expense was recognized as follows in the consolidated statement of
operations (in
thousands):




Three Months EndedMarch
      29,
              2009
            
            March
      30,
              2008Cost
      of sales
            
            $
            267
            
            
            $
            244Sales
      and marketing expenses
            
            
            90
            
            
            
            115Research
      and development expenses
            
            
            247
            
            
            
            278General
      and administrative expenses
            
            
            295
            
            
            
            653Increase
      to operating loss before income taxes
            
            
            899
            
            
            
            1,290Income
      tax benefit recognized
            
            
            —
            
            
            
            —Increase
      to net loss
            
            $
            899
            
            
            $
            1,290Increase
      to net loss per share:Basic
      and diluted
            
            $
            0.01
            
            
            $
            0.01







As of
March 29, 2009, unrecognized compensation expense related to the unvested
portion of the Company’s stock-based awards and employee stock purchase plan was
approximately $4.9 million, net of estimated forfeitures of $1.9 million, which
is expected to be recognized over a weighted-average period of 1.7
years.


10
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




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 2009 and 2008 were $0.43 per share and $1.60 per share,
respectively.




The fair
value of options granted under the Company’s stock incentive plans during the
first three months of fiscal 2009 and 2008 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 EndedMarch
      29,
              2009
            
            March
      30,
              2008Weighted
      average risk-free interest rate
            
            
            1.7
            %
            
            
            2.1
            %Expected
      life (in years)
            
            
            5.2
            
            
            
            4.5Expected
      stock volatility
            
            
            148
            %
            
            
            60
            %Dividend
      yield
            
            None
            
            
            None







Note
3. Supplemental Balance Sheet Information




Inventories




Net
inventories are as follows:




March
      29,
              2009
            
            December
      28,
              2008Parts
      and components
            
            $
            28,833
            
            
            $
            28,547Work-in-process
            
            
            2,133
            
            
            
            2,618Finished
      goods
            
            
            41,952
            
            
            
            49,933Total
      inventories
            
            $
            72,918
            
            
            $
            81,098




Inventories
are net of an allowance for excess and obsolete inventory of approximately $34.2
million and $43.4 million as of March 29, 2009 and December 28, 2008,
respectively.




Asset
Held For Sale




In the
fourth quarter of 2008, the Company completed the closure of its manufacturing
facility in Salisbury, Maryland as part of its 2008 Restructuring Plan. The
carrying value of the building has been separately presented in the accompanying
balance sheet under the caption “Asset Held for Sale” and this asset is no
longer being depreciated. In the first quarter of 2009, the Company recorded an
additional charge of $0.8 million to write the building down to its fair value
less cost to sell in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144). The Company signed a Purchase
and Sale Agreement for the building in April 2009 and expects the sale of the
building to be completed in the second quarter of 2009.


11
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




Warranty




Accrued
warranty costs are as follows:




Three
      Months EndedDescription
            
            March
      29,
              2009
            
            March
      30,
              2008Warranty
      reserve beginning balance
            
            $
            10,763
            
            
            $
            26,975Reductions
      for warranty costs incurred
            
            
            (2,501
            )
            
            
            (2,725
            )Warranty
      accrual related to current period sales
            
            
            1,444
            
            
            
            2,142Settlement
      of previous warranty claims
            
            
            —
            
            
            
            (2,858
            )Change
      in estimate related to previous warranty accruals
            
            
            —
            
            
            
            (2,360
            )Effect
      of exchange rates
            
            
            (2
            )
            
            
            503Warranty
      reserve ending balance
            
            $
            9,704
            
            
            $
            21,677




Note
4. Intangible Assets




Intangible
Assets




Intangible
assets are as follows:




Intangible Assets Subject to
      Amortization:
            
            March
      29,
              2009
            
            December
      28,
              2008Developed
      technology (net of accumulated amortization of $3,829 and $3,206,
      respectively)
            
            $
            1,871
            
            
            $
            2,494Customer
      relationships (net of accumulated amortization of $1,269 and $3,479,
      respectively)
            
            
            619
            
            
            
            1,309Intangible
      assets, net
            
            $
            2,490
            
            
            $
            3,803




Amortization
expense related to intangible assets totaled $1.0 million and $8.7 million for
the first quarter of 2009 and 2008, respectively. The remaining $2.5 million of
intangible assets will be fully amortized in 2009.




Note
5. Financing Arrangements ,Long-Term Debt and Restatement Matters




In the
first quarter of 2009, the Company repurchased approximately $5.4 million in
aggregate par value of its outstanding 1.875% convertible subordinated notes due
November 2024, resulting in a gain of $3.4 million on the purchase. After the
purchase, the Company had $150.9 million remaining on the 1.875% convertible
subordinated notes.




Credit
Agreement




On
April 3, 2009, the Company entered into a Credit Agreement (the “Credit
Agreement”), by and among the Company, the several lenders named therein as
“Lenders” from time to time and Wells Fargo Foothill, LLC, as arranger and
administrative agent for the Lenders. Pursuant to the Credit Agreement, the
Lenders will make 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 our borrowing base as defined in the
Credit Agreement and on eligible domestic and foreign accounts receivables. 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, dispositions of assets and transactions with affiliates of the
Company. The Credit Agreement also includes financial covenants including
minimum EBITDA and maximum capital
expenditures.




On
April 3, 2009, in connection with entering into the Credit Agreement
referenced above, the Company terminated its Revolving Trade Receivables
Purchase Agreement with Deutsche Bank AG, New York Branch, as Administrative
Agent, as amended on May 15, 2008 (the “Amended Receivables Purchase
Agreement”). As of the date of termination, the Company





12
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
 did not
have any borrowings outstanding under the Amended Receivables Purchase
Agreement. In addition, the Company did not incur any early termination
penalties in connection with the termination of the Amended Receivables Purchase
Agreement.




Impact
of the Adoption of FASB FSP APB 14-1 and Restatement




Subsequent
to the issuance of its consolidated financial statements for the three months
ended March 29, 2009, the Company identified an error in the accounting for its
2024 Notes and the application of FASB FSP APB 14-1 to that instrument. 
FASB FSP APB 14-1, which was effective on December 29, 2008, requires the
liability and equity components of convertible debt instruments that may be
settled in cash upon conversion to be separately accounted for in a manner that
reflects the issuer’s nonconvertible debt borrowing rate. To allocate the
proceeds from a convertible debt offering in this manner, a company would first
need to determine the carrying amount of the liability component, which would be
based on the fair value of a similar liability, excluding any embedded
conversion options. The resulting debt discount is then amortized over the
period during which the debt is expected to be outstanding as additional
non-cash interest expense. The adoption of FASB FSP APB 14-1 generally requires
retrospective application to all periods presented.  The Company had not
properly applied FASB FSP APB 14-1 to its 2024 Notes.  As a result, the
accompanying consolidated financial statements as of March 29, 2009 and December
28, 2008 and for the three months ended March 29, 2009 and March 30, 2008 have
been restated to correct for this error. The effect of the restatement is
described below.




Upon
adoption of FASB FSP APB 14-1, the Company estimated the fair value, as of the
date of issuance, of the 2024 Notes assuming a 7.05% non-convertible borrowing
rate to be $142.7 million.  The difference between the fair value and
the principal amount of the 2024 Notes was $57.3 million.  This amount
was retrospectively recorded as a debt discount and as an increase to additional
paid-in capital as of the issuance date.  The Company also incurred
approximately $6.2 million in transaction costs, of which $4.4 million was
allocated to the debt component as debt issuance costs and $1.8 million was
allocated to the equity component as equity issuance costs and a decrease to
additional paid-in-capital.  The debt issuance costs are being
amortized over the remaining life of the debt (the first put date in 2011) using
the effective interest method and are reported as an increase to interest
expense.




