POWERWAVE TECHNOLOGIES INC - FORM 10-Q

Attached files

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EX-31.1 - SECTION 302 CEO CERTIFICATION Q3 2009 - POWERWAVE TECHNOLOGIES INC	q309ex31-1.htm
EX-32.1 - 32.1 CEO CERTIFICATION Q3 2009 - POWERWAVE TECHNOLOGIES INC	q309ex32-1.htm
EX-32.1 - 32.2 CFO CERTIFICATION Q3 2009 - POWERWAVE TECHNOLOGIES INC	q309ex32-2.htm
EX-31.1 - SECTION 302 CFO CERTIFICATION Q3 2009 - POWERWAVE TECHNOLOGIES INC	q309ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 27, 2009

¨	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 October 28, 2009, the registrant had 132,359,006 shares of Common Stock outstanding.

POWERWAVE TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 27, 2009

TABLE OF CONTENTS


		PAGE
CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS		3

HOW TO OBTAIN POWERWAVE SEC FILINGS		3

PART I – FINANCIAL INFORMATION		4

Item 1.	Financial Statements (Unaudited)	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Operations	5

	Consolidated Statements of Comprehensive Income (Loss)	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	38

PART II – OTHER INFORMATION		39

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 3.	Defaults Upon Senior Securities	54

Item 4.	Submission of Matters to a Vote of Security Holders	54

Item 5.	Other Information	54

Item 6.	Exhibits	55

SIGNATURES		56

EXHIBIT INDEX		57

Table of Contents

CAUTIONARY STATEMENT RELATED 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; significant fluctuations in our sales and operating results, continuing declines in the sales prices for our products; the future growth of the wireless infrastructure communications market; 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; operating in a highly-regulated industry; and the competitive nature of the wireless communications industry which is characterized by rapid technological change. 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 indicative 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 TO OBTAIN POWERWAVE SEC FILINGS

All reports filed by Powerwave with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Powerwave also provides copies of its Current Reports on Form 8-K, Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Proxy Statements 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.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	September 27, 2009			December 28, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	44,901		$	46,906
Restricted cash		2,616			3,433
Accounts receivable, net of allowance for sales returns and doubtful accounts of $8,995 and $9,478, respectively		142,327			213,871
Inventories		69,843			81,098
Prepaid expenses and other current assets		31,666			25,303
Deferred income taxes		3,204			3,204
Total current assets		294,557			373,815
Property, plant and equipment, net		88,942			98,616
Intangible assets, net		830			3,803
Asset held for sale		3,889			4,845
Other assets		6,514			6,817
TOTAL ASSETS	$	394,732		$	487,896


LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	80,076		$	139,267
Accrued payroll and employee benefits		11,569			12,286
Accrued restructuring costs		1,973			5,813
Accrued expenses and other current liabilities		27,624			37,390
Total current liabilities		121,242			194,756
Long-term debt		280,887			306,321
Other liabilities		2,242			1,898
Total liabilities		404,371			502,975
Commitments and contingencies (Notes 9 and 10)
Shareholders’ deficit:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized and no shares issued or outstanding		—			—
Common stock, $0.0001 par value, 250,000,000 shares authorized, 132,359,006 and 131,637,460 shares issued and outstanding, respectively		768,866			765,204
Accumulated other comprehensive income		11,483			14,245
Accumulated deficit		(789,988	)		(794,528	)
Net shareholders’ deficit		(9,639	)		(15,079	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	394,732		$	487,896

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

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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 27, 2009			September 28, 2008			September 27, 2009			September 28, 2008
Net sales	$	139,048		$	237,960		$	424,904		$	709,903
Cost of sales:
Cost of goods		101,938			179,633			316,487			537,486
Intangible asset amortization		624			4,094			1,870			16,459
Restructuring and impairment charges		328			3,368			1,738			13,903
Total cost of sales		102,890			187,095			320,095			567,848
Gross profit		36,158			50,865			104,809			142,055
Operating expenses:
Sales and marketing		8,069			10,301			26,665			36,064
Research and development		14,534			18,447			44,273			58,907
General and administrative		11,150			17,992			36,001			49,062
Intangible asset amortization		206			2,589			740			7,846
Restructuring and impairment charges		335			2,755			1,985			3,834
Total operating expenses		34,294			52,084			109,664			155,713
Operating income (loss)		1,864			(1,219	)		(4,855	)		(13,658	)
Other income (expense), net		(769	)		(42	)		10,950			(10,099	)
Income (loss) before income taxes		1,095			(1,261	)		6,095			(23,757	)
Income tax provision		803			540			1,555			2,515
Net income (loss)	$	292		$	(1,801	)	$	4,540		$	(26,272	)
Basic earnings (loss) per share:	$	0.00		$	(0.01	)	$	0.03		$	(0.20	)
Diluted earnings (loss) per share:	$	0.00		$	(0.01	)	$	0.03		$	(0.20	)
Shares used in the computation of earnings (loss) per share:
Basic		131,950			131,142			131,698			131,023
Diluted		135,058			131,142			133,665			131,023

