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 June 28, 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)







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.




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
July 27, 2009, the registrant had 131,975,982 shares of Common Stock
outstanding.
















POWERWAVE
TECHNOLOGIES, INC.
 QUARTERLY
REPORT ON FORM 10-Q
 FOR
THE THREE AND SIX MONTHS ENDED JUNE 28, 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
              23Item 3.
              Quantitative and Qualitative Disclosures About
      Market Risk
              38Item 4.
              Controls and Procedures
              40PART II – OTHER INFORMATION
              41Item 1.
              Legal Proceedings
              41Item 1A.
              Risk Factors
              42Item 2.
              Unregistered Sales of Equity Securities
      and Use of Proceeds
              54Item 3.
              Defaults Upon Senior Securities
              54Item 4.
              Submission of Matters to a Vote of Security
      Holders
              54Item 5.
              Other Information
              54Item 6.
              Exhibits
              55SIGNATURES
              56





2
 Table of Contents





CAUTIONARY STATEMENTRELATED TO FORWARD LOOKING
STATEMENTS




This
Quarterly Report on Form 10-Q, contains “forward-looking statements,” regarding
future events and our future results that are subject to the safe harbors
created under the Securities Act of 1933, or the Securities Act, and the
Securities Exchange Act of 1934, or the Exchange Act.  All statements
other than statements of historical facts are statements that could be deemed
forward looking statements as defined within Section 27A of the Securities Act
and Section 21E of the Exchange Act.  One generally can identify
forward-looking statements by the use of forward-looking terminology such as
“believes,” “may,” “will,” “expects,” “intends,” “estimates,” “anticipates,”
“plans,” “seeks,” or “continues,” or the negative thereof, or variations
thereon, or similar terminology.  Forward-looking statements in this
Quarterly Report include, but are not limited to, statements 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 cash payments and cost savings from restructuring activities,
restructuring charges, and the level of expected future capital and research and
development expenditures. Such statements are generally included in the items
captioned: “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” “Quantitative and Qualitative Disclosures About Market
Risk,” “Legal Proceedings,” and “Risk Factors.”  These statements are
based on current expectations, estimates, forecasts, and projections about the
industry in which we operate and the beliefs and assumptions of our
management.  The forward-looking statements made in this report,
regarding future events and the future performance of Powerwave Technologies,
Inc, which we refer to as Powerwave or the Company, involve risks and
uncertainties that could cause the Company’s actual results to differ materially
and adversely from those results currently anticipated.  Such risks
and uncertainties may relate to, but are not limited to, our reliance upon a few
customers to generate the majority of our revenues, continued economic weakness
and uncertainty resulting from the worldwide economic crisis and tightening of
the credit markets, continued reductions in demand for our products; difficulty
in obtaining additional capital should we need to do so in the future; our
reliance on single sources or limited sources for key components and products,
the risks surrounding our internal and contract manufacturing operations in Asia
and Europe; and operating in a highly regulated industry.  Because the
risks and uncertainties discussed in this report and other important
unanticipated factors 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.  Reference is also made to the risks and uncertainties
described in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 28, 2008, as filed with the Securities and Exchange
Commission.  Readers should also carefully review the risk factors
described in 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, as we
undertake no obligation to revise or update any forward-looking statements for
any reason.




HOW TOOBTAIN 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 Current Reports on Form 8-K, Quarterly Reports on Form 10-Q, Annual Reports
on Form 10-K, Proxy Statements, 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 June 28, 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




ITEM1.
            FINANCIAL
      STATEMENTS




POWERWAVE
TECHNOLOGIES, INC.


CONSOLIDATED
BALANCE SHEETS


(Unaudited)


(In
thousands, except share data)





June
      28,
              2009
              (As
      Restated)
            
            December 28,
              2008
              (As
      Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            39,842
            
            
            $
            46,906Restricted
      cash
            
            
            2,524
            
            
            
            3,433Accounts
      receivable, net of allowance for sales returns and doubtful accounts of
      $10,600 and $9,478, respectively
            
            
            164,939
            
            
            
            213,871Inventories
            
            
            70,808
            
            
            
            81,098Prepaid
      expenses and other current assets
            
            
            24,717
            
            
            
            25,303Deferred
      income taxes
            
            
            3,204
            
            
            
            3,204Total
      current assets
            
            
            306,034
            
            
            
            373,815Property,
      plant and equipment, net
            
            
            91,622
            
            
            
            98,616Intangible
      assets, net
            
            
            1,660
            
            
            
            3,803Asset
      held for sale
            
            
            4,085
            
            
            
            4,845Other
      assets
            
            
            6,505
            
            
            
            6,215TOTAL
      ASSETS
            
            $
            409,906
            
            
            $
            487,294LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            98,106
            
            
            $
            139,267Accrued
      payroll and employee benefits
            
            
            10,862
            
            
            
            12,286Accrued
      restructuring costs
            
            
            2,641
            
            
            
            5,813Accrued
      expenses and other current liabilities
            
            
            26,074
            
            
            
            37,390Total
      current liabilities
            
            
            137,683
            
            
            
            194,756Long-term
      debt
            
            
            266,066
            
            
            
            285,256Other
      liabilities
            
            
            1,987
            
            
            
            1,898Total
      liabilities
            
            
            405,736
            
            
            
            481,910Commitments
      and contingencies (Notes 9 and 10)Shareholders’
      equity: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, 131,975,982 and
      131,637,460 shares issued and outstanding, respectively
            
            
            823,048
            
            
            
            820,733Accumulated
      other comprehensive income
            
            
            12,529
            
            
            
            14,245Accumulated
      deficit
            
            
            (831,407
            )
            
            
            (829,594
            )Net
      shareholders’ equity
            
            
            4,170
            
            
            
            5,384TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            409,906
            
            
            $
            487,294














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








5
 Table of Contents





POWERWAVE
TECHNOLOGIES, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)


(In
thousands, except per share data)





Three
      Months Ended
            
            Six
      Months EndedJune 28,
              2009
              (As
      Restated)
            
            June
      29,
              2008
              (As
      Restated)
            
            June 28,
              2009
              (As
      Restated)
            
            June
      29,
              2008
              (As
      Restated)Net
      sales
            
            $
            136,110
            
            
            $
            245,642
            
            
            $
            285,855
            
            
            $
            471,943Cost
      of sales:Cost
      of goods
            
            
            99,587
            
            
            
            185,090
            
            
            
            214,548
            
            
            
            357,853Intangible
      asset amortization
            
            
            623
            
            
            
            6,255
            
            
            
            1,247
            
            
            
            12,364Restructuring
      and impairment charges
            
            
            2
            
            
            
            5,163
            
            
            
            1,410
            
            
            
            10,535Total
      cost of sales
            
            
            100,212
            
            
            
            196,508
            
            
            
            217,205
            
            
            
            380,752Gross
      profit
            
            
            35,898
            
            
            
            49,134
            
            
            
            68,650
            
            
            
            91,191Operating
      expenses:Sales
      and marketing
            
            
            8,854
            
            
            
            13,217
            
            
            
            18,595
            
            
            
            25,763Research
      and development
            
            
            14,592
            
            
            
            20,789
            
            
            
            29,740
            
            
            
            40,460General
      and administrative
            
            
            12,752
            
            
            
            15,973
            
            
            
            24,851
            
            
            
            31,070Intangible
      asset amortization
            
            
            207
            
            
            
            2,660
            
            
            
            534
            
            
            
            5,257Restructuring
      and impairment charges
            
            
            151
            
            
            
            966
            
            
            
            1,649
            
            
            
            1,080Total
      operating expenses
            
            
            36,556
            
            
            
            53,605
            
            
            
            75,369
            
            
            
            103,630Operating
      loss
            
            
            (658
            )
            
            
            (4,471
            )
            
            
            (6,719
            )
            
            
            (12,439
            )Other
      income (expense), net
            
            
            2,499
            
            
            
            (6,707
            )
            
            
            5,658
            
            
            
            (13,942
            )Income
      (loss) before income taxes
            
            
            1,841
            
            
            
            (11,178
            )
            
            
            (1,061
            )
            
            
            (26,381
            )Income
      tax provision (benefit)
            
            
            (718
            )
            
            
            1,006
            
            
            
            752
            
            
            
            1,975Net
      income (loss)
            
            $
            2,559
            
            
            $
            (12,184
            )
            
            $
            (1,813
            )
            
            $
            (28,356
            )Basic
      income (loss) per share:
            
            $
            0.02
            
            
            $
            (0.09
            )
            
            $
            (0.01
            )
            
            $
            (0.22
            )Diluted
      income (loss) per share:
            
            $
            0.02
            
            
            $
            (0.09
            )
            
            $
            (0.01
            )
            
            $
            (0.22
            )Shares
      used in the computation of income (loss) per share:Basic
            
            
            131,654
            
            
            
            131,001
            
            
            
            131,572
            
            
            
            130,964Diluted
            
            
            134,447
            
            
            
            131,001
            
            
            
            131,572
            
            
            
            130,964



























































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 Ended
            
            Six
      Months EndedJune 28,
              2009
              (As
      Restated)
            
            June
      29,
              2008
              (As
      Restated)
            
            June 28,
              2009
              (As
      Restated)
            
            June
      29,
              2008
              (As
      Restated)Net
      income (loss)
            
            $
            2,559
            
            
            $
            (12,184
            )
            
            $
            (1,813
            )
            
            $
            (28,356
            )Other
      comprehensive income (loss):Foreign
      currency translation adjustments, net of income taxes
            
            
            1,648
            
            
            
            (8,628
            )
            
            
            (1,716
            )
            
            
            27,915Comprehensive
      income (loss)
            
            $
            4,207
            
            
            $
            (20,812
            )
            
            $
            (3,529
            )
            
            $
            (441
            )










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





7
 Table of Contents


POWERWAVE
TECHNOLOGIES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)





Six
      Months EndedJune 28,
              2009
              (As
      Restated)
            
            June
      29,
              2008
              (As
      Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (1,813
            )
            
            $
            (28,356
            )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            15,033
            
            
            
            32,321Non-cash
      restructuring and impairment charges
            
            
            3,059
            
            
            
            11,615Provision
      for sales returns and doubtful accounts
            
            
            1,672
            
            
            
            (79
            )Provision
      for excess and obsolete inventories
            
            
            4,371
            
            
            
            6,168Compensation
      costs related to stock-based awards
            
            
            2,186
            
            
            
            2,614Gain
      on repurchase of convertible debt
            
            
            (9,767
            )
            
            
            —Gain
      on disposal of property, plant and equipment
            
            
            (84
            )
            
            
            (171
            )Gain
      on settlement of litigation
            
            
            (645
            )
            
            
            —Changes
      in operating assets and liabilities, net of acquisitions:Accounts
      receivable
            
            
            48,044
            
            
            
            (3,847
            )Inventories
            
            
            3,416
            
            
            
            (8,611
            )Prepaid
      expenses and other current assets
            
            
            725
            
            
            
            7,438Accounts
      payable
            
            
            (42,006
            )
            
            
            27,843Accrued
      expenses and other current liabilities
            
            
            (18,694
            )
            
            
            (29,365
            )Other
      non-current assets
            
            
            538
            
            
            
            636Other
      non-current liabilities
            
            
            89
            
            
            
            15Net
      cash provided by operating
      activities
            
            
            6,124
            
            
            
            18,221CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
            
            
            (3,246
            )
            
            
            (5,230
            )Restricted
      cash
            
            
            909
            
            
            
            4,190Proceeds
      from the sale of property, plant and equipment
            
            
            323
            
            
            
            3,900Acquisitions,
      net of cash acquired
            
            
            1,960
            
            
            
            —Net
      cash provided by (used in) investing
      activities
            
            
            (54
            )
            
            
            2,860CASH
      FLOWS FROM FINANCING ACTIVITIES:Debt
      issuance costs
            
            
            (1,305
            )
            
            
            —Proceeds
      from stock-based compensation arrangements
            
            
            131
            
            
            
            491Repurchase
      of common stock
            
            
            (2
            )
            
            
            (479
            )Retirement
      of long-term debt
            
            
            (12,445
            )
            
            
            —Net
      cash provided by (used in) financing
      activities
            
            
            (13,621
            )
            
            
            12EFFECT
      OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
            
            
            487
            
            
            
            1,844NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (7,064
            )
            
            
            22,937CASH
      AND CASH EQUIVALENTS, beginning of period
            
            
            46,906
            
            
            
            58,151CASH
      AND CASH EQUIVALENTS, end of period
            
            $
            39,842
            
            
            $
            81,088SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid for:Interest
      expense
            
            $
            4,713
            
            
            $
            4,986Income
      taxes
            
            $
            3,014
            
            
            $
            17,232SUPPLEMENTAL
      SCHEDULE OF NON-CASH ACTIVITIES:Unpaid
      purchases of property and
      equipment
            
            $
            124
            
            
            $
            10








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 4G
networks throughout the world.




