Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K/A
(Amendment
No. 1)
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended January 3, 2010
OR
¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission
File Number 000-21507
POWERWAVE
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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11-2723423
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1801
E. St. Andrew Place, Santa Ana, CA 92705
(Address
of principal executive offices, zip code)
(714) 466-1000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: Common Stock, Par Value
$0.0001 NASDAQ Global Select Market
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange
Act. Yes ¨ No x
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 x 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
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 definition of “accelerated filer” and
“large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ Accelerated
filer x 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 Act). Yes ¨ No x
As of
June 28, 2009, the aggregate market value of the voting stock of the Registrant
held by non-affiliates of the Registrant was $219,054,824 computed using the
closing price of $1.67 per share of Common Stock on June 26, 2009, the last
trading day of the second quarter, as reported by NASDAQ, based on the
assumption that directors and officers and more than 10% stockholders are
affiliates. As of February 16, 2010 the number of outstanding shares of
Common Stock, par value $0.0001 per share, of the Registrant was
132,693,127.
Documents
Incorporated by Reference
Document
Description
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10-K
Part
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Portions
of the Registrant’s notice of annual meeting of stockholders and proxy
statement to be filed pursuant to Regulation 14A within 120 days after
Registrant’s fiscal year ended January 3, 2010 are incorporated by
reference into Part III of this report.
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III (Items 10, 11, 12, 13, 14)
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This
Annual Report on Form 10-K, 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
Annual 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. 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.
Powerwave Technologies Inc. (the “Company” or
“Powerwave”) is filing this Amendment No. 1 to its Annual Report on Form 10-K
for the fiscal year ended January 3, 2010 to amend and restate the Form 10-K in
its entirety. This Amendment No. 1 includes a restatement of the
Company’s previously issued financial statements to reflect the correction of an
error relating to the accounting treatment for the Company’s 1.875% convertible
subordinated notes due 2024 (“2024 Notes”), as discussed in Note 5 of the Notes
to Consolidated Financial Statements under Part II, Item 8, Financial
Statements and Supplementary Data. The Company’s 2024 Notes should have
been accounted for as set forth under the accounting guidance now codified as
FASB Accounting Standards Codification (ASC) Topic 470-20, which became
effective at the beginning of the 2009 fiscal year. FASB ASC Topic
470-20 requires retrospective application to the terms of the 2024 Notes as they
existed for all periods presented and this retrospective application is included
herein. The items that include changes are: Part I, Item 1, Business,
Part I, Item 1A, Risk
Factors, Part II, Item 6, Selected
Financial Data, Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
Part II, Item 8, Financial
Statements and Supplementary Data, and Part II, Item 9A, Controls and
Procedures.
BUSINESS
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General
Powerwave
Technologies, Inc. (“Powerwave” or the “Company” or “our” or “we”) was
incorporated in Delaware in January 1985, under the name Milcom International,
Inc., and changed its name to Powerwave Technologies, Inc. in June 1996. We are
a global supplier of end-to-end wireless solutions for wireless communications
networks. Our business consists of the design, manufacture, marketing and sale
of products to improve coverage, capacity and data speed in wireless
communications networks, including antennas, boosters, combiners, cabinets,
shelters, filters, radio frequency power amplifiers, remote radio head
transceivers, repeaters, tower-mounted amplifiers and advanced coverage
solutions. These products are utilized in major wireless networks throughout the
world which support voice and data communications by use of cell phones and
other wireless communication devices. We sell our products to both original
equipment manufacturers, who incorporate our products into their proprietary
base stations (which they then sell to wireless network operators), and directly
to individual wireless network operators for deployment into their existing
networks.
We
believe that our future success depends upon continued growth in demand for
wireless services as well as our ability to broaden our customer base. For the
fiscal year ended January 3, 2010 (“fiscal 2009”), our largest customers
continued to be original equipment manufacturers. Nokia Siemens accounted for
approximately 34% of our sales. As a result, Nokia Siemens has the
ability to significantly impact our financial results by demanding price
reductions and threatening to reduce their business with us, transfer that
business to other companies, or take it internal to their operations. The loss
of this customer, or a significant loss, reduction or rescheduling of orders
from this customer would have a material adverse effect on our business,
financial condition and results of operations. See “We rely upon a few customers for
the majority of our revenues…; and Our success is tied to the growth
of the wireless services communications market…” under Part I,
Item 1A, Risk
Factors.
A limited
number of large original equipment manufacturers and large global wireless
network operators account for a majority of wireless infrastructure equipment
purchases in the wireless equipment market, and our future success is dependent
upon our ability to establish and maintain relationships with these types of
customers. While we regularly attempt to expand our customer base, we cannot
give any assurance that a major customer will not reduce, delay or eliminate its
purchases from us. During fiscal 2009, we experienced significant reductions in
demand from both our original equipment manufacturer customers such as Nokia
Siemens and Alcatel-Lucent, and our direct operator customers, which had an
adverse effect on our business and results of operations. Any future reductions
in demand by any of our major customers would have a material adverse effect on
our business, financial condition and results of operations. See “We rely upon a few customers for
the majority of our revenues…” under Part I, Item 1A, Risk Factors.
We have
experienced, and expect to continue to experience, declining average sales
prices for our products. Consolidation among both original equipment
manufacturers and wireless service providers has enabled such companies to place
continual pricing pressure on wireless infrastructure manufacturers, which has
resulted in downward pricing pressure on our products. In addition, ongoing
competitive pressures and consolidation within the wireless infrastructure
equipment market have put pressure on us to continually reduce the sales price
of our products. Consequently, we believe that our gross margins may decline
over time and that in order to maintain or improve our gross margins, we must
reduce manufacturing costs, redesign our products to reduce their cost, reduce
our overhead costs as well as our operating expenses, and develop new products
that incorporate advanced features that may generate higher gross margins. We
may not be able to achieve the necessary cost and expense reductions. See “Our success is tied to the growth of
the wireless services communications market…; and Our average sales prices have
declined…” under Part I, Item 1A, Risk Factors.
Significant
Business Developments in Fiscal 2009
Beginning
in the fourth quarter of 2008, global economic instability driven by the
subprime mortgage crisis and the tightening of credit availability impacted all
of the markets in which we compete. As the extent of the crisis unfolded, it
became apparent that the global economy had entered a significant recessionary
period, which included sharply lower economic activity, inflation and deflation
concerns, decreased consumer confidence, reduced corporate profits, reduced or
canceled capital spending, liquidity concerns and generally adverse business
conditions. All of these factors combined had a negative impact on the
availability of financial capital which we believe contributed to a reduction in
demand for infrastructure in the wireless communications market. These
conditions have made it difficult for our customers and vendors to accurately
forecast and plan future business activities, causing domestic and foreign
businesses to reduce or suspend expenditures on our products and services. We
cannot predict how long this economic recession will last or what the ultimate
effects on the economy or the wireless infrastructure industry will
be.
In the
first quarter of 2009, we formulated and began to implement a plan to further
reduce manufacturing overhead costs and operating expenses. As part of this
plan, we initiated personnel reductions in both our 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 ongoing global recession that began in the fourth quarter of
2008. The goal of all of these actions was to reduce the Company’s
operating and manufacturing costs in order to improve cash flow and increase
profitability.
During
2009, we expanded our operations in India. We opened a 40,000-square
foot research and development facility in Hyderabad, India, to facilitate sales
and marketing, engineering and technical and customer support functions. We also
expanded our operations with a new manufacturing facility in Laem Chabang,
Thailand. The 135,000-square foot facility has the capacity to
manufacture various products, as well as support our repair
activities. This facility was fully-operational in the fourth quarter
of 2009.
In the
second quarter of 2009, we entered into a $50.0 million Credit Agreement
(“Credit Agreement”) with Wells Fargo Capital Finance LLC (formerly Wells Fargo
Foothill, LLC), as arranger and administrative agent. In connection with
entering into the Credit Agreement, we terminated our Revolving Trade
Receivables Purchase Agreement with Deutsche Bank AG, New York Branch, as
Administrative Agent.
During
2009, we repurchased $25.4 million par value of our outstanding 1.875%
convertible subordinated notes due November 2024 at various discounts which
resulted in a gain of $9.8 million (see Note 5 of the Notes to Consolidated
Financial Statements under Part II, Item 8, Financial Statements and
Supplementary Data).
In the
fourth quarter of 2009, we sold our previously vacated manufacturing facility in
Salisbury, Maryland for net proceeds of approximately $3.9 million.
Industry
Segments and Geographic Information
We
operate in one reportable business segment: “Wireless Communications.” All of
our revenues are derived from the sale of wireless communications products and
coverage solutions, including antennas, boosters, combiners, cabinets, shelters,
filters, radio frequency power amplifiers, remote radio head transceivers,
repeaters, tower-mounted amplifiers and advanced coverage solutions for use in
all major frequency bands including cellular, PCS, 3G and 4G wireless
communications networks throughout the world. Our products are sold globally and
produced in multiple locations (see Note 18 of the Notes to Consolidated
Financial Statements under Part II, Item 8, Financial Statements and
Supplementary Data).
Business
Strategy
Our
strategy is to become the leading supplier of advanced solutions to the wireless
communications industry and includes the following key elements:
|
•
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provide
leading technology to the wireless communications infrastructure equipment
industry through research and development that continues to improve our
products’ technical performance while reducing our costs and establishing
new levels of technical performance for the
industry;
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•
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utilize
our research and development efforts, along with our internal and external
manufacturing and supply chain capabilities to raise our productivity and
lower our product costs;
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•
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leverage
our position as a leading supplier of wireless communications products and
coverage solutions to increase our market share and expand our
relationships with both our existing customers and potential new customers
in other markets such as government, public safety, the military and
homeland security;
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•
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continue
to expand our customer base of wireless network original equipment
manufacturers and wireless network operators;
and
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•
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maintain
our focus on the quality, reliability and manufacturability of our
wireless communications products and coverage
solutions.
|
Our focus
on radio frequency technology and the experience we have gained through the
implementation of our products in both analog and digital wireless networks
throughout the world has enabled us to develop substantial expertise in wireless
infrastructure equipment technology. We intend to continue to research and
develop new methods to improve our product performance, including efforts to
support future generation transmission standards. We believe that both our
existing products and new products under development will enable us to continue
to expand our customer base by offering a broad range of products at attractive
price points to meet the diverse requirements of wireless original equipment
manufacturers and network operators. We also intend to leverage our product
lines to expand our relationships with our existing customers and to add new
customers. We believe that we are able to respond quickly and cost-effectively
to new transmission protocols and
6
design
specifications by obtaining components from numerous leading technology
companies and utilizing various contract manufacturers. We also believe that our
focus on the manufacturability of our product designs helps us to increase our
productivity while reducing our product costs. We believe that this ability to
offer a broad range of products represents a competitive advantage over other
third-party manufacturers of wireless infrastructure
equipment.
If we are
unsuccessful in designing new products, improving existing products or reducing
the costs of our products, our inability to meet these objectives would have a
negative effect on our gross profit margins, business, financial condition and
results of operations. In addition, if our outstanding customer orders were to
be significantly reduced, the resulting loss of purchasing volume would also
adversely affect our cost competitive advantage, which would negatively affect
our gross profit margins, business, financial condition and results of
operations. See “Our average
sales prices have declined…; and We may fail to develop products that
are sufficiently manufacturable…” under Part I, Item 1A, Risk Factors.
Markets
As a
global supplier of end-to-end wireless solutions for wireless communication
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, cabinets,
shelters, filters, radio frequency power amplifiers, remote radio head
transceivers, repeaters, tower-mounted amplifiers and advanced coverage
solutions. These products are utilized in major wireless networks throughout the
world that support voice and data communications by use of cell phones and other
wireless communication devices. We sell such products to both original equipment
manufacturers, who incorporate our products into their proprietary base stations
(which they then sell to wireless network operators), and directly to individual
wireless network operators for deployment into their existing
networks.
Our
business depends upon the worldwide demand for wireless communication networks
and the corresponding infrastructure spending by wireless network operators to
support this demand. Today, the majority of the wireless network operators offer
wireless voice and data services on what are commonly referred to as 2G, 2.5G or
3G networks. These wireless networks utilize common transmission protocols
including Code Division Multiple Access or CDMA and Global System for Mobile or
GSM, both of which define different standards for transmitting voice and data
within wireless networks. Within these transmission protocols, there are various
improvements available to increase the speed of data transmission or to increase
the amount of voice capacity in the network. These types of improvements are
generally referred to as 2.5G and include upgrades to GSM such as General Packet
Radio Service or GPRS and Enhanced Data rates for Global Evolution or EDGE. For
CDMA networks, various upgrades are referred to as CDMA 1x, CDMA 2000 and CDMA
EV/DO.
The
latest major generation of wireless voice and data transmission protocols is
commonly referred to as 3G. These transmission protocols provide significantly
higher data rate transmission, with significant additional voice capacity and
the ability to transmit high capacity information, such as video and internet
access. The major 3G transmission protocol is known as Wideband Code Division
Multiple Access or WCDMA. This protocol is being utilized in the next generation
of GSM networks, which are referred to as Universal Mobile Telecommunication
Systems or UMTS.
There
continue to be new generations of wireless voice and data transmission
protocols, with some of the latest commonly referred to as 4G. These future
protocols have not been widely deployed, and in some cases the full
specifications have yet to be fully agreed upon by the various standard-setting
bodies that establish and formalize such protocols. Examples of these types of
4G protocols are Worldwide Interoperability for Microwave Access (or WiMAX) and
Long Term Evolution (or LTE).
Principal
Product Groups
We divide
our wireless communications business into the following product
groups:
Antenna
Systems
This
product group includes base station antennas and tower-mounted amplifiers. We
offer an extensive line of base station antennas which cover all major radio
frequency bands including cellular, PCS, 3G and 4G bands. Our products also
support all major wireless transmission protocols. Our base station antenna
products include single, dual and triple-band solutions based on proprietary
technology in a variety of sizes. We also offer remote-adjustable electrical
tilt antennas which provide remote control and monitoring
capabilities.
We also
manufacture a full line of tower-mounted amplifiers which improve wireless
network performance by filtering and amplifying as close as possible to the
receiving antenna, thus significantly reducing signal loss and noise. Our
tower-mounted amplifier products cover all major wireless frequency ranges and
transmission protocols.
Base
Station Subsystems
This
product group includes products that are installed into or around the base
station of wireless networks and includes products such as boosters, combiners,
filters, radio frequency power amplifiers, VersaFlex cabinets and radio
transceivers.
We offer
both single and multi-carrier radio frequency power amplifiers for use in all
major global frequency bands including cellular, PCS, 3G and 4G bands,
supporting all major transmission protocols. Typical system applications include
CDMA, CDMA 2000, WCDMA, GSM, EDGE, and UMTS protocols with output power ranging
from 10 to 180 Watts.
In
addition, we produce filters which can improve the signal transmission for both
up and down link as well as help to reduce out of band performance. Our filters
cover all major global frequency bands. Along with filters, we provide radio
frequency power combiners which allow for the connecting of multiple radio
frequency power signals.
We also
provide a range of integrated radio solutions. These integrated radio solutions
offer new alternative approaches to providing lower-cost base station solutions.
One current product offering is the digital remote radio head transceiver, which
provides operators the ability to partition the radio transceiver, power
amplifier and duplexer in a remote chassis, which can then be co-located near
the antenna to minimize signal loss over the traditional antenna path. The
digital remote radio head utilizes base band (I/Q) signals from the output of
the modem via fiber optic cables which offer improved performance over distance
versus traditional cables. This next generation technology offers significant
potential cost reduction opportunities, and we have been publicly recognized as
a leading innovator in this product segment.
Coverage
Solutions
This
product group consists primarily of distributed antenna systems, repeaters and
advanced coverage solutions. Our distributed antenna systems solutions provide
the equipment to co-locate multiple wireless operators on multiple frequency
bands within a single location, while allowing each operator to maintain full
control over parameters critical to its network’s performance. These systems are
custom designed by us for use in convention centers, airports, transportation
centers, dense urban business districts and business campuses. These custom
designed antenna systems are designed to be readily connected to base station
equipment, thereby reducing installation costs.
Our
repeater systems are utilized in wireless communications networks to improve
signal quality where physical structures or geographic constraints result in low
radio frequency signal strength. They can also be utilized as a low-cost
alternative to base stations in areas where coverage is more critical than
capacity. These products can be used for both single and multiple-operator
applications. Our systems are available in a wide frequency range from 700 MHz
to 2600 MHz, support all major transmission protocols, and have features and
functions that allow network operators to remotely monitor and adjust these
systems.
Our
advanced coverage solutions provide an integrated team of radio frequency and
system engineers to design and implement wireless coverage applications
utilizing our coverage solutions products. We provide advanced coverage
engineers to design the right solution for any type of wireless coverage issue.
Based upon our design, we will oversee installation and operation of the chosen
coverage solution. The types of sites utilizing our services include convention
centers, airports, subways, hotels, office buildings, and various locations
where traditional wireless service coverage is not available.
Customers
We sell
our products to customers worldwide, including a variety of wireless original
equipment manufacturers, such as Alcatel-Lucent, Ericsson, Huawei, Motorola,
Nokia Siemens and Samsung. We also sell our products to operators of wireless
networks, such as AT&T, Bouygues, Orange, Sprint, T-Mobile, Verizon Wireless
and Vodafone.
For
fiscal 2009, our largest customer, Nokia Siemens, accounted for approximately
34% of our sales. No other customer accounted for more than 10% of our sales for
2009. The loss of this customer, or a significant loss, reduction or
rescheduling of orders from any of our customers, would have a material adverse
effect on our business, financial condition and results of operations. See “We rely upon a few customers for
the majority of our revenues…” under Part I, Item 1A, Risk Factors.
Marketing
and Distribution, International Sales
We sell
our products through a highly technical direct sales force, through independent
sales representatives and, in certain countries, through resellers. Direct sales
personnel are assigned to geographic territories and, in addition to sales
responsibilities, may manage selected independent sales representatives. We
utilize a network of independent sales representatives selected for their
familiarity with our potential customers and their knowledge of the wireless
infrastructure equipment market. Our direct
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sales
personnel, resellers and independent sales representatives generate product
sales, provide product and customer service, and provide customer feedback for
product development. In addition, our sales personnel, resellers and independent
sales representatives receive support from our marketing, product support and
customer service departments.
Our
marketing efforts are focused on establishing and developing long-term
relationships with potential customers. The initial sales cycle for many of our
products is lengthy, typically ranging from six to eighteen months. Our
customers typically conduct significant technical evaluations of our products
before making purchase commitments. In addition, as is customary in the
industry, sales are made through standard purchase orders that can be subject to
cancellation, postponement or other types of delays. While certain customers
provide us with estimated forecasts of their future requirements, they are not
typically bound by these forecasts.
International
sales (excluding North American sales) of our products approximated 73%, 70% and
73% of net sales for the fiscal years ended January 3, 2010, December 28,
2008 and December 30, 2007, respectively. Foreign sales of some of our
products may be subject to national security and export regulations and may
require us to obtain a permit or license. In recent years, we have not
experienced any significant difficulties in obtaining required permits or
licenses. International sales also subject us to risks related to political
upheaval and economic downturns in foreign countries and
regions. Because a large percentage of our foreign customers
typically pay for our products with U.S. Dollars, a strengthening of the
U.S. Dollar as compared to a foreign customer’s local currency would
effectively increase the cost of our products for that customer, thereby making
our products less attractive to these customers. See “We conduct a significant portion of
our business internationally…” under Part I, Item 1A, Risk Factors.
Service
and Warranty
We offer
warranties of various lengths which differ by customer and product type and
typically cover defects in materials and workmanship. We perform warranty
obligations and other maintenance services for our products in the United
States, Estonia, China, Thailand, the United Kingdom, and at our contract
manufacturing locations.
Product
Development
We invest
significant resources in the research and development of new products within our
wireless communications product area. This includes significant resources in the
development of new products to support third generation protocols such as WCDMA,
HSDPA, TD-SCDMA and CDMA 2000. We also support fourth generation protocols such
as WiMAX and LTE. Our development efforts also seek to reduce the cost and
increase the manufacturing efficiency of both new and existing products. Our
total research and development staff consisted of 397 employees and 19 contract
staff as of January 3, 2010. Expenditures for research and development
approximated $58.9 million in 2009, $77.7 million in 2008 and $85.0 million in
2007. See “The wireless
communications infrastructure equipment industry is extremely competitive.;
and If we are unable to
hire and retain highly qualified technical and managerial personnel…”
under Part I, Item 1A, Risk Factors.
Competition
The
wireless communications infrastructure equipment industry is extremely
competitive and characterized by rapid technological change, new product
development, rapid product obsolescence, evolving industry standards and
significant price erosion over the life of a product. Our products compete on
the basis of the following key characteristics: performance, functionality,
reliability, pricing, quality, designs that can be efficiently manufactured in
large volumes, time-to-market delivery capabilities and compliance with industry
standards. While we believe that we compete favorably with respect to these
characteristics, there is no assurance that we will be able to continue to do
so.
Our
current competitors include ADC Telecommunications, Inc., CommScope, Inc.,
Fujitsu Limited, Hitachi Kokusai Electric Inc., Japan Radio Co., Ltd.,
Kathrein-Werke KG, Mitsubishi Electric Corporation and Radio Frequency Systems.
We also compete with a number of other foreign and privately-held companies
throughout the world, subsidiaries of certain multinational corporations and,
more importantly, the captive design and manufacturing operations within certain
leading wireless infrastructure original equipment manufacturers such as
Alcatel-Lucent, Ericsson, Huawei, Motorola, Nokia Siemens and Samsung. Some
competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other resources than us and have achieved greater name
recognition for their products and technologies than we have. We cannot
guarantee we will be able to successfully increase our market penetration or our
overall share of the wireless communication infrastructure equipment
marketplace. Our business, financial condition and results of operations could
be adversely impacted if we are unable to effectively increase our share of the
marketplace.
Our
success depends in large part upon the rate at which wireless infrastructure
original equipment manufacturers incorporate our products into their systems. We
believe that a substantial portion of the present worldwide production of
various infrastructure components is captive within the internal manufacturing
operations of a small number of leading
9
original
equipment wireless infrastructure manufacturers such as Alcatel-Lucent,
Ericsson, Huawei, Motorola, Nokia Siemens and Samsung. In addition, most large
wireless infrastructure original equipment manufacturers maintain internal
design capabilities that may compete directly with our products and our own
designs. Many of our customers internally design and/or manufacture their own
components rather than purchase them from third-party vendors such as Powerwave.