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

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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	September 27, 2009			September 28, 2008			September 27, 2009			September 28, 2008
Net income (loss)	$	292		$	(1,801	)	$	4,540		$	(26,272	)
Other comprehensive loss:
Foreign currency translation adjustments, net of income taxes		(1,046	)		(34,542	)		(2,762	)		(6,627	)
Comprehensive income (loss)	$	(754	)	$	(36,343	)	$	1,778		$	(32,899	)

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

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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	September 27, 2009			September 28, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	4,540		$	(26,272	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		18,384			41,414
Non-cash restructuring and impairment charges		3,722			17,737
Provision for sales returns and doubtful accounts		1,830			1,457
Provision for excess and obsolete inventories		6,068			3,237
Compensation costs related to stock-based awards		3,394			3,722
Gain on repurchase of convertible debt		(12,693	)		—
Gain on disposal of property, plant and equipment		(29	)		(588	)
Gain on settlement of litigation		(645	)		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		71,474			(20,122	)
Inventories		5,967			(5,133	)
Prepaid expenses and other current assets		(5,152	)		7,814
Accounts payable		(67,060	)		32,253
Accrued expenses and other current liabilities		(19,335	)		(39,220	)
Other non-current assets		88			764
Other non-current liabilities		283			148
Net cash provided by operating activities		10,836			17,211
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(4,243	)		(7,501	)
Restricted cash		817			3,732
Proceeds from the sale of business		500			500
Proceeds from the sale of property, plant and equipment		323			4,305
Acquisitions, net of cash acquired		1,960			(4,105	)
Net cash used in investing activities		(643	)		(3,069	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs		(1,305	)		—
Proceeds from stock-based compensation arrangements		281			1,086
Repurchase of common stock		(13	)		(521	)
Retirement of short-term debt		—			(13,630	)
Retirement of long-term debt		(12,445	)		—
Net cash used in financing activities		(13,482	)		(13,065	)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		1,284			(1,557	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,005	)		(480	)
CASH AND CASH EQUIVALENTS, beginning of period		46,906			58,151
CASH AND CASH EQUIVALENTS, end of period	$	44,901		$	57,671

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest expense	$	4,853		$	5,417
Income taxes	$	5,876		$	18,633
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Unpaid purchases of property and equipment	$	859		$	1,926

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

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POWERWAVE TECHNOLOGIES, 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 June 2009, the Financial Accounting Standards Board (FASB) issued guidance now codified as FASB Accounting Standards Codification (ASC) Topic 105, “Generally Accepted Accounting Principles,” as the single source of authoritative nongovernmental U.S. GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB Codification will be considered non-authoritative. These provisions of FASB ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for the Company for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on the Company’s business, results of operations or financial condition, but will impact the Company’s financial reporting process by eliminating all references to pre-codification standards. On the effective date of this Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.

In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This pronouncement is effective for interim or fiscal periods ending after June 15, 2009. The adoption of this pronouncement did not have a material impact on the Company’s business, results of operations or financial position; however, the provisions of FASB ASC Topic 855 resulted in additional disclosures with respect to subsequent events.

In April 2009, the FASB issued guidance now codified as FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” which amends previous guidance to require disclosures about fair value of financial instruments in interim as well as annual financial statements in the current economic environment. This pronouncement is effective for periods ending after June 15, 2009. The adoption of this pronouncement did not have a material impact on the Company’s business, results of operations or financial condition; however, these provisions of FASB ASC Topic 820 resulted in additional disclosures with respect to the fair value of the Company’s financial instruments.