Note
2. Summary of Significant Accounting Policies




Basis
of Presentation




The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. These financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include certain footnotes and financial presentations
normally required under accounting principles generally accepted in the United
States of America for complete financial statements. The interim financial
information is unaudited; however, it reflects all normal adjustments and
accruals which are in the opinion of management considered necessary to provide
a fair presentation for the interim periods presented. All significant
intercompany balances and transactions have been eliminated in the accompanying
consolidated financial statements.




The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the future quarters or the 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 May
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (SFAS) No. 165, Subsequent Events (SFAS
165).  SFAS 165 establishes standards for accounting for and
disclosing subsequent events (events which occur after the balance sheet date
but before financial statements are issued or available to be
issued).  SFAS 165 requires an entity to disclose the date subsequent
events were evaluated and whether that evaluation took place on the date
financial statements were issued or were available to be issued.  SFAS
165 is effective for interim and annual periods ending on or after June 15,
2009.  The adoption of SFAS 165 did not have a material impact on the
Company’s business, results of operations or financial condition.




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 on or
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 re-emphasizes 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
adoption of these Staff Positions did not have a material effect on the
Company’s business, results of operations or financial condition.




In
November 2008, the 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
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.





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







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.




In April
2008, the FASB issued 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 June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
Replacement of FASB Statement No. 162(SFAS 168).  SFAS 168
establishes that the FASB
Accounting Standards Codification(“the Codification”) will become the
single official source of authoritative U.S. GAAP, other than guidance issued by
the SEC.  Following this statement, the FASB will not issue new
standards in the form of Statements, Staff Positions or Emerging Issues Task
Force Abstracts.  Instead, the FASB will issue Accounting Standards
Updates.  All guidance contained in the Codification carries an equal
level of authority.  The GAAP hierarchy will be modified to include
only two levels of GAAP: authoritative and non-authoritative.  All
non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative.  The Codification, which
changes the referencing of financial standards, becomes effective for interim
and annual periods ending on or after September 15, 2009.  The Company
does not expect the adoption of SFAS 168 to have a material impact 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.


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







Stock-based
compensation expense was recognized as follows in the consolidated statement of
operations (in thousands):







Three Months Ended
            
            Six
      Months EndedJune
      28,
              2009
            
            June
      29,
              2008
            
            June
      28,
              2009
            
            June
      29,
              2008Cost
      of sales
            
            $
            336
            
            
            $
            249
            
            
            $
            603
            
            
            $
            493Sales
      and marketing expenses
            
            
            121
            
            
            
            103
            
            
            
            212
            
            
            
            218Research
      and development expenses
            
            
            297
            
            
            
            290
            
            
            
            544
            
            
            
            568General
      and administrative expenses
            
            
            534
            
            
            
            682
            
            
            
            827
            
            
            
            1,335Increase
      to operating loss before income taxes
            
            
            1,288
            
            
            
            1,324
            
            
            
            2,186
            
            
            
            2,614Income
      tax benefit recognized
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Impact
      on net income (loss)
            
            $
            1,288
            
            
            $
            1,324
            
            
            $
            2,186
            
            
            $
            2,614Impact
      on income (loss) per share:Basic
      and diluted
            
            $
            0.01
            
            
            $
            0.01
            
            
            $
            0.02
            
            
            $
            0.02







As of
June 28, 2009, unrecognized compensation expense related to the unvested portion
of the Company’s stock-based awards and employee stock purchase plan was
approximately $4.4 million, net of estimated forfeitures of $0.7 million, which
is expected to be recognized over a weighted-average period of 1.6
years.




The
Black-Scholes-Merton option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. Option valuation methods require the input of highly subjective
assumptions including the weighted average risk-free interest rate, the expected
life, and the expected stock price volatility. The weighted average risk-free
interest rate was determined based upon actual U.S. treasury rates over a one to
ten year horizon and the actual life of options granted. The Company grants
options with either a five year or ten year life. The expected life is based on
the Company’s actual historical option exercise experience. For the employee
stock purchase plan, the actual life of 6 months is utilized in this
calculation. The expected life was determined based upon actual option grant
lives over a 10 year period. The Company has utilized various market sources to
calculate the implied volatility factor utilized in the Black-Scholes-Merton
option valuation model. These included the implied volatility utilized in the
pricing of options on the Company’s Common Stock as well as the implied
volatility utilized in determining market prices of the Company’s outstanding
convertible notes. Using the Black-Scholes-Merton option valuation model, the
estimated weighted average fair value of options granted during the second
quarter of fiscal years 2009 and 2008 was $0.47 per share and $1.48 per share,
respectively.




The fair value of options
granted under the Company’s stock incentive plans during the first half 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 Ended
            
            Six
      Months EndedJune
      28,
              2009
            
            June
      29,
              2008
            
            June
      28,
              2009
            
            June
      29,
              2008Weighted
      average risk-free interest rate
            
            
            2.4
            %
            
            
            3.1
            %
            
            
            1.8
            %
            
            
            2.7
            %Expected
      life (in years)
            
            
            5.2
            
            
            
            4.3
            
            
            
            5.2
            
            
            
            4.4Expected
      stock volatility
            
            
            81
            %
            
            
            68
            %
            
            
            142
            %
            
            
            64
            %Dividend
      yield
            
            None
            
            
            None
            
            
            None
            
            
            None










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







Note
3. Supplemental Balance Sheet Information




Inventories




Net
inventories are as follows:


June
      28,
              2009
            
            December
      28,
              2008Parts
      and components
            
            $
            23,845
            
            
            $
            28,547Work-in-process
            
            
            1,278
            
            
            
            2,618Finished
      goods
            
            
            45,685
            
            
            
            49,933Total
      inventories
            
            $
            70,808
            
            
            $
            81,098




Inventories
are net of an allowance for excess and obsolete inventory of approximately $31.5
million and $43.4 million as of June 28, 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 fourth quarter of 2009.




Accrued
Expenses and Other Current Liabilities




Accrued
expenses and other current liabilities are as follows:


June
      28,
              2009
            
            December
      28,
              2008Accrued
      vendor cancellation costs
            
            $
            7,610
            
            
            $
            10,563Accrued
      warranty costs
            
            
            8,490
            
            
            
            10,763Other
      accrued expenses and other current liabilities
            
            
            9,974
            
            
            
            16,064Total
      accrued expenses and other current liabilities
            
            $
            26,074
            
            
            $
            37,390




Warranty




Accrued
warranty costs are as follows:


Six
      Months EndedDescription
            
            June
      28,
              2009
            
            June
      29,
              2008Warranty
      reserve beginning balance
            
            $
            10,763
            
            
            $
            26,975Reductions
      for warranty costs incurred
            
            
            (5,787
            )
            
            
            (6,271
            )Warranty
      accrual related to current period sales
            
            
            3,482
            
            
            
            3,917Settlement
      of previous warranty claims
            
            
            —
            
            
            
            (2,858
            )Change
      in estimate related to previous warranty accruals
            
            
            —
            
            
            
            (2,360
            )Effect
      of exchange rates
            
            
            32
            
            
            
            479Warranty
      reserve ending balance
            
            $
            8,490
            
            
            $
            19,882










12
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)





Note
4. Intangible Assets




Intangible
assets are as follows:


Intangible Assets Subject to
      Amortization:
            
            June
      28,
              2009
            
            December
      28,
              2008Developed
      technology (net of accumulated amortization of $4,453 and $3,206,
      respectively)
            
            $
            1,247
            
            
            $
            2,494Customer
      relationships (net of accumulated amortization of $1,475 and $3,479,
      respectively)
            
            
            413
            
            
            
            1,309Intangible
      assets, net
            
            $
            1,660
            
            
            $
            3,803







Amortization
expense related to intangible assets totaled $1.8 million and $17.6 million for
the first six months of 2009 and 2008, respectively. The remaining $1.7 million
of intangible assets will be fully amortized in 2009.




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




In the
second quarter of 2009, the Company repurchased $20.0 million in aggregate par
value of its outstanding 1.875% convertible subordinated notes due November
2024, resulting in a gain of approximately $6.4 million on the
purchase.  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
approximately $3.4 million on the purchase.  After the purchases,
there is $130.9 million outstanding under the 1.875% convertible subordinated
notes.




Credit
Agreement




On
April 3, 2009, the Company entered into a Credit Agreement (the “Credit
Agreement”), with Wells Fargo Foothill, LLC, as arranger and administrative
agent. Pursuant to the Credit Agreement, Wells Fargo Foothill 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 the Company’s borrowing base as defined in the Credit
Agreement.  The Credit Agreement is secured by a first priority
security interest on a majority of the Company’s assets, including without
limitation, all accounts, equipment, inventory, chattel paper, records,
intangibles, deposit accounts and cash and cash equivalents. The Credit
Agreement expires on August 15, 2011. The Credit Agreement contains
customary affirmative and negative covenants for credit facilities of this type,
including limitations on the Company with respect to indebtedness, liens,
investments, distributions, mergers and acquisitions and dispositions of
assets.  The Credit Agreement also includes financial covenants
including minimum EBITDA and maximum capital expenditures that are applicable
only if the availability of the Company’s line of credit falls below $20.0
million.