The
following tables set forth the effect of the restatement of the adoption and
retrospective application of FASB FSP APB 14-1 on certain previously reported
financial statement items:




March 29, 2009
            
            
            December 28, 2008Consolidated
      Balance Sheets:
            
            As
      Reported
            
            
            As
      Restated
            
            
            As
      Reported
            
            
            As
      RestatedOther
      assets
            
            $
            6,363
            
            
            $
            5,830
            
            
            $
            6,817
            
            
            $
            6,215Total
      assets
            
            
            442,798
            
            
            
            442,265
            
            
            
            487,896
            
            
            
            487,294Long-term
      debt
            
            
            300,887
            
            
            
            282,163
            
            
            
            306,321
            
            
            
            285,256Total
      liabilities
            
            
            462,311
            
            
            
            443,587
            
            
            
            502,975
            
            
            
            481,910Common
      Stock
            
            
            766,234
            
            
            
            821,763
            
            
            
            765,204
            
            
            
            820,733Accumulated
      deficit
            
            
            (796,628
            )
            
            
            (833,966
            )
            
            
            (794,528
            )
            
            
            (829,594
            )Net
      shareholders’ equity (deficit)
            
            
            (19,513
            )
            
            
            (1,322
            )
            
            
            (15,079
            )
            
            
            5,384Total
      liabilities and shareholders’ equity
            
            
            442,798
            
            
            
            442,265
            
            
            
            487,896
            
            
            
            487,294










Three Months EndedMarch 29, 2009
            
            March 30, 2008Consolidated
      Statements of Operations:
            
            As
      Reported
            
            As
      Restated
            
            As
      Reported
            
            As
      RestatedOther
      income (expense), net
            
            $
            5,430
            
            
            $
            3,158
            
            
            $
            (5,310
            )
            
            $
            (7,235
            )Loss
      before income taxes
            
            
            (630
            )
            
            
            (2,902
            )
            
            
            (13,279
            )
            
            
            (15,204
            )Net
      loss
            
            
            (2,100
            )
            
            
            (4,372
            )
            
            
            (14,247
            )
            
            
            (16,172
            )Loss
      per share:Basic
      and
      diluted
            
            $
            (0.02
            )
            
            $
            (0.03
            )
            
            $
            (0.11
            )
            
            $
            (0.12
            )







13
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)







Three Months EndedMarch 29, 2009
            
            March 30, 2008Consolidated
      Statements of Cash Flows:
            
            As
      Reported
            
            As
      Restated
            
            As
      Reported
            
            As
      RestatedNet
      income (loss)
            
            $
            (2,100
            )
            
            $
            (4,372
            )
            
            $
            (14,247
            )
            
            $
            (16,172
            )Depreciation
      and amortization
            
            
            6,033
            
            
            
            7,117
            
            
            
            14,756
            
            
            
            15,719Gain
      on repurchase of convertible debt
            
            
            (4,023
            )
            
            
            (3,368
            )
            
            
            —
            
            
            
            —Other
      non-current assets
            
            
            52
            
            
            
            585
            
            
            
            (158
            )
            
            
            804




The
following tables provide additional information about the Company’s 2024 Notes
that are subject to FASB FSP APB 14-1:





March
      29,
              2009
            
            
            December 28, 2008As
      Restated
            
            
            As
      RestatedCarrying
      amount of the equity component
            
            $
            55,529
            
            
            $
            55,529Principal
      amount of the 2024 Notes
            
            
            150,887
            
            
            
            156,321Unamortized
      discount of liability component
            
            
            (18,724
            )
            
            
            (21,065
            )Net
      carrying amount of liability component
            
            $
            132,163
            
            
            $
            135,256







Three
      Months EndedMarch
      29,
              2009
            
            March 30,
              2008Effective
      interest rate on liability component
            
            
            7.07
            %
            
            
            7.07
            %Contractual
      interest expense recognized on the 2024 Notes
            
            $
            938
            
            
            $
            938Amortization
      of the discount on liability component
            
            $
            1,667
            
            
            $
            1,988




The
remaining unamortized discount will be amortized using the effective interest
method through November 15, 2011. As of March 29, 2009, the if-converted value
of the 2024 Notes did not exceed the principal amount.






Note
6. 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 expects to finalize the plan in the second half of
2009.




A summary
of the activity affecting its accrued restructuring liability related to the
2009 Restructuring Plan for the three months ended March 29, 2009 is as
follows:




Workforce
      ReductionsBalance
      at December 28, 2008
            
            $
            —Amounts
      accrued
            
            
            1,517Amounts
      paid/incurred
            
            
            (506
            )Effects
      of exchange rates
            
            
            13Balance
      at March 29, 2009
            
            $
            1,024




14
 Table of Contents





POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
 Accounting for Costs Associated with
Exit or Disposal Activities




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 three months ended March 29, 2009 is as
follows:




Workforce
      Reductions
            
            Facility
      Closures
                &
      Equipment Write-downs
            
            TotalBalance
      at December 28, 2008
            
            $
            3,106
            
            
            $
            585
            
            
            $
            3,691Amounts
      accrued
            
            
            595
            
            
            
            32
            
            
            
            627Amounts
      paid/incurred
            
            
            (1,714
            )
            
            
            (90
            )
            
            
            (1,804
            )Effects
      of exchange rates
            
            
            (99
            )
            
            
            (3
            )
            
            
            (102
            )Balance
      at March 29, 2009
            
            $
            1,888
            
            
            $
            524
            
            
            $
            2,412




The costs associated with
these exit activities were recorded in accordance with the accounting guidance
in SFAS 146. 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 third quarter
of 2009, and the facility closure amounts will be paid out over the remaining
lease term, which extends through September 2010.




2007
Restructuring Plan




In the
second quarter of 2007, the Company formulated and began to implement a plan to
further consolidate operations and reduce operating costs. As part of this plan,
the Company closed its design and development centers in El Dorado Hills,
California and Toronto, Canada, and discontinued its design and development
center in Shipley, UK. Also as part of this plan, the Company sold its
manufacturing operations located in Hungary to Sanmina SCI, a third party
contract manufacturing supplier, and entered into a manufacturing services
agreement with Sanmina SCI. The transaction included inventories and fixed
assets and included a sublease of the existing facility, along with the
assumption of certain liabilities, including all transferred employees. The
Company finalized this plan in the fourth quarter of 2007.




A summary
of the activity affecting its accrued restructuring liability related to the
2007 Restructuring Plan for the three months ended March 29, 2009 is as
follows:




Facility
      Closures
                &
      Equipment Write-downsBalance
      at December 28, 2008
            
            $
            551Amounts
      accrued
            
            
            2Amounts
      paid/incurred
            
            
            (145
            )Effects
      of exchange rates
            
            
            (94
            )Balance
      at March 29, 2009
            
            $
            314




The costs associated with
these exit activities were recorded in accordance with the accounting guidance
in SFAS 146. The restructuring and integration plan is subject to
continued future refinement as additional information becomes available. The
Company expects that the facility closure amounts will be paid out over the
remaining lease term, which extends through June 2009.


15
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




2006
Plan for Consolidation of Operations




In the
fourth quarter of 2006, and in connection with the Filtronic plc wireless
acquisition, the Company formulated and began to implement a plan to restructure
its global manufacturing operations, including the consolidation of its
manufacturing facilities in Wuxi and Shanghai, China, into the manufacturing
facility located in Suzhou, China. The plan includes a reduction of workforce,
impairment and disposal of inventory and equipment utilized in discontinued
product lines, and facility closure costs. In addition, the Company also ceased
the production of certain product lines manufactured at these facilities to
eliminate duplicative product lines.




A summary
of the activity affecting its accrued restructuring liability related to the
2006 Plan for Consolidation of Operations for the three months ended
March 29, 2009 is as follows:




Facility
      Closures
                &
      Equipment Write-downsBalance
      at December 28, 2008
            
            $
            146Amounts
      accrued
            
            
            —Amounts
      paid/incurred
            
            
            —Effects
      of exchange rates
            
            
            1Balance
      at March 29, 2009
            
            $
            147




The costs
associated with these exit activities were recorded in accordance with the
accounting guidance in SFAS 146. The Company’s restructuring and
integration plans are subject to continued future refinement as additional
information becomes available. The Company expects that the remaining payments
on this plan will be made in the second quarter of 2009.




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 REMEC,
Inc.’s wireless systems business and LGP Allgon’s operations, 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 EITF No. 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination(EITF 95-3). The
implementation of the restructuring and integration plan is substantially
complete.




A summary
of the activity affecting the Company’s accrued restructuring liability related
to the integration of the REMEC, Inc.’s wireless systems business and LGP Allgon
for the three months ended March 29, 2009 is as follows:




Facility
      Closures
                &
      Equipment Write-downsBalance
      at December 28, 2008
            
            $
            1,425Amounts
      accrued
            
            
            —Amounts
      paid/incurred
            
            
            (293
            )Effects
      of exchange rates
            
            
            —Balance
      at March 29, 2009
            
            $
            1,132




The
Company expects that the facility closure amounts will be paid out over the
remaining lease term which extends through January 2011.




Restructuring
and Impairment Charges




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.


16
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




In the
first quarter of 2008, the Company recorded a charge of approximately $5.4
million for the impairment of inventory that either has been or will be disposed
of and is not expected to generate future revenue due primarily to the
consolidation of its facilities in China, and incurred charges of $0.1 million
for professional fees related to the Company’s restructuring plans.