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

In November 2008, the FASB issued guidance now codified as FASB ASC Topic 350, “Intangibles – Goodwill and Other,” which 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, this pronouncement 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 FASB ASC Topic 820. This pronouncement is effective for financial statements in the first quarter of 2009. The adoption of the provisions of FASB ASC Topic 350 did not have a material impact on the Company’s business, results of operations or financial condition.

In April 2008, the FASB issued guidance now codified as FASB ASC Topic 350, “Intangibles – Goodwill and Other,” which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The pronouncement was effective in the first quarter of 2009. The adoption of the provisions of FASB ASC Topic 350 did not have a material impact on the Company’s business, results of operations or financial condition.

In December 2007, the FASB issued guidance now codified as FASB ASC Topic 810, “Consolidation,” which changes how business acquisitions are accounted for and changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. The provisions of FASB ASC Topic 810 were effective in the first quarter of 2009. The adoption of the provisions of FASB ASC Topic 810 did not have a material impact on the Company’s business, results of operations or financial condition.

New Accounting Pronouncements

In October 2009, the FASB issued an update to FASB ASC Topic 605, “Revenue Recognition.” This Accounting Standards Update (ASU), No. 2009-13, “Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force,” provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Previous accounting guidance required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under previous accounting guidance, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the potential impact of this standard on its business, results of operations and financial condition.

Subsequent Events

The Company has evaluated activities through October 30, 2009, and all known subsequent events have been included in this report.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the guidance now codified as FASB ASC Topic 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of FASB ASC Topic 718, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted according to the Black-Scholes-Merton option pricing model and a multiple option award approach. The fair value of restricted stock awards is based on the closing market price of the Company’s Common Stock on the date of grant.

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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				Nine Months Ended
	September 27, 2009		September 28, 2008		September 27, 2009		September 28, 2008
Cost of sales	$	284	$	260	$	887	$	753
Sales and marketing expenses		96		99		308		317
Research and development expenses		231		286		775		854
General and administrative expenses		597		462		1,424		1,797
Increase to operating loss before income taxes		1,208		1,107		3,394		3,721
Income tax benefit recognized		—		—		—		—
Impact on net income (loss)	$	1,208	$	1,107	$	3,394	$	3,721
Impact on earnings (loss) per share:
Basic and diluted	$	0.01	$	0.01	$	0.03	$	0.03

As of September 27, 2009, unrecognized compensation expense related to the unvested portion of the Company’s stock-based awards and employee stock purchase plan was approximately $3.7 million, net of estimated forfeitures of $0.5 million, which is expected to be recognized over a weighted-average period of 1.4 years.

The Black-Scholes-Merton option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions including the weighted average risk-free interest rate, the expected life, and the expected stock price volatility. The weighted average risk-free interest rate was determined based upon actual U.S. treasury rates over a one to ten year horizon and the actual life of options granted. The Company grants options with either a five year or ten year life. The expected life is based on the Company’s actual historical option exercise experience. For the employee stock purchase plan, the actual life of 6 months is utilized in this calculation. The expected life was determined based upon actual option grant lives over a 10 year period. The Company has utilized various market sources to calculate the implied volatility factor utilized in the Black-Scholes-Merton option valuation model. These included the implied volatility utilized in the pricing of options on the Company’s Common Stock as well as the implied volatility utilized in determining market prices of the Company’s outstanding convertible notes. Using the Black-Scholes-Merton option valuation model, the estimated weighted average fair value of options granted during the third quarter of fiscal years 2009 and 2008 was $0.76 per share and $2.25 per share, respectively.

The fair value of options granted under the Company’s stock incentive plans during the first nine months of fiscal 2009 and 2008 was estimated on the date of grant according to the Black-Scholes-Merton option-pricing model utilizing the multiple option approach and the following weighted-average assumptions:

	Three Months Ended						Nine Months Ended
	September 27, 2009			September 28, 2008			September 27, 2009			September 28, 2008
Weighted average risk-free interest rate		1.6	%		2.8	%		1.7	%		2.8	%
Expected life (in years)		3.9			4.6			5.2			4.6
Expected stock volatility		89	%		53	%		139	%		55	%
Dividend yield	None			None			None			None

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

Note 3. Supplemental Balance Sheet Information

Inventories

Inventories are as follows:

	September 27, 2009		December 28, 2008
Parts and components	$	26,662	$	28,547
Work-in-process		857		2,618
Finished goods		42,324		49,933
Total inventories	$	69,843	$	81,098

Inventories are net of an allowance for excess and obsolete inventory of approximately $30.7 million and $43.4 million as of September 27, 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. During the first nine months of 2009, the Company recorded additional charges of $1.0 million to write the building down to its fair value less cost to sell in accordance with the accounting guidance now codified as FASB ASC Topic 360, “Property, Plant and Equipment.” FASB ASC Topic 360 requires entities to report discontinued operations separately from continuing operations, and extends that reporting to a component of equity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is classified as held for sale. The Company signed a Purchase and Sale Agreement for the building in April 2009 and the sale of the building was completed on October 8, 2009.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are as follows:

	September 27, 2009		December 28, 2008
Accrued vendor cancellation costs	$	7,388	$	10,563
Accrued warranty costs		7,999		10,763
Other accrued expenses and other current liabilities		12,238		16,064
Total accrued expenses and other current liabilities	$	27,625	$	37,390

Warranty

Accrued warranty costs are as follows:

	Nine Months Ended
Description	September 27, 2009			September 28, 2008
Warranty reserve beginning balance	$	10,763		$	26,975
Reductions for warranty costs incurred		(8,841	)		(12,231	)
Warranty accrual related to current period sales		6,044			5,445
Settlement of previous warranty claims		—			(2,858	)
Change in estimate related to previous warranty accruals		—			(2,360	)
Effect of exchange rates		33			(130	)
Warranty reserve ending balance	$	7,999		$	14,841

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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:	September 27, 2009		December 28, 2008
Developed technology (net of accumulated amortization of $5,077 and $3,206, respectively)	$	623	$	2,494
Customer relationships (net of accumulated amortization of $1,682 and $3,479, respectively)		207		1,309
Intangible assets, net	$	830	$	3,803

Amortization expense related to intangible assets totaled $2.6 million and $24.3 million for the first nine months of 2009 and 2008, respectively. The remaining $0.8 million of intangible assets will be fully amortized in the fourth quarter of 2009.

Note 5. Financing Arrangements and Long-Term Debt

In the first nine months of 2009, the Company repurchased $25.4 million in aggregate par value of its outstanding 1.875% convertible subordinated notes due November 2024, resulting in a gain of approximately $12.7 million on the purchase. As of September 27, 2009, there is $130.9 million outstanding under the 1.875% convertible subordinated notes and $150.0 million outstanding under the 3.875% convertible subordinated notes.

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 made available to the Company a senior secured revolving credit facility up to a maximum of $50.0 million. Availability under the Credit Agreement is based on the calculation of the Company’s borrowing base as defined in the Credit Agreement. The Credit Agreement is secured by a first priority security interest on a majority of the Company’s assets, including without limitation, all accounts, equipment, inventory, chattel paper, records, intangibles, deposit accounts and cash and cash equivalents. The Credit Agreement expires on August 15, 2011. The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company with respect to indebtedness, liens, investments, distributions, mergers and acquisitions and dispositions of assets. The Credit Agreement also includes financial covenants including minimum EBITDA and maximum capital expenditures that are applicable only if the availability of the Company’s line of credit falls below $20.0 million. As of September 27, 2009, the Company is in compliance with all of these covenants.

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.

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, Estonia 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 fourth quarter of 2009.

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

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

	Workforce Reductions			Facility Closures & Equipment Write-downs			Total
Balance at December 28, 2008	$	—		$	—		$	—
Amounts accrued		1,973			77			2,050
Amounts paid/incurred		(1,530	)		(77	)		(1,607	)
Effects of exchange rates		—			—			—
Balance at September 27, 2009	$	443			—			443

The costs associated with these exit activities were recorded in accordance with the accounting guidance now codified as FASB ASC Topic 420, “Exit or Disposal Obligations.” Pursuant to this guidance, a liability for a cost associated with an exit or disposal activity shall be recognized in the period in which the liability is incurred, except for a liability for one-time employee termination benefits that is incurred over time. In the unusual circumstance in which fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. 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 the accrued restructuring liability related to the 2008 Restructuring Plan for the first nine months of 2009 is as follows:

	Workforce Reductions			Facility Closures & Equipment Write-downs			Total
Balance at December 28, 2008	$	3,106		$	585		$	3,691
Amounts accrued		594			126			720
Amounts paid/incurred		(3,634	)		(372	)		(4,006	)
Effects of exchange rates		151			64			215
Balance at September 27, 2009	$	217			403			620

The costs associated with these exit activities were recorded in accordance with the accounting guidance in FASB ASC Topic 420. The restructuring and integration plan is subject to continued future refinement as additional information becomes available. The Company expects that the workforce reductions will be paid out through the fourth 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.