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 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 and six
months ended June 28, 2009, the Company identified an error in the accounting
for its 2024 Notes and the application of FASB FSP APB 14-1to 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 14-1generally 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 as of June





13
 
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)
 months
ended June 28, 2009 and June 29, 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:





June 28, 2009
            
            
            December 28, 2008Consolidated
      Balance Sheets:
            
            As
      Reported
            
            
            As
      Restated
            
            
            As
      Reported
            
            
            As
      RestatedOther
      assets
            
            $
            6,924
            
            
            $
            6,505
            
            
            $
            6,817
            
            
            $
            6,215Total
      assets
            
            
            410,325
            
            
            
            409,906
            
            
            
            487,896
            
            
            
            487,294Long-term
      debt
            
            
            280,887
            
            
            
            266,066
            
            
            
            306,321
            
            
            
            285,256Total
      liabilities
            
            
            420,557
            
            
            
            405,736
            
            
            
            502,975
            
            
            
            481,910Common
      Stock
            
            
            767,519
            
            
            
            823,048
            
            
            
            765,204
            
            
            
            820,733Accumulated
      deficit
            
            
            (790,280
            )
            
            
            (831,407
            )
            
            
            (794,528
            )
            
            
            (829,594
            )Net
      shareholders’ equity (deficit)
            
            
            (10,232
            )
            
            
            4,170
            
            
            
            (15,079
            )
            
            
            5,384Total
      liabilities and shareholders’ equity
            
            
            410,325
            
            
            
            409,906
            
            
            
            487,896
            
            
            
            487,294











Three Months EndedJune 28, 2009
            
            June 29, 2008Consolidated
      Statements of Operations:
            
            As
      Reported
            
            As
      Restated
            
            As
      Reported
            
            As
      RestatedOther
      income (expense), net
            
            $
            6,288
            
            
            $
            2,499
            
            
            $
            (4,747
            )
            
            $
            (6,707
            )Income
      (loss) before income taxes
            
            
            5,630
            
            
            
            1,841
            
            
            
            (9,218
            )
            
            
            (11,178
            )Net
      income (loss)
            
            
            6,348
            
            
            
            2,559
            
            
            
            (10,224
            )
            
            
            (12,184
            )Earnings
      (loss) per share:Basic
            
            $
            0.05
            
            
            $
            0.02
            
            
            $
            (0.08
            )
            
            $
            (0.09
            )Diluted
            
            $
            0.05
            
            
            $
            0.02
            
            
            $
            (0.08
            )
            
            $
            (0.09
            )







Six Months EndedJune 28, 2009
            
            June 29, 2008Consolidated
      Statements of Operations:
            
            As
      Reported
            
            As
      Restated
            
            As
      Reported
            
            As
      RestatedOther
      income (expense), net
            
            $
            11,719
            
            
            $
            5,658
            
            
            $
            (10,057
            )
            
            $
            (13,942
            )Income
      (loss) before income taxes
            
            
            5,000
            
            
            
            (1,061
            )
            
            
            (22,496
            )
            
            
            (26,381
            )Net
      income (loss)
            
            
            4,248
            
            
            
            (1,813
            )
            
            
            (24,471
            )
            
            
            (28,356
            )Earnings
      (loss) per share:Basic
            
            $
            0.03
            
            
            $
            (0.01
            )
            
            $
            (0.19
            )
            
            $
            (0.22
            )Diluted
            
            $
            0.03
            
            
            $
            (0.01
            )
            
            $
            (0.19
            )
            
            $
            (0.22
            )Shares
      used in the computation of diluted earnings (loss) per share:
            
            
            132,969
            
            
            
            131,572
            
            
            
            130,964
            
            
            
            130,964








14
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)








Six Months EndedJune 28, 2009
            
            June 29, 2008Consolidated
      Statements of Cash Flows:
            
            As
      Reported
            
            As
      Restated
            
            As
      Reported
            
            As
      RestatedNet
      income (loss)
            
            $
            4,248
            
            
            $
            (1,813
            )
            
            $
            (24,471
            )
            
            $
            (28,356
            )Depreciation
      and amortization
            
            
            12,317
            
            
            
            15,033
            
            
            
            29,335
            
            
            
            32,321Gain
      on repurchase of convertible debt
            
            
            (12,693
            )
            
            
            (9,767
            )
            
            
            —
            
            
            
            —Other
      non-current assets
            
            
            119
            
            
            
            538
            
            
            
            (263
            )
            
            
            636




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





June
      28,
              2009
            
            
            December 28, 2008As
      Restated
            
            
            As
      RestatedCarrying
      amount of the equity component
            
            $
            55,529
            
            
            $
            55,529Principal
      amount of the 2024 Notes
            
            $
            130,887
            
            
            $
            156,321Unamortized
      discount of liability component
            
            
            (14,821
            )
            
            
            (21,065
            )Net
      carrying amount of liability component
            
            $
            116,066
            
            
            $
            135,256







Three
      Months Ended
            
            Six
      Months EndedJune 28,
              2009
            
            June 29,
              2008
            
            June 28,
              2009
            
            June
      29,
              2008Effective
      interest rate on liability component
            
            
            7.07
            %
            
            
            7.07
            %
            
            
            7.07
            %
            
            
            7.07
            %Contractual
      interest expense recognized on the 2024 Notes
            
            $
            938
            
            
            $
            938
            
            
            $
            1,875
            
            
            $
            1,875Amortization
      of the discount on liability component
            
            $
            1,565
            
            
            $
            2,023
            
            
            $
            3,232
            
            
            $
            4,011




The
remaining unamortized discount will be amortized using the effective interest
method through November 15, 2011. As of June 28, 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 first half of 2009 is as follows:


Workforce
      ReductionsBalance
      at December 28, 2008
            
            $
            —Amounts
      accrued
            
            
            1,585Amounts
      paid/incurred
            
            
            (1,156
            )Effects
      of exchange rates
            
            
            —Balance
      at June 28, 2009
            
            $
            429





15
 Table of Contents


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




The costs
associated with these exit activities were recorded in accordance with the
accounting guidance in SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities(SFAS 146). The restructuring and
integration plan is subject to continued future refinement as additional
information becomes available. The Company expects that the workforce reduction
amounts will be paid through the first quarter of 2010.




2008
Restructuring Plan




In June
2008, the Company formulated and began to implement a plan to further
consolidate operations and reduce manufacturing and operating expenses. As part
of this plan, the Company closed its Salisbury, Maryland manufacturing facility
and transferred most of the production to its other manufacturing operations. In
addition, the Company closed its design and development center in Bristol, UK
and discontinued manufacturing operations in Kempele, Finland. These actions
were finalized in the first quarter of 2009.




A summary
of the activity affecting its accrued restructuring liability related to the
2008 Restructuring Plan for the first half of 2009 is as follows:


Workforce
      Reductions
            
            Facility
      Closures
                &
      Equipment Write-downs
            
            TotalBalance
      at December 28, 2008
            
            $
            3,106
            
            
            $
            585
            
            
            $
            3,691Amounts
      accrued
            
            
            594
            
            
            
            124
            
            
            
            718Amounts
      paid/incurred
            
            
            (3,067
            )
            
            
            (282
            )
            
            
            (3,349
            )Effects
      of exchange rates
            
            
            (16
            )
            
            
            69
            
            
            
            53Balance
      at June 28, 2009
            
            $
            617
            
            
            $
            496
            
            
            $
            1,113




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 first half of 2009 is as follows:


Facility
      Closures
                &
      Equipment Write-downsBalance
      at December 28, 2008
            
            $
            551Amounts
      accrued
            
            
            (179
            )Amounts
      paid/incurred
            
            
            (269
            )Effects
      of exchange rates
            
            
            (25
            )Balance
      at June 28, 2009
            
            $
            78




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 in the third quarter of 2009.





16
 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 first half of 2009 is as
follows:


Facility
      Closures
                &
      Equipment Write-downsBalance
      at December 28, 2008
            
            $
            146Amounts
      accrued
            
            
            175Amounts
      paid/incurred
            
            
            (321
            )Effects
      of exchange rates
            
            
            —Balance
      at June 28, 2009
            
            $
            —




The costs
associated with these exit activities were recorded in accordance with the
accounting guidance in SFAS 146.  The remaining payments on this plan
were 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
complete.




A summary
of the activity affecting its accrued restructuring liability related to the
integration of the REMEC, Inc.’s wireless systems business and LGP Allgon for
the first half of 2009 is as follows:


Facility
      Closures
                &
      Equipment Write-downsBalance
      at December 28, 2008
            
            $
            1,425Amounts
      accrued
            
            
            —Amounts
      paid/incurred
            
            
            (404
            )Effects
      of exchange rates
            
            
            —Balance
      at June 28, 2009
            
            $
            1,021




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. During the first half of 2009, the Company also incurred
severance charges of $2.2 million related to personnel reductions primarily in
the United States, Canada, Finland and Sweden and $0.1 million of facility
closure expenses.   The aggregate of all such charges was $3.1
million of which approximately $1.4 million was included in cost of sales and
approximately $1.7 million was included in operating expenses.




In the
first half of 2008, the Company recorded charges of approximately $8.7 million
for the impairment of inventory at closed or consolidated facilities that either
has been or will be disposed of and is not expected to generate future revenue.
Included in these charges is $4.7 million and $3.2 million, respectively, of
inventory charges related to the closure of the Company’s facilities in China
and Salisbury, Maryland. The Company also incurred charges of $0.6 million for
professional fees





17
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




Note
7. Other Income (Expense), Net




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




Three Months Ended
            
            Six
      Months EndedJune
      28,
              2009
            
            June
      29,
              2008
            
            June
      28,
              2009
            
            June
      29,
              2008Interest
      income
            
            $
            71
            
            
            $
            58
            
            
            $
            469
            
            
            $
            239Interest
      expense
            
            
            (4,525
            )
            
            
            (4,390
            )
            
            
            (8,872
            )
            
            
            (9,274
            )Foreign
      currency gain (loss), net
            
            
            242
            
            
            
            (2,561
            )
            
            
            3,063
            
            
            
            (5,810
            )Gain
      on repurchase of convertible debt
            
            
            6,399
            
            
            
            —
            
            
            
            9,767
            
            
            
            —Other
      income, net
            
            
            312
            
            
            
            186
            
            
            
            1,231
            
            
            
            903Total
            
            $
            2,499
            
            
            $
            (6,707
            )
            
            $
            5,658
            
            
            $
            (13,942
            )




Other
income (expense), net, for the three and six months ended June 28, 2009 includes
a gain of approximately $6.4 million and $9.8 million, respectively, related to
the repurchase of approximately $20.0 million and $25.4 million, respectively,
in aggregate par value of the Company’s outstanding 1.875% convertible
subordinated notes due 2024.




Note
8. Earnings (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 29,023,841 and 31,503,790
related to the Company’s stock option programs and convertible debt have been
excluded from diluted weighted average common shares for the three and six
months ended June 28, 2009, as the effect would be anti-dilutive.  In
addition, potential common shares of 36,962,165 and 36,909,791 related to the
Company’s stock option programs and convertible debt have been excluded from
diluted weighted average common shares for the three and six months ended June
29, 2008.