Many of our customers also continuously evaluate whether to manufacture their
own components or whether to utilize contract manufacturers to produce their own
internal designs. Some of our customers regularly produce or design products in
an attempt to replace products sold by us. We believe that this practice will
continue. In the event that a customer manufactures or designs their own
products, such customer could reduce or eliminate its purchase of our products,
which would result in reduced revenues and would adversely impact our business,
financial condition and results of operations. Wireless infrastructure equipment
manufacturers with internal manufacturing capabilities, including many of our
customers, could also sell such products externally to other manufacturers,
thereby competing directly with us. One example of this is Alcatel-Lucent, which
owns Radio Frequency Systems. If, for any reason, our customers decide to
produce their products internally, increase the percentage of their internal
production, require us to participate in joint venture manufacturing with them
or compete directly against us, our revenues would decrease which would
adversely impact our business, financial condition and results of
operations.
We have
experienced significant price competition as well as price erosion and we expect
price competition in the sale of our products to increase. Our competitors may
develop new technologies or enhancements to existing products or introduce new
products that will offer superior price or performance features. We expect our
competitors to offer new and existing products at prices necessary to gain or
retain market share. Certain of our competitors have substantial financial
resources which may enable them to withstand sustained price competition or a
market downturn better than us. In addition, many of our customers will continue
to demand price reductions. If we cannot reduce the cost of our products or
dissuade our customers from requiring price reductions, our business and results
of operations may be adversely impacted. There can be no assurance that we will
be able to compete successfully in the pricing of our products in the
future.
Backlog
Our
twelve-month backlog of orders on January 3, 2010 was estimated at $76.7 million
as compared to approximately $73.9 million on December 28, 2008. In our
reported backlog, we only include the accepted product purchase orders with
respect to which a delivery schedule has been specified for product shipment
within twelve months. Because the majority of our customers do not place long
lead time orders for our products, our backlog does not reflect our expectations
of future orders and has not been indicative of our future revenue.
Product
orders in our backlog frequently are subject to changes in delivery schedules or
to cancellation at the option of the purchaser without significant penalty.
While we regularly review our backlog of orders to ensure that it adequately
reflects product orders expected to be shipped within a twelve-month period, we
cannot make any guarantee that such orders will actually be shipped or that such
orders will not be delayed or canceled in the future. We make regular
adjustments to our backlog as customer delivery schedules change and in response
to changes in our production schedule. Accordingly, we stress that backlog as of
any particular date should not be considered a reliable indicator of sales for
any future period and our revenues in any given period may depend substantially
on orders placed in that period.
Manufacturing
and Suppliers
Our
manufacturing process involves the assembly of numerous individual components
and precise fine-tuning by production technicians. The parts and materials used
by us and our contract manufacturers consist primarily of printed circuit
boards, specialized subassemblies, fabricated housings, relays and small
electric circuit components, such as integrated circuits, semiconductors,
resistors and capacitors.
We
operate company-owned manufacturing locations and utilize contract manufacturers
for a portion of our finished goods manufacturing activities. We also rely
extensively on contract manufacturers to supply printed circuit boards, which
are key components of many of our products. We currently have manufacturing
operations in China, Estonia, Thailand and the United States. In addition, we
utilize contract manufacturers to produce products or key components of products
in Europe, Asia and the United States. During 2008, we closed our manufacturing
facility in Salisbury, Maryland and transferred production activities to Asia
and to our location in Santa Ana, California. Beginning in the fourth quarter of
2008, we began to discontinue manufacturing operations in Finland, transferring
the activities to Asia and to our contract manufacturing partners. This was
completed in 2009. During the second half of 2009, we added a new manufacturing
facility in Thailand, which was fully operational in the fourth quarter of
2009. The new Thailand facility took over production that was
previously done at a contract manufacturer located in Thailand.
Because
of our reliance on contract manufacturers for product and certain components in
the products, our manufacturing, the cost, quality, performance and availability
of our contract manufacturing operations are, and will continue to be, essential
to the successful production and sale of our products. Any delays in the ramp-up
of our production lines at contract manufacturers, delays in obtaining
production materials or any delays in the qualification by our customers of the
contract manufacturer facilities and the products produced there, could cause us
to miss customer agreed product delivery dates. Similarly, the inability of our
contract manufacturers to meet production schedules or produce products in
accordance with the quality and performance standards established by us or our
customers could also cause us to miss customer agreed product delivery dates. In
addition, the cost, quality, performance and availability at our
company-operated manufacturing facilities is also essential to the successful
production and sale of our products. Any delays in the ramp-up of production
lines at our plants, delays in obtaining production materials or any delays in
the qualification by our customers of our facilities and the products produced
there, could cause us to miss customer agreed product delivery dates. Any
failure to meet customer agreed delivery dates could result in lost revenues due
to customer cancellations, potential financial penalties payable by us to our
customers and additional costs to expedite products or production
schedules.
Our manufacturing, production and
design operations are ISO 9001, ISO 14001, TL-9000 and TickIT-5 certified. ISO
refers to the quality model developed by the International Organization for
Standardization. TL refers to the set of quality system requirements that are
specific to the telecommunications industry. TickIT refers to the set of quality
standards that are specific to the software industry. Numerous customers and
potential customers throughout the world, particularly in Europe, require that
their suppliers be ISO certified. In addition, many customers require that their
suppliers purchase components only from subcontractors that are ISO certified.
We require that all of our contract manufacturers maintain ISO and/or TL
certifications.
A number
of the parts used in our products are available from only one, or a limited
number of, outside suppliers due to unique component designs, as well as certain
quality and performance requirements. To take advantage of volume pricing
discounts, we, along with our contract manufacturers, purchase certain
customized components from single or limited sources. We have experienced, and
expect to continue to experience, shortages of single-source and limited-source
components. Shortages have compelled us to adjust our product designs and
production schedules and have caused us to miss customer requested delivery
dates. If single-source or limited-source components are unavailable in
sufficient quantities, are discontinued or are available only on unsatisfactory
terms, we would be required to purchase comparable components from other sources
and “re-tune” our products to function with the replacement components. We may
also be required to redesign our products to use other components, either of
which could delay production and delivery of our products. If production and
delivery of our products are delayed and we are unable to meet the agreed upon
delivery dates of our customers, these delays could result in lost revenues due
to customer cancellations, as well as potential financial penalties payable to
our customers. Any such loss of revenue or financial penalties would have a
material adverse effect on our financial condition and results of
operations.
Our
reliance on certain single-source and limited-source components exposes us to
quality control issues if these suppliers experience a failure in their
production process or otherwise fail to meet our quality requirements. A failure
in single-source or limited-source components or products could force us to
repair or replace a product utilizing replacement components. If we cannot
obtain comparable replacements or effectively re-tune or redesign our products,
we could lose customer orders or incur additional costs, which could have a
material adverse effect on our gross margins and results of
operations.
We
believe that the production facilities that we utilize, including those owned by
our contract manufacturers, are in good condition, well maintained and not
currently in need of any major investment.
Intellectual
Property
We rely
upon trade secrets and patents to protect our intellectual property. We execute
confidentiality and non-disclosure agreements with our employees and suppliers
and limit access to, and distribution of, our proprietary information. We have
an on-going program to identify and file applications for both U.S. and foreign
patents for various aspects of our technology. We currently own 211 U.S. patents
and 457 foreign patents, and we have pending applications for 83 additional U.S.
patents and 395 additional foreign patents. All of these efforts, along with the
knowledge and experience of our management and technical personnel, strengthen
our ability to market our existing products and to develop new products. The
departure of any of our management or technical personnel, the breach of their
confidentiality and non-disclosure obligations to us, or the failure to achieve
our intellectual property objectives may have a material adverse effect on our
business, financial condition and results of operations.
We
believe that our success depends upon the knowledge and experience of our
management and technical personnel, our ability to market our existing products
and our ability to develop new products. We do not have non-compete agreements
with our employees who generally are employed on an “at-will” basis. Therefore,
employees have left and may continue to leave us and go to work for competitors.
While we believe that we have adequately protected our proprietary technology
and
11
taken all
legal measures to protect it, we will continue to pursue all reasonable means
available to protect it and to prohibit the unauthorized use of our proprietary
technology. In spite of our efforts, the use of our processes by a competitor
could have a material adverse effect on our business, financial condition and
results of operations.
Our
ability to compete successfully and achieve future revenue growth will depend,
in part, on our ability to protect our proprietary technology and operate
without infringing upon the rights of others. We may not be able to successfully
protect our intellectual property, or our intellectual property or proprietary
technology may otherwise become known or be independently developed by
competitors. In addition, the laws of certain countries in which our products
are or may be sold or manufactured may not protect our products and intellectual
property rights to the same extent as the laws of the United
States.
The
inability to protect our intellectual property and proprietary technology could
have a material adverse effect on our business, financial condition and results
of operations. We have received third party claims of infringement in the past
and have been able to resolve such claims without having a material impact on
our business. As the number of patents, copyrights and other intellectual
property rights in our industry increases, and as the coverage of these rights
and the functionality of the products in the market further overlap, we believe
that we, along with other companies in our industry, may face more frequent
infringement claims. Such litigation or claims of infringement could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, financial condition and results of operations. A
third-party claiming infringement may also be able to obtain an injunction or
other equitable relief, which could effectively block our ability or our
customers’ ability to distribute, sell or import allegedly infringing products.
If it appears necessary or desirable, we may seek licenses from third parties
covering intellectual property that we are allegedly infringing upon. No
assurance can be given that any such licenses could be obtained on terms
acceptable to us, if at all. The failure to obtain the necessary licenses or
other rights could have a material adverse effect on our business, financial
condition and results of operations.
Employees
As of
January 3, 2010, we had 2,256 full and part-time employees, including 1,126 in
manufacturing, 258 in quality, 195 in supply chain, 397 in research and
development, 110 in sales and marketing and 170 in general and administration.
We believe that we have good relations with our employees.
Contract
Personnel
We
utilize contract personnel hired from third-party agencies. As of January 3,
2010, we were utilizing approximately 765 contract personnel, primarily in our
manufacturing operations.
How
to Obtain Powerwave SEC Filings
All
reports filed by Powerwave with the SEC are available free of charge via EDGAR
through the SEC website at www.sec.gov. In addition, the public may read and
copy materials filed by the Company with the SEC at the SEC’s public reference
room located at 100 F Street, N.E., Washington, D.C. 20549. Powerwave also
provides copies of its Forms 8-K, 10-K, 10-Q, Proxy Statement, Annual Report,
and amendments thereto, at no charge to investors upon request and makes
electronic copies of its most recently filed reports available through its
website at www.powerwave.com as soon as reasonably practicable after filing such
material with the SEC.
RISK
FACTORS
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Our
business faces significant risks. The risks described below may not be the only
risks we face. Additional risks that we do not yet know of or that we currently
think are immaterial also may impair our business operations. If any of the
events or circumstances described in the following risks actually occur, our
business, financial condition and results of operation could suffer, and the
trading price of our Common Stock could decline, and you may lose all or a part
of your investment.
Risks
Related to the Business
We
rely upon a few customers for the majority of our revenues and the loss of any
one or more of these customers, or a significant loss, reduction or rescheduling
of orders from any of these customers, would have a material adverse effect on
our business, financial condition and results of
operations.
We sell
most of our products to a small number of customers, and while we are
continually seeking to expand our customer base, we expect this will continue.
For the fiscal year ended January 3, 2010, sales to Nokia Siemens accounted for
approximately 34% of our sales. Nokia Siemens accounted for
approximately 31% of our revenues in 2008, and Alcatel-Lucent accounted for
approximately 17% of our revenues in fiscal 2008. During fiscal 2009,
our sales to Alcatel-Lucent declined below 10% of our revenues. Any decline in
business with our original equipment manufacturer customers, including Nokia
Siemens and Alcatel-Lucent, will have an adverse impact on our business,
financial condition and results of operations. For fiscal 2009, our total sales
declined by 36% compared with fiscal 2008. During this same period,
our sales to Nokia Siemens declined approximately 30% which has had a negative
impact on our business and results of operations. Our future success is
dependent upon the continued purchases of our products by a small number of
customers such as Nokia Siemens, Alcatel-Lucent, other original equipment
manufacturers and network operator customers. Any fluctuations in demand from
such customers or other customers will negatively impact our business, financial
condition and results of operations. If we are unable to broaden our customer
base and expand relationships with major wireless original equipment
manufacturers and major operators of wireless networks, our business will
continue to be impacted by unanticipated demand fluctuations due to our
dependence on a small number of customers. Unanticipated demand fluctuations can
have a negative impact on our revenues and business, and an adverse effect on
our business, financial condition and results of operations. In addition, our
dependence on a small number of major customers exposes us to numerous other
risks, including:
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a
slowdown or delay in deployment of wireless networks by any one or more
customers could significantly reduce demand for our
products;
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reductions
in a single customer’s forecasts and demand could result in excess
inventories;
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the
current economic crisis could negatively affect one or more of our major
customers and cause them to significantly reduce operations, or file for
bankruptcy;
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consolidation
of customers can reduce demand as well as increase pricing pressure on our
products due to increased purchasing
leverage;
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each
of our customers has significant purchasing leverage over us to require
changes in sales terms including pricing, payment terms and product
delivery schedules;
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direct
competition should a customer decide to increase its level of internal
designing and/or manufacturing of wireless communication network products;
and
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concentration
of accounts receivable credit risk, which could have a material adverse
effect on our liquidity and financial condition if one of our major
customers declared bankruptcy or delayed payment of their
receivables.
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Our
operating results have been adversely impacted by the worldwide economic crisis
and credit tightening.
Beginning
in the fourth quarter of 2008, worldwide economic conditions significantly
deteriorated due to the credit crisis and other factors, including slower
economic activity, recessionary concerns, increased energy costs, decreased
consumer confidence, reduced corporate profits, reduced or canceled capital
spending, adverse business conditions and liquidity concerns. Our revenues
declined approximately 21% in the fourth quarter of 2009 when compared to the
fourth quarter of 2008. All of these factors combined are having a negative
impact on the availability of financial capital which is contributing to a
reduction in demand for infrastructure in the wireless communication market.
These conditions make it difficult for our customers and vendors to accurately
forecast and plan future business activities, causing domestic and foreign
businesses to slow or suspend spending on our products and services. As
customers face this challenging economic time, they are finding it difficult to
gain sufficient credit in a timely manner, which has resulted in an impairment
of their ability to place orders with us or to make timely payments to us for
previous purchases. If this continues to occur, our revenues will be further
reduced, thereby having a negative impact on our business, financial condition
and results of operations. In addition, we may be forced to increase our
allowance for doubtful accounts and our days of sales outstanding
13
may
increase significantly, which would have a negative impact on our cash position,
liquidity and financial condition. We cannot predict the magnitude, timing or
duration of this economic recession or its impact on the wireless
industry.
We
have previously experienced significant reductions in demand for our products by
certain customers and if this continues, our operating results will be adversely
impacted.
We have a
history of significant unanticipated reductions in demand that demonstrate the
risks related to our customer and industry concentration levels. While our
revenues have increased at times during fiscal years 2005, 2006, 2007 and 2008,
a significant portion of this increase was due to our various acquisitions.
During fiscal year 2009, the global economic crisis and related recession
continued to have an impact on our customers and their demand for our products.
We currently anticipate that our customers may continue to reduce their demand
for wireless infrastructure products in the near term, thereby negatively
impacting all companies within our industry. This possible reduction in demand
would have a negative impact on our business, financial condition and results of
operations.
Also, in
the past we have experienced significant unanticipated reductions in wireless
network operator demand as well as significant delays in demand for 3G and 4G,
or next generation service based products, due to the high projected capital
cost of building such networks and market concerns regarding the inoperability
of such network protocols. In combination with these market issues, a majority
of wireless network operators have in the past regularly reduced their capital
spending plans in order to improve their overall cash flow. There is a
substantial likelihood that the global economic recession will continue
throughout 2010 and potentially into 2011, thereby having a negative impact on
network operator deployment spending plans. The impact of any future reduction
in capital spending by wireless network operators, coupled with any delays in
deployment of wireless networks, will result in reduced demand for our products,
which will have a material adverse effect on our business.
We
will need additional capital in the future and such additional financing may not
be available on favorable terms or at all.
As of
January 3, 2010, we had approximately $63.0 million of cash, with $2.6 million
of it restricted. We cannot provide any guarantee that we will generate
sufficient cash in the future to maintain or grow our operations over the
long-term. We rely upon our ability to generate positive cash flow from
operations to fund our business. If we are not able to generate positive cash
flow from operations, we may need to utilize sources of financing such as our
Credit Agreement or other sources of cash. While our Credit Agreement provides
us with additional sources of liquidity, we may need to raise additional funds
through public or private debt or equity financings in order to fund existing
operations or to take advantage of opportunities, including more rapid
international expansion or acquisitions of complementary businesses or
technologies. In addition, if our business further deteriorates, we
might be unable to maintain compliance with the covenants in our Credit
Agreement which could result in reduced availability under the Credit Agreement
or an event of default under the Credit Agreement, or could make the Credit
Agreement unavailable to us. If we are not successful in growing our businesses,
reducing our inventories and accounts receivable and managing the worldwide
aspects of our Company, our operations may not generate positive cash flow, and
we may consume our cash resources faster than we anticipate. Such losses would
make it difficult to obtain new sources of financing. In addition, if we do not
generate sufficient cash flow from operations, we may need to raise additional
funds to repay our $280.9 million of remaining outstanding convertible
subordinated debt that we issued in 2004 and 2007. The holders of this
convertible subordinated debt may require us to repurchase $130.9 million in
outstanding debt issued in 2004 on November 15, 2011 and $150.0 million in
outstanding debt issued in 2007 on October 1, 2014. Our ability to secure
additional financing or sources of funding is dependent upon numerous factors,
including the current outlook of our business, our credit rating and the market
price of our Common Stock, all of which are directly impacted by our ability to
increase revenues and generate profits. In addition, the availability of new
financing is dependent upon functioning debt and equity markets with financing
available on reasonable terms. Given the recent credit crisis, there can be no
guarantee that such a market would be available to us. If such a market is not
available, we may be unable to raise new financing, which would negatively
impact our business and possibly impact our ability to maintain operations as
presently conducted.
Our
ability to increase revenues and generate profits is subject to numerous risks
and uncertainties including the likelihood of decreased revenues in the current
macroeconomic environment. Any significant decrease in our revenues or
profitability could reduce our operating cash flows and erode our existing cash
balances. Our ability to reduce our inventories and accounts receivable and
improve our cash flow is dependent on numerous risks and uncertainties, and if
we are not able to reduce our inventories, we will not generate the cash
required to operate our business. Our ability to secure additional financing is
also dependent upon not only our business profitability, but also the credit
markets, which have recently become highly constrained due to credit concerns
arising from the subprime mortgage lending market and subsequent worldwide
economic recession. If we are unable to secure additional financing or such
financing is not available on acceptable terms, we may not be able to fund our
operations, otherwise respond to unanticipated competitive pressures, or repay
our convertible debt.
We
may be adversely affected by the bankruptcy of our customers.
One of
our original equipment manufacturer customers, Nortel, filed for bankruptcy
protection in the first quarter of 2009, and in the third quarter of 2009, they
received government approval of the sale of their assets. Given the
current economic climate, it is possible that one or more of our other customers
will suffer significant financial difficulties, including potentially filing for
bankruptcy protection. In such an event, the demand for our products from these
customers may decline significantly or cease completely. We cannot guarantee
that we will be able to continue to generate new demand to offset any such
reductions from existing customers. If we are unable to continue to generate new
demand, our revenues will decrease and our business, financial condition and
results of operations will be negatively impacted.
We may
not successfully evaluate the creditworthiness of our customers. While we
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments, greater than
anticipated nonpayment and delinquency rates could harm our financial results
and liquidity. Given the current global economic recession, there are potential
risks of greater than anticipated customer defaults. If the financial condition
of any of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances would be required and would
negatively impact our business, financial condition and results of
operations.
We
may incur unanticipated costs as we complete the restructuring of our
business.
We have
previously encountered difficulties and delays in integrating and consolidating
operations which have had a negative impact on our business, financial condition
and results of operations. The failure to successfully integrate these
operations could undermine the anticipated benefits and synergies of the
restructuring, which could adversely affect our business, financial condition
and results of operations. The anticipated benefits and synergies of our
restructurings relate to cost savings associated with operational efficiencies
and greater economies of scale. However, these anticipated benefits and
synergies are based on projections and assumptions, not actual experience, and
assume a smooth and successful integration of our business.
We
may need to undertake restructuring actions in the future.
We have
previously recognized restructuring charges in response to slowdowns in demand
for our products and in conjunction with cost cutting measures and measures to
improve the efficiency of our operations. As a result of economic conditions, we
may need to initiate additional restructuring actions that could result in
restructuring charges that could have a material impact on our business,
financial condition and results of operations. Such potential restructuring
actions could include cash expenditures that would reduce our available cash
balances, which would have a negative impact on our business.
The
potential for increased commodity and energy costs may adversely affect our
business, financial condition and results of operations.
The world
economy has experienced significant fluctuations in the price of oil and energy
during 2008 and 2009. Such fluctuations resulted in significant price increases
which translated into higher freight and transportation costs and, in certain
cases, higher raw material supply costs. These higher costs negatively impacted
our production costs. We were not able to pass on these higher costs to our
customers, and if we insist on raising prices, our customers may curtail their
purchases from us. The costs of energy and items directly related to the cost of
energy will fluctuate due to factors that may not be predictable, such as the
economy, political conditions and the weather. Further increases in energy
prices or the onset of inflationary pressures could negatively impact our
business, financial condition and results of operations.
We
have experienced, and will continue to experience, significant fluctuations in
sales and operating results from quarter to quarter.
Our
quarterly results fluctuate due to a number of factors, including:
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the
lack of obligation by our customers to purchase their forecasted demand
for our products;
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costs
associated with restructuring activities, including severance, inventory
obsolescence and facility closure
costs;
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variations
in the timing, cancellation, or rescheduling of customer orders and
shipments;
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costs
associated with consolidating
acquisitions;
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high
fixed expenses that increase operating expenses, especially during a
quarter with a sales shortfall;
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product
failures and associated warranty and in-field service support costs;
and
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discounts
given to certain customers for large volume
purchases.