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

A summary of the activity affecting the accrued restructuring liability related to the 2007 Restructuring Plan for the first nine months of 2009 is as follows:

	Facility Closures & Equipment Write-downs
Balance at December 28, 2008	$	551
Amounts accrued		(179	)
Amounts paid/incurred		(388	)
Effects of exchange rates		16
Balance at September 27, 2009	$	—

The costs associated with these exit activities were recorded in accordance with the accounting guidance in FASB ASC Topic 420. The remaining payments on this plan were made in the third quarter of 2009, and all actions associated with this plan have been completed.

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 the accrued restructuring liability related to the 2006 Plan for Consolidation of Operations for the first nine months of 2009 is as follows:

	Facility Closures & Equipment Write-downs
Balance at December 28, 2008	$	146
Amounts accrued		175
Amounts paid/incurred		(321	)
Effects of exchange rates		—
Balance at September 27, 2009	$	—

The costs associated with these exit activities were recorded in accordance with the accounting guidance in FASB ASC Topic 420. The remaining payments on this plan were made in the second quarter of 2009, and all actions associated with this plan have been completed.

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 the accounting guidance now codified as FASB ASC Topic 805, “Business Combinations.” The costs associated with these exit activities were recorded in accordance with the accounting guidance in FASB ASC Topic 420. The implementation of the restructuring and integration plan is complete.

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

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

	Facility Closures & Equipment Write-downs
Balance at December 28, 2008	$	1,425
Amounts accrued		—
Amounts paid/incurred		(515	)
Effects of exchange rates		—
Balance at September 27, 2009	$	910

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 nine months of 2009, the Company recorded charges of approximately $1.0 million to write down the Salisbury, Maryland building to its fair value less the cost to sell. The Company also incurred severance charges of $2.6 million related to personnel reductions primarily in the United States, Finland and Sweden and $0.1 million of facility closure expenses. The aggregate of all such charges was $3.7 million of which approximately $1.7 million was included in cost of sales and approximately $2.0 million was included in operating expenses.

In the first nine months of 2008, the Company recorded charges of approximately $8.6 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 $3.3 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 $0.9 million for professional fees related to the Company’s restructuring plans. In addition, the Company recorded lease cancellation charges of $2.0 million associated with the closure of the Company’s facilities in Bristol, UK and Hungary, charges of $2.2 million related to impairment charges and fees associated with the closure of the Company’s entities in Salisbury, Maryland, Bristol, UK, Costa Rica and Hungary, and incurred certain vendor cancellation charges of $0.6 million related to closed facilities in China. Also in the first nine months of 2008, the Company incurred severance costs of $3.4 million which related to its restructuring plans. The aggregate of all such charges was $17.7 million of which $13.9 million was included in cost of sales and $3.8 million was included in operating expenses.

Note 7. Other Income (Expense), Net

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

	Three Months Ended						Nine Months Ended
	September 27, 2009			September 28, 2008			September 27, 2009			September 28, 2008
Interest income	$	62		$	191		$	531		$	430
Interest expense		(2,661	)		(2,983	)		(8,399	)		(8,372	)
Foreign currency gain (loss), net		1,687			2,582			4,751			(3,227	)
Gain on repurchase of convertible debt		—			—			12,693			—
Other income, net		143			168			1,374			1,070
Totalother income (expense), net	$	(769	)	$	(42	)	$	10,950		$	(10,099	)

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

Other income (expense), net, for the nine months ended September 27, 2009 includes a gain of approximately $12.7 million related to the repurchase of approximately $25.4 million in aggregate par value of the Company’s outstanding 1.875% convertible subordinated notes due 2024. We recognized net foreign currency gains and losses in the above periods primarily due to fluctuations between the U.S. Dollar and the Euro, Swedish Krona, Chinese RMB and Indian Rupee.