The
following details the calculation of basic and diluted net income (loss) per
share:




Three
      Months Ended
            
            Six
      Months EndedJune
      28,
              2009
            
            June
      29,
              2008
            
            June
      28,
              2009
            
            June
      29,
              2008Basic:Net
      income (loss)
            
            $
            2,559
            
            
            $
            (12,184
            )
            
            $
            (1,813
            )
            
            $
            (28,356
            )Weighted
      average common shares
            
            
            131,654
            
            
            
            131,001
            
            
            
            131,572
            
            
            
            130,964Basic
      income (loss) per share
            
            $
            0.02
            
            
            $
            (0.09
            )
            
            $
            (0.01
            )
            
            $
            (0.22
            )Diluted:Net
      income (loss)
            
            $
            2,559
            
            
            $
            (12,184
            )
            
            $
            (1,813
            )
            
            $
            (28,356
            )Interest
      expense of convertible debt, net of tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
      income (loss), as adjusted
            
            $
            2,559
            
            
            $
            (12,184
            )
            
            $
            (1,813
            )
            
            $
            (28,356
            )Weighted
      average common shares
            
            
            131,654
            
            
            
            131,001
            
            
            
            131,572
            
            
            
            130,964Potential
      common shares
            
            
            2,793
            
            
            
            —
            
            
            
            —
            
            
            
            —Weighted
      average common shares, as adjusted
            
            
            134,447
            
            
            
            131,001
            
            
            
            131,572
            
            
            
            130,964Diluted
      income (loss) per share
            
            $
            0.02
            
            
            $
            (0.09
            )
            
            $
            (0.01
            )
            
            $
            (0.22
            )







18
 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 was 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. On May 14,
2009, the parties executed a stipulation of settlement to resolve 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 Court granted preliminary approval of the
proposed settlement and provisionally certified a settlement class on June 22,
2009, and set a hearing for final approval of the settlement for October 19,
2009.




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. On May 15, 2009, the parties executed a stipulation of
settlement to resolve the derivative action.  According to the terms
of the proposed settlement, the Company will adopt certain enhancements to its
corporate governance policies and procedures and counsel for the derivative
plaintiff will be reimbursed its legal fees and expenses, which will be funded
by the Company’s directors and officers liability insurance. The Court granted
preliminary approval of the proposed settlement on June 22, 2009, and set a
hearing for final approval of the settlement for October 19, 2009.




The
Company is subject to other legal proceedings and claims in the normal course of
business.  The Company is currently defending these proceedings and
claims, and, although the outcome of legal proceedings is inherently uncertain
presently, the Company anticipates that it will be able to resolve these matters
in a manner that will not have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash
flows.





Note
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 June 28, 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





19
 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. 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. 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





20
 Table of Contents
 POWERWAVE
TECHNOLOGIES, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Tabular
amounts in thousands, except per share data)




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.




As of
June 28, 2009, the liability for income taxes associated with uncertain tax
positions was $10.5 million, including accrued penalties, interest, and foreign
currency fluctuations of $0.4 million.  Of this amount, $8.3 million,
if recognized, would affect the Company’s effective tax rate.  In the
first quarter of 2009, approximately $1.1 million of the liability was reduced
as a result of the expiration of the statutory audit period of the tax
jurisdiction.  Interest charges associated with all relevant uncertain
tax positions were recorded for the period and all other changes to the
liability were immaterial.




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 June 28, 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 United
States for fiscal year 2006 and Finland for fiscal years 2007 and
2008.  All other material state, local and foreign income tax matters
have been concluded for years through 2005.




Note
12. Fair Value of Financial Instruments




The
estimated fair value of the Company’s financial instruments has been determined
using available market information and valuation methodologies. Considerable
judgment is required in estimating fair values. Accordingly, the estimates may
not be indicative of the amounts the Company could realize in a current market
exchange.




The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it was practicable to estimate that
value.




Cash
and Cash Equivalents and Restricted Cash




The
carrying amount approximates fair value because of the short maturity (less than
90 days) and high credit quality of these instruments.




Long-Term
Debt




The fair
value of the Company’s long-term debt is estimated based on the quoted market
prices for the debt.  The Company’s long-term debt consists of
convertible subordinated notes, which are not actively traded as an investment
instrument and therefore, the quoted market prices may not reflect actual sales
prices that such notes would trade at.  The Company values these
instruments at their stated par value, which represents the principal amount due
at maturity, as well as the amount upon which interest expense is based. The
stated par value of these notes equals their carrying value on the Company’s
consolidated balance sheet.




The
estimated fair values of the Company’s financial instruments were as
follows:




June 28, 2009
            
            December
      28, 2008Carrying
              Amount
            
            Fair
              Value
            
            Carrying
              Amount
            
            Fair
              ValueCash
      and cash
      equivalents
            
            $
            39,842
            
            
            $
            39,842
            
            
            $
            46,906
            
            
            $
            46,906Restricted
      cash
            
            
            2,524
            
            
            
            2,524
            
            
            
            3,433
            
            
            
            3,433Long-term
      debt3.875%
      Convertible Subordinated Notes due 2027
            
            $
            150,000
            
            
            $
            73,605
            
            
            $
            150,000
            
            
            $
            35,8051.875%
      Convertible Subordinated Notes due 2024
            
            
            130,887
            
            
            
            81,150
            
            
            
            156,321
            
            
            
            37,189Less
      unamortized discount
            
            
            (14,821
            )
            
            
            
            
            
            
            (21,065
            )Total
      long-term
      debt
            
            $
            266,066
            
            
            
            
            
            
            $
            285,256




21
 Table of Contents


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




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
14. Customer Concentrations




The
Company’s product sales have historically been concentrated in a small number of
customers. For the first half of 2009 and the first half of 2008, sales to
customers that accounted for 10% or more of revenues totaled $140.7 million and
$219.8 million, respectively. Sales to Nokia Siemens accounted for approximately
37% and sales to Alcatel-Lucent accounted for approximately 12% of total
revenues for the first half of 2009. For the first half of 2008, sales to Nokia
Siemens, accounted for approximately 28% of revenues, and sales to
Alcatel-Lucent accounted for approximately 18% of revenues.




As of
June 28, 2009, approximately 51% of total accounts receivable related to
customers that accounted for 10% or more of the Company’s total revenue during
the first half of 2009. Nokia Siemens and Alcatel-Lucent accounted for
approximately 35% and 16%, respectively, of the Company’s total accounts
receivable.  The inability to collect outstanding receivables from
these customers or any other significant customers, the delay in collecting
outstanding receivables within the contractual payment terms, or the loss of, or
reduction in sales to any of these customers could have a material adverse
effect on the Company’s business, financial condition and results of
operations.




Note
15. 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
obtained at a reasonable cost.




Note
16. 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, remote radio head transceivers and advanced coverage solutions for
use in cellular, PCS, 3G and 4G wireless communications networks throughout the
world.




The
Company manufactures multiple product categories at its manufacturing locations
and produces certain products at more than one location. With regard to sales,
the Company sells its products through two major sales channels. The largest
channel is the original equipment manufacturers channel, which consists of large
global companies such as Alcatel-Lucent, Ericsson, Huawei, Motorola, Nokia
Siemens and Samsung. The other major channel is direct to wireless network
operators, such as AT&T, Bouygues, 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.










22
 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 June 28, 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 and six months ended June 28, 2009 and June
29, 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
Technologies, Inc., which is referred to herein as “we,” “us” or “our,” 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 our products to both original equipment manufacturers, who
incorporate our products into their proprietary base stations (which they then
sell to wireless network operators), and directly to individual wireless network
operators for deployment into their existing networks.




During
the last 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.  The global credit crisis and economic
recession that began in the fall of 2008 has led to reduced capital spending and
lower demand for our products. This has negatively impacted our financial
results. During 2008 and the first six months of 2009, we implemented several
cost cutting initiatives aimed at lowering our operating expenses and
manufacturing cost structure. 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 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.  During the
first half of 2009, we have experienced a significant slowdown in demand from
our customers that we believe is directly related to the global economic crisis
and recession.




23
 Table of Contents


We
believe that we have maintained our competitive position 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.  During the fall of 2008 and continuing through 2009, the
world’s economies have been impacted by the global credit crisis which combined
to cause a worldwide recession, which has severely impacted our markets and
significantly reduced demand for our products.  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 improved
profitability once market conditions improve.




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, vendor cancellation reserves, 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 half of 2009 and 2008, we recorded restructuring and impairment charges of
approximately $3.1 million and $11.6 million, respectively. Such charges relate
to our 2006, 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 matters which were uncertain
at the time, including the timing and amount of sublease income that will be
recovered on





24
 Table of Contents
 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.










25
 Table of Contents







Results
of Operations




The
following table summarizes Powerwave’s results of operations as a percentage of
net sales for the three and six months ended June 28, 2009 and June 29,
2008:




Three Months
      Ended
            
            Six
      Months EndedJune
      28,
              2009
            
            June
      29,
              2008
            
            June
      28,
              2009
            
            June
      29,
              2008Net
      sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of sales:Cost
      of goods
            
            
            73.2
            
            
            
            75.3
            
            
            
            75.1
            
            
            
            75.9Intangible
      asset amortization
            
            
            0.4
            
            
            
            2.6
            
            
            
            0.4
            
            
            
            2.6Restructuring
      and impairment charges
            
            
            0.0
            
            
            
            2.1
            
            
            
            0.5
            
            
            
            2.2Total
      cost of sales
            
            
            73.6
            
            
            
            80.0
            
            
            
            76.0
            
            
            
            80.7Gross
      profit
            
            
            26.4
            
            
            
            20.0
            
            
            
            24.0
            
            
            
            19.3Operating
      expenses:Sales
      and marketing
            
            
            6.5
            
            
            
            5.4
            
            
            
            6.5
            
            
            
            5.5Research
      and development
            
            
            10.7
            
            
            
            8.4
            
            
            
            10.4
            
            
            
            8.6General
      and administrative
            
            
            9.4
            
            
            
            6.5
            
            
            
            8.7
            
            
            
            6.6Intangible
      asset amortization
            
            
            0.2
            
            
            
            1.1
            
            
            
            0.2
            
            
            
            1.1Restructuring
      and impairment charges
            
            
            0.1
            
            
            
            0.4
            
            
            
            0.6
            
            
            
            0.2Total
      operating expenses
            
            
            26.9
            
            
            
            21.8
            
            
            
            26.4
            
            
            
            22.0Operating
      loss
            
            
            (0.5
            )
            
            
            (1.8
            )
            
            
            (2.4
            )
            
            
            (2.7
            )Other
      income (expense), net
            
            
            1.8
            
            
            
            (2.8
            )
            
            
            2.0
            
            
            
            (2.9
            )Income
      (loss) before income taxes
            
            
            1.3
            
            
            
            (4.6
            )
            
            
            (0.4
            )
            
            
            (5.6
            )Income
      tax provision (benefit)
            
            
            (0.6
            )
            
            
            0.4
            
            
            
            0.2
            
            
            
            0.4Net
      income (loss)
            
            
            1.9
            %
            
            
            (5.0
            )%
            
            
            (0.6
            )%
            
            
            (6.0
            )%




Three
Months ended June 28, 2009 and June 29, 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 4G wireless communications networks throughout the
world.




The
following table presents a further analysis of our sales based upon our various
customer groups:




Three
      Months Ended
              (in
      thousands)Customer Group
            
            June 28, 2009
            
            June 29, 2008Wireless
      network operators and other
            
            $
            41,817
            
            
            
            31
            %
            
            $
            107,680
            
            
            
            44
            %Original
      equipment manufacturers
            
            
            94,293
            
            
            
            69
            %
            
            
            137,962
            
            
            
            56
            %Total
            
            $
            136,110
            
            
            
            100
            %
            
            $
            245,642
            
            
            
            100
            %







Sales
decreased by 45% to $136.1 million for the second quarter of 2009, from $245.6
million, for the second quarter of 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 61% and 32%, respectively, for the second quarter of 2009 from the
second quarter of 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 half of 2009.