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We have
regularly generated a large percentage of our revenues in the last month of a
quarter. Because we attempt to ship products quickly after we receive orders, we
may not always have a significant backlog of unfilled orders at the start of
each quarter and we may be required to book a substantial portion of our orders
during the quarter in which these orders ship. Our major customers generally
have no obligation to purchase forecasted amounts and may cancel orders, change
delivery schedules or change the mix of products ordered with minimal notice and
without penalty. As a result, we may not be able to accurately predict our
quarterly sales. Because our expense levels are partially based on our
expectations of future sales, our expenses may be disproportionately large
relative to our revenues, and we may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Any shortfall in
sales relative to our quarterly expectations or any delay of customer orders
would adversely affect our business, financial condition and results of
operations.
Order
deferrals and cancellations by our customers, declining average sales prices,
changes in the mix of products sold, delays in the introduction of new products
and longer than anticipated sales cycles for our products have adversely
affected our business, financial condition and results of operations in the
past. Despite these factors, we, along with our contract manufacturers, maintain
significant finished goods, work-in-progress and raw materials inventory to meet
estimated order forecasts. If our customers purchase less than their forecasted
orders or cancel or delay existing purchase orders, there will be higher levels
of inventory that face a greater risk of obsolescence. If our customers choose
to purchase products in excess of the forecasted amounts or in a different
product mix, there might be inadequate inventory or manufacturing capacity to
fill their orders.
Due to
these and other factors, our past results are not reliable indicators of our
future performance. Future revenues and operating results may not meet the
expectations of market analysts or investors. In either case, the price of our
Common Stock could be materially adversely affected.
Our
average sales prices have declined, and we anticipate that the average sales
prices for our products will continue to decline and negatively impact our gross
profit margins.
Wireless
service providers are continuing to place pricing pressure on wireless
infrastructure manufacturers, which in turn, has resulted in lower selling
prices for our products, with certain competitors aggressively reducing prices
in an effort to increase their market share. The consolidation of original
equipment manufacturers such as Alcatel-Lucent and Nokia Siemens is
concentrating purchasing power at the surviving entities, placing further
pricing pressures on the products we sell to such customers. Moreover, the
current economic downturn has caused wireless service providers to become more
aggressive in demanding price reductions as they attempt to reduce costs. As a
result, we are forced to further reduce our prices to such customers, which has
had a negative impact on our business, financial condition and results of
operations. If we do not agree to lower our prices as some customers request,
those customers may stop purchasing our products, which would significantly
impact our business. We believe that the average sales prices of our products
will continue to decline for the foreseeable future. The weighted average sales
price for our products declined approximately 2% to 11% from fiscal 2008 to
fiscal 2009 and we expect that this will continue going forward. Since wireless
infrastructure manufacturers frequently negotiate supply arrangements far in
advance of delivery dates, we must often commit to price reductions for our
products before we know how, or if, we can obtain such cost reductions. With
ongoing consolidation in our industry, the increased size of many of our
customers allows them to exert greater pressure on us to reduce prices. In
addition, average sales prices are affected by price discounts negotiated
without firm orders for large volume purchases by certain customers. To offset
declining average sales prices, we must reduce manufacturing costs and
ultimately develop new products with lower costs or higher average sales prices.
If we cannot achieve such cost reductions or increases in average selling
prices, our gross margins will decline.
Our
suppliers, contract manufacturers or customers could become
competitors.
Many of
our customers, particularly our original equipment manufacturer customers,
internally design and/or manufacture their own wireless communications network
products. These customers also continuously evaluate whether to manufacture
their own wireless communications network products or utilize contract
manufacturers to produce their own internal designs. Certain of our customers
regularly produce or design wireless communications network products in an
attempt to replace products manufactured by us. In addition, some customers
threaten to undertake such activities if we do not agree to their requested
price reductions. We believe that these practices will continue. In the event
that our customers manufacture or design their own wireless communications
network products, these customers might reduce or eliminate their purchases of
our products, which would result in reduced revenues and would adversely impact
our business, financial condition and results of operations. Wireless
infrastructure equipment manufacturers with internal manufacturing capabilities,
including many of our customers, could also sell wireless communications network
products externally to other manufacturers, thereby competing directly with us.
In addition, our suppliers or contract manufacturers may decide to produce
competing products directly for our customers and, effectively, compete against
us. If, for any reason, our customers produce their wireless communications
network products internally, increase the percentage of their internal
production, require us to participate in joint venture manufacturing with them,
require us to reduce our prices, engage our suppliers or
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contract
manufacturers to manufacture competing products, or otherwise compete directly
against us, our revenues would decrease, which would adversely impact our
business, financial condition and results of operations.
Our
success is tied to the growth of the wireless services communications market and
our future revenue growth is dependent upon the expected increase in the size of
this market.
Our
revenues come from the sale of wireless communications network products and
coverage solutions. Our future success depends solely upon the growth and
increased availability of wireless communications services. Wireless
communications services may not grow at a rate fast enough to create demand for
our products, as we have experienced periodically throughout the past six years.
Some of our network operator customers rely on credit to finance the build-out
or expansion of their wireless networks. The current credit environment and the
worldwide economic recession resulted in lower revenues in fiscal 2009 and will
likely result in a reduction of demand from some of our customers in the near
term. Another example of unanticipated reductions was during fiscal 2006 and
into fiscal 2007, when a major North American wireless network operator
significantly reduced demand for new products. In addition, during the same
period, several major equipment manufacturers began a process of consolidating
their operations, which significantly reduced their demand for our products.
This reduced spending on wireless networks had a negative impact on our
operating results. If wireless network operators delay or reduce levels of
capital spending, our business, financial condition and results of operations
would be negatively impacted.
Our
reliance on contract manufacturers exposes us to risks of excess inventory or
inventory carrying costs.
We use
contract manufacturers to produce printed circuit boards for our products, and
in certain cases, to manufacture finished products. If our contract
manufacturers are unable to respond in a timely fashion to changes in customer
demand, we may be unable to produce enough products to respond to sudden
increases in demand, resulting in lost revenues. Alternatively, in the case of
order cancellations or decreases in demand, we may be liable for excess or
obsolete inventory or cancellation charges resulting from contractual purchase
commitments that we have with our contract manufacturers. We regularly provide
rolling forecasts of our requirements to our contract manufacturers for planning
purposes, pursuant to our agreements, a portion of which is binding upon us.
Additionally, we are committed to accept delivery on the forecasted terms for a
portion of the rolling forecast. Cancellations of orders or changes to the
forecasts provided to any of our contract manufacturers may result in
cancellation costs payable by us. In the past, we have been required to take
delivery of materials from our suppliers and subcontractors that were in excess
of our requirements, and we have previously recognized charges and expenses
related to such excess material. We expect that we will incur such costs in the
future.
By using
contract manufacturers, our ability to directly control the use of all
inventories is reduced since we do not have full operating control over their
operations. If we are unable to accurately forecast demand for our contract
manufacturers and manage the costs associated with our contract manufacturers,
we may be required to purchase excess inventory and incur additional inventory
carrying costs. If we or our contract manufacturers are unable to utilize such
excess inventory in a timely manner, and are unable to sell excess components or
products due to their customized nature, our business, financial
condition and results of operations would be negatively impacted.
Future
additions to, or consolidations of manufacturing operations may present risks,
and we may be unable to achieve the financial and strategic goals associated
with such actions.
We have
previously added new manufacturing locations, as well as consolidated existing
manufacturing locations in an attempt to achieve operating cost savings and
improved operating results. We continually evaluate these types of
opportunities. We may acquire or invest in new locations, or we may
consolidate existing locations into either existing or new locations in order to
reduce our manufacturing costs. In the second half of 2009, we
established a new manufacturing location in Thailand. Such activities
subject us to numerous risks and uncertainties, including the
following:
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difficulty
integrating the new locations into our existing
operations;
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difficulty
consolidating existing locations into one
location;
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inability
to achieve the anticipated financial and strategic benefits of the
specific new location or
consolidation;
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significant
unanticipated additional costs incurred to start up a new manufacturing
location;
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inability
to attract key technical and managerial personnel to a new
location;
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inability
to retain key technical and managerial personnel due to the consolidation
of locations to a new location;
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diversion
of our management’s attention from other business
issues;
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failure
of our review and approval process to identify significant issues,
including issues related to manpower, raw material supplies, legal and
financial contingencies.
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If we are
unable to manage these risks effectively as part of any investment in a new
manufacturing location or consolidation of locations, our business would be
adversely affected.
Future
acquisitions, or strategic alliances, may present risks, and we may be unable to
achieve the financial and strategic goals intended at the time of any
acquisition or strategic alliance.
In the
past, we have acquired and made investments in other companies, products and
technologies and entered into strategic alliances with other companies. We
continually evaluate these types of opportunities. We may acquire or invest in
other companies, products or technologies, or we may enter into joint ventures,
mergers or strategic alliances with other companies. Such transactions subject
us to numerous risks, including the following:
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difficulty
integrating the operations, technology and personnel of the acquired
company;
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inability
to achieve the anticipated financial and strategic benefits of the
specific acquisition or strategic
alliance;
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significant
additional warranty costs due to product failures and or design
differences that were not identified during due diligence, which could
result in charges to earnings if they are not recoverable from the
seller;
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inability
to retain key technical and managerial personnel from the acquired
company;
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difficulty
in maintaining controls, procedures and policies during the transition and
integration process;
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diversion
of our management’s attention from other business
concerns;
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failure
of our due diligence process to identify significant issues, including
issues with respect to product quality, product architecture, legal and
financial contingencies, and product development;
and
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significant
exit charges if products acquired in business combinations are
unsuccessful.
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If we are
unable to manage these risks effectively as part of any acquisition or joint
venture, our business would be adversely affected.
We
depend on single sources or limited sources for key components and products,
which exposes us to risks related to product shortages or delays, as well as
potential product quality issues, all of which could increase the cost of our
products thereby reducing our operating profits.
A number
of our products and the parts used in our products are available from only one
or a limited number of outside suppliers due to unique component designs, as
well as certain quality and performance requirements. To take advantage of
volume pricing discounts, we also purchase certain products, and along with our
contract manufacturers, purchase certain customized components from single or
limited sources. We have experienced, and expect to continue to experience,
shortages of single-source and limited-source components. Shortages have
compelled us to adjust our product designs and production schedules and have
caused us to miss customer requested delivery dates. To date, missed customer
delivery dates have not had a material adverse impact on our financial results.
If single-source or limited-source components become unavailable in sufficient
quantities in the desired time periods, are discontinued or are available only
on unsatisfactory terms, we would be required to purchase comparable components
from other sources and may be required to redesign our products to use such
components which could delay production and delivery of our products. If
production and delivery of our products are delayed such that we do not meet the
agreed upon delivery dates of our customers, such delays could result in lost
revenues due to customer cancellations, as well as potential financial penalties
payable to our customers. Any such loss of revenue or financial penalties could
have a material adverse effect on our business, financial condition and results
of operations.
Our
reliance on certain single-source and limited-source components and products
also exposes us and our contract manufacturers to quality control risks if these
suppliers experience a failure in their production process or otherwise fail to
meet our quality requirements. A failure in a single-source or limited-source
component or product could force us to repair or replace a product utilizing
replacement components. If we cannot obtain comparable replacements or redesign
our products, we could lose customer orders or incur additional costs, which
would have a material adverse effect on our business, financial condition and
results of operations.
We
may fail to develop products that are sufficiently manufacturable, which could
negatively impact our ability to sell our products.
Manufacturing
our products is a complex process that requires significant time and expertise
to meet customers’ specifications. Successful manufacturing is substantially
dependent upon the ability to assemble and tune these products to meet
specifications in an efficient manner. In this regard, we largely depend on our
staff of assembly workers and trained technicians at our internal manufacturing
operations in the United States, Europe and Asia, as well as our contract
manufacturers’ staff of assembly workers and trained technicians. If we cannot
design our products to minimize the manual assembly and tuning process, or if we
or our contract manufacturers lose a number of trained assembly workers and
technicians or are unable to attract additional trained assembly workers or
technicians, we may be unable to have our products manufactured in a cost
effective manner.
We
may fail to develop products that are of adequate quality and reliability, which
could negatively impact our ability to sell our products.
We have
had quality problems with our products including those we have acquired in
acquisitions. We may have similar product quality problems in the future. We
have replaced components in some products and replaced entire products in
accordance with our product warranties. We believe that our customers will
demand that our products meet increasingly stringent performance and reliability
standards. If we cannot keep pace with technological developments, evolving
industry standards and new communications protocols, if we fail to adequately
improve product quality and meet the quality standards of our customers, or if
our contract manufacturers fail to achieve the quality standards of our
customers, we risk losing business which would negatively impact our business,
financial condition and results of operations. Design problems could also damage
relationships with existing and prospective customers and could limit our
ability to market our products to large wireless infrastructure manufacturers,
many of which build their own products and have stringent quality control
standards. In addition, we have incurred significant costs addressing quality
issues from products that we have acquired in certain of our acquisitions. We
are also required to honor certain warranty claims for products that we have
acquired in our recent acquisitions. While we seek recovery of amounts that we
have paid, or may pay in the future to resolve warranty claims through
indemnification from the original manufacturer, this can be a costly and time
consuming process.
If we are unable to hire and retain
highly-qualified technical and managerial personnel, we may not be able to
sustain or grow our business.
Competition
for personnel, particularly qualified engineers, is intense. The loss of a
significant number of qualified engineers, as well as the failure to recruit and
train additional technical personnel in a timely manner, could have a material
adverse effect on our business, financial condition and results of operations.
The departure of any of our management and technical personnel, the breach of
their confidentiality and non-disclosure obligations to us or the failure to
achieve our intellectual property objectives may also have a material adverse
effect on our business.
We
believe that our success depends upon the knowledge and experience of our
management and technical personnel and our ability to market our existing
products and to develop new products. Our employees are generally employed on an
at- will basis and do not have non-compete agreements. Therefore, we have had,
and may continue to have, employees leave us and go to work for
competitors.
There
are significant risks related to our internal and contract manufacturing
operations in Asia and Europe.
As part
of our manufacturing strategy, we utilize contract manufacturers to make
finished goods and supply printed circuit boards in China, Europe, India,
Singapore and Thailand. We also maintain our own manufacturing operations in
China, Estonia, the United States and our newly established manufacturing
facility in Thailand.
The
Chinese legal system lacks transparency, which gives the Chinese central and
local government authorities a higher degree of control over our business in
China than is customary in the United States which makes the process of
obtaining necessary regulatory approval in China inherently unpredictable. In
addition, the protection accorded our proprietary technology and know-how under
the Chinese and Thai legal systems is not as strong as in the United States and,
as a result, we may lose valuable trade secrets and competitive advantage. Also,
manufacturing our products and utilizing contract manufacturers, as well as
other suppliers throughout the Asia region, exposes our business to the risk
that our proprietary technology and ownership rights may not be protected or
enforced to the extent that they may be in the United States.
Although
the Chinese government has been pursuing economic reform and a policy of
welcoming foreign investments during the past two decades, it is possible that
the Chinese government will change its current policies in the future, making
continued business operations in China difficult or unprofitable.
In
September 2006, Thailand experienced a military coup which overturned the
existing government. In late 2008, anti-government protests and civilian
occupations culminated with a court-ordered ouster of Thailand’s prime minister.
In 2009, continued unrest has impacted the government of Thailand, and potential
civil unrest may continue. To date, this has not had a long-term impact on our
operations in Thailand. If there are future coups or some other type of
political unrest, such activity may impact the ability to manufacture products
in this region and may prevent shipments from entering or leaving the country.
Any such disruptions could have a material negative impact on our business,
financial condition and results of operations.
We
require air or ocean transport to deliver products built in our various
manufacturing locations to our customers. High energy costs have increased our
transportation costs which has had a negative impact on our production costs.
Transportation costs would also escalate if there were a shortage of air or
ocean cargo space and any significant increase in transportation costs would
cause an increase in our expenses and negatively impact our business, financial
condition and results of operations. In addition, if we are unable to obtain
cargo space or secure delivery of components or products due to
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labor
strikes, lockouts, work slowdowns or work stoppages by longshoremen, dock
workers, airline pilots or other transportation industry workers, our delivery
of products could be delayed.
The
initial sales cycle associated with our products is typically lengthy, often
lasting from nine to eighteen months, which could cause delays in forecasted
sales and cause us to incur substantial expenses before we record any associated
revenues.
Our
customers normally conduct significant technical evaluations, trials and
qualifications of our products before making purchase commitments. This
qualification process involves a significant investment of time and resources
from both our customers and us in order to ensure that our product designs are
fully qualified to perform as required. The qualification and evaluation
process, as well as customer field trials, may take longer than initially
forecasted, thereby delaying the shipment of sales forecasted for a specific
customer for a particular quarter and causing our operating results for the
quarter to be less than originally forecasted. Such a sales shortfall would
reduce our profitability and negatively impact our
business, financial condition and results of operations.
We
conduct a significant portion of our business internationally, which exposes us
to increased business risks.
For
fiscal years 2009, 2008 and 2007, international revenues (excluding North
American sales) accounted for approximately 73%, 70% and 73% of our net sales,
respectively. There are many risks that currently impact, and will continue to
impact, our international business and multinational operations, including the
following:
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compliance
with multiple and potentially conflicting regulations in Europe, Asia and
North and South America, including export requirements, tariffs, import
duties and other trade barriers, as well as health and safety
requirements;
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potential
labor strikes, lockouts, work slowdowns and work stoppages at U.S. and
international ports;
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differences
in intellectual property protections throughout the
world;
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difficulties
in staffing and managing foreign operations in Europe, Asia and South
America, including relations with unionized labor pools in Europe and in
Asia;
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longer
accounts receivable collection cycles in Europe, Asia and South
America;
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currency
fluctuations and resulting losses on currency
translations;
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terrorist
attacks on American companies;
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economic
instability, including inflation and interest rate fluctuations, such as
those previously seen in South Korea and
Brazil;
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competition
for foreign-based suppliers throughout the
world;
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overlapping
or differing tax structures;
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the
complexity of global tax and transfer pricing rules and regulations and
our potential inability to benefit/offset losses in one tax jurisdiction
with income from another;
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cultural
and language differences between the United States and the rest of the
world; and
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political
or civil turmoil.
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Any
failure on our part to manage these risks effectively would seriously reduce our
competitiveness in the wireless infrastructure marketplace.
Protection
of our intellectual property is limited.
We rely
upon trade secrets and patents to protect our intellectual property. We execute
confidentiality and non-disclosure agreements with certain employees and our
suppliers, as well as limit access to and distribution of our proprietary
information. We have an ongoing program to identify and file applications for
U.S. and other international patents.
The
departure of any of our management and technical personnel, the breach of their
confidentiality and non-disclosure obligations to us, or the failure to achieve
our intellectual property objectives could have a material adverse effect on our
business, financial condition and results of operations. We do not have
non-compete agreements with our employees who are generally employed on an
at-will basis. Therefore, we have had, and may continue to have, employees leave
us and go to work for competitors. If we are not successful in prohibiting the
unauthorized use of our proprietary technology or the use of our processes by a
competitor, our competitive advantage may be significantly reduced which would
result in reduced revenues.
We
are at risk of third-party claims of infringement that could harm our
competitive position.
We have
received third-party claims of infringement in the past and have been able to
resolve such claims without having a material impact on our business. As the
number of patents, copyrights and other intellectual property rights in our
industry increases, and as the coverage of these rights and the functionality of
the products in the market further overlap, we believe that we may face
additional infringement claims. These claims, whether valid or not, could result
in substantial cost and diversion of our resources. A third-party claiming
infringement may also obtain an injunction or other equitable relief, which
could effectively block the distribution or sale of allegedly infringing
products, which would adversely affect our customer relationships and negatively
impact our revenues.
The
communications industry is heavily regulated. We must obtain regulatory
approvals to manufacture and sell our products, and our customers must obtain
approvals to operate our products. Any failure or delay by us or any of our
customers to obtain these approvals could negatively impact our ability to sell
our products.
Various
governmental agencies have adopted regulations that impose stringent radio
frequency emissions standards on the communications industry. Future regulations
may require that we alter the manner in which radio signals are transmitted or
otherwise alter the equipment transmitting such signals. The enactment by
governments of new laws or regulations or a change in the interpretation of
existing regulations could negatively impact the market for our
products.
The
increasing demand for wireless communications has exerted pressure on regulatory
bodies worldwide to adopt new standards for such products, generally following
extensive investigation and deliberation over competing technologies. The delays
inherent in this type of governmental approval process have caused, and may
continue to cause, the cancellation, postponement or rescheduling of the
installation of communications systems by our customers. These types of
unanticipated delays would result in delayed or canceled customer
orders.
We
are subject to numerous governmental regulations concerning the manufacturing
and use of our products. We must stay in compliance with all such
regulations and any future regulations. Any failure to comply with
such regulations, and the unanticipated costs of complying with future
regulations, may adversely affect our business, financial condition and results
of operations.
We
manufacture and sell products which contain electronic components, and as such
components may contain materials that are subject to government regulation in
both the locations that we manufacture and assemble our products, as well as the
locations where we sell our products. An example of a regulated
material is the use of lead in electronic components. We maintain
compliance with all current government regulations concerning the materials
utilized in our products, for all the locations in which we
operate. Since we operate on a global basis, this is a complex
process which requires continual monitoring of regulations and an ongoing
compliance process to ensure that we and our suppliers are in compliance with
all existing regulations. There are areas where future regulations
may be enacted which could increase our cost of the components that we
utilize. While we do not currently know of any proposed regulation
regarding components in our products, which would have a material impact on our
business, if there is an unanticipated new regulation which significantly
impacts our use of various components or requires more expensive components,
that would have a material adverse impact on our business, financial condition
and results of operations.
Our
manufacturing process is also subject to numerous governmental regulations,
which cover both the use of various materials as well as environmental
concerns. We maintain compliance with all current government
regulations concerning our production processes, for all locations in which we
operate. Since we operate on a global basis, this is also a complex
process which requires continual monitoring of regulations and an ongoing
compliance process to ensure that we and our suppliers are in compliance with
all existing regulations. There are areas where future regulations
may be enacted which could increase our cost of manufacture. One area
which has a large number of potential changes in regulations is the
environmental area. Environmental areas such as pollution and climate
change have had significant legislative and regulatory efforts on a global
basis, and there are expected to be additional changes to the regulations in
these areas. These changes could directly increase the cost of energy
which may have an impact on the way we manufacture products or utilize energy to
produce our products. In addition, any new regulations or laws in the
environmental area might increase the cost of raw materials we use in our
products. While future changes in regulations appears likely, we are currently
unable to predict how any such changes will impact us and if such impacts will
be material to our business. If there is a new law or regulation that
significantly increases our costs of manufacturing or causes us to significantly
alter the way that we manufacture our products, this would have a material
adverse affect on our business, financial condition and results of
operations.