Note 8. Earnings (Loss) Per Share

In accordance with the accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss) per share is based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based upon the weighted average number of common and potential common shares for each period presented and income available to common stockholders is adjusted to reflect any changes in income or loss that would result from the issuance of the dilutive common shares. The Company’s potential common shares include stock options under the treasury stock method and convertible subordinated debt under the if-converted method. Potential common shares of 29,023,841 and 29,746,025 related to the Company’s stock option programs and convertible debt have been excluded from diluted weighted average common shares for the three and nine months ended September 27, 2009, as the effect would be anti-dilutive. Potential common shares of 35,695,340 and 36,504,974 related to the Company’s stock option programs and convertible debt have been excluded from diluted weighted average common shares for the three and nine months ended September 28, 2008.

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

	Three Months Ended					Nine Months Ended
	September 27, 2009		September 28, 2008			September 27, 2009		September 28, 2008
Basic:
Net income (loss)	$	292	$	(1,801	)	$	4,540	$	(26,272	)
Weighted average common shares		131,950		131,142			131,698		131,023
Basic earnings (loss) per share	$	0.00	$	(0.01	)	$	0.03	$	(0.20	)
Diluted:
Net income (loss)	$	292	$	(1,801	)	$	4,540	$	(26,272	)
Interest expense of convertible debt, net of tax		—		—			—		—
Net income (loss), as adjusted	$	292	$	(1,801	)	$	4,540	$	(26,272	)
Weighted average common shares		131,950		131,142			131,698		131,023
Potential common shares
Employee stock options		2,832		—			1,767		—
Restricted stock		276		—			200		—
Weighted average common shares, as adjusted		135,058		131,142			133,665		131,023
Diluted earnings (loss) per share	$	0.00	$	(0.01	)	$	0.03	$	(0.20	)

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

Note 9. Commitments and Contingencies

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 on October 19, 2009 entered a judgment that granted final approval of the settlement.

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 on October 19, 2009 entered a judgment that granted final approval of the settlement.

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 September 27, 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.

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

Director and Officer Indemnities and Contractual Guarantees

The Company has entered into indemnification agreements with its directors and executive officers which require the Company to indemnify such individuals to the fullest extent permitted by Delaware law. The Company’s indemnification obligations under such agreements are not limited in amount or duration. Certain costs incurred in connection with such indemnifications may be recovered under certain circumstances under various insurance policies. Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit has been filed against a director or executive officer, the Company is unable to determine the maximum amount of losses that it could incur relating to such indemnifications. Historically, any amounts payable pursuant to such director and officer indemnifications have not had a material negative effect on the Company’s business, financial condition or results of operations.

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 judgment regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans and/or tax planning strategies. These changes, if any, may require material adjustments to these deferred tax asset balances. Due to uncertainties surrounding the realization of the Company’s cumulative federal and state net operating losses and other factors, the Company has recorded a valuation allowance against a portion of its gross deferred tax assets. For the foreseeable future, the Federal tax provision related to future earnings will be offset substantially by a reduction in the valuation allowance. Accordingly, current and future tax expense will consist primarily of certain required state income taxes and taxes in certain foreign jurisdictions.

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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 these valuation allowances based on operating results and its assessment of the likelihood of future taxable income and developments in the relevant tax jurisdictions. The Company continues to maintain a valuation allowance against its net deferred tax assets in the U.S. and various foreign jurisdictions in 2009 where the Company believes it is more likely than not that deferred tax assets will not be realized.

As of September 27, 2009, the liability for income taxes associated with uncertain tax positions was $10.0 million, including accrued penalties, interest, and foreign currency fluctuations of $0.5 million. Of this amount, $7.9 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 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 September 27, 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 at which these notes would be traded. 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:

	September 27, 2009				December 28, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	44,901		44,901	$	46,906	$	46,906
Restricted cash		2,616		2,616		3,433		3,433
Long-term debt, including current portion
3.875% Convertible Subordinated Noted due 2027		150,000		92,250		150,000		35,805
1.875% Convertible Subordinated Noted due 2024		130,887		105,691		156,321		37,189

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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in thousands, except per share data)

Note 13. Gain on Settlement of Litigation

As part of the Company’s acquisition of REMEC, Inc’s wireless systems business, $15 million of the purchase price was held in escrow to cover any potential indemnification claims. In March 2009, the Company settled a dispute arising out of certain claims made against the escrow. As a result of this settlement, the Company received approximately $2 million in cash. This payment was accounted for as an adjustment to the total consideration paid for this acquisition. As a result, the remaining net book value of the intangible assets and fixed assets acquired in this acquisition was eliminated and the Company recorded a net gain of approximately $0.6 million. This amount is included in other income (expense), net in the accompanying consolidated statement of operations.