26
 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
            
            June 28, 2009
            
            June 29, 2008Antenna
      systems
            
            $
            31,753
            
            
            
            23
            %
            
            $
            68,558
            
            
            
            28
            %Base
      station systems
            
            
            96,374
            
            
            
            71
            %
            
            
            148,802
            
            
            
            61
            %Coverage
      systems
            
            
            7,983
            
            
            
            6
            %
            
            
            28,282
            
            
            
            11
            %Total
            
            $
            136,110
            
            
            
            100
            %
            
            $
            245,642
            
            
            
            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 and recession
impacting both our original equipment manufacturer and direct operator customers
during the second quarter of 2009 as compared with the second quarter of
2008.




We track
the geographic location of our sales based upon the location of our customers to
which we ship our products. However, since many of our original equipment
manufacturer customers purchase products from us at central locations and then
re-ship the product with other base station equipment to locations throughout
the world, we are unable to identify the final installation location of many of
our products.




The
following table presents an analysis of our net sales based upon the geographic
area to which a product was shipped:




Three
      Months Ended
              (in
      thousands)Geographic Area
            
            June 28, 2009
            
            June 29, 2008Americas
            
            $
            41,881
            
            
            
            31
            %
            
            $
            83,084
            
            
            
            34
            %Asia
      Pacific
            
            
            48,752
            
            
            
            36
            %
            
            
            72,841
            
            
            
            30
            %Europe
            
            
            34,374
            
            
            
            25
            %
            
            
            80,610
            
            
            
            33
            %Other
      international
            
            
            11,103
            
            
            
            8
            %
            
            
            9,107
            
            
            
            3
            %Total
            
            $
            136,110
            
            
            
            100
            %
            
            $
            245,642
            
            
            
            100
            %







Revenues
decreased in all regions in the second quarter of 2009 as compared with the
second 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 and recession. 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 second quarter of 2008 to those in
effect for the second quarter of 2009, the change in the value of foreign
currencies as compared with the U.S. Dollar had a negative impact on our
revenues for the second quarter of 2009 of less than two
percent.  This impact did not have a material impact on our net
sales.  We are unable to predict the future impact of such currency
fluctuations on our future results.




For the
second quarter of 2009, total sales to Nokia Siemens accounted for approximately
39% of sales and sales to Alcatel-Lucent accounted for approximately 15% of
sales for the quarter.  For the second quarter of 2008, total sales to
Nokia Siemens accounted for approximately 28% of sales, sales to Alcatel-Lucent
accounted for approximately 16% of sales for the quarter and sales to AT&T
accounted for approximately 10% 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.





27
 Table of Contents




A number
of factors have caused delays and may cause future delays in new wireless
infrastructure and upgrade deployment schedules throughout the world, including
deployments in the United States, Europe, Asia, South America and other areas.
In addition, a number of factors may cause original equipment manufacturers to
alter their outsourcing strategy concerning certain wireless communications
network products, which could cause such original equipment manufacturers to
reduce or eliminate their demand for external supplies of such products or shift
their demand to alternative suppliers or internal suppliers. Such factors
include lower perceived internal manufacturing costs and competitive reasons to
remain vertically integrated. Due to the possible uncertainties associated with
wireless infrastructure deployments and original equipment manufacturer demand,
we have experienced and expect to continue to experience significant
fluctuations in 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)June 28, 2009
            
            June 29, 2008Net
      sales
            
            $
            136,110
            
            
            
            100.0
            %
            
            $
            245,642
            
            
            
            100.0
            %Cost
      of sales:Cost
      of sales
            
            
            99,587
            
            
            
            73.2
            %
            
            
            185,090
            
            
            
            75.3
            %Intangible
      amortization
            
            
            623
            
            
            
            0.4
            %
            
            
            6,255
            
            
            
            2.6
            %Restructuring
      and impairment charges
            
            
            2
            
            
            
            0.0
            %
            
            
            5,163
            
            
            
            2.1
            %Total
      cost of sales
            
            
            100,212
            
            
            
            73.6
            %
            
            
            196,508
            
            
            
            80.0
            %Gross
      profit
            
            $
            35,898
            
            
            
            26.4
            %
            
            $
            49,134
            
            
            
            20.0
            %









Our
actual total gross profit decreased during the second quarter of 2009, compared
with the second quarter of 2008, primarily as a result of our decreased
revenues. As a percentage of revenue, our gross profit margin increased during
the second quarter of 2009 compared with the second quarter of 2008 due
primarily to reduced overhead costs within cost of goods sold due to our
restructuring activities over the last year, and 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 our Annual Report on Form 10-K for the fiscal year
ended December 28, 2008). We incurred minimal restructuring and impairment
charges during the second quarter of fiscal 2009.  For the second
quarter of 2008, we incurred restructuring and impairment charges totaling $5.2
million.




The
wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. Certain of our competitors
have aggressively lowered prices in an attempt to gain market share. Due to
these competitive pressures and the pressures of our customers to continually
lower product costs, we expect that the average sales prices of our products
will continue to decrease and negatively impact our gross margins. In addition,
we have introduced new products at lower sales prices and these lower sales
prices have impacted the average sales prices of our products. We have also
reduced prices on our existing products in response to our competitors and
customer demands. We currently expect that pricing pressures will remain strong
in our industry. Future pricing actions by our competitors and





28
 Table of Contents
 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 prior decisions to close
or transfer our Salisbury, Maryland, Finland, Hungary, Shanghai and Wuxi, China
manufacturing operations as part of our restructuring plans to reduce our
manufacturing costs. However, we cannot guarantee that these cost reductions,
and our outsourcing or product redesign efforts will keep pace with price
declines and cost increases. If we are unable to further reduce our costs
through our manufacturing, outsourcing and/or engineering efforts, our gross
margins and profitability will be adversely affected. 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)June 28, 2009
            
            June 29, 2008Operating ExpensesSales
      and marketing
            
            $
            8,854
            
            
            
            6.5
            %
            
            $
            13,217
            
            
            
            5.4
            %Research
      and development
            
            
            14,592
            
            
            
            10.7
            %
            
            
            20,789
            
            
            
            8.4
            %General
      and administrative
            
            
            12,752
            
            
            
            9.4
            %
            
            
            15,973
            
            
            
            6.5
            %Intangible
      amortization
            
            
            207
            
            
            
            0.2
            %
            
            
            2,660
            
            
            
            1.1
            %Restructuring
      and impairment charges
            
            
            151
            
            
            
            0.1
            %
            
            
            966
            
            
            
            0.4
            %Total
      operating expenses
            
            $
            36,556
            
            
            
            26.9
            %
            
            $
            53,605
            
            
            
            21.8
            %







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 $4.4 million, or 33%, during the second quarter of 2009 as
compared with the second quarter of 2008. The decrease was due primarily to
lower personnel costs resulting from reduced sales commissions associated with
lower revenues and from restructuring actions taken in the last year, decreased
travel and trade show expenses and lower bad debt expense.  In
addition, expenses for the second quarter of 2008 include an employee bonus
accrual of $0.1 million.  No bonus has been accrued during
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 $6.2 million, or 30%, during the second quarter of 2009 as
compared with the second quarter of 2008 due primarily to restructuring actions
taken in the last year and lower professional fees for outsourced research and
development costs.  In addition, expenses for the second quarter of
2008 include an employee bonus accrual of $0.7 million.  No bonus has
been accrued during 2009.  Also contributing to the decrease in
research and development expenses were lower material expenses used in research
and development activities.




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 $3.2 million, or 20%,
during the second quarter of 2009 as compared with the second quarter of 2008.
This decrease was due primarily to reduced payroll resulting from personnel
reductions over the last year from our restructuring activities and lower
professional fees.  In addition, expenses for the second quarter of
2008 include an employee bonus accrual of $0.7 million.  No bonus has
been accrued during 2009.




Amortization
of customer-related intangibles from our acquisitions, amounted to $0.2 million
for the second quarter of 2009, compared with $2.7 million for the second
quarter of 2008. The decreased amortization expense for the second quarter of
2009 was a result of the intangible asset impairment recorded in the fourth
quarter of 2008, which led to lower amortization in 2009.




29
 Table of Contents


Restructuring
charges of $0.2 million were recorded in the second quarter of 2009, primarily
related to severance costs in the United States and Canada and facility closing
costs, compared with charges of $1.0 million in the second quarter of
2008.




Other
Income (Expense), net




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




Three
      Months Ended
                (in
      thousands)June 28, 2009
            
            June 29, 2008Interest
      income
            
            $
            71
            
            
            
            0.0
            %
            
            $
            58
            
            
            
            0.0
            %Interest
      expense
            
            
            (4,525
            )
            
            
            (3.3
            )%
            
            
            (4,390
            )
            
            
            (1.8
            )%Foreign
      currency gain (loss), net
            
            
            242
            
            
            
            0.2
            %
            
            
            (2,561
            )
            
            
            (1.1
            )%Gain
      on repurchase of convertible debt
            
            
            6,399
            
            
            
            4.7
            %
            
            
            —
            
            
            
            —Other
      income, net
            
            
            312
            
            
            
            0.2
            %
            
            
            186
            
            
            
            0.1
            %Other
      income (expense), net
            
            $
            2,499
            
            
            
            1.8
            %
            
            $
            (6,707
            )
            
            
            (2.8
            )%







Interest
income stayed relatively flat during the second quarter of 2009 compared with
the second quarter of 2008. Interest expense increased slightly during the
second quarter of 2009 primarily due to the higher loan fees and interest rates
related to our new Credit Agreement which was entered into in April of 2009. The
increase in other income (expense), net is primarily due to the gain of
approximately $6.4 million that we recognized on the purchase of $20.0 million
in aggregate par value of our outstanding 1.875% convertible subordinated notes
due 2024 that were purchased at a discount during the second quarter of 2009.
Additionally, we recognized a net foreign currency translation gain of $0.2
million in the second quarter of 2009, primarily due to the strength of the
U.S. Dollar versus several other currencies, as compared with the second
quarter of 2008 when we recognized a foreign currency translation loss of $2.6
million.




Income
Tax Provision (Benefit)




Our
effective tax rate for the second quarter of 2009 was a benefit of approximately
39.0% of our pre-tax income of $1.8 million. We have recorded a valuation
allowance against a portion of our deferred tax assets due to the uncertainty of
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. For the second quarter of 2009, we recorded an income tax benefit for
losses from jurisdictions where the tax benefits will be realized or offset by
permanent differences.  The benefit recorded was offset by tax expense
from operations in foreign jurisdictions, primarily China, and additional tax
expense associated with uncertain tax positions.  We expect our tax
rate to continue to fluctuate based on the percentage of income earned in each
jurisdiction.




Net
Income (Loss)




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




Three
      Months Ended
              (in
      thousands)June 28, 2009
            
            June 29, 2008Operating
      loss
            
            $
            (658
            )
            
            $
            (4,471
            )Other
      income (expense), net
            
            
            2,499
            
            
            
            (6,707
            )Income
      (loss) before income taxes
            
            
            1,841
            
            
            
            (11,178
            )Income
      tax provision (benefit)
            
            
            (718
            )
            
            
            1,006Net
      income (loss)
            
            $
            2,559
            
            
            $
            (12,184
            )







Our net
income for the second quarter of 2009 was $2.6 million, compared with our net
loss of $12.2 million for the second quarter of 2008. The increase in our net
income during the second quarter of 2009 compared with the net loss in the
second quarter of 2008 is the result of the gain on debt repurchases, lower
current year intangible asset amortization costs resulting from prior year asset
impairments and lower operating costs resulting from our worldwide cost-cutting
and restructuring activities.