The
wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, frequent new
product development, rapid product obsolescence, evolving industry standards and
significant price erosion over the life of a product. If we are unable to
compete effectively, our business, financial condition and results of operations
would be adversely affected.
Our
products compete on the basis of the following characteristics:
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performance;
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functionality;
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reliability;
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pricing;
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quality;
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designs
that can be efficiently manufactured in large
volumes;
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time-to-market
delivery capabilities; and
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compliance
with industry standards.
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If we
fail to address the above factors, there could be a material adverse effect on
our business, financial condition and results of operations.
Our
current competitors include ADC Telecommunications, Inc., CommScope, Inc.,
Fujitsu Limited, Hitachi Kokusai Electric Inc., Japan Radio Co., Ltd.,
Kathrein-Werke KG, Mitsubishi Electric Corporation, and Radio Frequency Systems,
in addition to a number of privately-held companies throughout the world,
subsidiaries of certain multinational corporations and the internal
manufacturing operations and design groups of the leading wireless
infrastructure manufacturers such as Alcatel-Lucent, Ericsson, Huawei, Motorola,
Nokia Siemens and Samsung. Some competitors have adopted aggressive pricing
strategies in an attempt to gain market share, which in turn, has caused us to
lower our prices in order to remain competitive. Such pricing actions have had
an adverse effect on our business, financial condition and results of
operations. In addition, some competitors have significantly greater financial,
technical, manufacturing, sales, marketing and other resources than we do and
have achieved greater name recognition for their products and technologies than
we have. If we are unable to successfully increase our market penetration or our
overall share of the wireless communications infrastructure equipment market,
our revenues will decline, which would negatively impact our business, financial
condition and results of operations.
Our
failure to enhance our existing products or to develop and introduce new
products that meet changing customer requirements and evolving technological
standards could have a negative impact on our ability to sell our
products.
To
succeed, we must improve current products and develop and introduce new products
that are competitive in terms of price, performance and quality. These products
must adequately address the requirements of wireless infrastructure
manufacturing customers and end-users. To develop new products, we invest in the
research and development of wireless communications network products and
coverage solutions. We target our research and development efforts on major
wireless network deployments worldwide, which cover a broad range of frequency
and transmission protocols. In addition, we are currently working on products
for next generation networks, as well as development projects for products
requested by our customers and improvements to our existing products. The
deployment of a wireless network may be delayed which could result in the
failure of a particular research or development effort to generate a revenue
producing product. Additionally, the new products we develop may not achieve
market acceptance or may not be able to be manufactured cost effectively in
sufficient volumes. Our research and development efforts are generally funded
internally and our customers do not normally pay for our research and
development efforts. These costs are expensed as incurred. Therefore, if our
efforts are not successful at creating or improving products that are purchased
by our customers, there will be a negative impact on our business, financial
condition and results of operations due to high research and development
expenses.
Our
business depends on effective information management systems.
We rely
on our enterprise resource planning (ERP) systems to support critical business
operations such as invoicing and processing sales orders, inventory control,
purchasing and supply chain management, human resources and financial reporting.
We periodically implement upgrades to the ERP systems or migrate one or more of
our affiliates, facilities or operations from one system to another. If we are
unable to adequately maintain these systems to support our developing business
requirements or effectively manage any upgrade or migration, we could encounter
difficulties that could have a material adverse impact on our business,
financial condition and results of operations.
We
may experience significant variability in our quarterly and annual effective tax
rate.
Variability
in the mix and profitability of domestic and international activities,
repatriation of earnings from foreign affiliates, identification and resolution
of various tax uncertainties and the inability to realize net operating losses
and other carry-forwards included in deferred tax assets, among other matters,
may significantly impact our effective income tax rate in the future. A
significant increase in our effective income tax rate could have a material
adverse impact on our business, financial condition and results of
operations.
Our
business is subject to the risks of earthquakes and other natural catastrophic
events, and to interruptions by man-made problems such as computer viruses or
terrorism.
Our
corporate headquarters and a large portion of our U.S.-based research and
development operations are located in the State of California in regions known
for seismic activity. In addition, we have production facilities and have
outsourced some of our production to contract manufacturers in Asia, another
region known for seismic activity. A significant natural disaster, such as an
earthquake in either of these regions, could have a material adverse effect on
our business, financial condition and results of operations. In addition,
despite our implementation of network security measures, our servers are
vulnerable to computer viruses, break-ins, and similar disruptions from
unauthorized tampering with our computer systems. Any such event could have a
material adverse effect on our business, financial condition and results of
operations.
At
times over the past year, our stock price has not met the minimum bid price for
continued listing on the NASDAQ Global Select Market. Our ability to publicly or
privately sell equity securities and the liquidity of our Common Stock could be
adversely affected if we are delisted from the NASDAQ Global Select Market or if
we are unable to transfer our listing to another stock market.
The bid
price for our Common Stock on the NASDAQ Global Select Market was below $1.00
for a significant period of time during fiscal 2009. The NASDAQ
Marketplace Rules provide that one of the continuing listing requirements for an
issuer’s common stock is having a minimum bid price of $1.00 per share.
Due to the current economic crisis, NASDAQ announced a moratorium on the
enforcement of this minimum bid requirement. However, this moratorium was
rescinded on July 31, 2009, and NASDAQ has not indicated an intention to
reinstate the moratorium. We cannot control whether NASDAQ will reinstate
the moratorium again in the future or whether NASDAQ will make any other
concessions to allow issuers to avoid potential
delisting. Accordingly, if the bid price of our Common Stock
does not stay above $1.00 per share, we risk being delisted from the NASDAQ
Global Select Market.
If our
Common Stock is delisted by NASDAQ, our Common Stock may be eligible to trade on
the OTC Bulletin Board maintained by NASDAQ, another over-the-counter quotation
system, or on the pink sheets. Each of these alternatives will likely result in
it being more difficult for investors to dispose of, or obtain accurate
quotations as to the market value of our Common Stock. In addition, there can be
no assurance that our Common Stock will be eligible for trading on any of such
alternative exchanges or markets.
In
addition, delisting from NASDAQ could adversely affect our ability to raise
additional capital through the public or private sale of equity securities.
Delisting from NASDAQ also would make trading our Common Stock more difficult
for investors, potentially leading to further declines in our share price and
inhibiting a stockholder’s ability to liquidate all or part of their investment
in Powerwave.
The
price of our Common Stock has been, and may continue to be, volatile and our
shareholders may not be able to resell shares of our Common Stock at or above
the price paid for such shares.
The price
for shares of our Common Stock has exhibited high levels of volatility with
significant volume and price fluctuations, which makes our Common Stock
unsuitable for many investors. For example, for the three years ended January 3,
2010, the closing price of our Common Stock ranged from a high of $7.45 to a low
of $0.23 per share. At times, the fluctuations in the price of our Common Stock
may have been unrelated to our operating performance. These broad fluctuations
may negatively impact the market price of shares of our Common Stock. The price
of our Common Stock may also have been influenced by:
|
•
|
fluctuations
in our results of operations or the operations of our competitors or
customers;
|
|
•
|
the
aggregate amount of our outstanding debt and perceptions about our ability
to make debt service payments;
|
|
•
|
failure
of our results of operations and sales revenues to meet the expectations
of stock market analysts and
investors;
|
|
•
|
reductions
in wireless infrastructure demand or expectations regarding future
wireless infrastructure demand by our
customers;
|
|
•
|
delays
or postponement of wireless infrastructure deployments, including new 3G
deployments;
|
|
•
|
changes
in stock market analyst recommendations regarding us, our competitors or
our customers;
|
|
•
|
the
timing and announcements of technological innovations, new products or
financial results by us or our
competitors;
|
|
•
|
lawsuits
attempting to allege misconduct by the Company and its
officers;
|
|
•
|
increases
in the number of shares of our Common Stock outstanding;
and
|
|
•
|
changes
in the wireless industry.
|
In
addition, the potential conversion of our outstanding convertible debt
instruments would add approximately 29.0 million shares of Common Stock to
our outstanding shares. Such an increase may lead to sales of shares or the
perception that sales may occur, either of which may adversely affect the market
for, and the market price of, our Common Stock. Any potential future sale or
issuance of shares of our Common Stock or instruments convertible or
exchangeable into shares of our Common Stock, or the perception that such sales
or transactions could occur, could adversely affect the market price of our
Common Stock.
Based on
the above, we expect that our stock price will continue to be extremely
volatile. Therefore, we cannot guarantee that our investors will be able to
resell our Common Stock at or above the price at which they purchased
it.
Failure
to maintain effective internal controls over financial reporting could adversely
affect our business and the market price of our Common Stock.
Pursuant
to rules adopted by the SEC under the Sarbanes-Oxley Act of 2002, we are
required to assess the effectiveness of our internal controls over financial
reporting and provide a management report on our internal controls over
financial reporting in all annual reports. This report contains, among other
matters, a statement as to whether our internal controls over financial
reporting are effective and the disclosure of any material weaknesses in our
internal controls over financial reporting identified by management.
Section 404 also requires our independent registered public accounting firm
to audit management’s report.
The
Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides
a framework for companies to assess and improve their internal control systems.
Auditing Standard No. 5 provides the professional standards and related
performance guidance for auditors to report on the effectiveness of internal
control over financial reporting under Section 404. Management’s assessment
of internal controls over financial reporting requires management to make
subjective judgments and, particularly because Section 404 and Auditing
Standard No. 5 are newly effective, some of the judgment will be in areas
that may be open to interpretation. Therefore, our management’s report on our
internal controls over financial reporting may be difficult to prepare, and our
auditors may not agree with our management’s assessment.
Subsequent
to the issuance of our consolidated financial statements for the year ended
January 3, 2010, we identified an error in the accounting for our 2024 Notes and
the application of FASB ASC Topic 470-20, Debt with Conversion and Other
Options, to that instrument. We did not timely adopt this new accounting
standard due to insufficient analysis of the impact of the standard on our
financial statements which resulted in a restatement of the 2009 consolidated
financial statements. This is a material weakness and during the first quarter
of 2010, we completed the design and implementation of control activities to
remediate this issue. As a result, we currently believe our internal controls
over financial reporting are effective. We are required to comply with
Section 404 on an annual basis, and if, in the future, we identify one or
more material weaknesses in our internal controls over financial reporting
during this continuous evaluation process, our management may not be able to
assert that such internal controls are effective. Although we currently
anticipate satisfying the requirements of Section 404 in a timely fashion,
we cannot be certain as to the timing of completion for our future evaluation,
testing and any required remediation due in large part to the fact that there
are limited precedents available by which to measure compliance with these new
requirements. Therefore, if we are unable to assert that our internal
controls over financial reporting are effective in the future, or if our
auditors are unable to attest that our management’s report is fairly stated or
they are unable to express an opinion on the effectiveness of our internal
controls, we could lose investor confidence in the accuracy and completeness of
our financial reports, which would have an adverse effect on our business and
the market price of our Common Stock.
Negative
conditions in the financial and credit markets may impact our
liquidity.
Recent
dramatic changes in the global financial markets have weakened global economic
conditions. These changes have had, and we anticipate they will continue to
have, an impact on our liquidity. These impacts include some of our customers
facing liquidity shortages which impacts their payments to us, and the general
tightness in the financial credit markets which limits credit available to us as
well as some of our customers. Given our current operating cash flow, financial
assets, access to the capital markets and available lines of credit, we continue
to believe that we will be able to meet our financing needs for the foreseeable
future. However, there can be no assurance that global economic conditions will
not worsen,
which could have a corresponding negative effect on our liquidity. In addition,
while we believe that we have
24
invested
our financial assets in sound financial institutions, should these institutions
limit access to our assets, breach their agreements with us or fail, we may be
adversely affected. Furthermore, volatile financial and credit markets may
reduce our ability to raise capital or refinance our debt on favorable terms, if
at all, which could materially impact our ability to meet our obligations. As
market conditions change, we will continue to monitor our liquidity
position.
Our
shareholder rights plan and charter documents could make it more difficult for a
third-party to acquire us, even if doing so would be beneficial to our
shareholders.
Our
shareholder rights plan and certain provisions of our certificate of
incorporation and Delaware law are intended to encourage potential acquirers to
negotiate with us and allow our Board of Directors the opportunity to consider
alternative proposals in the interest of maximizing shareholder value. However,
such provisions may also discourage acquisition proposals or delay or prevent a
change in control, which in turn, could harm our stock price and our
shareholders.
UNRESOLVED
STAFF COMMENTS
|
None.
PROPERTIES
|
We
believe that our existing facilities provide adequate space for our operations.
The following table shows our significant facilities:
Location
|
Owned/Leased
|
Approximate
Floor Area in
Square Feet
|
|
Administrative
Facilities:
|
|||
Santa
Ana, California
|
Owned
|
360,000
|
|
Fort
Worth, Texas
|
Leased
|
78,000
|
|
Coppell,
Texas
|
Leased
|
17,000
|
|
Kempele,
Finland
|
Owned
|
248,000
|
|
Hyderabad,
India
|
Leased
|
39,000
|
|
Kista,
Sweden
|
Leased
|
21,000
|
|
Shipley, United
Kingdom
|
Leased
|
20,000
|
|
Manufacturing
Facilities:
|
|||
Suzhou,
China
|
Leased
|
158,000
|
|
Saku
Vald, Estonia
|
Leased
|
38,000
|
|
Laem
Chabang, Thailand
|
Owned
|
135,000
|
|
Total
|
1,114,000
|
Additionally,
we maintain 14 sales, engineering, and operating offices worldwide. The
administrative facilities consist of our sales, engineering, research and
development and corporate headquarters. In April 2008, we closed our Salisbury,
Maryland manufacturing facility and the sale of the related building was
completed in October 2009. In the first quarter of 2009, we opened a
research and development facility in Hyderabad, India. Additionally, in the
fourth quarter of 2009, we opened a manufacturing facility in Laem Chabang,
Thailand.
LEGAL
PROCEEDINGS
|
In the
first quarter of 2007, four purported shareholder class action complaints were
filed in the United States District Court for the Central District of California
against the Company, its President and Chief Executive Officer, its former
Executive Chairman of the Board of Directors and its Chief Financial Officer.
The complaints were Jerry
Crafton v. Powerwave Technologies, Inc., et. al., Kenneth Kwan v. Powerwave
Technologies, Inc., et. al., Achille Tedesco v. Powerwave Technologies, Inc.,
et. al. and Farokh Etemadieh v. Powerwave Technologies, Inc. et. al. and
were brought under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder. In June 2007, the four cases were consolidated
into one action before the Honorable Judge Philip Gutierrez, and a lead
plaintiff was appointed. In October 2007, the lead plaintiff filed an amended
complaint asserting the same causes of action and purporting to state claims on
behalf of all persons who purchased Powerwave securities between May 2,
2005 and November 2, 2006. The essence of the allegations in the amended
complaint 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
26
law. The
derivative complaint was removed to federal court, and was 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.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the quarter ended January 3, 2010.
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Market
Information
Powerwave’s
Common Stock is quoted on the NASDAQ Global Select Market under the symbol PWAV.
Below are the high and low sales prices as reported by NASDAQ for Powerwave’s
Common Stock for the periods indicated.
High
|
Low
|
|||||||
Fiscal
Year 2009
|
||||||||
First
Quarter Ended March 29,
2009
|
$
|
0.67
|
$
|
0.22
|
||||
Second
Quarter Ended June 28,
2009
|
$
|
1.68
|
$
|
0.44
|
||||
Third
Quarter Ended September 27,
2009
|
$
|
1.79
|
$
|
1.12
|
||||
Fourth
Quarter Ended January 3,
2010
|
$
|
1.74
|
$
|
1.06
|
||||
Fiscal
Year 2008
|
||||||||
First
Quarter Ended March 30,
2008
|
$
|
4.55
|
$
|
2.12
|
||||
Second
Quarter Ended June 29,
2008
|
$
|
4.49
|
$
|
2.19
|
||||
Third
Quarter Ended September 28,
2008
|
$
|
5.30
|
$
|
3.37
|
||||
Fourth
Quarter Ended December 28,
2008
|
$
|
4.05
|
$
|
0.35
|
Holders
There
were 614 stockholders of record as of February 16, 2010. We believe there
are approximately 17,000 stockholders of Powerwave’s Common Stock held in street
name.
Dividends
We have
not paid any dividends to date and do not anticipate paying any dividends on our
Common Stock in the foreseeable future. We anticipate that all future earnings
will be retained to finance future growth.
Issuer
Purchases of Equity Securities
The
following table details the repurchases that were made during the quarter ended
January 3, 2010:
Period
|
Total
Number
of
Shares
Purchased
|
Average
Price
per
Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced
Plan
|
Approximate Dollar
Value
of Shares
That
May Yet Be
Purchased
Under
the
Plan
|
||||||||||||
(In thousands)
|
(In thousands)
|
|||||||||||||||
September
28 – November 1
|
—
|
—
|
—
|
—
|
||||||||||||
November
2 – November 29
|
1,719
|
(1)
|
$
|
1.26
|
—
|
—
|
||||||||||
November
30 – January 3
|
—
|
—
|
—
|
—
|
(1)
|
During
November 2009, 1,719 shares of Common Stock were surrendered to the
Company to satisfy tax withholding obligations in connection with the
vesting of 4,687 shares under restricted stock
grants.
|
STOCK
PERFORMANCE GRAPH
The
following graph compares the cumulative total shareholder return for our Common
Stock with the cumulative total return of the S&P 500 Index and the S&P
Communications Equipment Index. The presentation assumes $100 invested on
January 2, 2005 in our Common Stock, the S&P 500 Index and the S&P
Communications Equipment Index with all dividends reinvested. No cash dividends
were declared on our Common Stock during this period. Shareholder returns over
the indicated period should not be considered indicative of future shareholder
returns.
Measurement Period (Fiscal Year
Covered)
|
Powerwave
Technologies, Inc.
|
S & P 500 Index
|
S
& P
Communications
Equipment Index
|
|||||||||
2005
|
$
|
148.23
|
$
|
104.91
|
$
|
102.12
|
||||||
2006
|
$
|
76.06
|
$
|
121.48
|
$
|
117.95
|
||||||
2007
|
$
|
52.59
|
$
|
128.16
|
$
|
120.37
|
||||||
2008
|
$
|
5.87
|
$
|
80.74
|
$
|
72.01
|
||||||
2009
|
$
|
14.86
|
$
|
102.11
|
$
|
105.71
|
The
material in this performance graph is not “soliciting” material and is not
deemed filed with the SEC and is not to be incorporated by reference in any of
our filings under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof.
SELECTED
FINANCIAL DATA
|
The
following selected financial data should be read together with the information
under Management’s Discussion
and Analysis of Financial Condition and Results of Operations and our
restated financial statements and the notes to those financial statements
included elsewhere in this Annual Report on Form 10-K/A. The selected statements
of operations data for the years ended January 3, 2010, December 28, 2008
and December 30, 2007 and balance sheet data as of January 3, 2010
and December 28, 2008 set forth below have been derived from the
audited financial statements included elsewhere in this Annual Report on Form
10-K/A. The selected consolidated statements of operations data for the years
ended December 31, 2006 and January 1, 2006 and consolidated balance sheet
data as of December 30, 2007, December 31, 2006 and January 1,
2006 set forth below have been derived from the audited financial statements for
such years not included in this Annual Report on Form 10-K/A. The historical
results presented here are not necessarily indicative of future
results.
Fiscal
Year Ended
(in
thousands, except per share data)
|
||||||||||||||||||||
January
3,
2010
(5) (6)
(As
Restated)
|
December 28,
2008
(1) (5) (6)
(As
Restated)
|
December 30,
2007
(1) (5) (6)
(As
Restated)
|
December 31,
2006
(1) (2) (3) (6)
(As
Restated)
|
January 1,
2006
(3) (4) (6)
(As
Restated)
|
||||||||||||||||
Consolidated
Statements of Operations Data:
|
||||||||||||||||||||
Net
sales
|
$
|
567,486
|
$
|
890,234
|
$
|
780,517
|
$
|
716,886
|
$
|
784,330
|
||||||||||
Gross
profit
|
142,492
|
147,528
|
87,251
|
90,891
|
204,653
|
|||||||||||||||
Operating
income (loss)
|
(1,877
|
)
|
(380,043
|
)
|
(300,271
|
)
|
(135,839
|
)
|
54,236
|
|||||||||||
Income
(loss) from continuing operations
|
(5,670
|
)
|
(362,293
|
)
|
(316,897
|
)
|
(144,396
|
)
|
46,185
|
|||||||||||
Total
discontinued operations, net of tax
|
—
|
—
|
—
|
(21,357
|
)
|
(1,914
|
)
|
|||||||||||||
Net
income (loss)
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
$
|
(165,753
|
)
|
$
|
44,271
|
||||||
Earnings
(loss) per share from continuing operations:
|
||||||||||||||||||||
Basic
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
$
|
(1.25
|
)
|
$
|
0.45
|
||||||
Diluted
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
$
|
(1.25
|
)
|
$
|
0.44
|
||||||
Loss
per share from discontinued operations:
|
||||||||||||||||||||
Basic
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(0.18
|
)
|
$
|
(0.02
|
)
|
||||||||
Diluted
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(0.18
|
)
|
$
|
(0.02
|
)
|
||||||||
Net
earnings (loss) per share:
|
||||||||||||||||||||
Basic
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
$
|
(1.43
|
)
|
$
|
0.43
|
||||||
Diluted
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
$
|
(1.43
|
)
|
$
|
0.42
|
||||||
Basic
weighted average common shares
|
131,803
|
131,077
|
130,396
|
115,918
|
103,396
|
|||||||||||||||
Diluted
weighted average common shares
|
131,803
|
131,077
|
130,396
|
115,918
|
135,906
|
|||||||||||||||
Consolidated
Balance Sheet Data:
|
||||||||||||||||||||
Cash,
cash equivalents, restricted cash and short-term
investments
|
$
|
63,039
|
$
|
50,339
|
$
|
65,517
|
$
|
47,836
|
$
|
237,479
|
||||||||||
Working
capital
|
$
|
175,414
|
$
|
179,059
|
$
|
192,160
|
$
|
249,464
|
$
|
384,677
|
||||||||||
Total
assets
|
$
|
389,852
|
$
|
487,294
|
$
|
980,069
|
$
|
1,214,460
|
$
|
1,128,736
|
||||||||||
Long-term
debt, net of current portion
|
$
|
268,983
|
$
|
285,256
|
$
|
314,883
|
$
|
287,274
|
$
|
280,182
|
||||||||||
Total
shareholders’ equity
|
$
|
612
|
$
|
5,384
|
$
|
416,576
|
$
|
693,052
|
$
|
629,565
|
(1)
|
Fiscal
years 2006, 2007 and 2008 include significant restructuring and impairment
charges (see Note 6 of the Notes to Consolidated Financial Statements
under Part II, Item 8, Financial Statements and
Supplementary Data).
|
(2)
|
Fiscal
year 2006 includes the financial results of Filtronic plc beginning
October 2006.
|
(3)
|
In
September 2006, we sold Arkivator Falköping AB, which has been classified
as discontinued operations for all periods
presented.
|
(4)
|
Fiscal
year 2005 includes the financial results of REMEC’s Wireless
Infrastructure Business beginning September
2005.
|
(5)
|
Fiscal
years 2007, 2008 and 2009 include gains related to the repurchase of
outstanding convertible subordinated debt of $2.2 million, $26.3 million
and $9.8 million, respectively.
|
(6)
|
As
further discussed in Note 5 of the Notes to Consolidated Financial
Statements, the selected consolidated financial data for the 2005 through
2009 periods presented above have been corrected for the adoption and
retrospective application of Financial Accounting Standards Board (FASB)
Staff Position No. APB 14-1, Accounting for Convertible
Debt Instruments That May Be Settled In Cash upon Conversion (Including
Partial Cash Settlement), accounting guidance now codified as FASB
ASC Topic 470-20.
|
(7)
|
There
were no cash dividends paid in the periods listed above.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Subsequent
to the issuance of its consolidated financial statements for the year ended
January 3, 2010 the Company identified an error in the accounting for its 2024
Notes and the application of FASB ASC Topic 470-20, Debt with Conversion and Other
Options, to that instrument. FASB ASC Topic 470-20, which was
effective on December 29, 2008, requires the liability and equity components of
convertible debt instruments that may be settled in cash upon conversion to be
separately accounted for in a manner that reflects the issuer’s nonconvertible
debt borrowing rate. To allocate the proceeds from a convertible debt offering
in this manner, a company would first need to determine the carrying amount of
the liability component, which would be based on the fair value of a similar
liability, excluding any embedded conversion options. The resulting debt
discount is then amortized over the period during which the debt is expected to
be outstanding as additional non-cash interest expense. The adoption of FASB ASC
Topic 470-20 generally requires retrospective application to all periods
presented. The Company had not properly applied FASB ASC Topic 470-20 to
its 2024 Notes. As a result, the accompanying consolidated financial
statements for the years ended January 3, 2010, December 28, 2008 and December
30, 2007 have been restated to correct for this error. The effect of the
restatement is described in Note 5 of the Notes to
Consolidated Financial Statements under Part II, Item 8, Financial
Statements and Supplementary Data. The following management’s
discussion and analysis gives effect to the restatement.