Note
7. Other Income (Expense), Net




The
components of other income (expense), net, are as follows:




Three Months EndedMarch
      29,
              2009
            
            March
      30,
              2008Interest
      income
            
            $
            398
            
            
            $
            181Interest
      expense
            
            
            (4,348
            )
            
            
            (4,884
            )Foreign
      currency gain (loss), net
            
            
            2,821
            
            
            
            (3,248
            )Gain
      on repurchase of convertible debt
            
            
            3,368
            
            
            
            —Other
      income, net
            
            
            919
            
            
            
            716Totalother
      income (expense), net
            
            $
            3,158
            
            
            $
            (7,235
            )




Other income (expense),
net, for the quarter ended March 29, 2009 includes a gain of approximately
$3.4 million related to the repurchase of approximately $5.4 million in
aggregate par value of the Company’s outstanding 1.875% convertible subordinated
notes due 2024.




Note
8. Loss Per Share




In
accordance with SFAS No. 128, Earnings Per Share (SFAS
128), 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 31,190,392 and 36,858,360
related to the Company’s stock option programs and convertible debt have been
excluded from diluted weighted average common shares for the three months ended
March 29, 2009 and March 30, 2008, respectively, as the effect would
be anti-dilutive.




The
following details the calculation of basic and diluted loss per
share:




Three
      Months EndedMarch
      29,
              2009
            
            March
      30,
              2008Basic:Loss
            
            $
            (4,372
            )
            
            $
            (16,172
            )Weighted
      average common shares
            
            
            131,491
            
            
            
            130,927Basic
      loss per share
            
            $
            (0.03
            )
            
            $
            (0.12
            )Diluted:Loss
            
            $
            (4,372
            )
            
            $
            (16,172
            )Interest
      expense of convertible debt, net of tax
            
            
            —
            
            
            
            —Loss,
      as adjusted
            
            $
            (4,372
            )
            
            $
            (16,172
            )Weighted
      average common shares
            
            
            131,491
            
            
            
            130,927Potential
      common shares
            
            
            —
            
            
            
            —Weighted
      average common shares, as adjusted
            
            
            131,491
            
            
            
            130,927Diluted
      loss per share
            
            $
            (0.03
            )
            
            $
            (0.12
            )




17
 Table of Contents





POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




In the
first quarter of 2007, four purported shareholder class action complaints were
filed in the United States District Court for the Central District of California
against the Company, its President and Chief Executive Officer, its former
Executive Chairman of the Board of Directors and its Chief Financial Officer.
The complaints were Jerry
Crafton v. Powerwave Technologies, Inc., et. al., Kenneth Kwan v. Powerwave
Technologies, Inc., et. al., Achille Tedesco v. Powerwave Technologies, Inc.,
et. al. and Farokh Etemadieh v. Powerwave Technologies, Inc. et. al.and
were brought under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder. In June 2007, the four cases were consolidated
into one action before the Honorable Judge Philip Gutierrez, and a lead
plaintiff was appointed. In October 2007, the lead plaintiff filed an amended
complaint asserting the same causes of action and purporting to state claims on
behalf of all persons who purchased Powerwave securities between May 2,
2005 and November 2, 2006. The essence of the allegations in the amended
complaint were that the defendants made misleading statements or omissions
concerning the Company’s projected and actual sales revenues, the integration of
certain acquisitions and the sufficiency of the Company’s internal controls. In
December 2007, the defendants filed a motion to dismiss the amended
complaint. On April 17, 2008, the Court granted defendants’ motion to
dismiss plaintiffs’ claims in connection with the Company’s projected sales
revenues, but denied defendants’ motion to dismiss plaintiffs’ other claims. On
August 29, 2008, the defendants answered the amended complaint. Discovery
has begun, and trial of the action is scheduled to commence on January 19,
2010. The defendants have reached an agreement in principle with the lead
plaintiff to settle the consolidated action. According to the terms of the
proposed settlement, the settlement payment will be funded by the Company’s
directors and officers liability insurance. The proposed settlement is subject
to both preliminary and final Court approval.




In March
2007, one additional lawsuit that relates to the pending shareholder class
action was filed. The lawsuit, Cucci v. Edwards, et al.,
filed in the Superior Court of California, is a shareholder derivative action,
purported to be brought by an individual shareholder on behalf of Powerwave,
against current and former directors of Powerwave. Powerwave is also named as a
nominal defendant. The allegations of the derivative complaint closely resemble
those in the class action and pertain to the time period of May 2, 2005
through October 9, 2006. Based on those allegations, the derivative
complaint asserts various claims for breach of fiduciary duty, waste of
corporate assets, mismanagement, and insider trading under state law. The
derivative complaint was removed to federal court, and is also pending before
Judge Gutierrez. The derivative action is currently stayed pursuant to a
stipulation of the parties that has been entered by the Court. Powerwave
disputes the allegations raised in the derivative action and plans to pursue a
vigorous defense of this matter.





Note
10. 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 March 29, 2009 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





18
 Table of Contents
 
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




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. 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 September 2007, November 2004, and July 2003, 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
11. 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. In accordance with the provisions of SFAS
No. 109, Accounting for
Income Taxes(SFAS 109), 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 judgments 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
such 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
2009 where the Company believes it is more likely than not that deferred tax
assets will not be realized.




19
 Table of Contents


POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




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 March 29, 2009, the
Company has concluded all United States federal income tax matters for years
through 2005. The Company is currently involved in tax audits with the U.S. for
fiscal year 2006 and Finland for fiscal years 2007 and 2008. All material state
and local, and foreign income tax matters have been concluded for years through
2005.




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.




Note
13. Customer Concentrations




The
Company’s product sales have historically been concentrated in a small number of
customers. For the three months ended March 29, 2009 and March 30,
2008, sales to customers that accounted for 10% or more of revenues totaled
$53.6 million and $112.8 million, respectively. Nokia Siemens accounted for
approximately 36% of total net sales for the three months ended March 29,
2009. For the three months ended March 30, 2008, sales to Nokia Siemens,
accounted for approximately 29% of revenues, and sales to Alcatel-Lucent
accounted for approximately 21% of revenues.




As of
March 29, 2009, approximately 29% of total accounts receivable related to
customers that accounted for 10% or more of the Company’s total revenue during
the first three months of 2009. Nokia Siemens accounted for this 29% of the
Company’s total accounts receivable. The inability to collect outstanding
receivables from this customer 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 could result in delays in
product introductions, interruption in product shipments or increases in product
costs, which could have a material adverse effect on the Company’s business,
financial condition and results of operations 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, filters, radio frequency power amplifiers, repeaters, tower-mounted
amplifiers and advanced coverage solutions for use in cellular, PCS, 3G and
WiMAX 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,





20
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
 Ericsson,
Huawei, Motorola, Nokia Siemens, Nortel and Samsung. The other major channel is
direct to wireless network operators, such as AT&T, Bouygues, Orange,
Sprint, 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.


21
 Table of Contents


ITEM2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




Subsequent
to the issuance of its consolidated financial statements for the fiscal quarter
ended March 29, 2009, the Company identified an error in the accounting for its
2024 Notes and the application of FASB  FSP APB
14-1, DebtAccounting
for Convertible Debt Instruments that May be Settled in Cash upon Conversion
(Including Partial Cash Settlement),to that
instrument.  FASB FSP APB 14-1,
which was effective on December 29, 2008, requires the liability and equity
components of convertible debt instruments that may be settled in cash upon
conversion to be separately accounted for in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. To allocate the proceeds from a convertible
debt offering in this manner, a company would first need to determine the
carrying amount of the liability component, which would be based on the fair
value of a similar liability, excluding any embedded conversion options. The
resulting debt discount is then amortized over the period during which the debt
is expected to be outstanding as additional non-cash interest expense. The
adoption of FASB FSP
APB 14-1 generally requires retrospective application to all periods
presented.  The Company had not properly applied FASB FSP APB 14-1to its 2024 Notes.  As a result, the accompanying consolidated
financial statements for the three months ended March 29, 2009 and March 30,
2008 have been restated to correct for this error. The effect of the restatement
is described in Note
5 of the Notes to Consolidated Financial Statements under Part I, Item 1,Financial
Statements.The following management’s
discussion and analysis gives effect to the restatement.




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




Powerwave
is 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 communication networks, including antennas, boosters, combiners,
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 that
support voice and data communications by use of cell phones and other wireless
communication devices. We sell such 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 decade, demand for wireless communications infrastructure equipment has
fluctuated dramatically. While demand for wireless infrastructure was strong
during 2005, it weakened for Powerwave 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 the first three quarters
of 2008, demand once again increased. Starting in the fourth quarter of 2008 and
carrying over into 2009, demand for our products has been negatively impacted by
the global economic crisis. We anticipate that the global credit crisis and
economic recession that began in the fall of 2008 will lead to reduced capital
spending and lower demand for our products in the near term. This will likely
negatively impact our financial results in the near term. During 2008 and the
first quarter of 2009, we undertook several cost cutting initiatives 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 slowdowns 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. During fiscal 2006 and 2007, 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 directly reduced demand for our products and contributed
to our operating losses for both fiscal 2006 and 2007.