30
 Table of Contents


Six
Months ended June 28, 2009 and June 29, 2008




Net
Sales




The
following table presents a further analysis of our sales based upon our various
customer groups:




Six
      Months Ended
              (in
      thousands)Customer Group
            
            June 28, 2009
            
            June 29, 2008Wireless
      network operators and other
            
            $
            96,382
            
            
            
            34
            %
            
            $
            180,780
            
            
            
            38
            %Original
      equipment manufacturers
            
            
            189,473
            
            
            
            66
            %
            
            
            291,163
            
            
            
            62
            %Total
            
            $
            285,855
            
            
            
            100
            %
            
            $
            471,943
            
            
            
            100
            %









Sales
decreased by 39% to $285.9 million for the first half of 2009, from $471.9
million, for the first half of 2008.  This decrease was due to lower
demand from both our direct operator customers and our original equipment
manufacturer customers, which decreased by approximately 47% and 35%,
respectively, for the first half of 2009 from the first half of 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 half of 2009.




The
following table presents a further analysis of our sales based upon our various
product groups:




Six
      Months Ended
              (in
      thousands)Wireless Communications Product
      Group
            
            June 28, 2009
            
            June 29, 2008Antenna
      systems
            
            $
            67,509
            
            
            
            24
            %
            
            $
            120,437
            
            
            
            25
            %Base
      station systems
            
            
            198,793
            
            
            
            69
            %
            
            
            301,300
            
            
            
            64
            %Coverage
      systems
            
            
            19,553
            
            
            
            7
            %
            
            
            50,206
            
            
            
            11
            %Total
            
            $
            285,855
            
            
            
            100
            %
            
            $
            471,943
            
            
            
            100
            %







The
decrease in all three product groups listed in the table able 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 first half of 2009 as compared with the first half of 2008.




The
following table presents an analysis of our net sales based upon the geographic
area to which a product was shipped:




Six
      Months Ended
              (in
      thousands)Geographic Area
            
            June 28, 2009
            
            June 29, 2008Americas
            
            $
            77,482
            
            
            
            27
            %
            
            $
            169,165
            
            
            
            36
            %Asia
      Pacific
            
            
            107,272
            
            
            
            38
            %
            
            
            135,596
            
            
            
            29
            %Europe
            
            
            77,861
            
            
            
            27
            %
            
            
            151,123
            
            
            
            32
            %Other
      international
            
            
            23,240
            
            
            
            8
            %
            
            
            16,059
            
            
            
            3
            %Total
            
            $
            285,855
            
            
            
            100
            %
            
            $
            471,943
            
            
            
            100
            %







Revenues
decreased in all regions in the first half of 2009 as compared with the first
half 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 most other currencies.  We have
calculated that when comparing exchange rates in effect for the first half of
2008 to those in effect for the first half of 2009, the change in the value of
foreign





31
 Table of Contents
 currencies
as compared with the U.S. Dollar had a negative impact on our revenues for the
first half of 2009 of approximately 1%.  This impact did not have a
material impact on our net sales.




For the
first half of 2009, total sales to Nokia Siemens accounted for approximately 37%
of sales, and sales to Alcatel-Lucent accounted for approximately 12% of
sales.  For the first half of 2008, total sales to Nokia Siemens
accounted for approximately 28% of sales, and sales to Alcatel-Lucent accounted
for approximately 18% of sales for the period.




Cost
of Sales and Gross Profit




The
following table presents an analysis of our gross profit:




Six
      Months Ended
              (in
      thousands)June 28, 2009
            
            June 29, 2008Net
      sales
            
            $
            285,855
            
            
            
            100.0
            %
            
            $
            471,943
            
            
            
            100.0
            %Cost
      of sales:Cost
      of sales
            
            
            214,548
            
            
            
            75.1
            %
            
            
            357,853
            
            
            
            75.9
            %Intangible
      amortization
            
            
            1,247
            
            
            
            0.4
            %
            
            
            12,364
            
            
            
            2.6
            %Restructuring
      and impairment charges
            
            
            1,410
            
            
            
            0.5
            %
            
            
            10,535
            
            
            
            2.2
            %Total
      cost of sales
            
            
            217,205
            
            
            
            76.0
            %
            
            
            380,752
            
            
            
            80.7
            %Gross
      profit
            
            $
            68,650
            
            
            
            24.0
            %
            
            $
            91,191
            
            
            
            19.3
            %







Our total
gross profit decreased during the first half of fiscal 2009 compared with the
first half of fiscal 2008, primarily as a result of our decreased
revenues.  As a percentage of revenue, our gross profit margin
increased during the first half of 2009 compared with the first half of 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 our 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 half of fiscal 2009
related to severance charges in the United States, Finland and the
UK.  For the first half of 2008, we incurred $10.5 million of
restructuring and impairment charges related to restructuring plans implemented
primarily in conjunction with our China and Salisbury manufacturing
consolidations. Our cost of goods sold for the first half of 2009 was slightly
lower as a percentage of revenue compared with the prior year period. This
decrease in the percentage of cost of goods sold is due primarily to our cost
reduction activities over the last year and the mix of products
sold.




Operating
Expenses




The
following table presents a breakdown of our operating expenses by functional
category and as a percentage of net sales:




Six
      Months Ended
              (in
      thousands)June 28, 2009
            
            June 29, 2008Operating ExpensesSales
      and marketing
            
            $
            18,595
            
            
            
            6.5
            %
            
            $
            25,763
            
            
            
            5.5
            %Research
      and development
            
            
            29,740
            
            
            
            10.4
            %
            
            
            40,460
            
            
            
            8.6
            %General
      and administrative
            
            
            24,851
            
            
            
            8.7
            %
            
            
            31,070
            
            
            
            6.6
            %Intangible
      amortization
            
            
            534
            
            
            
            0.2
            %
            
            
            5,257
            
            
            
            1.1
            %Restructuring
      and impairment charges
            
            
            1,649
            
            
            
            0.6
            %
            
            
            1,080
            
            
            
            0.2
            %Total
      operating expenses
            
            $
            75,369
            
            
            
            26.4
            %
            
            $
            103,630
            
            
            
            22.0
            %







Sales and
marketing expenses decreased by $7.2 million, or 28%, during the first half
of 2009 as compared with the first half of 2008. The decrease resulted primarily
from lower personnel costs resulting primarily from restructuring activities
taken in the last year, as well as decreased travel and trade show expenses and
lower sales commissions due to lower revenues.  These decreases were
partially offset by an increase in bad debt expense, compared with the first
half of 2008.





32
 Table of Contents







Research
and development expenses decreased by $10.7 million, or 26%, during the first
half of 2009 as compared with the first half of 2008, primarily due to personnel
costs due to restructuring actions taken in the last year and lower professional
fees for outsourced research and development costs.  Also contributing
to the decrease were lower materials costs used in research and development
activities.




General
and administrative expenses decreased $6.2 million, or 20%, during the first
half of 2009 as compared with the first half of 2008. This decrease was due to
reduced payroll resulting from personnel reductions over the last year from our
restructuring activities and lower professional fees.




Amortization
of customer-related intangibles from our acquisitions, amounted to $0.5 million
for the first half of 2009, compared with $5.3 million for the first half of
2008. The decrease was due to the intangible asset impairment recorded in the
fourth quarter of 2008, which led to lower amortization expense in
2009.




Restructuring
charges of $1.6 million were recorded in the first half of 2009, primarily for
severance costs in the United States, Finland and Sweden, compared with charges
of $1.1 million for the first half of 2008.




Other
Income (Expense), net




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




Six
      Months Ended
              (in
      thousands)June 28, 2009
            
            June 29, 2008Interest
      income
            
            $
            469
            
            
            
            0.1
            %
            
            $
            239
            
            
            
            0.1
            %Interest
      expense
            
            
            (8,872
            )
            
            
            (3.1
            )%
            
            
            (9,274
            )
            
            
            (2.0
            )%Foreign
      currency gain (loss), net
            
            
            3,063
            
            
            
            1.1
            %
            
            
            (5,810
            )
            
            
            (1.2
            )%Gain
      on repurchase of convertible debt
            
            
            9,767
            
            
            
            3.5
            %
            
            
            —
            
            
            
            —Other
      income, net
            
            
            1,231
            
            
            
            0.4
            %
            
            
            903
            
            
            
            0.2
            %Other
      income (expense), net
            
            $
            5,658
            
            
            
            2.0
            %
            
            $
            (13,942
            )
            
            
            (2.9
            )%







Interest
income increased slightly during the first half of 2009 compared with the first
half of 2008. Interest expense decreased due to lower interest expense
associated with the retirement of approximately $69 million of our long-term
debt in the last three quarters when compared with the first six months of
2008.  The increase in other income (expense), net is primarily due to
the $9.8 million gain we recognized on the purchase of $25.4 million in
aggregate par value of our outstanding 1.875% subordinated convertible notes due
2024.  The notes were purchased at a discount in both the first and
second quarters of 2009.  Additionally, we recognized a net foreign
currency translation gain of $3.1 million in the first half of 2009, primarily
due to the strength of the U.S. Dollar versus several other
currencies.  For the first half of 2008, we recognized a foreign
currency translation loss of $5.8 million, primarily due to the weakness of the
U.S. Dollar in comparison to the Euro, Swedish Krona and Chinese
RMB.




Income
Tax Provision




Our
effective tax rate for the first half of 2009 was an expense of approximately
70.9% of our pre-tax loss of $1.1 million.  Our effective tax
rate 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.  We
have recorded a valuation allowance against a portion of our deferred tax assets
pursuant to SFAS 109 due to the uncertainty of 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.  For
the first half of 2009, we recorded an income tax benefit for losses from tax
jurisdictions where the tax benefits will be realized or offset by permanent
differences.  The tax benefit recorded was offset by tax expense from
operations in foreign jurisdictions, primarily China, and tax expense associated
with uncertain tax positions.  We expect our effective tax rate to
continue to fluctuate based on the percentage of income earned in each tax
jurisdiction.





33
 Table of Contents







Net
Loss




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




Six
      Months Ended
              (in
      thousands)June 28, 2009
            
            June 29, 2008Operating
      loss
            
            $
            (6,719
            )
            
            $
            (12,439
            )Other
      income (expense), net
            
            
            5,658
            
            
            
            (13,942
            )Loss
      before income taxes
            
            
            (1,061
            )
            
            
            (26,381
            )Income
      tax provision
            
            
            752
            
            
            
            1,975Net
      loss
            
            $
            (1,813
            )
            
            $
            (28,356
            )




Our net
loss for the first half of 2009 was $1.8 million compared with a loss of $28.4
million for the first half of 2008.  The decrease in our net loss
during the first half of 2009 as compared with the first half of 2008 is the
result of the gains on our debt repurchases during the period, lower intangible
amortization costs and reduced operating expenses resulting from our
restructuring activities over the last year.




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 Credit Agreement. As of June 28, 2009, we had working capital of
$168.4 million, including $39.8 million in unrestricted cash and cash
equivalents as compared with working capital of $208.1 million at June 29, 2008,
which included $81.1 million in unrestricted cash and cash equivalents. We
currently invest our excess cash in short-term, investment-grade, money-market
instruments with maturities of three months or less. We typically hold such
investments until maturity and then reinvest the proceeds in similar money
market instruments. We believe that all of our cash investments would be readily
available to us should the need arise.