The
following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto. This discussion contains forward-looking
statements, the realization of which may be impacted by certain important
factors including, but not limited to, those risk factors disclosed pursuant to
Part 1, Item 1A.
Introduction
and Overview
Powerwave
is a global supplier of end-to-end wireless solutions for wireless
communications networks. Our business consists of the design, manufacture,
marketing and sale of products to improve coverage, capacity and data speed in
wireless communications networks, including antennas, boosters, combiners,
cabinets, shelters, filters, radio frequency power amplifiers, remote radio head
transceivers, repeaters, tower-mounted amplifiers and advanced coverage
solutions. These products are utilized in major wireless networks throughout the
world which support voice and data communications by use of cell phones and
other wireless communication devices. We sell our products to both original
equipment manufacturers, who incorporate our products into their proprietary
base stations (which they then sell to wireless network operators), and directly
to individual wireless network operators for deployment into their existing
networks.
During
the last ten years, demand for wireless communications infrastructure equipment
has fluctuated dramatically. While demand for wireless infrastructure was strong
during 2005, it weakened for Powerwave during 2006 and 2007 due to significant
reductions at three major customers, as well as a general slowdown in overall
demand within the wireless infrastructure industry. For most of 2008, demand
once again increased. However, in the fourth quarter of 2008, demand for our
products was negatively impacted by the global economic recession. This
significantly impacted demand during 2009, and our revenues fell by 36% from
2008 levels, thus negatively impacting our financial results. During 2008 and
2009, we initiated several cost cutting measures aimed at lowering our operating
expenses. These initiatives will continue and we may be required to further
reduce operating expenses if there is a significant or prolonged reduction in
spending by our customers.
In the
past there have been significant deferrals in capital spending by wireless
network operators due to delays in the expected deployment of infrastructure
equipment and financial difficulties on the part of the wireless network
operators who were forced to consolidate and reduce spending to strengthen their
balance sheets and improve their profitability. Economic conditions, such as the
turmoil in the global equity and credit markets, as well as the global
recession, and the rise of inflationary pressures related to rising commodity
prices, have also had a negative impact on capital spending by wireless network
operators, and will likely have a negative impact going forward in the near
term. All of these factors can have a significant negative impact on overall
demand for wireless infrastructure products, and at various times, have directly
reduced demand for our products and increased price competition within our
industry which has in the past led to reductions in our revenues and contributed
to our reported operating losses. In addition to the significant reduction in
revenues during 2009, an example of prior reductions was during fiscal 2006 and
2007, when we experienced a significant slowdown in demand from one of our
direct network operator customers, AT&T, as well as reduced demand from
several of our original equipment manufacturing customers, including Nokia
Siemens and Nortel Networks, all of which combined to result in directly reduced
demand for our products and contributed to our operating losses for both fiscal
2006 and 2007.
We
believe that we have maintained our overall market share within the wireless
communications infrastructure equipment market during this period of changing
demand for wireless communications infrastructure equipment. We continue to
invest in the research and development of wireless communications network
technology and the diversification of our product offerings, and we believe that
we have one of our industry’s leading product portfolios in terms of performance
and features. We believe that our proprietary design technology is a further
differentiator for our products.
Looking
back over the last six years, beginning in fiscal 2004, we focused on cost
savings while we expanded our market presence, as evidenced by our acquisition
of LGP Allgon. This acquisition involved the integration of two companies based
in different countries that previously operated independently, which was a
complex, costly and time-consuming process. During fiscal 2005, we continued to
focus on cost savings while we expanded our market presence, as evidenced by our
acquisition of selected assets and liabilities of REMEC, Inc.’s wireless systems
business (the “REMEC Wireless Acquisition.”) We believe that this acquisition
further strengthened our position in the global wireless infrastructure market.
In October 2006, we completed the Filtronic plc wireless acquisition. We believe
that this strategic acquisition provided us with the leading position in
transmit and receive filter products, as well as broadening our RF conditioning
and base station solutions product portfolio and added significant additional
technology to our intellectual property portfolio. For fiscal years 2007, 2008
and 2009, we completed the integration of this acquisition, as well as focused
on consolidating operations and reducing our overall cost structure. During this
same time, we encountered a significant unanticipated reduction in revenues,
which caused us to revise our integration and consolidation plans with a goal of
further reducing our operating costs and significantly lowering our breakeven
operating structure. As has been demonstrated during the last six years, these
acquisitions do not provide any guarantee that our revenues will increase. As we
enter 2010, we have a small number of ongoing restructuring activities which are
aimed at further reducing our overall operating cost structure.
We measure our success by
monitoring our net sales by product and consolidated gross margins, with a
short-term goal of maintaining a positive operating cash flow while striving to
achieve long-term operating profits. We believe that there continues to be
long-term growth opportunities within the wireless communications infrastructure
marketplace, and we are focused on positioning Powerwave to benefit from these
long-term opportunities.
Critical
Accounting Policies and Estimates
We
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America. We are required
to make certain estimates, judgments and assumptions that we believe are
reasonable based upon the information currently available. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the periods presented. Any future changes to these estimates and
assumptions could cause a material change to our reported amounts of revenue,
expenses, assets and liabilities. The critical accounting policies that we
believe are the most significant for purposes of fully understanding and
evaluating our reported financial results include the following:
Revenue
Recognition
The
majority of our revenue is derived from the sale of products. We recognize
revenue from product sales at the time of shipment or delivery and passage of
title depending upon the terms of the sale provided that persuasive evidence of
an arrangement exists, the fee is fixed or determinable and collectibility is
reasonably assured. We offer certain customers the right to return products
within a limited time after delivery under specified circumstances, generally
related to product defects. We monitor and track product returns and record a
provision for the estimated amount of future returns based on historical
experience and any notification we receive of pending returns. While returns
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience the same return rates
that we have in the past. Any significant increase in product returns could have
a material adverse effect on our operating results for the period or periods in
which these returns materialize.
Accounts
Receivable
We
perform ongoing credit evaluations of our customers and adjust credit limits
based upon each customer’s payment history and credit worthiness, as well as
various other factors as determined by our review of their credit information.
We monitor collections and payments from our customers and maintain an allowance
for estimated credit losses based upon our historical experience and any
specific customer collection issues that we have identified. While credit losses
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience the same credit loss
rates that we have in the past. Since our accounts receivable are highly
concentrated in a small number of customers, a significant change in the
liquidity or financial position of any one of these customers could have a
material adverse effect on the collectibility of our accounts receivable, our
liquidity and our future operating results.
Inventories
We value
our inventories at the lower of cost (determined on an average cost basis) or
fair market value and include materials, labor and manufacturing overhead. We
write down excess and obsolete inventory to estimated net realizable value. In
assessing the ultimate realization of inventories, we make judgments as to
future demand requirements and compare those requirements with the current or
committed inventory levels. Depending on the product line and other factors, we
estimate future demand based on either historical usage for the preceding twelve
months, adjusted for known changes in demand for such products, or the forecast
of product demand and production requirements for the next twelve months. These
provisions
32
reduce
the cost basis of the respective inventory and are recorded as a charge to cost
of sales. Our industry is characterized by rapid technological change, frequent
new product development and rapid product obsolescence that could result in an
increase in the amount of obsolete inventory quantities on hand. As demonstrated
during the past seven fiscal years, demand for our products can fluctuate
significantly. A significant increase in the demand for our products could
result in a short-term increase in the cost of inventory purchases while a
significant decrease in demand could result in an increase in the amount of
excess inventory quantities on hand. In addition, our estimates of future
product demand may prove to be inaccurate, in which case we may have understated
or overstated the provision required for excess and obsolete inventory. In the
future, if our inventory is determined to be overvalued, we would be required to
recognize additional charges in our cost of goods sold at the time of this
determination. Likewise, if our inventory is determined to be undervalued, we
may have over-reported our costs of goods sold in previous periods and would be
required to recognize additional gross profit at the time such inventory is
sold. Although we make reasonable efforts to ensure the accuracy of our
forecasts of future product demand, any significant unanticipated changes in
demand or technological developments could have a material effect on the value
of our inventory and our reported operating results.
Income
Taxes
We
provide for income taxes based on the estimated effective income tax rate for
the complete fiscal year. The income tax provision (benefit) is computed on the
pretax income (loss) of the consolidated entities located within each taxing
jurisdiction based on current tax law. Deferred tax assets and liabilities are
determined based on the future tax consequences associated with temporary
differences between income and expenses reported for financial accounting and
tax reporting purposes. In accordance with the provisions of accounting guidance
now codified as Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 740, ”Income Taxes,” a valuation
allowance for deferred tax assets is recorded to the extent we 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. Our judgments regarding future profitability may change due to many
factors, including future market conditions and our ability to successfully
execute our 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 our cumulative federal and state
net operating losses, we have recorded a valuation allowance against a portion
of our gross deferred tax assets. For the foreseeable future, the Federal tax
provision related to future earnings will be substantially offset by a reduction
in the valuation reserve, and any future pretax losses will not result in a tax
benefit due to the uncertainty of the recoverability of the deferred tax assets.
Accordingly, current and future tax expense will consist primarily of certain
required state income taxes and taxes in certain foreign
jurisdictions.
Acquired
tax liabilities related to prior tax returns of acquired entities at the date of
purchase are recognized based on our estimate of the ultimate settlement that
may be accepted by the tax authorities. We continually evaluate these
tax-related matters. At the date of any material change in our estimate of items
relating to an acquired entity’s prior tax returns, and at the date that the
items are settled with the tax authorities, any liabilities previously
recognized are adjusted to increase or decrease the remaining balance of
goodwill attributable to that acquisition. However, effective beginning in 2009,
adjustments to acquired tax liabilities will increase or decrease income tax
expense in accordance with accounting guidance now codified as FASB ASC Topic
740.
Accounting
guidance now codified as FASB ASC Topic 740-20, “Income Taxes – Intraperiod Tax
Allocation,” clarifies the accounting and
disclosure for uncertainty in tax positions, as defined. FASB ASC Topic 740-20
seeks to reduce the diversity in practice associated with certain aspects of the
recognition and measurement related to accounting for income taxes. We are
subject to the provisions of FASB ASC Topic 740-20 and have analyzed filing
positions in all of the federal, state and foreign jurisdictions where we are
required to file income tax returns for all open tax years in
these jurisdictions. The periods subject to examination for our U.S.
federal return are the 2007 through 2009 tax years, including adjustments to net
operating loss and credit carryovers to those years. In addition, we have
subsidiaries in various foreign jurisdictions that have statutes of limitation
generally ranging from 3 to 6 years. We recognize interest and penalties related
to unrecognized tax benefits in income tax expense.
Goodwill,
Intangible Assets and Long-Lived Assets
We record
the assets acquired and liabilities assumed in business combinations at their
respective fair values at the date of acquisition, with any excess purchase
price over fair value recorded as goodwill. Because of the expertise required to
value intangible assets and in-process research and development, we typically
engage third-party valuation specialists to assist us in determining those
values. Valuation of intangible assets and in-process research and development
entails significant estimates and assumptions including, but not limited to,
determining the timing and expected costs to complete development projects,
estimating future cash flows from product sales, developing appropriate discount
rates, estimating probability rates
33
for the
successful completion of development projects, continuation of customer
relationships and renewal of customer contracts, and approximating the useful
lives of the intangible assets acquired. To the extent actual results differ
from these estimates, our future results of operations may be
affected.
We review
the recoverability of the carrying value of goodwill on an annual basis or more
frequently when an event occurs or circumstances change to indicate that an
impairment of goodwill might have occurred. The determination of whether any
potential impairment of goodwill exists is based upon a comparison of the fair
value of a reporting unit to the accounting value of the underlying net assets
of such reporting unit. To determine the fair value of a reporting unit, we
utilize subjective valuations for the reporting unit based upon a discounted
cash flow analysis as well as quoted market prices of our Common Stock plus an
estimated market premium based upon companies with similar market transactions.
The discounted cash flow analysis is dependent upon a number of various factors
including estimates of forecasted revenues and costs, appropriate discount rates
and other variables. If the forecast assumptions utilized materially change, it
could result in a lower fair value calculation which could require an impairment
of existing goodwill. If the fair value of the reporting unit is less than the
carrying value of the underlying net assets, goodwill is deemed impaired and an
impairment loss is recorded to the extent that the carrying value of goodwill is
less than the difference between the fair value of the reporting unit and the
fair value of all its underlying identifiable assets and
liabilities.
Purchased
intangible assets with determinable useful lives are carried at cost less
accumulated amortization, and are amortized using the straight-line method over
their estimated useful lives, which generally range up to six years. We review
the recoverability of the carrying value of identified intangibles and other
long-lived assets, including fixed assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of these assets is determined based on the
forecasted undiscounted future net cash flows expected to result from the use of
the asset and its eventual disposition. Our estimate of future cash flows is
based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. The actual cash flows
realized from these assets may vary significantly from our estimates due to
increased competition, changes in technology, fluctuations in demand,
consolidation of our customers and reductions in average selling prices. If the
carrying value of an asset is determined not to be recoverable from future
operating cash flows, the asset is deemed impaired and an impairment loss is
recognized to the extent the carrying value exceeds the estimated fair market
value of the asset. While we do not believe that any of our long-lived assets
are currently impaired, there have been other impairments in the past, and any
future impairment of our long-lived assets could have a material adverse affect
on our business, financial condition and results of operations.
Vendor
Cancellation Liabilities
We
purchase subassemblies and finished goods from contract manufacturers under
purchase agreements that limit our ability to cancel deliveries inside defined
lead time windows. When a contract manufacturer submits a
cancellation claim, we estimate the amount of inventory remaining to be
purchased against that claim. Any excess of the estimated purchase
over the projected consumption of the related product is recorded as a charge to
cost of sales and an increase to accrued expenses and other current
liabilities. Depending on the product line and other factors, we
estimate future demand based on either historical usage for the preceding twelve
months, adjusted for known changes in demand for such products, or the forecast
of product demands and production requirements for the next twelve months. Our
industry is characterized by rapid technological change, frequent new product
development and rapid product obsolescence that could result in an increase in
the amount of vendor cancellation liability. Our history shows that demand for
our products can fluctuate significantly. A significant increase in the demand
for our products could result in a short-term increase in the cost of inventory
purchases while a significant decrease in demand could result in an increase in
the amount of vendor cancellation liabilities. In addition, our estimates of
future product demand may prove to be inaccurate, in which case we may have
understated or overstated the provision required for vendor cancellation
liabilities. Although we make reasonable efforts to ensure the
accuracy of our forecasts of future product demand, any significant
unanticipated changes in demand or technological developments could have a
material effect on the amount of vendor cancellation liabilities and our
reported operating results.
Warranties
We offer
warranties of various lengths to our customers depending upon the specific
product and terms of the customer purchase agreement. Our standard warranties
require us to repair or replace defective product returned to us during the
warranty period at no cost to the customer. We record an estimate for standard
warranty-related costs based on our actual historical return rates and repair
costs at the time of the sale and update these estimates throughout the warranty
period. While our warranty costs have historically been within our expectations
and the provisions established, we cannot guarantee that we will continue to
experience the same warranty return rates or repair costs that we have in the
past. We also have contractual commitments to various customers that require us
to incur costs to repair an epidemic defect with respect to our products outside
of our standard warranty period if such defect were to occur. Any costs related
to epidemic defects are generally recorded at the time the epidemic defect
becomes known to us and the costs of repair can be reasonably estimated. While
we
34
have
occasionally experienced significant costs due to epidemic defects,
historically, we have not regularly experienced significant costs related to
epidemic defects. We cannot guarantee that we will not experience significant
costs to repair epidemic defects in the future. A significant increase in
product return rates or in the costs to repair our products, or an unexpected
epidemic defect in our products, could have a material adverse effect on our
operating results during the period in which the returns or additional costs
materialize.
Accruals
for Restructuring and Impairment Charges
We
recorded $4.5 million, $368.3 million and $198.2 million of restructuring and
impairment charges during fiscal years 2009, 2008 and 2007, respectively. These
include charges of $315.9 million and $151.7 million related to the impairment
of goodwill in 2008 and 2007, respectively, and charges of $29.5 million and
$2.7 million related to the impairment of our intangible assets in 2008 and
2007, respectively. See further discussions of these charges under Operating Expenses below and
in Note 6 of the Notes to Consolidated Financial Statements.
2009
Restructuring Plan
In
January 2009, we formulated and began to implement a plan to further reduce
manufacturing overhead costs and operating expenses. As part of this plan, we
initiated personnel reductions in both our 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 ongoing
global macroeconomic slowdown that began in the fourth quarter of 2008. We
finalized this plan in the fourth quarter of 2009; however, additional amounts
may be accrued in 2010 related to actions associated with this
plan.
A summary
of the activity affecting our accrued restructuring liability related to the
2009 Restructuring Plan for the fiscal year ended January 3, 2010 is as
follows:
Workforce
Reductions
|
Facility
Closures
&
Equipment Write-downs
|
Total
|
||||||||||
Balance
at December 28, 2008
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
Amounts
accrued
|
2,769
|
78
|
2,847
|
|||||||||
Amounts
paid/incurred
|
(2,268
|
)
|
(78
|
)
|
(2,346
|
)
|
||||||
Effects
of exchange rates
|
—
|
—
|
—
|
|||||||||
Balance
at January 3, 2010
|
$
|
501
|
—
|
501
|
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. We
expect that the workforce reduction amounts will be paid through the second
quarter of 2011.
2008
Restructuring Plan
In June
2008, we formulated and began to implement a plan to further consolidate
operations and reduce manufacturing and operating expenses. As part of this
plan, we closed our Salisbury, Maryland manufacturing facility and transferred
most of the production to our other manufacturing operations. In addition, we
closed our 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 our accrued restructuring liability related to the
2008 Restructuring Plan for the fiscal year ended January 3, 2010 is as
follows:
Workforce
Reductions
|
Facility
Closures
&
Equipment Write-downs
|
Total
|
||||||||||
Balance
at December 28, 2008
|
$
|
3,106
|
$
|
585
|
$
|
3,691
|
||||||
Amounts
accrued
|
650
|
95
|
745
|
|||||||||
Amounts
paid/incurred
|
(3,652
|
)
|
(406
|
)
|
(4,058
|
)
|
||||||
Effects
of exchange rates
|
73
|
60
|
133
|
|||||||||
Balance
at January 3, 2010
|
$
|
177
|
334
|
511
|
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 workforce reductions will be paid out through the second quarter
of 2010, and the facility closure amounts will be paid out over the remaining
lease term, which extends through September 2010.
2007
Restructuring Plan
In the
second quarter of 2007, we formulated and began to implement a plan to further
consolidate operations and reduce operating costs. As part of this plan, we
closed our design and development centers in El Dorado Hills, California and
Toronto, Canada, and discontinued our design and development center in Shipley,
UK. Also as part of this plan, we sold our 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. We finalized this plan in the fourth quarter of
2007.
A summary
of the activity affecting our accrued restructuring liability related to the
2007 Restructuring Plan for the fiscal year ended January 3, 2010 is as
follows:
Facility
Closures
&
Equipment Write-downs
|
||||
Balance
at December 28, 2008
|
$
|
551
|
||
Amounts
accrued
|
(179
|
)
|
||
Amounts
paid/incurred
|
(375
|
)
|
||
Effects
of exchange rates
|
3
|
|||
Balance
at January 3, 2010
|
$
|
—
|
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 during 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, we formulated and began to implement a plan to restructure our
global manufacturing operations, including the consolidation of our
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, we also ceased the
production of certain product lines manufactured at these facilities to
eliminate duplicative product lines.
A summary
of the activity affecting our accrued restructuring liability related to the
2006 Plan for Consolidation of Operations for the fiscal year ended January 3,
2010 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 January 3, 2010
|
$
|
—
|
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 during 2009, and all actions associated with this plan have been
completed.