Note 14. Customer Concentrations

The Company’s product sales have historically been concentrated in a small number of customers. For the three and nine months ended September 27, 2009, sales to customers that accounted for 10% or more of revenues totaled $57.7 million and $194.8 million, respectively. For the three months ended September 27, 2009, sales to Nokia Siemens accounted for 31% of total revenues, and sales to Samsung accounted for 11% of total revenues. For the first nine months of 2009, sales to Nokia Siemens accounted for approximately 35% of total revenues, and sales to Alcatel-Lucent accounted for approximately 11% of total revenues. For the three and nine months ended September 28, 2008, sales to customers that accounted for 10% or more of revenues totaled $110.3 million and $330.1 million, respectively. For the three months ended September 28, 2008, sales to Nokia Siemens accounted for 32% of total revenues, and sales to Alcatel-Lucent accounted for 14% of total revenues. For the first nine months of 2008, sales to Nokia Siemens accounted for approximately 30% of revenues, and sales to Alcatel-Lucent accounted for approximately 17% of revenues.

As of September 27, 2009, approximately 38% of total accounts receivable related to customers that accounted for 10% or more of the Company’s total revenue during the three months ended September 27, 2009. Nokia Siemens and Samsung accounted for approximately 32% and 6%, 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 manufacturer 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 its 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 also 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.

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ITEM 2.

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

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included under Item 1, Financial Statements (Unaudited). This discussion contains forward-looking statements, the realization of which may be impacted by certain important factors including, but not limited to, those discussed in Risk Factors, in Part II, Item 1A included herein.

Introduction and Overview

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 in demand from three of our 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; however, starting in the fourth quarter of 2008 and carrying over into 2009, demand for our products has been negatively impacted by the global economic recession and credit crisis. These events have led to reduced capital spending and lower demand for our products, which has negatively impacted our financial results. During 2008 and the first nine 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 continues to be reduced demand from our customers and reduced spending in the wireless communications industry generally.

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 nine months of 2009, we have again experienced a significant reduction in demand from our customers that we believe is directly related to the global economic crisis and recession.

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.

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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 broadened 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 when 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 has 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 nine months of 2009 and 2008, we recorded restructuring and impairment charges of approximately $3.7 million and $17.7 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.

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All of these restructuring and impairment accruals related primarily to workforce reductions, consolidation of facilities, and discontinuation of certain product lines, including the associated write-downs of inventory, manufacturing and test equipment, and certain intangible assets. These 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 would be recovered on vacated property and the net realizable value of used equipment that is no longer needed in our continuing operations. While we used our best current estimates based on facts and circumstances available at the time to quantify these charges, different estimates could reasonably be used in the relevant periods to arrive at different accruals and/or the actual amounts incurred or recovered may be substantially different from the assumptions utilized, either of which could have a material impact on the presentation of our financial condition or results of operations for a given period. As a result, we periodically review the estimates and assumptions used and reflect the effects of those revisions in the period that they become known.

New Accounting Pronouncements and Newly Adopted Accounting Pronouncements

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

Subsequent Events

We have evaluated activities through October 30, 2009, and all known subsequent events have been included in this report.

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Results of Operations

The following table summarizes Powerwave’s results of operations as a percentage of net sales for the three and nine months ended September 27, 2009 and September 28, 2008:

	Three Months Ended						Nine Months Ended
	September 27, 2009			September 28, 2008			September 27, 2009			September 28, 2008
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales:
Cost of goods		73.3			75.5			74.5			75.7
Intangible asset amortization		0.5			1.7			0.4			2.3
Restructuring and impairment charges		0.2			1.4			0.4			2.0
Total cost of sales		74.0			78.6			75.3			80.0
Gross profit		26.0			21.4			24.7			20.0
Operating expenses:
Sales and marketing		5.8			4.3			6.3			5.1
Research and development		10.5			7.7			10.4			8.3
General and administrative		8.0			7.6			8.5			6.9
Intangible asset amortization		0.2			1.1			0.2			1.1
Restructuring and impairment charges		0.2			1.2			0.4			0.5
Total operating expenses		24.7			21.9			25.8			21.9
Operating income (loss)		1.3			(0.5	)		(1.1	)		(1.9	)
Other income (expense), net		(0.5	)		0.0			2.5			(1.4	)
Income (loss) before income taxes		0.8			(0.5	)		1.4			(3.3	)
Income tax provision		0.6			0.3			0.3			0.4
Net income (loss)		0.2	%		(0.8	)%		1.1	%		(3.7	)%

Three Months ended September 27, 2009 and September 28, 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	September 27, 2009				September 28, 2008
Wireless network operators and other	$	57,892	42	%	$	97,382	41	%
Original equipment manufacturers		81,156	58	%		140,578	59	%
Total	$	139,048	100	%	$	237,960	100	%

Sales decreased by 42% to $139.0 million for the third quarter of 2009, from $238.0 million, for the third quarter of 2008. This decrease was due to several factors, including decreased demand from both our network operator customers and our original equipment manufacturer customers, which decreased by approximately 41% and 42%, respectively, for the third quarter of 2009 from the third 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 nine months of 2009.

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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	September 27, 2009				September 28, 2008
Antenna systems	$	37,423	27	%	$	75,352	32	%
Base station systems		79,673	57	%		142,880	60	%
Coverage systems		21,952	16	%		19,728	8	%
Total	$	139,048	100	%	$	237,960	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 antenna systems and base station systems sales as 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 network operator customers during the third quarter of 2009 as compared with the third quarter of 2008. The increase in coverage systems is primarily due to a large coverage solutions project that commenced near the end of the second quarter of 2009.

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	September 27, 2009				September 28, 2008
Americas	$	48,414	35	%	$	70,504	30	%
Asia Pacific		53,477	38	%		99,977	42	%
Europe		31,128	23	%		64,614	27	%
Other international		6,029	4	%		2,865	1	%
Total	$	139,048	100	%	$	237,960	100	%

Revenues decreased in all regions in the third quarter of 2009 as compared with the third 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 network operator channel and 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 third quarter of 2008 to those in effect for the third 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 third quarter of 2009 of less than one 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.

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For the third quarter of 2009, total sales to Nokia Siemens accounted for approximately 31% of sales and sales to Samsung accounted for approximately 11% of sales. For the third quarter of 2008, total sales to Nokia Siemens accounted for approximately 32% of sales, and sales to Alcatel-Lucent accounted for approximately 14% of sales for the quarter. Notwithstanding our acquisitions, our business remains largely dependent upon a limited number of customers within the wireless communications market, and we cannot guarantee that we will continue to be successful in attracting new customers or retaining or increasing business with our existing customers.

A number of factors have caused delays and may cause future delays in new wireless infrastructure and upgrade deployment schedules throughout the world, including those 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 strategies 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)
	September 27, 2009				September 28, 2008
Net sales	$	139,048	100.0	%	$	237,960	100.0	%
Cost of sales:
Cost of sales		101,938	73.3	%		179,633	75.5	%
Intangible amortization		624	0.5	%		4,094	1.7	%
Restructuring and impairment charges		328	0.2	%		3,368	1.4	%
Total cost of sales		102,890	74.0	%		187,095	78.6	%
Gross profit	$	36,158	26.0	%	$	50,865	21.4	%

Our actual total gross profit decreased during the third quarter of 2009, compared with the third quarter of 2008, primarily as a result of our decreased revenues. As a percentage of revenue, our gross profit margin increased during the third quarter of 2009 compared with the third 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 in cost of sales during the third quarter of fiscal 2009. For the third quarter of 2008, we incurred restructuring and impairment charges in cost of sales totaling $3.4 million.

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

We continue to strive for manufacturing and engineering cost reductions to offset pricing pressures on our products, as evidenced by our 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)
	September 27, 2009				September 28, 2008
Operating Expenses
Sales and marketing	$	8,069	5.8	%	$	10,301	4.3	%
Research and development		14,534	10.5	%		18,447	7.7	%
General and administrative		11,150

POWERWAVE TECHNOLOGIES INC - FORM 10-Q - October 30, 2009

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