22
 Table of Contents




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 communication 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 several years, beginning in fiscal 2004 we focused on cost
savings while we expanded our market opportunities, as evidenced by our
acquisition of LGP Allgon. This acquisition involved the integration of two
companies based in different countries that previously operated independently,
which was a complex, costly and time-consuming process. During fiscal 2005, we
continued to focus on cost savings while we expanded our market opportunities,
as evidenced by our acquisition of selected assets and liabilities of REMEC,
Inc.’s wireless systems business. 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 and
2008, we focused on finalizing and implementing our plans to integrate this
acquisition, consolidate operations and reduce 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 five
years, these acquisitions do not provide any guarantee that our revenues will
increase. We currently have a number of ongoing restructuring activities which
are aimed at further reducing our overall operating cost structure and
positioning us to return to profitability.





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 significant accounting policies and estimates, see Item 7,
Management’s Discussion and
Analysis of Financial Condition and Results of Operations, of Part II of
our Annual Report on Form 10-K for the year ended December 28,
2008.




Accruals
for Restructuring and Impairment Charges




In the
first quarters of 2009 and 2008, the Company recorded restructuring and
impairment charges of approximately $2.9 million and $5.5 million,
respectively.




Such
charges relate to our 2007, 2008 and 2009 Restructuring Plans. See further
discussion of these plans in Note 6 of the Notes to Consolidated Financial
Statements under Part I, Item I, Financial
Information.




All of
these 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





23
 Table of Contents
 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 and Newly Adopted Accounting
Pronouncements




For a
summary of our New Accounting Pronouncements and Newly Adopted Accounting
Pronouncements, see Note 2 of the Notes to Consolidated Financial
Statements under Part I, Item I, Financial
Information.





24
 Table of Contents


Results
of Operations




The
following table summarizes Powerwave’s results of operations as a percentage of
net sales for the three months ended March 29, 2009 and March 30,
2008:




Three Months
      EndedMarch
      29,
              2009
            
            March
      30,
              2008Net
      sales
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of sales:Cost
      of goods
            
            
            76.8
            
            
            
            76.3Intangible
      asset amortization
            
            
            0.4
            
            
            
            2.7Restructuring
      and impairment charges
            
            
            0.9
            
            
            
            2.4Total
      cost of sales
            
            
            78.1
            
            
            
            81.4Gross
      profit
            
            
            21.9
            
            
            
            18.6Operating
      expenses:Sales
      and marketing
            
            
            6.5
            
            
            
            5.5Research
      and development
            
            
            10.1
            
            
            
            8.7General
      and administrative
            
            
            8.1
            
            
            
            6.7Intangible
      asset amortization
            
            
            0.2
            
            
            
            1.1Restructuring
      and impairment charges
            
            
            1.0
            
            
            
            0.1Total
      operating expenses
            
            
            25.9
            
            
            
            22.1Operating
      loss
            
            
            (4.0
            )
            
            
            (3.5
            )Other
      income (expense), net
            
            
            2.1
            
            
            
            (3.1
            )Loss
      before income taxes
            
            
            (1.9
            )
            
            
            (6.6
            )Income
      tax provision
            
            
            1.0
            
            
            
            0.5Net
      loss
            
            
            (2.9
            )%
            
            
            (7.1
            )%




Three
Months ended March 29, 2009 and March 30, 2008




Net
Sales




Our sales
are derived from the sale of wireless communications network products and
coverage solutions, including antennas, boosters, combiners, filters, radio
frequency power amplifiers, remote radio head transceivers, repeaters,
tower-mounted amplifiers and advanced coverage solutions for use in cellular,
PCS, 3G and WiMAX 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
            
            March 29, 2009
            
            March 30, 2008Wireless
      network operators and other
            
            $
            54,565
            
            
            
            36
            %
            
            $
            73,100
            
            
            
            32
            %Original
      equipment manufacturers
            
            
            95,180
            
            
            
            64
            %
            
            
            153,202
            
            
            
            68
            %Total
            
            $
            149,745
            
            
            
            100
            %
            
            $
            226,302
            
            
            
            100
            %




Sales
decreased by 34% to $149.7 million for the three months ended March 29,
2009, from $226.3 million, for the three months ended March 30, 2008. 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 25% and 38%, respectively, for the three months
ended March 29, 2009 from the three months ended March 30, 2008. The
decreases were primarily due to significantly reduced demand related to the
global macro-economic crisis and associated global credit crisis and economic
recession that began in the fall of 2008. This economic instability and the
tight credit markets have impacted our customers’ demand for products throughout
the first quarter of 2009.





25
 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
            
            March 29, 2009
            
            March 30, 2008Antenna
      systems
            
            $
            35,756
            
            
            
            24
            %
            
            $
            51,879
            
            
            
            23
            %Base
      station systems
            
            
            102,418
            
            
            
            68
            %
            
            
            152,499
            
            
            
            67
            %Coverage
      systems
            
            
            11,571
            
            
            
            8
            %
            
            
            21,924
            
            
            
            10
            %Total
            
            $
            149,745
            
            
            
            100
            %
            
            $
            226,302
            
            
            
            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 all
three product groups listed in the table above is due to the significantly
reduced demand related to the global economic crisis impacting both our original
equipment manufacturer and direct operator customers during the three months
ended March 29, 2009 as compared with the three months ended March 30,
2008.




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 reship 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
            
            March 29, 2009
            
            March 30, 2008Americas
            
            $
            35,601
            
            
            
            24
            %
            
            $
            86,081
            
            
            
            38
            %Asia
      Pacific
            
            
            58,520
            
            
            
            39
            %
            
            
            62,756
            
            
            
            28
            %Europe
            
            
            43,488
            
            
            
            29
            %
            
            
            70,513
            
            
            
            31
            %Other
      international
            
            
            12,136
            
            
            
            8
            %
            
            
            6,952
            
            
            
            3
            %Total
            
            $
            149,745
            
            
            
            100
            %
            
            $
            226,302
            
            
            
            100
            %




Revenues
decreased in all regions in the first quarter of 2009 as compared to the first
quarter of 2008 with the exception of the other international category. The
increase in revenues in the “other international” category largely represents
increased revenues in the Middle East region. The decrease in the other regions
was largely due to contraction in both the operator direct channel as well as
the original equipment manufacturer sales channel, resulting from the global
macro-economic crisis. 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. In addition,
as noted above, growth in one geographic location may not reflect actual demand
growth in that location due to the centralized buying processes of our original
equipment manufacturer customers.




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 2008 to those in
effect for the first quarter of 2009, 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. During the first quarter of 2009, the value of the
U.S. Dollar fluctuated dramatically and weakened significantly when
compared to values in the fourth quarter of 2008. We are unable to predict the
future impact of such currency fluctuations on our future results.




For the
quarter ended March 29, 2009, total sales to Nokia Siemens accounted for
approximately 36% of sales. For the first quarter of 2009, no other single
customer accounted for 10% or more of sales. For the quarter ended
March 30, 2008, total sales to Nokia Siemens accounted for approximately
29% of sales and sales to Alcatel-Lucent accounted for approximately 21% of
sales for the quarter. 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





26
 Table of Contents
 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 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)March 29, 2009
            
            March 30, 2008Net
      sales
            
            $
            149,745
            
            
            
            100.0
            %
            
            $
            226,302
            
            
            
            100.0
            %Cost
      of sales:Cost
      of sales
            
            
            114,962
            
            
            
            76.8
            %
            
            
            172,764
            
            
            
            76.3
            %Intangible
      amortization
            
            
            623
            
            
            
            0.4
            %
            
            
            6,110
            
            
            
            2.7
            %Restructuring
      and impairment charges
            
            
            1,408
            
            
            
            0.9
            %
            
            
            5,372
            
            
            
            2.4
            %Total
      cost of sales
            
            
            116,993
            
            
            
            78.1
            %
            
            
            184,246
            
            
            
            81.4
            %Gross
      profit
            
            $
            32,752
            
            
            
            21.9
            %
            
            $
            42,056
            
            
            
            18.6
            %




Our
actual total gross profit decreased during the first quarter of fiscal 2009,
compared to the first quarter of fiscal 2008, primarily as a result of our
decreased revenues. As a percentage of revenue, our gross profit margin
increased during the first quarter of fiscal 2009 compared to the first quarter
of fiscal 2008 due primarily to lower amortization and restructuring costs. The
decrease in the intangible amortization costs is due to the intangible asset
impairment recorded in the fourth quarter of 2008 (see Note 6 in the Notes to Consolidated Financial
Statements included under Part II, Item 8, and Financial Statements and
Supplementary Data of the Company’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2008). We incurred approximately $1.4
million of restructuring and impairment charges during the first quarter of
fiscal 2009, primarily related to the write down of our facility held for sale
in Salisbury, Maryland and severance charges in the U.S., Finland and the UK.
For the first quarter of 2008, we incurred restructuring and impairment charges
totaling $5.4 million. Our cost of goods sold for the first quarter of 2009 is
slightly higher as a percentage of revenue compared to the prior year period.
This increase in the percentage of cost of goods sold is due mainly to lower
revenues in 2009 resulting in lower absorption of costs when compared to
2008.