Integration
of LGP Allgon and REMEC, Inc.’s Wireless Systems Business
We
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.
A summary
of the activity affecting our accrued restructuring liability related to the
integration of the REMEC, Inc.’s wireless systems business and LGP Allgon for
the fiscal year ended January 3, 2010 is as follows:
Facility
Closures
&
Equipment Write-downs
|
||||
Balance
at December 28, 2008
|
$
|
1,425
|
||
Amounts
accrued
|
—
|
|||
Amounts
paid/incurred
|
(634
|
)
|
||
Effects
of exchange rates
|
—
|
|||
Balance
at January 3, 2010
|
$
|
791
|
We expect
that the facility closure amounts will be paid out over the remaining lease term
which extends through January 2011.
All of
these restructuring and impairment accruals related primarily to workforce
reductions, consolidation of facilities, and the discontinuation of certain
product lines, including the associated write-downs of inventory, manufacturing
and test equipment, and certain intangible assets. Such accruals were based on
estimates and assumptions made by management about matters which were uncertain
at the time, including the timing and amount of sublease income that 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.
Newly
Adopted Accounting Pronouncements
In
June 2009, FASB issued guidance now codified as FASB ASC Topic 105, “Generally Accepted Accounting
Principles,” as the single source of authoritative non-governmental 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 were effective for
interim and annual periods ending after September 15, 2009 and,
accordingly, were effective for us for the current fiscal reporting period. The
adoption of this pronouncement did not have an impact on our business, financial
condition or results of operations, but will impact our financial reporting
process by eliminating all references to pre-codification standards. On the
effective date of FASB ASC Topic 105, 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 was effective for
interim or fiscal periods ending after June 15, 2009. The adoption of this
pronouncement did not have a material impact on our 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 was effective
for periods ending after June 15, 2009. The adoption of this pronouncement
did not have a material impact on our business, financial condition or results
of operations; however, these provisions of FASB ASC Topic 820 resulted in
additional disclosures with respect to the fair value of our financial
instruments.
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 was 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 our business,
financial condition or results of operations.
In May
2008, the FASB issued guidance now codified as FASB ASC Topic 470-20, “Debt with Conversion and Other
Option,” which clarifies how a convertible debt instrument must be
accounted for if the instrument may be settled in cash or some combination of
cash and stock upon conversion of the debt. We are required to
account for the liability and equity components of the convertible debt
separately. The
liability component is measured at its estimated fair value such that the
effective interest expense associated with the convertible debt reflects the
issuer’s borrowing rate at the time of issuance for similar debt instruments
without the conversion feature. The difference between the cash proceeds
associated with the convertible debt and the estimated fair value is recorded as
a debt discount and amortized to interest expense over the life of the
convertible debt using the effective interest rate method. In
addition, direct issuance costs associated with the convertible debt instruments
are required to be allocated to the liability and equity components in
proportion to the allocation of proceeds and accounted for as debt issuance
costs and equity issuance costs, respectively. We have restated our financial
statements to reflect the retrospective adoption of this guidance for our 2024
Notes. See Note 5 of the Notes to Consolidated Financial Statements under Part
II, Item 8, Financial
Statements and Supplementary Data) for information on the impact of the
adoption on our previously issued financial statements.
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 our business, financial condition or results of
operations.
In
December 2007, the FASB issued guidance now codified as FASB ASC Topic 805-10,
“Business Combinations,”
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 805-10 were effective in the first quarter of 2009.
The adoption of the provisions of FASB ASC Topic 805-10 did not have a material
impact on our business, financial condition or results of
operations.
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. We are currently evaluating the potential impact of this standard on our
business, financial condition or results of operations.
Results
of Operations
The
following table summarizes our results of operations as a percentage of net
sales for the years ended January 3, 2010, December 28, 2008 and
December 30, 2007:
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December
28,
2008
|
December
30,
2007
|
||||||||||
Net
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||
Cost
of sales:
|
||||||||||||
Cost
of goods
|
74.1
|
77.2
|
81.8
|
|||||||||
Intangible
amortization
|
0.5
|
2.1
|
2.5
|
|||||||||
Restructuring
and impairment charges
|
0.3
|
4.1
|
4.5
|
|||||||||
Total
cost of sales
|
74.9
|
83.4
|
88.8
|
|||||||||
Gross
profit
|
25.1
|
16.6
|
11.2
|
|||||||||
Operating
expenses:
|
||||||||||||
Sales
and marketing
|
6.0
|
5.1
|
6.8
|
|||||||||
Research
and development
|
10.4
|
8.7
|
10.9
|
|||||||||
General
and administrative
|
8.4
|
7.1
|
9.6
|
|||||||||
Intangible
asset amortization
|
0.2
|
1.1
|
1.4
|
|||||||||
Restructuring
and impairment charges
|
0.4
|
1.8
|
1.5
|
|||||||||
Goodwill
impairment charge
|
—
|
35.5
|
19.4
|
|||||||||
Total
operating expenses
|
25.4
|
59.3
|
49.6
|
|||||||||
Operating
loss
|
(0.3
|
)
|
(42.7
|
)
|
(38.4
|
)
|
||||||
Other
income (expense), net
|
(0.1
|
)
|
2.4
|
(1.2
|
)
|
|||||||
Loss
before income taxes
|
(0.4
|
)
|
(40.3
|
)
|
(39.6
|
)
|
||||||
Income
tax provision
|
0.6
|
0.4
|
1.0
|
|||||||||
Net
loss
|
(1.0
|
)%
|
(40.7
|
)%
|
(40.6
|
)%
|
Years
ended January 3, 2010 and December 28, 2008
Net
Sales
Our sales
are derived from the sale of wireless communications network products and
coverage solutions, including antennas, boosters, combiners, cabinets, shelters,
filters, radio frequency power amplifiers, remote radio head transceivers,
repeaters, tower-mounted amplifiers and advanced coverage solutions for use in
cellular, PCS, 3G, and 4G wireless communications networks throughout the
world.
The
following table presents an analysis of our sales based upon our various
customer groups:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
Customer Group
|
January
3, 2010
|
December
28, 2008
|
||||||||||||||
Wireless
network operators and other
|
$
|
208,661
|
37
|
%
|
$
|
333,030
|
37
|
%
|
||||||||
Original
equipment manufacturers
|
358,825
|
63
|
%
|
557,204
|
63
|
%
|
||||||||||
Total
|
$
|
567,486
|
100
|
%
|
$
|
890,234
|
100
|
%
|
Sales
decreased by 36% to $567.5 million for the fiscal year ended January 3, 2010,
from $890.2 million for the fiscal year ended December 28, 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 37% and 36%, respectively. The decreases were
primarily due to significantly reduced demand related to the global
macroeconomic 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 fiscal
2009.
The
following table presents an analysis of our sales based upon our various product
groups:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
Wireless Communications Product
Group
|
January
3, 2010
|
December
28, 2008
|
||||||||||||||
Antenna
systems
|
$
|
150,610
|
27
|
%
|
$
|
233,090
|
26
|
%
|
||||||||
Base
station systems
|
364,166
|
64
|
%
|
571,526
|
64
|
%
|
||||||||||
Coverage
systems
|
52,710
|
9
|
%
|
85,618
|
10
|
%
|
||||||||||
Total
|
$
|
567,486
|
100
|
%
|
$
|
890,234
|
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, VersaFlex cabinets and radio
transceivers. Coverage systems consist primarily of repeaters and advanced
coverage solutions. The decrease in all product group 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 year ended January 3, 2010 as compared
to the year ended December 28, 2008.
We track
the geographic location of our sales based upon the location of our customers to
which we ship our products. However, since many of our original equipment
manufacturer customers purchase products from us at central locations and then
re-ship the product with other base station equipment to locations throughout
the world, we are unable to identify the final installation location of many of
our products.
The
following table presents an analysis of our sales based upon the geographic area
to which a product was shipped:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
Geographic Area
|
January
3, 2010
|
December
28, 2008
|
||||||||||||||
Americas
|
$
|
163,794
|
29
|
%
|
$
|
281,528
|
32
|
%
|
||||||||
Asia
Pacific
|
233,463
|
41
|
%
|
302,169
|
34
|
%
|
||||||||||
Europe
|
135,600
|
24
|
%
|
274,977
|
31
|
%
|
||||||||||
Other
international
|
34,629
|
6
|
%
|
31,560
|
3
|
%
|
||||||||||
Total
|
$
|
567,486
|
100
|
%
|
$
|
890,234
|
100
|
%
|
Revenues
decreased in all regions during fiscal 2009 as compared to fiscal 2008 with the
exception of the “other international” category. The slight 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 macroeconomic
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 year ended January 3, 2010 to those
in effect for the year ended December 28, 2008, the change in the value of
foreign currencies as compared with the U.S. Dollar had a negative impact
on our revenues for fiscal 2009 of less than one percent. This impact
did not have a material impact on our sales. We are unable to predict
the future impact of such currency fluctuations on our future
results.
For the
year ended January 3, 2010, total sales to Nokia Siemens accounted for
approximately 34% of sales for the year. For the year ended December
28, 2008, total sales to Nokia Siemens accounted for approximately 31% of sales,
and sales to Alcatel-Lucent accounted for approximately 17% of sales for the
year. Sales to Alcatel-Lucent accounted for less than 10% of total sales for the
year ended January 3, 2010. 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, typically the
absorption of our overhead costs into inventory decreases and the amount of
overhead variances expensed to cost of sales increases as manufacturing 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 manufacturing
volumes decline due to higher amounts of overhead variances expensed to cost of
sales. Our gross profit margins generally increase as our revenue and
manufacturing volumes increase due to lower amounts of overhead variances
expensed to cost of sales. Offsetting these general trends are absolute
reductions to our total overhead costs and expenses.
The
following table presents an analysis of our gross profit:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
January
3, 2010
|
December
28, 2008
|
|||||||||||||||
Net
sales
|
$
|
567,486
|
100.0
|
%
|
$
|
890,234
|
100.0
|
%
|
||||||||
Cost
of sales:
|
||||||||||||||||
Cost
of sales
|
420,568
|
74.1
|
%
|
687,310
|
77.2
|
%
|
||||||||||
Intangible
amortization
|
2,494
|
0.5
|
%
|
19,166
|
2.1
|
%
|
||||||||||
Restructuring
and impairment charges
|
1,932
|
0.3
|
%
|
36,230
|
4.1
|
%
|
||||||||||
Total
cost of sales
|
424,994
|
74.9
|
%
|
742,706
|
83.4
|
%
|
||||||||||
Gross
profit
|
$
|
142,492
|
25.1
|
%
|
$
|
147,528
|
16.6
|
%
|
Our total
gross profit decreased during fiscal 2009 compared to fiscal 2008, primarily as
a result of our decreased revenues. At the same time, our gross margin
percentage significantly increased to 25.1% in fiscal 2009, as compared to 16.6%
in fiscal 2008. Our cost reduction activities, which included
manufacturing plant consolidations and closures, helped to reduce our fixed
costs and manufacturing cost overheads, which contributed to the improved gross
margin percentage. The decrease in intangible amortization costs in
2009 is due to the intangible asset impairment recorded in the fourth quarter of
2008 (see Note 6 of the Notes to Consolidated Financial Statements under Part
II, Item 8, Financial
Statements and Supplementary Data). We incurred approximately $1.9
million of restructuring and impairment charges in cost of sales during fiscal
2009 primarily related to severance charges in the United States, Finland,
Sweden and the UK. We incurred approximately $36.2 million of restructuring and
impairment charges in cost of sales during fiscal 2008, primarily related to the
write-down and impairment of certain intangibles. The balance of these charges
was related to the closure of our manufacturing facilities in Salisbury,
Maryland and China, and the related impairment of inventory that either has been
or will be disposed of and is not expected to generate future revenue. These
charges and amortization accounted for approximately 5.4% of the improved gross
margins from 2008 to 2009. Included in cost of sales was $1.1 million for
stock-based compensation expense that was recorded during fiscal 2009 for stock
options and employee stock purchase plans pursuant to accounting guidance now
codified as FASB ASC Topic 718, “Compensation – Stock
Compensation.” During fiscal 2008, approximately $1.0 million
was recorded for similar expenses.
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
and consolidate several of our manufacturing locations as part of our
restructuring plans to reduce our manufacturing costs over the last three years.
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:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
January
3, 2010
|
December
28, 2008
|
|||||||||||||||
Operating Expenses
|
||||||||||||||||
Sales
and marketing
|
$
|
34,233
|
6.0
|
%
|
$
|
44,857
|
5.1
|
%
|
||||||||
Research
and development
|
58,920
|
10.4
|
%
|
77,652
|
8.7
|
%
|
||||||||||
General
and administrative
|
47,658
|
8.4
|
%
|
63,491
|
7.1
|
%
|
||||||||||
Intangible
amortization
|
947
|
0.2
|
%
|
9,508
|
1.1
|
%
|
||||||||||
Restructuring
and impairment charges
|
2,611
|
0.4
|
%
|
16,178
|
1.8
|
%
|
||||||||||
Goodwill
impairment charge
|
—
|
—
|
315,885
|
35.5
|
%
|
|||||||||||
Total
operating expenses
|
$
|
144,369
|
25.4
|
%
|
$
|
527,571
|
59.3
|
%
|
Sales and
marketing expenses consist primarily of salaries and sales commissions, travel
expenses, advertising and marketing expenses, selling expenses, customer
demonstration unit expenses and trade show expenses. Sales and marketing
expenses decreased by $10.6 million, or 24%, during fiscal 2009 as compared to
fiscal 2008. The decrease was due primarily to lower personnel costs resulting
from restructuring actions taken in the last year, lower travel expenses and
lower trade show expenses, slightly offset by an increase in bad debt
expense. In addition, expenses for fiscal 2008 included an employee
bonus accrual of $0.2 million. No bonuses were accrued during fiscal
2009.
Research
and development expenses consist primarily of ongoing design and development
expenses for new wireless communications network products, as well as for
advanced coverage solutions. We also incur design expenses associated with
reducing the cost and improving the manufacturability of our existing products.
Research and development expenses can fluctuate dramatically from period to
period depending on numerous factors including new product introduction
schedules, prototype developments and hiring patterns. Research and development
expenses decreased by $18.7 million, or 24%, during fiscal 2009 as compared with
fiscal 2008, due to reduced personnel costs from restructuring actions taken in
the last year, lower travel expenses and lower professional fees for outsourced
research and development costs. In addition, a significant portion of
the reduction in our research and development expense is related to the ramp-up
of our India research and development center and the corresponding reduction in
engineering resources at higher cost locations. Also contributing to the
decrease in research and development expenses were lower material expenses used
in research and development activities. In addition, expenses for
fiscal 2008 included an employee bonus accrual of $1.3 million. No
bonuses were accrued during fiscal 2009.
General
and administrative expenses consist primarily of salaries and other expenses for
management, finance, information systems, legal fees, facilities and human
resources. General and administrative expenses decreased by $15.8 million, or
25%, during fiscal 2009 as compared to fiscal 2008. This decrease was due
primarily to reduced payroll resulting
42
from
personnel reductions taken in the last year from our restructuring activities
and lower tax, audit and professional fees. In addition, expenses for
fiscal 2008 included an employee bonus accrual of $1.4 million. No
bonuses were accrued during fiscal 2009.
Included
in total operating expenses is approximately $3.3 million for compensation
expense that was recognized during fiscal 2009 for restricted stock, stock
options and employee stock purchase plan awards pursuant to FASB ASC Topic 718.
During fiscal 2008, approximately $3.8 million was recorded for similar
expenses.
Amortization
of customer-related intangibles from our acquisitions, amounted to $0.9 million
for fiscal 2009, compared with $9.5 million for fiscal 2008 (see Note 6 of the
Notes to Consolidated Financial Statements included under Part II, Item 8,
Financial Statements and
Supplementary Data). The decreased amortization expense for
fiscal 2009 was a result of the intangible asset impairment recorded in the
fourth quarter of 2008, which led to lower amortization in 2009. The
amortization of these intangibles from our past acquisitions was fully completed
in fiscal 2009.
Restructuring
charges of $2.6 million were recorded in fiscal 2009, primarily related to
severance costs in the United States, Finland and Sweden, compared with charges
of $16.2 million during fiscal 2008. The expenses for 2008 include charges
related to the closure of our design and development center in Bristol, UK and
the closure of manufacturing facilities in Salisbury, Maryland, Finland and
China. These expenses also include impairment charges related to the closure of
these manufacturing facilities, the sale of the Salisbury, Maryland facility and
severance costs related to the reduction of personnel.
For
fiscal 2008, we recorded a goodwill impairment charge of $315.9 million. For
further discussion of this charge, see Note 6 of the Notes to Consolidated
Financial Statements under Part II, Item 8, Financial Statements and
Supplementary Data.
Other
Income (Expense), net
The
following table presents an analysis of other income (expense),
net:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
January
3, 2010
|
December
28, 2008
|
|||||||||||||||
Interest
income
|
$
|
572
|
0.1
|
%
|
$
|
682
|
0.1
|
%
|
||||||||
Interest
expense
|
(17,036
|
)
|
(3.0
|
)%
|
(18,995
|
)
|
(2.1
|
)%
|
||||||||
Foreign
currency gain
|
3,964
|
0.7
|
%
|
11,455
|
1.3
|
%
|
||||||||||
Gain
on repurchase of convertible debt
|
9,767
|
1.7
|
%
|
26,340
|
2.9
|
%
|
||||||||||
Other
income, net
|
2,222
|
0.4
|
%
|
1,730
|
0.2
|
%
|
||||||||||
Other
income (expense), net
|
$
|
(511
|
)
|
(0.1
|
)%
|
$
|
21,212
|
2.4
|
%
|
Interest
income and interest expense both decreased slightly during the year ended
January 3, 2010, as compared to the year ended December 28, 2008. Interest
expense decreased slightly due to lower interest expense associated with the
retirement of approximately $25.4 million of our long-term debt during fiscal
2009, as compared to fiscal 2008. During fiscal 2009, we recognized a
gain of $9.8 million on the purchase of $25.4 million in aggregate par value of
our outstanding 1.875% convertible subordinated notes due 2024, compared to a
gain of $26.3 million on the purchase of $43.7 million in aggregate par value of
the same notes during fiscal 2008. We recognized a net foreign
currency gain of $4.0 million for the year ended January 3, 2010 primarily due
to fluctuations between the U.S. Dollar, the Euro and the Swedish Krona,
compared to a foreign currency gain of $11.5 million for the year ended December
28, 2008.
Income
Tax Provision
Our
effective tax rate for the year ended January 3, 2010 was an expense of
approximately 137.3% of our pre-tax loss of $2.4 million. Our
tax expense was reduced by approximately $2.7 million from a reduction in our
liability for income taxes associated with uncertain tax positions as a result
of the expiration of the statutory audit period of the tax jurisdiction as well
as being effectively settled under audit. Due to the uncertainty of
the timing and ultimate realization of our deferred tax assets, we have recorded
a valuation allowance against a portion of the assets pursuant to the accounting
guidance now codified as FASB ASC Topic 740. As such, for the
foreseeable future, the tax provision or tax benefit related to future U.S.
earnings or losses will be offset substantially by a reduction in the valuation
allowance. Accordingly, tax expense for the year ended January 3,
2010 consisted primarily of tax expense from operations in foreign
jurisdictions, primarily China, which cannot be offset against tax losses
incurred in other jurisdictions, primarily the U.S. We expect our
effective tax rate to continue to fluctuate based on the percentage of income
earned in each tax jurisdiction. Our effective tax rate for the year
43
ended
December 28, 2008 was an expense of approximately 1.0% of our pre-tax losses of
$358.8 million. Although we had a pre-tax loss in 2008, we recognized income tax
expense because of tax expense from operations in foreign jurisdictions,
primarily China, which cannot be offset against tax losses in other
jurisdictions, primarily the U.S.
Net
Loss
The
following table presents a reconciliation of operating loss to net
loss:
Fiscal
Year Ended
(in
thousands)
|
||||||||
January
3,
2010
|
December
28,
2008
|
|||||||
Operating
loss
|
$
|
(1,877
|
)
|
$
|
(380,043
|
)
|
||
Other
income (expense), net
|
(511
|
)
|
21,212
|
|||||
Loss
before income taxes
|
(2,388
|
)
|
(358,831
|
)
|
||||
Income
tax provision
|
3,282
|
3,462
|
||||||
Net
loss
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
Our net
loss for the year ended January 3, 2010 was $5.7 million compared to a loss of
$362.3 million for the year ended December 28, 2008. The decrease in
our net loss during fiscal 2009 as compared with fiscal 2008 is the result of
lower manufacturing costs and operating expenses resulting from our worldwide
cost-cutting and restructuring activities, lower restructuring and impairment
costs, lower intangible asset amortization costs resulting from prior year asset
impairments and gains on our debt repurchases during the period. The net loss
during fiscal 2008 was primarily attributable to the goodwill impairment charge
of $315.9 million incurred in the fourth quarter of 2008, partially offset by
improved operating results.
Years
ended December 28, 2008 and December 30, 2007
Net
Sales
Sales
increased by 14% to $890.2 million for the year ended December 28, 2008,
from $780.5 million, for the year ended December 30, 2007. This increase
was due to several factors, which included higher demand from our direct network
operator customers, which increased by approximately $120.4 million or 57% for
the year ended December 28, 2008 as compared with the year ended
December 30, 2007. These increases were slightly offset by a reduction in
our sales to original equipment manufacturer customers, which decreased by $10.6
million or 2% from 2007 to 2008. For the first three quarters of 2008, we
experienced stronger demand from our direct network operator customers, as we
believe many operators were spending to expand their 3G data capabilities in
order to support increased user demand for data intensive services on their
wireless networks.
The
following table presents an analysis of our sales based upon our various
customer groups:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
Customer Group
|
December
28, 2008
|
December
30, 2007
|
||||||||||||||
Wireless
network operators and other
|
$
|
333,030
|
37
|
%
|
$
|
212,675
|
27
|
%
|
||||||||
Original
equipment manufacturers
|
557,204
|
63
|
%
|
567,842
|
73
|
%
|
||||||||||
Total
|
$
|
890,234
|
100
|
%
|
$
|
780,517
|
100
|
%
|
The
following table presents an analysis of our sales based upon our various product
groups:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
Wireless Communications Product
Group
|
December
28, 2008
|
December
30, 2007
|
||||||||||||||
Antenna
systems
|
$
|
233,090
|
26
|
%
|
$
|
160,974
|
21
|
%
|
||||||||
Base
station systems
|
571,526
|
64
|
%
|
565,084
|
72
|
%
|
||||||||||
Coverage
systems
|
85,618
|
10
|
%
|
54,459
|
7
|
%
|
||||||||||
Total
|
$
|
890,234
|
100
|
%
|
$
|
780,517
|
100
|
%
|
The
increase in all three product groups is the result of higher demand from our
direct network operator customers during the year ended December 28, 2008
as compared to the year ended December 30, 2007. In addition, the increase
in coverage systems sales was due to increased demand for data service within
indoor networks, such as those included within the coverage solutions
group.