Cash
Flows




The
following table summarizes our cash flows for the six months ended June 28, 2009
and June 29, 2008:




Six
      Months Ended
              (in
      thousands)June 28, 2009
            
            June 29, 2008Net
      cash provided by (used in):Operating
      activities
            
            $
            6,124
            
            
            $
            18,221Investing
      activities
            
            
            (54
            )
            
            
            2,860Financing
      activities
            
            
            (13,621
            )
            
            
            12Effect
      of foreign currency translation on cash and cash
    equivalents
            
            
            487
            
            
            
            1,844Net
      increase (decrease) in cash and cash equivalents
            
            $
            (7,064
            )
            
            $
            22,937




Net cash
provided by operations during the first half of 2009 was $6.1 million as
compared with $18.2 million during the first half of 2008. The reduction in cash
flow from operations from the prior year period is due primarily to lower
revenues during the first half of 2009, which resulted in lower actual gross
profit, offset by lower operating expenses.




Net cash
used in investing activities during the first half of 2009 was $0.1 million as
compared with net cash provided by investing activities of $2.9 million during
the first half of 2008. The net cash used in investing activities during the
first half of 2009 represents a reduction in our restricted cash of $0.9 million
and proceeds from a settlement of litigation of $2.0 million, offset by capital
expenditures of $3.2 million. Total capital expenditures during the first half
of 2009 and the first half of 2008 were approximately $3.2 million and $5.2
million, respectively. The majority of the capital spending during both periods
related to computer hardware and test equipment utilized in our manufacturing
and research and development areas. We expect our capital spending requirements
for the remainder of this year to range between $5 million and $7 million,
consisting of test and production equipment, as well as computer hardware and
software.




Net cash
used in financing activities of $13.6 million during the first half of 2009
relates primarily to the repurchase of $25.4 million in aggregate par value of
our 1.875% convertible subordinated notes due 2024, as well as $1.3 million in
debt issuance costs related to our new Credit Agreement.  Net cash
provided by financing activities for the first half of 2008





34
 Table of Contents
 included
proceeds related to the employee stock purchase plan of $0.5 million offset by
the purchase of $0.5 million of our Common Stock in settlement of tax
liabilities related to the vesting of restricted stock
awards.




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 $280.9 million of long-term convertible subordinate notes outstanding
at June 28, 2009, consisting of $130.9 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.




Financing
Activities




We
entered into a Credit Agreement on April 3, 2009, see Note 5 of the Notes to Consolidated Financial
Statementsunder Part I, Item I, FinancialInformation.  Pursuant to the Credit Agreement, the lenders
thereunder have made available to us a senior secured credit facility in the
form of a revolving line of credit up to a maximum of $50.0 million.
Availability under the Credit Agreement is based on the calculation of our
borrowing base as defined in the Credit Agreement. The Credit Agreement is
secured by a first priority security interest on a majority of our assets,
including without limitation, all accounts, equipment, inventory, chattel paper,
records, intangibles, deposit accounts, cash and cash equivalents and proceeds
of the foregoing. The Credit Agreement expires on August 15, 2011. The
Credit Agreement contains customary affirmative and negative covenants for
credit facilities of this type, including limitations on us with respect to
indebtedness, liens, investments, distributions, mergers and acquisitions and
dispositions of assets. The Credit Agreement also includes financial covenants
including minimum EBITDA and maximum capital expenditures that are applicable
only if the availability of our line of credit falls below $20.0
million.  We are currently in compliance with these covenants as
of June 28, 2009.  If the current economic recession continues and our
revenues decrease, there is no assurance that we will be able to comply with the
covenants in the Credit Agreement.  See “We will need additional capital in
the future and such financing may not be available on favorable terms...”
under Part II, Item 1A, Risk Factors.




Also on
April 3, 2009, in connection with entering into the Credit Agreement
referenced above, we terminated our Amended Receivables Purchase Agreement. As
of the date of termination, we did not have any borrowings outstanding under the
Amended Receivables Purchase Agreement. In addition, we 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 all directly
impacted by our ability to grow revenues and generate profits. In addition, our
ability to obtain financing is directly dependent upon the availability of
financial markets to provide sources of financing on reasonable terms and
conditions.  During the last half of fiscal 2008 and the first half of
fiscal 2009, the capital and credit markets have experienced extreme volatility
and disruption.  In several cases, the markets have exerted downward
pressure on stock prices and credit capacity for certain issuers. Given





35
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 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 June 28, 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.




During
the first half of 2009, we granted options to purchase a total of 4,383,750
shares of Common Stock. We did not grant any shares of restricted stock to
employees during this period. After deducting 710,514 shares for options
forfeited, the result was net options granted of 3,673,236. Net options granted
during the first half of 2009 represented 2.8% of our total outstanding shares
of Common Stock of 131,975,982 as of June 28, 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:




Six Months Ended
                June 28,
                2009
            
            Year
      Ended
                December 28,
                2008Net
      grants (forfeitures) during the period as a % of total outstanding common
      shares
            
            
            2.8%
            
            
            
            0.2%Grants
      to executive officers during the period as a % of total options and awards
      granted during the period
            
            
            35.3%
            
            
            
            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
            
            
            37.3%
            
            
            
            34.7%







As of
June 28, 2009, a total of 2,043,931 options were available for grant under all
of our option plans with a total of 16,200 shares of Common Stock held in escrow
to cover all remaining exercises under our 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 our Annual Report on Form 10-K for the fiscal year
ended December 28, 2008 for further information regarding our 1995 Stock
Option Plan. The following table summarizes activity for outstanding options
under all of our stock option plans during the first half of 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
            
            
            4,383,750
            
            
            $
            0.42-$1.46
            
            
            $
            0.49Exercised
            
            
            —
            
            
            
            —
            
            
            
            —Cancelled
            
            
            (710,514
            )
            
            $
            0.48-$61.67
            
            
            $
            10.47Balance
      at June 28, 2009
            
            
            10,514,157
            
            
            $
            0.42-$67.08
            
            
            $
            4.93
            
            
            
            3,684,177
            
            
            $
            9.71







36
 Table of Contents


The
following table summarizes outstanding stock options that are “in-the-money” and
“out-of the-money” as of June 28, 2009. For purposes of this table, in-the-money
stock options are those options with an exercise price less than $1.67 per
share, the closing price of our Common Stock on June 26, 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 $1.67 per share closing
price.




Exercisable
            
            
            Unexercisable
            
            
            Total
              SharesShares
            
            
            Wtd. Avg.
                Exercise
                Price
            
            
            Shares
            
            
            Wtd. Avg.
                Exercise
                PriceIn-the-Money
            
            
            —
            
            
            $
            —
            
            
            
            4,413,250
            
            
            $
            0.49
            
            
            
            4,413,250Out-of-the-Money
            
            
            3,684,177
            
            
            
            9.71
            
            
            
            2,416,730
            
            
            
            5.72
            
            
            
            6,100,907Total
      Options Outstanding
            
            
            3,684,177
            
            
            $
            9.71
            
            
            
            6,829,980
            
            
            $
            2.34
            
            
            
            10,514,157








The
following table sets forth certain information concerning the exercise of
options by each of our executive officers during the first half of 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 June 28, 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
our Common Stock on June 26, 2009, the last trading day of the fiscal
quarter.




Name
            
            Shares
                Acquired
                on
                Exercise
            
            Value
                Realized
            
            Number
      of
                Securities Underlying
                Unexercised
      Options at
                June
      28, 2009
            
            Value
      of Unexercised
                In-the-Money
      Options at
                June
      28, 2009(1)Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableRonald
      J. Buschur
            
            
            —
            
            
            $
            —
            
            1,037,500
            
            562,500
            
            $
            —
            
            $
            610,000Kevin
      T. Michaels
            
            
            —
            
            
            $
            —
            
            537,500
            
            352,500
            
            $
            —
            
            $
            305,000J.
      Marvin Magee
            
            
            —
            
            
            $
            —
            
            131,666
            
            528,334
            
            $
            —
            
            $
            488,000Khurram
      P. Sheikh
            
            
            —
            
            
            $
            —
            
            84,791
            
            471,459
            
            $
            —
            
            $
            447,563Basem
      Anshasi
            
            
            —
            
            
            $
            —
            
            54,374
            
            160,626
            
            $
            —
            
            $
            82,250





(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 $1.67, which was the closing price of our Common
      Stock as reported by NASDAQ on June 26, 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 June 28, 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
            
            
            10,514,157
            
            
            $
            4.93
            
            
            
            2,043,931Equity
      Compensation Plans Not Approved by Shareholders
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            
            10,514,157
            
            
            $
            4.93
            
            
            
            2,043,931








(1)
            The
      number of shares of Common Stock remaining available for future issuance
      has also been reduced to reflect 302,500 shares of restricted stock issued
      under the 2005 Stock Incentive
Plan.








37
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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 June 28, 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 fiscal year ended December 28, 2008, 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 74% of our net sales during the first
half of 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 half of
2009, due to the increased value of the U.S. Dollar, we recorded a foreign
exchange translation gain of $3.1 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
June 28, 2009, we had cash equivalents of approximately $42.4 million in both
interest and non-interest bearing accounts, including restricted cash. We also
had $130.9 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 June 28, 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





38
 Table of Contents
 components
in order to mitigate the impact on us of any fluctuations in commodity prices.
These supply agreements are not long-term supply agreements. If we or our
contract manufacturers become subject to a significant increase in the price of
one of these components, we 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.





39
 Table of Contents







ITEM4.
            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 June 28, 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 June
28, 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.





40
 Table of Contents





PART II– 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 us, our President and Chief Executive Officer, our former
Executive Chairman of the Board of Directors and our 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 was that the
defendants made misleading statements or omissions concerning our projected
and actual sales revenues, the integration of certain acquisitions and the
sufficiency of our 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 our
projected sales revenues, but denied defendants’ motion to dismiss plaintiffs’
other claims. On August 29, 2008, the defendants answered the amended
complaint.  On May 14, 2009, the parties executed a stipulation of
settlement to resolve the consolidated action. According to the terms of the
proposed settlement, the settlement payment will be funded by our directors and
officers liability insurance.  The Court granted preliminary approval
of the proposed settlement and provisionally certified a settlement class on
June 22, 2009, and set a hearing for final approval of the settlement for
October 19, 2009.




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.  On May 15, 2009, the parties executed a stipulation
of settlement to resolve the derivative action.  According to the
terms of the proposed settlement, we will adopt certain enhancements to its
corporate governance policies and procedures and counsel for the derivative
plaintiff will be reimbursed its legal fees and expenses, which will be funded
by our directors and officers liability insurance. The Court granted preliminary
approval of the proposed settlement on June 22, 2009, and set a hearing for
final approval of the settlement for October 19, 2009.




We
are subject to other legal proceedings and claims in the normal course of
business.  We are currently defending these proceedings and claims,
and, although the outcome of legal proceedings is inherently uncertain
presently, we anticipate that we will be able to resolve these matters in a
manner that will not have a material adverse effect on our consolidated
financial position, results of operations or cash flows.