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 decision 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





27
 Table of Contents
 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. See “Our average
sales prices have declined...” and “Our reliance on contract manufacturers exposes
us to risks...” under Part II, Item 1A, Risk
Factors.




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)March 29, 2009
            
            March 30, 2008Operating ExpensesSales
      and marketing
            
            $
            9,741
            
            
            
            6.5
            %
            
            $
            12,546
            
            
            
            5.5
            %Research
      and development
            
            
            15,147
            
            
            
            10.1
            %
            
            
            19,672
            
            
            
            8.7
            %General
      and administrative
            
            
            12,099
            
            
            
            8.1
            %
            
            
            15,097
            
            
            
            6.7
            %Intangible
      amortization
            
            
            327
            
            
            
            0.2
            %
            
            
            2,597
            
            
            
            1.1
            %Restructuring
      and impairment charges
            
            
            1,498
            
            
            
            1.0
            %
            
            
            113
            
            
            
            0.1
            %Total
      operating expenses
            
            $
            38,812
            
            
            
            25.9
            %
            
            $
            50,025
            
            
            
            22.1
            %




Sales and
marketing expenses consist primarily of sales 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 $2.8 million, or 22%, during the quarter ended
March 29, 2009 as compared to the quarter ended March 30, 2008. The
decrease was due to lower personnel and other selling and marketing costs
primarily resulting from restructuring actions taken in the last year, partially
offset by higher bad debt expense in the first quarter of 2009.




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 $4.5 million, or 23%, during the first quarter of 2009 as
compared to the first quarter of 2008 due to restructuring actions taken in the
last year and lower professional fees for outsourced research and development
costs. Also contributing to the decrease in research and development expenses
were lower travel expenses and professional fees.




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 $3.0 million, or 20%,
during the first quarter of 2009 as compared to the first quarter of 2008. This
decrease was due to reduced payroll resulting from personnel reductions over the
last year from our restructuring activities and lower legal fees.




Amortization
of customer-related intangibles from our acquisitions, amounted to $0.3 million
for the first quarter of fiscal 2009, compared to $2.6 million for the first
quarter of fiscal 2008. The decreased amortization expense for the first quarter
of 2009 was a result of the intangible asset impairment recorded in the fourth
quarter of 2008.




Restructuring
charges of $1.5 million were recorded in the first quarter of fiscal 2009,
primarily for severance costs in the U.S., Finland and Sweden, compared to
charges of $0.1 million in the first quarter of fiscal 2008.





Other
Income (Expense), net




The
following table presents an analysis of other income (expense),
net:




Three
      Months Ended
                (in
      thousands)March 29, 2009
            
            March 30, 2008Interest
      income
            
            $
            398
            
            
            
            0.2
            %
            
            $
            181
            
            
            
            0.1
            %Interest
      expense
            
            
            (4,348
            )
            
            
            (2.9
            )%
            
            
            (4,884
            )
            
            
            (2.1
            )%Foreign
      currency gain (loss), net
            
            
            2,821
            
            
            
            1.9
            %
            
            
            (3,248
            )
            
            
            (1.4
            )%Gain
      on repurchase of convertible debt
            
            
            3,368
            
            
            
            2.3
            %
            
            
            —
            
            
            
            —Other
      income, net
            
            
            919
            
            
            
            0.6
            %
            
            
            716
            
            
            
            0.3
            %Other
      income (expense), net
            
            $
            3,158
            
            
            
            2.1
            %
            
            $
            (7,235
            )
            
            
            (3.1
            )%




28
 Table of Contents


Interest
income increased by $0.2 million during the first quarter ended March 29,
2009 compared to the first quarter ended March 30, 2008. Interest expense
decreased by $0.5 million during the first quarter of fiscal 2009 due to the
retirement of approximately $50 million of our long-term debt when compared to
the first quarter of 2008. Also included in other income (expense), net is
a  gain of $3.4 million that we recognized on the purchase of $5.4
million in aggregate par value of our outstanding 1.875% convertible
subordinated notes due 2024 that were purchased at a discount during the first
quarter of 2009. Additionally, we recognized a net foreign currency translation
gain of $2.8 million in the first quarter of 2009, primarily due to the strength
of the U.S. Dollar versus several other currencies, as compared to the
first quarter of 2008 when we recognized a foreign currency translation loss of
$3.2 million.




Income
Tax Provision




Our
effective tax rate for the three months ended March 29, 2009 was an expense
of approximately 50.7% of our pre-tax loss of $2.9 million. We have recorded a
valuation allowance against a portion of our deferred tax assets pursuant to
SFAS 109 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 three months
ended March 29, 2009, tax expense consisted primarily of taxes or tax
benefits in certain foreign jurisdictions, primarily China. In addition, in the
first quarter of 2009, tax expense was reduced by approximately $1.1 million
from a reduction in our liability for income taxes associated with uncertain tax
positions as a result of the expiration of the statutory audit period of the tax
jurisdiction.




Net
Loss




The
following table presents a reconciliation of operating loss to net
loss:




Three
      Months Ended
              (in
      thousands)March 29, 2009
            
            March 30, 2008Operating
      loss
            
            $
            (6,060
            )
            
            $
            (7,969
            )Other
      income (expense), net
            
            
            3,158
            
            
            
            (7,235
            )Loss
      before income taxes
            
            
            (2,902
            )
            
            
            (15,204
            )Income
      tax provision
            
            
            1,470
            
            
            
            968Net
      loss
            
            $
            (4,372
            )
            
            $
            (16,172
            )




Our net
loss for the quarter ended March 29, 2009 was $4.4 million, compared to our
net loss of $16.2 million for the quarter ended March 30, 2008. The
decrease in our net loss during the first quarter of fiscal 2009 as compared to
the first quarter of fiscal 2008 is primarily the result of our worldwide
cost-cutting and restructuring activities. Additionally, we have benefited from
prior year asset impairments which significantly reduced our intangible
amortization costs as well as the benefit from the gain on the purchase of a
portion of our outstanding debt.




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 March 29, 2009, we had working
capital of $175.6 million, including $52.6 million in unrestricted cash and cash
equivalents as compared to working capital of $199.4 million at March 30,
2008, which included $83.0 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.


29
 Table of Contents




Cash
Flows




The
following table summarizes our cash flows for the three months ended
March 29, 2009 and March 30, 2008:




Three
      Months Ended
              (in
      thousands)March 29, 2009
            
            March 30, 2008Net
      cash provided by (used in):Operating
      activities
            
            $
            6,504
            
            
            $
            21,532Investing
      activities
            
            
            856
            
            
            
            1,018Financing
      activities
            
            
            (1,214
            )
            
            
            74Effect
      of foreign currency translation on cash and cash
    equivalents
            
            
            (500
            )
            
            
            2,260Net
      increase in cash and cash equivalents
            
            $
            5,646
            
            
            $
            24,884




Net cash
provided by operations in the first quarter of 2009 was $6.5 million as compared
to $21.5 million in the first quarter of 2008. The reduction in cash flow from
operations from the prior year is due to significantly lower revenues in the
first quarter of 2009.




Net cash
provided by investing activities during the first three months of fiscal 2009
was $0.9 million as compared to $1.0 million during the first three months of
fiscal 2008. The $0.9 million in net cash provided by investing activities
during the three months ended March 29, 2009 represents a reduction in our
restricted cash of $0.6 million and proceeds from a settlement of litigation of
$2.0 million, partially offset by capital expenditures of $1.7 million. Total
capital expenditures during the three months ended March 29, 2009 and
March 30, 2008 were approximately $1.7 million and $3.4 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 $10 million,
consisting of test and production equipment, as well as computer hardware and
software.




Net cash
used in financing activities of $1.2 million during the first three months of
2009 relates primarily to the repurchase of $5.4 million in aggregate par value
of our 1.875% convertible subordinated notes due 2024. Net cash provided by
financing activities for the first three months of 2008 of $0.1 million was
primarily related to our employee stock purchase
plan.




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 Foothill, LLC, 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.




We had a
total of $300.9 million of long-term convertible subordinate notes outstanding
at March 29, 2009, consisting of $150.9 million of 1.875% convertible
subordinated notes due 2024 (“2024 Notes”) and $150.0 million of 3.875%
convertible subordinated notes due 2027 (“2027 Notes”). Holders of the 2024
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 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 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.