The
following table presents an analysis of our sales based upon the geographic area
to which a product was shipped:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
Geographic Area
|
December
28, 2008
|
December
30, 2007
|
||||||||||||||
Americas
|
$
|
281,528
|
32
|
%
|
$
|
220,798
|
28
|
%
|
||||||||
Asia
Pacific
|
302,169
|
34
|
%
|
203,904
|
26
|
%
|
||||||||||
Europe
|
274,977
|
31
|
%
|
334,095
|
43
|
%
|
||||||||||
Other
international
|
31,560
|
3
|
%
|
21,720
|
3
|
%
|
||||||||||
Total
|
$
|
890,234
|
100
|
%
|
$
|
780,517
|
100
|
%
|
Revenues
in the Americas increased by 28% during fiscal 2008 as compared to fiscal 2007,
primarily as a result of increased demand from direct network operator
customers. The 48% increase in revenues in the Asia region is largely
attributable to an increase in original equipment manufacturers taking delivery
of products in Asia for the Asian market, and increased demand in parts of the
region including China, India and South Korea. The reduction in European
revenues relates primarily to the shift in original equipment manufacturer
deliveries to Asia as mentioned above. In addition, weakness in the European
direct operator market continued to contribute to the overall decline in
revenues for Europe. The 45% increase in other international markets is
primarily related to increased direct network operator sales in the Middle East.
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
predictable 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.
We have
calculated that when comparing exchange rates in effect for the year ended
December 30, 2007 to those in effect for the year ended December 28,
2008, approximately 4.7% of our 2008 revenues could be attributable to the
increase in the value of foreign currencies as compared to the U.S.
Dollar.
For the
year ended December 28, 2008, total sales to Nokia Siemens accounted for
approximately 31% of sales and sales to Alcatel-Lucent accounted for
approximately 17% for the period. For the year ended December 30, 2007,
total sales to Nokia Siemens accounted for approximately 35% of sales and sales
to Alcatel-Lucent accounted for approximately 16% of sales.
Cost
of Sales and Gross Profit
The
following table presents an analysis of our gross profit:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
December
28, 2008
|
December
30, 2007
|
|||||||||||||||
Net
sales
|
$
|
890,234
|
100.0
|
%
|
$
|
780,517
|
100.0
|
%
|
||||||||
Cost
of sales:
|
||||||||||||||||
Cost
of sales
|
687,310
|
77.2
|
%
|
638,487
|
81.8
|
%
|
||||||||||
Intangible
amortization
|
19,166
|
2.1
|
%
|
19,609
|
2.5
|
%
|
||||||||||
Restructuring
and impairment charges
|
36,230
|
4.1
|
%
|
35,170
|
4.5
|
%
|
||||||||||
Total
cost of sales
|
742,706
|
83.4
|
%
|
693,266
|
88.8
|
%
|
||||||||||
Gross
profit
|
$
|
147,528
|
16.6
|
%
|
$
|
87,251
|
11.2
|
%
|
Our total
gross profit increased during fiscal 2008 compared to fiscal 2007, primarily as
a result of our increased revenues and cost reduction activities. Our increased
revenues allowed us to absorb more of our manufacturing cost overhead and fixed
costs, which in turn improved our gross margins. In addition, our cost reduction
activities, which included manufacturing plant consolidations and closures,
helped to reduce our fixed costs and manufacturing cost overheads, which
contributed to the improved gross margins. Also contributing to the increase in
our gross margins for fiscal 2008 was a significant increase in direct network
operator sales, which typically carry higher gross margins than our original
equipment
45
manufacturer-based
sales. The completion of the Filtronic plc wireless acquisition in the fourth
quarter of 2006 added significant additional manufacturing overhead expenses
which were not being absorbed by our lower revenues during fiscal 2007. In
addition, cost of sales includes $1.0 million for stock-based compensation
expense that was recorded during fiscal 2008 for stock options and employee
stock purchase plans pursuant to accounting FASB ASC Topic
718. During fiscal 2007, approximately $0.7 million was recorded for
similar expenses. We incurred approximately $36.2 million of restructuring and
impairment charges in cost of sales during fiscal 2008, primarily related to the
write-down and impairment of certain intangibles. The balance of these charges
was related to the closures of our manufacturing facilities in Salisbury,
Maryland and China, and related impairment of inventory. For fiscal 2007, we
incurred a total of $35.2 million of restructuring and impairment costs
primarily related to the closure of our Costa Rica and Philippines manufacturing
locations and our 2007 restructuring activities. We also recorded an intangible
asset impairment for fiscal 2007 (see Note 6 of the Notes to Consolidated
Financial Statements under Part II, Item 8, Financial Statements and
Supplementary Data).
Operating
Expenses
The
following table presents a breakdown of our operating expenses by functional
category and as a percentage of net sales:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
December
28, 2008
|
December
30, 2007
|
|||||||||||||||
Operating Expenses
|
||||||||||||||||
Sales
and marketing
|
$
|
44,857
|
5.1
|
%
|
$
|
52,991
|
6.8
|
%
|
||||||||
Research
and development
|
77,652
|
8.7
|
%
|
84,992
|
10.9
|
%
|
||||||||||
General
and administrative
|
63,491
|
7.1
|
%
|
75,267
|
9.6
|
%
|
||||||||||
Intangible
amortization
|
9,508
|
1.1
|
%
|
11,033
|
1.4
|
%
|
||||||||||
In-process
research and development
|
—
|
—
|
208
|
0.0
|
%
|
|||||||||||
Restructuring
and impairment charges
|
16,178
|
1.8
|
%
|
11,296
|
1.5
|
%
|
||||||||||
Goodwill
impairment charge
|
315,885
|
35.5
|
%
|
151,735
|
19.4
|
%
|
||||||||||
Total
operating expenses
|
$
|
527,571
|
59.3
|
%
|
$
|
387,522
|
49.6
|
%
|
Sales and
marketing expenses decreased by $8.1 million, or 15%, during fiscal 2008 as
compared to fiscal 2007. The decrease resulted primarily from decreased payroll
associated with personnel reductions, as well as decreased travel expenses,
lower marketing expenses and lower bad debt costs.
Research
and development expenses decreased by $7.3 million, or 9%, during fiscal 2008 as
compared to fiscal 2007, primarily due to decreased payroll associated with
personnel reductions offset slightly by the increase in engineering expenses in
India. In addition, for fiscal 2008 we had reduced material expenses and lower
general office expenses as well as decreased development
activities.
General
and administrative expenses decreased $11.8 million, or 16%, during fiscal 2008
as compared to fiscal 2007. This decrease was due to several factors including,
decreased payroll associated with lower personnel levels as a result of the
various facility closures, lower travel expenses and decreased general office
expenses.
In
addition, total operating expenses includes approximately $3.8 million for
compensation expense that was recognized during fiscal 2008 for restricted
stock, stock options and employee stock purchase plan awards pursuant to FASB
ASC Topic 718. During fiscal 2007, approximately $4.2 million was recorded for
similar expenses.
Amortization
of customer-related intangibles from our prior acquisitions amounted to $9.5
million for fiscal 2008, compared to $11.0 million for fiscal 2007. The decrease
in 2008 was related to certain intangibles being fully amortized during 2008 and
the impairment of intangibles in the fourth quarter of 2008.
We
recorded a one-time charge in fiscal 2007 of $0.2 million for purchased
in-process research and development associated with the acquisition of Cognition
Networks LLC in the fourth quarter of 2007. This charge related to certain
product development activities of the acquired businesses that had not reached
technological feasibility. Successful development was uncertain and no future
alternative uses existed.
For
fiscal 2008, we recognized restructuring and impairment charges of $16.2
million. This includes expenses related to the closure of our design and
development center in Bristol, UK and the closure of manufacturing facilities in
Salisbury, Maryland, Finland and China. These expenses include impairment
charges related to the closure and sale of said facilities and severance costs
related to the reduction of personnel. For fiscal 2007, we recognized
restructuring and impairment charges of $11.3 million.
For
fiscal 2008, we recorded a goodwill impairment charge of $315.9 million,
compared to an impairment charge of $151.7 million for fiscal 2007. For further
discussion of these charges, see Note 6 of the Notes to Consolidated Financial
Statements under Part II, Item 8, Financial Statements and
Supplementary Data.
Other
Income (Expense), net
The
following table presents a breakdown of other income (expense),
net:
Fiscal
Year Ended
(in
thousands)
|
||||||||||||||||
December
28, 2008
|
December
30, 2007
|
|||||||||||||||
Interest
income
|
$
|
682
|
0.1
|
%
|
$
|
2,137
|
0.3
|
%
|
||||||||
Interest
expense
|
(18,995
|
)
|
(2.1
|
)%
|
(17,448
|
)
|
(2.2
|
)%
|
||||||||
Foreign
currency gain
|
11,455
|
1.3
|
%
|
910
|
0.1
|
%
|
||||||||||
Gain
on repurchase of convertible debt
|
26,340
|
2.9
|
%
|
2,211
|
0.3
|
%
|
||||||||||
Other
income, net
|
1,730
|
0.2
|
%
|
2,762
|
0.3
|
%
|
||||||||||
Other
income (expense), net
|
$
|
21,212
|
2.4
|
%
|
$
|
(9,428
|
)
|
(1.2
|
)%
|
Interest
income decreased by $1.5 million during fiscal 2008 primarily due to our lower
cash balances, as well as the significantly reduced short-term interest rates.
Interest expense increased by $1.5 million due primarily to additional interest
expense related to the issuance of $150.0 million 3.875% convertible
subordinated notes in September 2007 as well as interest expense related to
borrowings under our line of credit during fiscal 2008. We recognized a net
foreign currency gain of $11.5 million for the year ended December 28,
2008, primarily due to the strength of the U.S. Dollar versus several
currencies, including the Euro and Swedish Krona, as compared to the year ended
December 30, 2007. We recognized a gain of $26.3 million on the purchase of
$43.7 million in aggregate par value of our outstanding 1.875% convertible
subordinated notes due 2024 that were purchased at a discount. During 2007, we
recognized a gain of $2.2 million related to the repurchase of $116.4 million of
1.25% convertible subordinated notes due July 2008.
Income
Tax Provision
Our
effective tax rate for the year ended December 28, 2008 was an expense of
approximately 1.0% of our pre-tax losses of $358.8 million. Due to the
uncertainty as to the timing and ultimate realization of our deferred tax
assets, we recorded a valuation allowance against a portion of our deferred tax
assets pursuant to FASB ASC Topic 740. For the year ended December 30,
2007, tax expense consisted primarily of taxes or tax benefits in certain
foreign jurisdictions. However, during 2007, income tax expense was impacted by
a required income tax payment of approximately $1.6 million related to the sale
of our building in the Philippines, as well as a charge of $0.4 million related
to a settlement with the Internal Revenue Service related to an income tax
examination for the 2004 tax year.
Net
Loss
The
following table presents a reconciliation of operating loss to net
loss:
Fiscal
Year Ended
(in
thousands)
|
||||||||
December
28,
2008
|
December
30,
2007
|
|||||||
Operating
loss
|
$
|
(380,043
|
)
|
$
|
(300,271
|
)
|
||
Other
income (expense), net
|
21,212
|
(9,428
|
)
|
|||||
Loss
before income taxes
|
(358,831
|
)
|
(309,699
|
)
|
||||
Income
tax provision
|
3,462
|
7,198
|
||||||
Net
loss
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
Our net
loss for fiscal 2008 of $362.3 million compared to a net loss of $316.9 million
for fiscal 2007. The increase in the loss during fiscal 2008 as compared to
fiscal 2007 is primarily due to the goodwill impairment charge of $315.9 million
incurred in the fourth quarter of 2008, versus the goodwill impairment charge of
$151.7 million incurred in 2007.
Liquidity
and Capital Resources
We have
historically financed our operations through a combination of cash on hand, cash
provided from operations, equipment lease financings, available borrowings under
bank lines of credit, private debt placements and both private and public equity
offerings. Our principal sources of liquidity consist of existing cash balances,
funds expected to be generated from future operations and borrowings under our
Credit Agreement with Wells Fargo Capital Finance, LLC. As of January 3, 2010,
we had working capital of $175.4 million, including $60.4 million in
unrestricted cash and cash equivalents as compared to working capital of $179.1
million at December 28, 2008, which included $46.9 million in
unrestricted cash and cash equivalents. We currently invest our excess cash in
short-term, investment-grade, money-market instruments with maturities of three
months or less. We typically hold such investments until maturity and then
reinvest the proceeds in similar money market instruments. We believe that all
of our cash investments would be readily available to us should the need
arise.
Cash
Flows
The
following table summarizes our cash flows for the years ended January 3, 2010
and December 28, 2008:
Fiscal
Year Ended
(in
thousands)
|
||||||||
January
3,
2010
|
December
28,
2008
|
|||||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
$
|
31,269
|
$
|
27,306
|
||||
Investing
activities
|
(2,575
|
)
|
(8,695
|
)
|
||||
Financing
activities
|
(13,484
|
)
|
(23,940
|
)
|
||||
Effect
of foreign currency translation on cash and cash
equivalents
|
(1,677
|
)
|
(5,916
|
)
|
||||
Net
increase (decrease) in cash and cash equivalents
|
$
|
13,533
|
$
|
(11,245
|
)
|
Operating
Activities
Net cash
provided by operations during the year ended January 3, 2010 was $31.3 million
as compared with $27.3 million during the year ended December 28, 2008. The
increase in cash flow from operations is due to a reduced net loss, increased
cost controls, reduced operating expenses and improved working capital
management during fiscal 2009. We also had a reduction in
restructuring and impairment charges of approximately $48 million.
Investing
Activities
Net cash
used in investing activities during the year ended January 3, 2010 was $2.6
million as compared with net cash used in investing activities of $8.7 million
during the year ended December 28, 2008. The net cash used in investing
activities during fiscal 2009 represents capital expenditures of $10.2 million,
offset by a reduction in our restricted cash of $0.8 million, proceeds from a
settlement of litigation of $2.0 million, proceeds from the final installment
payment from the sale of the Arkivator business in 2006 of $0.5 million,
proceeds from the sale of the Salisbury, Maryland building of $3.9 million and
proceeds from the sale of fixed assets of $0.4 million. Capital expenditures for
the year ended December 28, 2008 were approximately $13.5 million. The majority
of the capital spending during both periods related to computer hardware and
test equipment utilized in our manufacturing and research and development
areas.
Financing
Activities
Net cash
used in financing activities of $13.5 million during the year ended January 3,
2010 relates primarily to the repurchase of $25.4 million in aggregate par value
of our 1.875% convertible subordinated notes due 2024 for approximately $12.4
million, as well as $1.3 million in debt issuance costs incurred related to our
new Credit Agreement. Net cash used in financing activities of $23.9
million for the year ended December 28, 2008 represents the $13.6 million
redemption of the 1.25% convertible notes due July 2008, excluding accrued
interest, and the repurchase of $43.7 million par value of our 1.875%
convertible subordinated notes due November 2024 for approximately $10.9
million.
Future
Cash Requirements
Our
principal sources of liquidity consist of our existing cash balances, funds
expected to be generated from operations and our Credit Agreement with Wells
Fargo Capital Finance, LLC, described below. We currently believe that these
sources will provide us with sufficient funds to finance our current operations
for at least the next twelve months. We regularly review our cash funding
requirements and attempt to meet those requirements through a combination of
cash on hand and cash provided by operations. Our ability to increase revenues
and generate profits is subject to numerous risks and uncertainties, and any
significant decrease in our revenues or profitability would reduce our operating
cash flows and erode our existing cash balances. No assurances can be given that
we will be able to generate positive operating cash flows in the future or
maintain and/or grow our existing cash balances.
We had a
total of $280.9 million of long-term convertible subordinated notes outstanding
at January 3, 2010, consisting of $130.9 million of 1.875% convertible
subordinated notes due 2024 (“2024 Notes”) and $150.0 million of 3.875%
convertible subordinated notes due 2027 (“2027 Notes”). Holders of the 2024
Notes may require us to repurchase all or a portion of their notes for cash on
November 15, 2011, 2014 and 2019 at 100% of the principal amount of the
notes, plus accrued and unpaid interest. Holders of the 2027 Notes may require
us to repurchase all or a portion of their notes for cash on October 1,
2014, 2017 and 2022 at 100% of the principal amount of the notes, plus accrued
and unpaid interest. No assurance can be given that we will be able to generate
positive operating cash flows in the future or maintain and/or grow our existing
cash balances. If we do not generate sufficient cash from operations, or improve
our ability to generate cash, we may not have sufficient funds available to
repurchase our debt on the dates referenced above. If we have not retired the
debt prior to the repurchase dates referenced above, and if we do not have
adequate cash available at that time, we would be required to refinance the
notes and no assurance can be given that we will be able to refinance the notes
on terms acceptable to us or at all given current conditions in the credit
markets. If our financial performance is poor or if credit markets remain tight,
we will likely encounter a more difficult environment in terms of raising
additional financing. If we are not able to repay or refinance the notes or if
we experience a prolonged period of reduced customer demand for our products,
our ability to maintain operations may be impacted.
Credit
Agreement
We
entered into a Credit Agreement with Wells Fargo Capital Finance, LLC on
April 3, 2009. See Note 5 of the Notes to Consolidated Financial Statements
under Part II, Item 8, Financial Statements and
Supplementary Data. Pursuant to the Credit Agreement, the
lenders thereunder have made available to us a senior secured credit facility in
the form of a revolving line of credit up to a maximum of $50.0 million.
Availability under the Credit Agreement is based on the calculation of our
borrowing base as defined in the Credit Agreement. The Credit Agreement is
secured by a first priority security interest on a majority of our assets,
including without limitation, all accounts, equipment, inventory, chattel paper,
records, intangibles, deposit accounts, cash and cash equivalents and proceeds
of the foregoing. The Credit Agreement expires on August 15, 2011. The
Credit Agreement contains customary affirmative and negative covenants for
credit facilities of this type, including limitations on us with respect to
indebtedness, liens, investments, distributions, mergers and acquisitions and
dispositions of assets. The Credit Agreement also includes financial covenants
including minimum EBITDA and maximum capital expenditures that are applicable
only if the availability under our line of credit falls below $20.0
million. On December 31, 2009, the Company entered into a Waiver,
Consent, Amendment to the Credit Agreement. Under the amendment,
certain immaterial technical defaults by the Company were waived by Wells
Fargo. In addition, certain financial covenants were amended,
including the lowering of the minimum EBITDA thresholds. As of
January 3, 2010, the Company had approximately $29.4 million of availability
under the Credit Agreement, of which approximately $5 million was utilized for
an outstanding letter of credit.
Also on
April 3, 2009, in connection with entering into the Credit Agreement
referenced above, we terminated our Amended Receivables Purchase Agreement with
Deutsche Bank AG. As of the date of termination, we did not have any borrowings
outstanding under the Amended Receivables Purchase Agreement. In addition, we
did not incur any early termination penalties in connection with the termination
of the Amended Receivables Purchase Agreement.
On
occasion, we have previously utilized both operating and capital lease financing
for certain equipment purchases used in our manufacturing and research and
development operations and may selectively continue to do so in the future. We
may require additional funds in the future to support our working capital
requirements or for other purposes such as acquisitions, and we may seek to
raise such additional funds through the sale of public or private equity and/or
debt financing, as well as from other sources. Our ability to secure additional
financing or sources of funding is dependent upon our financial performance,
credit rating and the market price for our Common Stock, which are all directly
impacted by our ability to grow revenues and generate profits. In addition, our
ability to obtain financing is directly dependent upon the availability of
financial markets to provide sources of financing on reasonable terms and
conditions. During the last half of fiscal 2008 and throughout fiscal
2009, the capital and credit markets have experienced extreme volatility and
disruption. In several cases, the markets have exerted downward
pressure on stock prices and credit capacity for certain issuers. Given current
market conditions, we can make no guarantee that we will be able to obtain
additional financing or secure new financing arrangements in the future. If our
operating performance was to deteriorate and our cash balances were to be
significantly reduced, we would likely encounter a more difficult environment in
terms of raising additional funding to support our business, the cost of
additional funding or borrowing could increase, and we may be required to
further reduce operating expenses or scale back operations.
Off-Balance
Sheet Arrangements
Our
off-balance sheet arrangements consist primarily of conventional operating
leases, purchase commitments and other commitments arising in the normal course
of business, as further discussed below under “Contractual Obligations and
Commercial Commitments.” As of January 3, 2010, we did not have any other
relationships with unconsolidated entities or financial partners, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited
purposes.
Contractual
Obligations and Commercial Commitments
We incur
various contractual obligations and commercial commitments in our normal course
of business. Such obligations and commitments consist primarily of the
following:
Short-Term
Debt
At
January 3, 2010, we had no short-term debt outstanding.
Long-Term
Debt
At
January 3, 2010, we had $280.9 million of long-term debt, consisting of our
outstanding $150.0 million par value 3.875% convertible subordinated notes due
October 2027 and $130.9 million 1.875% convertible subordinated notes due
November 2024. These notes are convertible into shares of our Common Stock at
the option of the holder (see Note 5 of the Notes to Consolidated Financial
Statements included under Part II, Item 8, Financial Statements and
Supplementary Data.)
Operating
Lease Obligations
We have
various operating leases covering vehicles, equipment, facilities and sales
offices located throughout the world.
Purchase
Commitments with Contract Manufacturers
We
generally issue purchase orders to our contract manufacturers with delivery
dates from four to six weeks from the purchase order date. In addition, we
regularly provide our contract manufacturers with rolling six-month forecasts of
material and finished goods requirements for planning and long-lead time parts
procurement purposes only. We are committed to accept delivery of materials
pursuant to our purchase orders subject to various contract provisions which
allow us to delay receipt of such orders or cancel orders beyond certain agreed
lead times. Such cancellations may or may not result in cancellation costs
payable by us. In the past, we have been required to take delivery of materials
from our suppliers that were in excess of our requirements and we have
previously recognized charges and expenses related to such excess material. If
we are unable to adequately manage our contract manufacturers and adjust such
commitments for changes in demand, we may incur additional inventory expenses
related to excess and obsolete inventory. These expenses could have a material
adverse effect on our business, financial condition and results of
operations.