41
 Table of Contents





ITEM 1A.
            RISK
      FACTORS




Our
business faces significant risks. The risks described below may not be the only
risks we face. Additional risks that we do not yet know of or that we currently
think are immaterial also may impair our business operations. If any of the
events or circumstances described in the following risks actually occur, our
business, 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 first half of 2009, sales to Nokia Siemens accounted for approximately
37% of our net sales and sales to Alcatel-Lucent accounted for approximately 12%
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 half of 2009, our total sales have declined by 39%
compared with the same period in 2008.  During this same period, our
sales to Nokia Siemens have declined approximately 20% and our sales to
Alcatel-Lucent have declined approximately 61%, which has had a negative impact
on our business and results of operations. Our future success is dependent upon
the continued purchases of our products by a small number of customers such as
Nokia Siemens, 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 9% in the
second quarter of 2009, compared with the first quarter of 2009, and they
declined approximately 45% from the second 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





42
 Table of Contents
 revenues
will be further 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 magnitude,
timing or duration of this economic recession or its impact on the wireless
industry.




We
have previously experienced significant reductions in demand for our products by
certain customers and if this continues, our operating results will be adversely
impacted.




We have a
history of significant unanticipated reductions in demand that demonstrate the
risks related to our customer and industry concentration levels. While our
revenues have increased at times during fiscal years 2005, 2006, 2007 and 2008,
a significant portion of this increase was due to our various acquisitions.
During fiscal 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 with 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 $136.1 million in the
second quarter of 2009, from $149.7 million in the first quarter of 2009, $180.3
million in the fourth quarter of 2008 and $238.0 million in the third quarter of
2008. 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, 2007 and 2008, 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 and 4G,
or next generation service based products, due to the high projected capital
cost of building such networks and market concerns regarding the inoperability
of such network protocols. In combination with these market issues, a majority
of wireless network operators have in the past regularly reduced their capital
spending plans in order to improve their overall cash flow. There is a
substantial likelihood that the global economic recession will continue
throughout 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
will need additional capital in the future and such additional financing may not
be available on favorable terms or at all.




As of
June 28, 2009, we had approximately $42.4 million of cash, with $2.5 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 our Credit Agreement provides us with additional sources
of liquidity, we may need to raise additional funds through public or private
debt or equity financings in order to fund existing operations or to take
advantage of opportunities, including more rapid international expansion or
acquisitions of complementary businesses or technologies.  In
addition, if our business further deteriorates, we might be unable to maintain
compliance with the covenants in our Credit Agreement which could result in
reduced availability under the Credit Agreement, an event of default under the
Credit Agreement, or could make the Credit Agreement unavailable to
us.  If we are not successful in growing our businesses, reducing our
inventories and accounts receivable and managing the worldwide aspects of our
Company, our operations may not generate positive cash flow and we may consume
our cash resources faster than we anticipate. Such losses would make it





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 difficult
to obtain new sources of financing. In addition, if we do not generate
sufficient cash flow from operations, we may need to raise additional funds to
repay our $280.9 million of remaining outstanding convertible 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.




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 not only our business profitability, but also the credit markets,
which have recently become highly constrained due to credit concerns arising
from the subprime mortgage lending market and subsequent worldwide economic
recession. If we are unable to secure additional financing or such financing is
not available on acceptable terms, we may not be able to fund our operations,
otherwise respond to unanticipated competitive pressures, or repay our
convertible debt.




We
may be adversely affected by the bankruptcy of our customers.




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 economic 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 has experienced significant fluctuations in the price of oil and energy
during 2008 and the first half of 2009. 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.





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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.




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, results of operations and
financial condition. 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.





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Our
suppliers, contract manufacturers or customers could become
competitors.




Many of
our customers, especially our original equipment manufacturer customers,
internally design and/or manufacture their own wireless communications network
products. These customers also continuously evaluate whether to manufacture
their own wireless communications network products or utilize contract
manufacturers to produce their own internal designs. Certain of our customers
regularly produce or design wireless communications network products in an
attempt to replace products manufactured by us. In addition, some customers
threaten to undertake such activities if we do not agree to their requested
price reductions. We believe that 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 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, fiscal 2006, fiscal 2007,
the fourth quarter of fiscal 2008 and the first half 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 business, results of operations and financial condition 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
additions to, or consolidations of manufacturing operations may present risks,
and we may be unable to achieve the financial and strategic goals associated
with such actions.




We have
previously added new manufacturing locations, as well as consolidated existing
manufacturing locations in an attempt to achieve operating cost savings and
improved operating results.  We continually evaluate these types of
opportunities.  We may acquire or invest in new locations, or we may
consolidate existing locations into either existing or





46
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 new
locations in order to reduce our manufacturing costs.  We are
currently in the process of establishing a new manufacturing location in the
country of Thailand.  Such activities subject us to numerous risks and
uncertainties, including the following:




•
            difficulty
      integrating the new locations into our existing
  operations;




•
            difficulty
      consolidating existing locations into one
  location;




•
            inability
      to achieve the anticipated financial and strategic benefits of the
      specific new location or
consolidation;




•
            significant
      unanticipated additional costs incurred to start up a new manufacturing
      location;




•
            inability
      to attract key technical and managerial personnel to a new
      location;




•
            inability
      to retain key technical and managerial personnel due to the consolidation
      of locations to a new location;




•
            diversion
      of our management’s attention from other business
  issues;




•
            failure
      of our review and approval process to identify significant issues,
      including issues related to manpower, raw material supplies, legal and
      financial contingencies.




If we are
unable to manage these risks effectively as part of any investment in a new
manufacturing location or consolidation of locations, our business would be
adversely affected.




Future
acquisitions, or strategic alliances, may present risks, and we may be unable to
achieve the financial and strategic goals intended at the time of any
acquisition or strategic alliance.




In the
past, we have acquired and made investments in other companies, products and
technologies and entered into strategic alliances with other companies. We
continually evaluate these types of opportunities. We may acquire or invest in
other companies, products or technologies, or we may enter into joint ventures,
mergers or strategic alliances with other companies. Such transactions subject
us to numerous risks, including the following:




•
            difficulty
      integrating the operations, technology and personnel of the acquired
      company;




•
            inability
      to achieve the anticipated financial and strategic benefits of the
      specific acquisition or strategic
alliance;




•
            significant
      additional warranty costs due to product failures and or design
      differences that were not identified during due diligence, which could
      result in charges to earnings if they are not recoverable from the
      seller;




•
            inability
      to retain key technical and managerial personnel from the acquired
      company;




•
            difficulty
      in maintaining controls, procedures and policies during the transition and
      integration process;




•
            diversion
      of our management’s attention from other business
  concerns;





•
            failure
      of our due diligence process to identify significant issues, including
      issues with respect to product quality, product architecture, legal and
      financial contingencies, and product development;
  and




•
            significant
      exit charges if products acquired in business combinations are
      unsuccessful.




If we are
unable to manage these risks effectively as part of any acquisition or joint
venture, our business would be adversely affected.




We
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.




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 Table of Contents


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.




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 and are in the
process of establishing a new manufacturing facility in Thailand.




The
Chinese legal system lacks transparency, which gives the Chinese central and
local government authorities a higher degree of control over our business in
China than is customary in the United States 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.




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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.




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




For the
first half of 2009, and fiscal years 2008, 2007, and 2006, international
revenues (excluding North American sales) accounted for approximately 74%, 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.




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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.




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.




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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 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 and financial condition.




Our
failure to enhance our existing products or to develop and introduce new
products that meet changing customer requirements and evolving technological
standards could have a negative impact on our ability to sell our
products.




To
succeed, we must improve current products and develop and introduce new products
that are competitive in terms of price, performance and quality. These products
must adequately address the requirements of wireless infrastructure
manufacturing customers and end-users. To develop new products, we invest in the
research and development of wireless communications network products and
coverage solutions. We target our research and development efforts on major
wireless network deployments worldwide, which cover a broad range of frequency
and transmission protocols. In addition, we are currently working on products
for next generation networks, as well as development projects for products
requested by our customers and improvements to our existing products. The
deployment of a wireless network may be delayed which could result in the
failure of a particular research or development effort to generate a revenue
producing product. Additionally, the new products we develop may not achieve
market acceptance or may not be able to be manufactured cost effectively in
sufficient volumes. Our research and development efforts are generally funded
internally and our customers do not normally pay for our research and
development efforts. These costs are expensed as incurred. Therefore, if our
efforts are not successful at creating or improving products that are purchased
by our customers, there will be a negative impact on our operating results and
financial condition 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, results of operations 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.




At
times over the past three quarters, our stock price has not met 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 for a significant period of time over the past
three quarters.  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.  Due to the current economic
crisis, NASDAQ announced a moratorium on the enforcement of this minimum
bid requirement.  While this moratorium was extended to be effective
through July 31, 2009, it appears the moratorium will not be further
extended.  Accordingly, if our stock price does not stay above $1.00
per share following July 31, 2009, we risk being delisted from the NASDAQ
Global Select Market. We cannot control whether NASDAQ will agree to extend the
moratorium again in the future or whether NASDAQ will make any other concessions
to allow issuers to avoid potential delisting.




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.





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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. At times,
the fluctuations in the price of our Common Stock may have been unrelated to our
operating performance. These broad fluctuations may negatively impact the market
price of shares of our Common Stock. The price of our Common Stock may also have
been influenced by:




•
            fluctuations
      in our results of operations or the operations of our competitors or
      customers;




•
            the
      aggregate amount of our outstanding debt and perceptions about our ability
      to make debt service payments;




•
            failure
      of our results of operations and sales revenues to meet the expectations
      of stock market analysts and
investors;




•
            reductions
      in wireless infrastructure demand or expectations regarding future
      wireless infrastructure demand by our
customers;




•
            delays
      or postponement of wireless infrastructure deployments, including new 3G
      deployments;




•
            changes
      in stock market analyst recommendations regarding us, our competitors or
      our customers;




•
            the
      timing and announcements of technological innovations, new products or
      financial results by us or our
competitors;




•
            lawsuits
      attempting to allege misconduct by the Company and its
      officers;




•
            increases
      in the number of shares of our Common Stock outstanding;
    and




•
            changes
      in the wireless industry.




In
addition, the potential conversion of our outstanding convertible debt
instruments would add approximately 29.0 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.





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Subsequent
to the issuance of our consolidated financial statements for the three and six
months ended June 28, 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.








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ITEM2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




Issuer
Purchases of Equity Securities




The
following table details the repurchases that were made during the second quarter
of 2009:




Period
            
            Total
              Number
              of
      Shares
              Purchased
            
            
            Average
              Price
              per
              Share
            
            
            Total Number of
              Shares Purchased
              as Part of Publicly
              Announced
      Plan
            
            
            Approximate Dollar
              Value
      of Shares
              That
      May Yet Be
              Purchased
      Under
              the
      Plan(In thousands)
            
            
            (In thousands)March
      30 – May 3
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —May
      4 – May 31
            
            
            2,140
            (1)
            
            $
            1.31
            
            
            
            —
            
            
            
            —June
      1 – June 28
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —











(1)
            On
      May 14, 2009, 2,140 shares of Common Stock were surrendered to cover a tax
      withholding obligation with respect to the vesting of 5,000 shares under a
      May 2007 restricted stock grant.







ITEM3.
            DEFAULTS
      UPON SENIOR SECURITIES




Not
applicable.







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




Not
applicable.







ITEM 5.
            OTHER
      INFORMATION




Not
applicable.








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ITEM 6.
            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 or the Exchange
  Act.








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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