30
 Table of Contents




Financing
Activities




As
indicated in Note 5 of the Notes to Consolidated Financial
Statementsunder Part I, Item I, FinancialInformation, the
Company entered into a Credit Agreement on April 3, 2009. Pursuant to the
Credit Agreement, the Lenders thereunder have made available to the Company 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 and on
eligible domestic and foreign accounts receivable. 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, 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 the Company with
respect to indebtedness, liens, investments, distributions, mergers and
acquisitions, dispositions of assets and transactions with affiliates of the
Company. The Credit Agreement also includes financial covenants including
minimum EBITDA and maximum capital expenditures.




On
April 3, 2009, in connection with entering into the Credit Agreement
referenced above, the Company terminated its Amended Receivables Purchase
Agreement. As of the date of termination, the Company did not have any
borrowings outstanding under the Amended Receivables Purchase Agreement. In
addition, the Company did not incur any early termination penalties in
connection with the termination of the Amended Receivables Purchase
Agreement.




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 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 financings, 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 both 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. The capital and credit markets have been experiencing extreme
volatility and disruption recently and, over the past several weeks, the
volatility and disruption have reached nearly unprecedented levels. In several
cases, the markets have 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 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 Form 10-K for the year ended
December 28, 2008, in Part II, Item 7 under the heading Contractual Obligations and
Commercial Commitments. As of March 29, 2009, 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.




Disclosure
About Stock Option Plans




Our stock
option program is a broad-based, long-term retention program that is intended to
attract and retain talented employees and align stockholder and employee
interests. The program consists of six separate plans: one under which
non-employee directors may be granted options to purchase shares of stock, and
five broad-based plans under which options may be granted to all employees,
including officers. One such plan provides for both option grants and stock
based awards including restricted stock awards. Options granted under these
plans expire either five or ten years from the grant date and generally vest
over two to four years.




31
 Table of Contents


During
the three months ended March 29, 2009, we granted options to purchase a
total of 3,998,750 shares of Common Stock. We did not grant any shares of
restricted stock to employees during the first quarter of fiscal 2009. After
deducting 378,310 shares for options forfeited, the result was net options
granted of 3,620,440. Net options granted during the quarter represented 2.7% of
our total outstanding common shares of 131,978,122 as of March 29, 2009.
The following table summarizes the net stock option grants and restricted stock
awards to our employees, directors and executive officers during the two most
recent fiscal periods:




Three Months Ended
                March 29,
                2009
            
            Year
      Ended
                December 28,
                2008Net
      grants (forfeitures) during the period as a % of total outstanding common
      shares
            
            
            2.7%
            
            
            
            0.2%Grants
      to executive officers during the period as a % of total options and awards
      granted during the period
            
            
            38.7%
            
            
            
            21.6%Grants
      to executive officers during the period as a % of total outstanding common
      shares
            
            
            1.2%
            
            
            
            0.3%Cumulative
      options held by executive officers as a % of total options
      outstanding
            
            
            37.5%
            
            
            
            34.7%




As of
March 29, 2009, a total of 2,278,512 options were available for grant under
all of our option plans with a total of 21,575 shares of Common Stock held in
escrow to cover all remaining exercises under the Company’s 1995 Stock Option
Plan. See Note 13 in the Notes
to Consolidated Financial Statements included under Part II, Item 8,
Financial Statements and
Supplementary Data of the Company’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2008 for further information regarding the
Company’s 1995 Stock Option Plan. The following table summarizes activity for
outstanding options under all of our stock option plans during the three months
ended March 29, 2009:




Number
      of
                Shares
            
            Price Per Share
            
            
            Weighted
                Average
                Exercise
                Price
            
            
            Number
      of
                Options
                Exercisable
            
            
            Weighted
                Average
                Exercise
                PriceBalance
      at December 28, 2008
            
            
            6,840,921
            
            
            $
            0.49-$67.08
            
            
            $
            8.34
            
            
            
            3,724,870
            
            
            $
            10.62Granted
            
            
            3,998,750
            
            
            $
            0.42-$  0.56
            
            
            $
            0.47Exercised
            
            
            —
            
            
            
            —
            
            
            
            —Cancelled
            
            
            (378,310
            )
            
            $
            0.48-$61.67
            
            
            $
            9.86Balance
      at March 29, 2009
            
            
            10,461,361
            
            
            $
            0.42-$67.08
            
            
            $
            5.28
            
            
            
            3,771,221
            
            
            $
            10.11




The
following table summarizes outstanding stock options that are “in-the-money” and
“out-of the-money” as of March 29, 2009. For purposes of this table,
in-the-money stock options are those options with an exercise price less than
$0.47 per share, the closing price of Powerwave Common Stock on March 27,
2009, the last trading day of the fiscal quarter. Out-of-the-money stock options
are stock options with an exercise price greater than or equal to the $0.47 per
share closing
price.




Exercisable
            
            
            Unexercisable
            
            
            Total
              SharesShares
            
            
            Wtd. Avg.
                Exercise
                Price
            
            
            Shares
            
            
            Wtd. Avg.
                Exercise
                PriceIn-the-Money
            
            
            —
            
            
            $
            —
            
            
            
            772,050
            
            
            $
            0.42
            
            
            
            772,050Out-of-the-Money
            
            
            3,771,221
            
            
            
            10.11
            
            
            
            5,918,090
            
            
            
            2.83
            
            
            
            9,689,311Total
      Options Outstanding
            
            
            3,771,221
            
            
            $
            10.11
            
            
            
            6,690,140
            
            
            $
            2.55
            
            
            
            10,461,361


32
 Table of Contents




The
following table sets forth certain information concerning the exercise of
options by each of our executive officers during the three months ended
March 29, 2009, including the aggregate value of gains on the date of
exercise held by such executive officers, as well as the number of shares
covered by both exercisable and unexercisable stock options as of March 29,
2009. Also reported are the values for the in-the-money options which represent
the positive spread between the exercise prices of any such existing stock
options and the closing price of the Company’s Common Stock on the last trading
day of the fiscal quarter.




Name
            
            Shares
                Acquired
                on
                Exercise
            
            Value
                Realized
            
            Number
      of
                Securities Underlying
                Unexercised
      Options at
                March
      29, 2009
            
            Value
      of Unexercised
                In-the-Money
      Options at
                March
      29, 2009(1)Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableRonald
      J. Buschur
            
            
            —
            
            
            $
            —
            
            1,025,000
            
            575,000
            
            $
            —
            
            $
            12,500Kevin
      T. Michaels
            
            
            —
            
            
            $
            —
            
            522,500
            
            367,500
            
            $
            —
            
            $
            6,250J.
      Marvin Magee
            
            
            —
            
            
            $
            —
            
            115,416
            
            544,584
            
            $
            —
            
            $
            10,000Khurram
      P. Sheikh
            
            
            —
            
            
            $
            —
            
            73,229
            
            483,021
            
            $
            —
            
            $
            4,813Basem
      Anshasi
            
            
            —
            
            
            $
            —
            
            37,811
            
            177,189
            
            $
            —
            
            $
            —





(1)
            In
      accordance with the Securities and Exchange Commission’s rules, values are
      calculated by subtracting the exercise price from the fair market value of
      the underlying Common Stock. For purposes of this table, fair market value
      per share is deemed to be $0.47, the Company’s closing Common Stock price
      reported by NASDAQ on March 27, 2009, the last trading day of the
      fiscal quarter.




Our
shareholders have previously approved all stock option plans under which our
Common Stock is reserved for issuance. The following table provides summary
information as of March 29, 2009, for all of our stock option
plans:




Number of Shares of
                Common Stock to
                be
      Issued upon
                Exercise
      of
                Outstanding
                Options,
      Warrants
                and
      Rights
            
            
            Weighted
                Average
                Exercise Price
                of Outstanding
                Options,
                Warrants
      and
                Rights
            
            
            Number of Shares
      of
                Common
      Stock
                Remaining Available
                for
      Future Issuance
                under
      our Stock
                Option
      Plans
                (Excluding
      Shares
                Reflected in Column 1)
                (1)Equity
      Compensation Plans Approved by Shareholders
            
            
            10,461,361
            
            
            $
            5.28
            
            
            
            2,278,512Equity
      Compensation Plans Not Approved by Shareholders
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            
            10,461,361
            
            
            $
            5.28
            
            
            
            2,278,512





(1)
            The
      number of securities remaining available for future issuance has also been
      reduced to reflect 341,250 shares of restricted stock issued under the
      2005 Stock Incentive Plan.





33
 Table of Contents


ITEM3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Our
financial instruments include cash and cash equivalents, restricted cash,
short-term investments, capital leases and long-term debt. As of March 29,
2009, the carrying values of our financial instruments approximated their fair
values based upon current market prices and rates.




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 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 and the United Kingdom. These international operations
generally incur local operating costs and generate third-party revenues in the
currencies used in such foreign jurisdictions. Such foreign currency revenues
and expenses expose us to foreign currency risk and give rise to foreign
exchange gains and losses.




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 77% of our net sales during the three
months ended March 29, 2009, 70% of our net sales during fiscal 2008 and
73% of our fiscal 2007 sales. Such 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, certain 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.
As we sell products or services in foreign currencies, we may be required to
convert the payments received into U.S. Dollars or utilize such foreign
currencies as payments for expenses of our business, which may give rise to
foreign exchange gains and losses. Given the uncertainty as to when and what
specific foreign currencies we may be required or agreed upon to accept as
payment from our international customers, we cannot predict the ultimate impact
that such a decision would have on our business, gross margins and results of
operations. For the first quarter of 2009, due to the increased value of the
U.S. Dollar, we recorded a foreign exchange translation gain of $2.8
million. There can be no assurance that we will not incur additional foreign
exchange translation losses in the future if the Dollar begins to
weaken.




Interest
Rate Risk




As of
March 29, 2009, we had cash equivalents of approximately $55.4 million in
both interest and non-interest bearing accounts, including restricted cash. We
also had $150.9 million of our 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 rate of 3.875%. We are exposed to
interest rate risk primarily through our convertible subordinated debt and our
cash investment portfolio. Short-term investment rates decreased significantly
during 2008 and 2009 as the U.S. Federal Reserve attempted to soften the impacts
of the economic slowdown and subprime mortgage issues. In spite of this, 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 March 29, 2009, we do not
believe that a 100 basis point change in interest rates would have a material
effect on our consolidated financial position, results of operations or cash
flows.




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 risk associated with variations in the market prices for these electronic
components as these prices directly 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 on the Company 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





34
 Table of Contents
 in the
price of one of these components, we would likely be forced to pay such higher
prices and we may be unable to pass such costs onto our customers. 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 such components or cease to produce such products. In such events,
our business, results of operations and financial condition could be adversely
affected. Additionally, we require specialized electronic test equipment, which
is utilized in both the design and manufacture of our products. Such 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 such 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. Such delays and any potential
additional costs could have a material adverse effect on our business, results
of operations and financial condition. Further, the world economy experienced
significant increases in the price of oil and energy during the first three
quarters of 2008. Such increases have translated into higher freight and
transportation costs and, in certain cases, higher raw material supply costs.
These higher costs have 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. Further increases in
energy prices may negatively impact our results
of operations.


35
 Table of Contents




ITEM 4.
            CONTROLS
      AND PROCEDURES




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 the material weakness described below and the restatement described
in Note 5 of the Notes to Consolidated Financial Statements, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were not effective as of March 29, 2009 in timely alerting them to
material information related to us that is required to be included in our annual
and periodic SEC filings.




During
the first quarter of 2010, we completed the design and implementation of control
activities 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. The remediation was completed in the
first quarter of 2010 and we believe that these controls are operating
effectively.




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 Revised)




Other
than the material weakness described below, there has been no change in our
internal control over financial reporting during the fiscal quarter ended March
29, 2009 that has materially affected, or is reasonable likely to materially
affect, our internal control over financial reporting.




We did not timely adopt a
new accounting standard due to insufficient analysis of our debt agreements and
the related impact of such standard on our financial statements which resulted
in a restatement of the fiscal 2009 consolidated financial statements. This
material weakness resulted in the need for us to record various adjustments
during 2009, but also resulted in a more than reasonable possibility that a
material misstatement to the annual or interim financial statements would not
have been prevented or detected.





36
 Table of Contents


PARTII – OTHER INFORMATION




ITEM1.
            LEGAL
      PROCEEDINGS




In the
first quarter of 2007, four purported shareholder class action complaints were
filed in the United States District Court for the Central District of California
against the Company, its President and Chief Executive Officer, its former
Executive Chairman of the Board of Directors and its Chief Financial Officer.
The complaints were Jerry
Crafton v. Powerwave Technologies, Inc., et. al., Kenneth Kwan v. Powerwave
Technologies, Inc., et. al., Achille Tedesco v. Powerwave Technologies, Inc.,
et. al. and Farokh Etemadieh v. Powerwave Technologies, Inc. et. al.and
were brought under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder. In June 2007, the four cases were consolidated
into one action before the Honorable Judge Philip Gutierrez, and a lead
plaintiff was appointed. In October 2007, the lead plaintiff filed an amended
complaint asserting the same causes of action and purporting to state claims on
behalf of all persons who purchased Powerwave securities between May 2,
2005 and November 2, 2006. The essence of the allegations in the amended
complaint were that the defendants made misleading statements or omissions
concerning the Company’s projected and actual sales revenues, the integration of
certain acquisitions and the sufficiency of the Company’s internal controls. In
December 2007, the defendants filed a motion to dismiss the amended
complaint. On April 17, 2008, the Court granted defendants’ motion to
dismiss plaintiffs’ claims in connection with the Company’s projected sales
revenues, but denied defendants’ motion to dismiss plaintiffs’ other claims. On
August 29, 2008, the defendants answered the amended complaint. Discovery
has begun, and trial of the action is scheduled to commence on January 19,
2010. The defendants have reached an agreement in principle with the lead
plaintiff to settle the consolidated action. According to the terms of the
proposed settlement, the settlement payment will be funded by the Company’s
directors and officers liability insurance. The proposed settlement is subject
to both preliminary and final Court approval.




In March
2007, one additional lawsuit that relates to the pending shareholder class
action was filed. The lawsuit, Cucci v. Edwards, et al.,
filed in the Superior Court of California, is a shareholder derivative action,
purported to be brought by an individual shareholder on behalf of Powerwave,
against current and former directors of Powerwave. Powerwave is also named as a
nominal defendant. The allegations of the derivative complaint closely resemble
those in the class action and pertain to the time period of May 2, 2005
through October 9, 2006. Based on those allegations, the derivative
complaint asserts various claims for breach of fiduciary duty, waste of
corporate assets, mismanagement, and insider trading under state law. The
derivative complaint was removed to federal court, and is also pending before
Judge Gutierrez. The derivative action is currently stayed pursuant to a
stipulation of the parties that has been entered by the Court. Powerwave
disputes the allegations raised in the derivative action and plans to pursue a
vigorous defense of this matter.





37
 Table of Contents


ITEM1A.
            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 may also impair our business operations. If any of the
events or circumstances described in the following risks actually occur, our
business, results of operations or financial condition 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, results of operations and financial condition.




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 three months ended March 29, 2009, sales to Nokia Siemens accounted
for approximately 36% of our net sales. Nokia Siemens accounted for
approximately 31% of our revenues in 2008, and Alcatel-Lucent accounted for
approximately 17% of our net revenues in fiscal 2008. Nokia Siemens and
Alcatel-Lucent are our two largest customers and any decline in business with
either of these customers will have an adverse impact on our business, results
of operations and financial condition. For the first quarter of 2009, our sales
to Alcatel-Lucent did decline significantly, which 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, Alcatel-Lucent, other original equipment manufacturers and network
operator customers. Any fluctuations in demand from such customers or other
customers would negatively impact our business, results of operations and
financial condition. 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, results of
operations and financial condition. 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 driven initially by the subprime mortgage
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. Our revenues declined approximately 17% in
the first quarter of 2009, compared to the fourth quarter of 2008, and they
declined approximately 34% from the first quarter of 2008. 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 or impossible
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 significantly reduced, thereby having a negative
impact on our business, results of operations and financial condition. In
addition, we may be forced to increase our allowance for doubtful accounts and
our days of sales outstanding may increase significantly, which would have a
negative impact on our cash position, liquidity and financial condition. We
cannot predict the timing or the duration of this economic recession or the
impact on the wireless industry.





38
 Table of Contents


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 years 2006 and 2007, we experienced significantly reduced demand
for our products due to lower than anticipated purchasing plans by a major North
American wireless network operator. In addition, beginning in the fourth quarter
of 2006, when we acquired the wireless infrastructure division of Filtronic plc,
Nokia and Siemens significantly reduced their demand which had a significant
negative impact on both Powerwave and the Filtronic plc wireless businesses. As
a result of this reduction and the general slowdown in the wireless
infrastructure marketplace during the fourth quarter of fiscal 2006, our
revenues decreased to $169.8 million in the fourth quarter of fiscal 2006
from $249.4 million in the fourth quarter of 2005. This slowdown continued in
the first six months of 2007, when our revenues declined from the fourth quarter
of 2006. Our revenues also declined when compared to the first six months of
2006, even though the first six months of 2007 included the Filtronic plc
wireless acquisition. These types of reductions in overall market demand have
had a negative impact on our business, results of operations and financial
condition.




Beginning
in the fourth quarter of 2008, the global economic crisis and related recession
began to have an impact on our customers and their demand for our products. As a
result of this economic crisis, our revenues decreased to $149.7 million in the
first quarter of 2009, from $180.3 million in the fourth quarter of 2008, $238.0
million in the third quarter of 2008, and $230.6 million in the fourth quarter
of 2007. We currently anticipate that our customers will significantly reduce
their demand for wireless infrastructure products in the near term, thereby
negatively impacting all companies within our industry. This expected reduction
in demand will have a negative impact on our business, results of operations and financial
condition.




During
fiscal 2005, 2006 and 2007, we also experienced a significant reduction in
demand from Nortel. In the first quarter of 2009, Nortel filed for bankruptcy
protection. Given the current economic climate, it is possible that one or more
of our 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 go down and our results of operations
and financial condition will be negatively impacted.




Also, in
the past we have experienced significant unanticipated reductions in wireless
network operator demand as well as significant delays in demand for 3G, 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 2009, 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
may need additional capital in the future and such additional financing may not
be available on favorable terms.




As of
March 29, 2009, we had approximately $55.4 million of cash, with $2.8
million of it restricted. 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 the Credit Agreement signed
April 3, 2009, 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 of
opportunities, including more rapid international expansion or acquisitions of
complementary businesses or technologies. If we are not successful in
integrating 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 $300.9 million of
remaining outstanding convertible debt that we issued in 2004 and 2007. 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 will be available to us. If
such a market is not available, we may not be able to raise new financing, which
would negatively impact our business and possibly impact our ability to maintain
operations as presently conducted.




39
 Table of Contents


Our
ability to increase revenues and generate profits is subject to numerous risks
and uncertainties including the likelihood of decreased revenues in the current
macro-economic environment, and 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 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.




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 potentials
risks of greater than anticipated customer defaults. In the first quarter of
2009, our customer Nortel filed for U.S. bankruptcy protection. 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, results of operations and
financial condition.




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, results of
operations and financial condition. 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 business conditions, we
may need to initiate restructuring actions that could result in restructuring
charges which could have a material impact on our business, results of
operations and financial condition. Such potential restructuring actions could
include cash costs that could 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, results of operations and financial condition.




The world
economy experienced significant fluctuations in the price of oil and energy
during 2008. During the first three quarters of 2008, 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 may negatively impact our business, results
of operations and financial condition.




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 any 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;
      and
  •
              discounts
      given to certain customers for large volume
  purchases.




40
 Table of Contents


We have
regularly generated a large percentage of our revenues in the last month of a
quarter. Since 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 such 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, results of operations and financial
condition.




Order
deferrals and cancellations by our customers, declining average sales prices,
changes in the mix of products sold, delays in the introduction of new products
and longer than anticipated sales cycles for our products have, in the past,
adversely affected our business, results of operations and financial condition.
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 desire
to purchase products in excess of the forecasted amounts or in a different
product mix, there may not be enough 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 public 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 their purchasing power at the surviving entities, which is placing
further pricing pressures on the products we sell to such customers. Moreover,
the current economic downturn may cause wireless service providers to be even
more aggressive in demanding price reductions as they attempt to reduce costs.
As a result, we may be forced to further reduce our prices to such customers,
which would have a negative impact on our business 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 6% to 9% from fiscal 2007 to fiscal 2008 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 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 all of these practices will
continue. In the event that our customers manufacture or design their own
wireless communications network products, such customers could reduce or
eliminate their purchases of our products, which would result in reduced
revenues and would adversely impact our business, results of operations and
financial condition. 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





41
 Table of Contents
 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, results of operations and
financial condition.




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 experienced during fiscal 2003, in fiscal 2006, in fiscal
2007, in the fourth quarter of fiscal 2008 and in the first quarter of fiscal
2009. 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 will likely result in a
reduction of demand from some of our customers in the near term. During fiscal
2006 and into fiscal 2007, 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 products. During
fiscal 2003, wireless network operators reduced or delayed capital spending on
wireless networks in order to preserve their operating cash and improve their
balance sheets. Such 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 operating results will be negatively
impacted.




Our
reliance on contract manufacturers exposes us to risks of excess inventory or
inventory carrying costs.




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.




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 pay inventory carrying costs or purchase excess inventory.
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 operating results and liquidity would be negatively
impacted.




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, and such costs
      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;
 
 42
 Table of Contents
 •
              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
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.




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. To date, missed customer
delivery dates have not 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, results of operations and
financial condition.




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, results of operations and
financial condition.




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 U.S., Europe and Asia, as well as our contract manufacturers’
staff of assembly workers and trained technicians located in Asia and Europe. 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.




We have
had quality problems with our products including those we have acquired in
recent business 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, results of operations and financial condition. 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 intend to
seek recovery of amounts that we have paid, or may pay in the future, to resolve
warranty claims through indemnification from the prior manufacturer, such
processes can be costly and time
consuming.





43
 Table of Contents


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 such persons, 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, results of operations and financial condition. 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 in China,
Europe, Singapore and Thailand. We also maintain our own manufacturing
operations in China and Estonia, as well as the United States. We closed our
Costa Rica manufacturing facility in December 2006, sold our Hungary
manufacturing operations in December 2007, and began to discontinue
manufacturing operations in Finland in the fourth quarter of 2008.




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 and 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, continued unrest has impacted the government of Thailand, and potential
civil unrest may continue. 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 shipments from entering or leaving the country.
Any such disruptions could have a material negative impact on our operations and
financial results.




We
require air or ocean transport to ship products built in our various
manufacturing locations to our customers. High energy costs have increased our
transportation costs which has 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, results of
operations and financial condition. 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 adversely 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 results of
operations.





44
 Table of Contents


We
conduct a significant portion of our business internationally, which exposes us
to increased business risks.




For the
three months ended March 29, 2009, and fiscal years 2008, 2007, and 2006,
international revenues (excluding North American sales) accounted for
approximately 77%, 70%, 73% and 72% 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 dealings 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.





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
business, results of operations and financial condition. 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. Such claims, whether or not valid, could result
in substantial costs 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.





45
 Table of Contents


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 such 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 cancelled customer
orders.




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, results of operations and financial condition
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, results of operations and financial condition.




Our
current competitors include 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, Nortel, 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 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
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





46
 Table of Contents
 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
operating results due to high research and development
expenses.




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, operating results and financial condition. 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.




Our
stock price currently does 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
minimum bid price for our Common Stock listed on the NASDAQ Global Select Market
has been below the $1.00 minimum since the beginning of the fourth quarter of
2008. 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 has announced a moratorium on the enforcement of this minimum
bid requirement that is effective through July 19, 2009. If our stock price
does not increase above $1.00 per share, we risk being delisted from the NASDAQ
Global Select Market if the moratorium is not extended. We cannot control
whether NASDAQ will agree to extend the moratorium in the future or the duration
of any such moratorium.




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 two years ended
December 28, 2008, the closing price of our Common Stock ranged from a high
of $7.45 to a low of $0.40 per share. During the first quarter of 2009, the
closing price of our Common Stock reached a low of $0.23 per share. The
fluctuations in the price of our Common Stock have occasionally 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 has
also 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;
  •
              changes
      in stock market analyst recommendations regarding us, our competitors or
      our customers;
  47
 Table of Contents
 •
              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 30.8 million shares of Common Stock to
our outstanding shares. Such an increase may lead to sales of such shares or the
perception that such 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 its acquisition price.




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 or not 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, particularly because Section 404 and Auditing
Standard No. 5 are newly effective, some of the 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 three months
ended March 29, 2009, we identified an error in the accounting for our 2024
Notes and the application of FASB FSP APB 14-1, Accounting for Convertible Debt
Instruments that May be Settled in Cash upon Conversion (Including Partial Cash
Settlement), to that instrument. We did not timely adopt this new
accounting standard due to insufficient analysis of our debt agreements and the
related 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.




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.





48
 Table of Contents


ITEM2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




Not
applicable.






ITEM3.
              DEFAULTS
      UPON SENIOR SECURITIES


Not
applicable.








ITEM 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




Not
applicable.










ITEM5.
            OTHER
      INFORMATION




Not
applicable.





49
 Table of Contents


ITEM6.
            EXHIBITS




The
following exhibits are filed as part of this report:





Exhibit
              Number
            Description31.1
            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.





50
 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:
      March 8, 2010
            
            POWERWAVE
      TECHNOLOGIES, INC.By:
            /s/    KEVIN
      T. MICHAELSKevin
      T. MichaelsChief
      Financial Officer