Contract
Agreements with Contract Manufacturers
Our
typical contractual agreements with contract manufacturers do not require us to
purchase a fixed amount of products or generate a fixed amount of profit for the
contract manufacturer. Pricing and other terms are normally reviewed on a
quarterly basis. To further clarify the pricing clauses common in our contracts
with contract manufacturers, the actual revenue margin of a third-party contract
manufacturer is proprietary information that is not readily available to any
customer. While our agreements normally state that pricing shall be on an open
book basis, they also state that such basis is to be consistent with current
practices and that it must be consistent with their confidentiality terms with
other third parties. What this means in practice is that it is extremely
difficult for Powerwave to accurately forecast what is actually being earned by
a contract manufacturer, therefore it is typical that an ongoing negotiation
occurs between the parties to determine what actual prices will be. If we are
unable to adequately manage and negotiate pricing with our contract
manufacturing partners, we may pay higher prices for contract manufacturing
services which would have a negative impact on our business, operating margins,
financial condition and results of operations.
Other
Commitments
We also
incur various purchase obligations with other vendors and suppliers for the
purchase of inventory, as well as other goods and services, in the normal course
of business. These obligations are generally evidenced by purchase orders with
delivery dates from four to six weeks from the purchase order date, and in
certain cases, supply agreements that contain the terms and conditions
associated with these purchase arrangements. We are committed to accept delivery
of materials pursuant to such purchase orders; however, various contract
provisions allow us to delay receipt of orders or cancel orders that are beyond
certain agreed lead times. These cancellations may or may not result in
cancellation costs payable by us. In
50
the past,
we have been required to take delivery of materials from our suppliers that were
in excess of our requirements, and we have previously recognized charges and
expenses related to this excess material. If we are not able to adequately
manage our supply chain and adjust these commitments for changes in demand, we
may incur additional inventory expenses related to excess and obsolete
inventory. These expenses could have a material adverse effect on our business,
financial condition and results of operations.
Guarantees
Under Letters of Credit
We
occasionally issue 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 our bank that may be secured by our Credit Agreement, cash
deposits or pledges or performance bonds issued by an insurance
company.
Contractual
Obligations
As of
January 3, 2010, expected future cash payments related to contractual
obligations and commercial commitments were as follows:
Payments
Due by Period
(in
thousands)
|
|||||||||||||||||||
Less than 1
Year
|
1-3
Years
|
3-5
Years
|
Thereafter
|
Total
|
|||||||||||||||
Short-term
and long-term debt (including interest) (1) (2)
|
$ | 8,267 | $ | 16,533 | $ | 16,533 | $ | 379,230 | $ | 420,563 | |||||||||
Operating
lease obligations
|
4,238 | 2,848 | 1,271 | 734 | 9,091 | ||||||||||||||
Purchase
commitments with contract manufacturers
|
16,534 | — | — | — | 16,534 | ||||||||||||||
Other
purchase commitments
|
38,104 | — | — | — | 38,104 | ||||||||||||||
Total
contractual obligations and commercial
commitments (3)
|
$ | 67,143 | $ | 19,381 | $ | 17,804 | $ | 379,964 | $ | 484,292 |
(1)
|
Holders
of the $130.9 million outstanding principal amount of convertible
subordinated notes due 2024 may require us to repurchase all or a portion
of their notes for cash on November 15, 2011, 2014 and 2019 at 100%
of the principal amount of the notes, plus accrued and unpaid interest up
to but not including the date of such repurchase. The figures in the table
assume the notes will be held to maturity and the holders will not utilize
the repurchase option.
|
(2)
|
Holders
of the $150.0 million outstanding principal amount of convertible
subordinated notes due 2027 may require us to repurchase all or a portion
of their notes for cash on October 1, 2014, 2017 and 2022 at 100% of
the principal amount of the notes, plus accrued and unpaid interest up to
but not including the date of such repurchase. The figures in the table
assume the notes will be held to maturity and the holders will not utilize
the repurchase option.
|
(3)
|
The
liability for unrecognized tax benefits is not included above due to the
uncertainty in the timing of payment. See details of this
liability in Note 15 of the Notes to Consolidated Financial Statements
under Part II, Item 8, Financial Statements and
Supplementary
Data.
|
We believe that our existing cash balances and funds expected to be generated from future operations and our available credit facilities will be sufficient to satisfy these contractual obligations and commercial commitments and that the ultimate payments associated with these commitments will not have a material adverse effect on our liquidity position.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Our
financial instruments include cash and cash equivalents, restricted cash,
short-term investments, capital leases and long-term debt. As of January 3,
2010, the carrying values of our financial instruments approximated their fair
values based upon current market prices and rates except for long-term debt for
which the fair value is estimated based on the quoted market price for the
debt.
We have
exposure to a number of market risks in the ordinary course of business. These
risks, which include foreign currency risk, interest rate risk and commodity
price risk, arise in the normal course of business rather than from trading. We
have examined our exposure to these risks and have concluded that none of our
exposure in these areas are material to fair values, cash flows or
earnings.
Foreign
Currency Risk
Our
international operations represent a substantial portion of our operating
results and asset base. We maintain various operations in multiple foreign
locations including Brazil, China, Estonia, Finland, France, Germany, India,
Singapore, Sweden, Thailand and the United Kingdom. These international
operations generally incur local operating costs and generate third-party
revenues in currencies other than the U.S. Dollar. These foreign currency
revenues and expenses expose us to foreign currency risk and give rise to
foreign currency exchange gains and losses. We do not presently hedge
against the risks of foreign currently fluctuations. In the event of
significant fluctuations in foreign currencies, we may experience declines in
revenue and adverse impacts on operating results and such changes could be
material.
We
regularly pursue new customers in various international locations where new
deployments or upgrades to existing wireless communication networks are planned.
As a result, a significant portion of our revenues are derived from
international sources (excluding North America), with our international
customers accounting for approximately 73% of our net sales during fiscal 2009,
70% of our net sales during fiscal 2008 and 73% of our fiscal 2007 net sales.
International sources include Europe, Asia and South America, where there has
been historical volatility in several of the regions’ currencies. Changes in the
value of the U.S. Dollar versus the local currency in which our products
are sold exposes us to foreign currency risk since the weakening of an
international customer’s local currency and banking market may negatively impact
such customer’s ability to meet their payment obligations to us. Alternatively,
if a sale price is denominated in U.S. Dollars and the value of the Dollar
falls, we may suffer a loss due to the lower value of the Dollar. In addition,
some of our international customers require that we transact business with them
in their own local currency, regardless of the location of our operations, which
also exposes us to foreign currency risk. Since we sell products or services in
foreign currencies, we are required to convert the payments received into U.S.
Dollars or utilize such foreign currencies as payments for expenses of our
business, which gives rise to foreign exchange gains and losses. Given the
uncertainty as to when and what specific foreign currencies we may be required
or decide to accept as payment from our international customers, we cannot
predict the ultimate impact that such a decision would have on our business,
financial condition and results of operations. For the year ended January 3,
2010, we recorded a foreign exchange translation gain of $4.0 million due to
fluctuations in the value of the U.S. Dollar. There can be no assurance that we
will not incur foreign exchange translation losses in the future if the Dollar
further weakens.
Interest
Rate Risk
As of
January 3, 2010, we had cash equivalents of approximately $63.0 million in both
interest and non-interest bearing accounts, including restricted cash. We also
had $130.9 million of our convertible subordinated notes due November 2024 at a
fixed annual interest rate of 1.875% and $150.0 million of convertible
subordinated notes due October 2027 at a fixed rate of 3.875%. We have exposure
to interest rate risk primarily through our convertible subordinated debt, our
Credit Agreement and our cash investment portfolio. Short-term investment rates
decreased significantly during 2008 and remained low throughout 2009 as the U.S.
Federal Reserve has attempted to mitigate the impact of the recession. In spite
of this, we believe that we are not subject to material fluctuations in
principal given the short-term maturities and high-grade investment quality of
our investment portfolio, and the fact that the effective interest rate of our
portfolio tracks closely to various short-term money market interest rate
benchmarks. Therefore, we currently do not use derivative instruments to manage
our interest rate risk. Based on our overall interest rate exposure at January
3, 2010, we do not believe that a 100 basis point change in interest rates would
have a material effect on our consolidated business, financial condition or
results of operations.
Commodity
Price Risk
Our
internal manufacturing operations and contract manufacturers require significant
quantities of transistors, semiconductors and various metals for use in the
manufacture of our products. Therefore, we are exposed to certain commodity
price risks associated with variations in the market prices for these electronic
components as these prices directly impact the cost to manufacture products and
the price we pay our contract manufacturers to manufacture our products. We
attempt to manage this risk by entering into supply agreements with our contract
manufacturers and various suppliers of these
52
components
in order to mitigate the impact of any fluctuations in commodity prices. These
supply agreements are not long-term supply agreements. If we or our contract
manufacturers become subject to a significant increase in the price of one of
these components, we may be unable to pass such costs onto our customers. In
addition, certain transistors and semiconductors are regularly revised or
changed by their manufacturers, which may result in a requirement for us to
redesign a product that utilizes these components or cease the production of
such products. In such events, our business, financial condition or results of
operations could be adversely affected. Additionally, we require specialized
electronic test equipment, which is utilized in both the design and manufacture
of our products. The electronic test equipment is available from limited sources
and may not be available in the time periods required for us to meet our
customers’ demand. If required, we may be forced to pay higher prices for
equipment and/or we may not be able to obtain the equipment in the time periods
required, which would then delay our development or production of new products.
These delays and any potential additional costs could have a material adverse
effect on our business, financial condition or results of operations. Prior
increases to the price of oil and energy have translated into higher freight and
transportation costs and, in certain cases, higher raw material supply costs.
These higher costs negatively impacted our production costs. We may not be able
to pass on these higher costs to our customers and if we insist on raising
prices, our customers may curtail their purchases from us. There are significant
concerns in the business community about inflationary pressures on costs.
Further increases in energy prices may negatively impact our business, financial
condition and results of operations.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index
to Financial Statements/Schedule:
Consolidated Financial Statements (As
Restated)
|
|
55
|
|
58
|
|
59
|
|
60
|
|
61
|
|
62
|
|
64
|
|
93
|
|
Financial Statement
Schedule
|
|
104
|
To the
Board of Directors and Shareholders of Powerwave Technologies,
Inc.:
We have
audited the accompanying consolidated balance sheets of Powerwave Technologies,
Inc. and subsidiaries (the “Company”) as of January 3, 2010 and
December 28, 2008, and the related consolidated statements of operations,
comprehensive operations, shareholders’ equity, and cash flows for each of the
years ended January 3, 2010, December 28, 2008 and December 30, 2007.
Our audits also included the financial statement schedule listed in the Index at
Item 15. These financial statements and financial statement schedule are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Powerwave Technologies, Inc. and
subsidiaries at January 3, 2010 and December 28, 2008, and the results of
their operations and their cash flows for each of the years ended January 3,
2010, December 28, 2008 and December 30, 2007, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As
discussed in Note 5 to the consolidated financial statements, the Company
adopted the provisions of accounting guidance now codified as Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic
470-20, Debt with Conversion
and Other Options. Also, as discussed in Note 15 to the consolidated
financial statements, the Company adopted (ASC) Topic 740, Income Taxes in
2007.
As
discussed in Note 5 to the consolidated financial statements, the accompanying
consolidated financial statements have been restated.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of January 3, 2010, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 19, 2010 (March 4, 2010
as to the effects of the material weakness described in the second paragraph of
Management’s Annual Report on Internal Control Over Financial (As
Revised)), expressed an adverse opinion on the Company’s internal
control over financial reporting because of a material weakness.
/s/
DELOITTE & TOUCHE LLP
Costa
Mesa, California
February
19, 2010 (March 4, 2010 as to the effects of the restatement discussed in Note
5)
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of Powerwave Technologies,
Inc.:
We have
audited the internal control over financial reporting of Powerwave Technologies,
Inc. and subsidiaries (the “Company”) as of January 3, 2010, based on the
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control Over Financial
Reporting (As Revised). Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our report dated February 19, 2010, we expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting. As
described in the following paragraph, a material weakness was subsequently
identified as a result of the restatement of the Company’s previously issued
2009 consolidated financial statements. Accordingly, management has revised its
assessment about the effectiveness of the Company’s internal control over
financial reporting and our present opinion on the effectiveness of the
Company’s internal control over financial reporting as of January 3, 2010, as
expressed herein, is different from that expressed in our previous
report.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The following
material weakness has been identified and included in management’s
assessment:
Internal
Control over Financial Reporting, Financial Close and Reporting
Process
The
Company did not timely adopt a new accounting standard due to insufficient
analysis of its debt agreements and the related impact of such standard on their
financial statements which resulted in a restatement of the fiscal 2009
consolidated financial statements. The Company did not perform an appropriate
level of review, with respect to the application of new accounting standards,
during the financial close and reporting process.
This
material weakness was considered in assessing the nature, timing, and extent of
audit tests applied in our audit of the financial statements and financial
statement schedule of the Company and this material weakness does not affect our
opinion on such financial statements and financial statement
schedule.
In our
opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of January 3,
2010, based on the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended January 3, 2010 of the
Company and our report dated February 19, 2010 (March 4, 2010 as to the
effects of the restatement discussed in Note 5), expressed an unqualified
opinion with explanatory paragraphs regarding the restatement and the adoption
of FASB ASC Topic 470-20, Debt
with Conversion and Other Options.
/s/
DELOITTE & TOUCHE LLP
Costa
Mesa, California
February
19, 2010 (March 4, 2010 as to the effects of the material weakness described in
the second paragraph of Management’s Annual Report on Internal Control Over
Financial (As Revised))
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except per share data)
January
3,
2010
(As
Restated)
|
December 28,
2008
(As
Restated)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
60,439
|
$
|
46,906
|
||||
Restricted
cash
|
2,600
|
3,433
|
||||||
Accounts
receivable, net of allowance for sales returns and doubtful accounts of
$8,349 and $9,478, respectively
|
142,949
|
213,871
|
||||||
Inventories
|
60,544
|
81,098
|
||||||
Prepaid
expenses and other current assets
|
21,334
|
25,303
|
||||||
Deferred
income taxes
|
6,449
|
3,204
|
||||||
Total
current assets
|
294,315
|
373,815
|
||||||
Property,
plant and equipment, net
|
89,883
|
98,616
|
||||||
Intangible
assets, net
|
—
|
3,803
|
||||||
Asset
held for sale
|
—
|
4,845
|
||||||
Other
assets
|
5,654
|
6,215
|
||||||
TOTAL
ASSETS
|
$
|
389,852
|
$
|
487,294
|
||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
81,830
|
$
|
139,267
|
||||
Accrued
payroll and employee benefits
|
11,322
|
12,286
|
||||||
Accrued
restructuring costs
|
1,803
|
5,813
|
||||||
Accrued
expenses and other current liabilities
|
23,946
|
37,390
|
||||||
Total
current liabilities
|
118,901
|
194,756
|
||||||
Long-term
debt
|
268,983
|
285,256
|
||||||
Other
liabilities
|
1,356
|
1,898
|
||||||
Total
liabilities
|
389,240
|
481,910
|
||||||
Commitments
and contingencies (Notes 10 and 11)
|
||||||||
Shareholders’
equity:
|
||||||||
Preferred
Stock, $0.0001 par value, 5,000,000 shares authorized and no shares issued
or outstanding
|
—
|
—
|
||||||
Common
Stock, $0.0001 par value, 250,000,000 shares authorized, 132,357,287 and
131,637,460 shares issued and outstanding, respectively
|
825,354
|
820,733
|
||||||
Accumulated
other comprehensive income
|
10,522
|
14,245
|
||||||
Accumulated
deficit
|
(835,264
|
)
|
(829,594
|
)
|
||||
Net
shareholders’ equity
|
612
|
5,384
|
||||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
389,852
|
$
|
487,294
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
Fiscal Year Ended | ||||||||||||
January
3,
2010
(As
Restated)
|
December
28,
2008
(As
Restated)
|
December
30,
2007
(As
Restated)
|
||||||||||
Net
sales
|
$
|
567,486
|
$
|
890,234
|
$
|
780,517
|
||||||
Cost
of sales:
|
||||||||||||
Cost
of goods
|
420,568
|
687,310
|
638,487
|
|||||||||
Intangible
asset amortization
|
2,494
|
19,166
|
19,609
|
|||||||||
Restructuring
and impairment charges
|
1,932
|
36,230
|
35,170
|
|||||||||
Total
cost of sales
|
424,994
|
742,706
|
693,266
|
|||||||||
Gross
profit
|
142,492
|
147,528
|
87,251
|
|||||||||
Operating
expenses:
|
||||||||||||
Sales
and marketing
|
34,233
|
44,857
|
52,991
|
|||||||||
Research
and development
|
58,920
|
77,652
|
84,992
|
|||||||||
General
and administrative
|
47,658
|
63,491
|
75,267
|
|||||||||
Intangible
asset amortization
|
947
|
9,508
|
11,033
|
|||||||||
In-process
research and development
|
—
|
—
|
208
|
|||||||||
Restructuring
and impairment charges
|
2,611
|
16,178
|
11,296
|
|||||||||
Goodwill
impairment charge
|
—
|
315,885
|
151,735
|
|||||||||
Total
operating expenses
|
144,369
|
527,571
|
387,522
|
|||||||||
Operating
loss
|
(1,877
|
)
|
(380,043
|
)
|
(300,271
|
)
|
||||||
Other
income (expense), net
|
(511
|
)
|
21,212
|
(9,428
|
)
|
|||||||
Loss
before income taxes
|
(2,388
|
)
|
(358,831
|
)
|
(309,699
|
)
|
||||||
Income
tax provision
|
3,282
|
3,462
|
7,198
|
|||||||||
Net
loss
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
|||
Basic
loss per share:
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
|||
Diluted
loss per share:
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
|||
Shares
used in the computation of loss per share:
|
||||||||||||
Basic
|
131,803
|
131,077
|
130,396
|
|||||||||
Diluted
|
131,803
|
131,077
|
130,396
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE OPERATIONS
(in
thousands)
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
(As
Restated)
|
December
28,
2008
(As
Restated)
|
December
30,
2007
(As
Restated)
|
||||||||||
Net
loss
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
|||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments, net of income tax
|
(3,723
|
)
|
(54,215
|
)
|
33,250
|
|||||||
Comprehensive
loss
|
$
|
(9,393
|
)
|
$
|
(416,508
|
)
|
$
|
(283,647
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
(in
thousands)
Common
Stock
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Retained
Earnings
(Accumulated
Deficit)
|
Total
Shareholders’
Equity
|
|||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||
Balance
at December 31, 2006, as reported
|
130,081
|
$
|
751,380
|
$
|
35,210
|
$
|
(134,992
|
)
|
$
|
651,598
|
||||||||||
Implementation
of FASB ASC Topic 470 (See Note 5)
|
—
|
55,529
|
—
|
(14,075
|
)
|
41,454
|
||||||||||||||
Balance
at December 31, 2006, as restated
|
130,081
|
806,909
|
|
35,210
|
|
(149,067
|
)
|
|
693,052
|
|||||||||||
Implementation
of FASB ASC Topic 740 (See Note 15)
|
—
|
—
|
—
|
(1,337
|
)
|
(1,337
|
)
|
|||||||||||||
Issuance
of common stock related to employee stock-based compensation
plans
|
997
|
3,973
|
—
|
—
|
3,973
|
|||||||||||||||
Repurchase
of common stock
|
(61
|
)
|
(352
|
)
|
—
|
—
|
(352
|
)
|
||||||||||||
Stock-based
compensation expense
|
—
|
4,887
|
—
|
—
|
4,887
|
|||||||||||||||
Foreign
currency translation adjustments
|
—
|
—
|
33,250
|
—
|
33,250
|
|||||||||||||||
Net
loss, as restated
|
—
|
—
|
—
|
(316,897
|
)
|
(316,897
|
)
|
|||||||||||||
Balance
at December 30, 2007, as restated
|
131,017
|
815,417
|
68,460
|
(467,301
|
)
|
416,576
|
||||||||||||||
Issuance
of common stock related to employee stock-based compensation
plans
|
789
|
1,086
|
—
|
—
|
1,086
|
|||||||||||||||
Repurchase
of common stock
|
(169
|
)
|
(524
|
)
|
—
|
—
|
(524
|
)
|
||||||||||||
Stock-based
compensation expense
|
—
|
4,754
|
—
|
—
|
4,754
|
|||||||||||||||
Foreign
currency translation adjustments
|
—
|
—
|
(54,215
|
)
|
—
|
(54,215
|
)
|
|||||||||||||
Net
loss, as restated
|
—
|
—
|
—
|
(362,293
|
)
|
(362,293
|
)
|
|||||||||||||
Balance
at December 28, 2008, as restated
|
131,637
|
820,733
|
14,245
|
(829,594
|
)
|
5,384
|
|
|||||||||||||
Issuance
of common stock related to employee stock-based compensation
plans
|
732
|
281
|
—
|
—
|
281
|
|||||||||||||||
Repurchase
of common stock
|
(12
|
)
|
(15
|
)
|
—
|
—
|
(15
|
)
|
||||||||||||
Stock-based
compensation expense
|
—
|
4,355
|
—
|
—
|
4,355
|
|||||||||||||||
Foreign
currency translation adjustments
|
—
|
—
|
(3,723
|
)
|
—
|
(3,723
|
)
|
|||||||||||||
Net
loss, as restated
|
—
|
—
|
—
|
(5,670
|
)
|
(5,670
|
)
|
|||||||||||||
Balance
at January 3, 2010, as restated
|
132,357
|
$
|
825,354
|
$
|
10,522
|
$
|
(835,264
|
)
|
$
|
612
|
The
accompanying notes are an integral part of these consolidated financial
statements.
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
Fiscal Year
Ended
|
||||||||||||
January
3,
2010
(As
Restated)
|
December 28,
2008
(As
Restated)
|
December
30,
2007
(As
Restated)
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
loss
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
|||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||||||
Depreciation
and amortization
|
30,142
|
58,378
|
62,352
|
|||||||||
Goodwill
impairment charge
|
—
|
315,885
|
151,735
|
|||||||||
In-process
research and development charge
|
—
|
—
|
208
|
|||||||||
Non-cash
restructuring and impairment charges
|
4,543
|
52,408
|
46,466
|
|||||||||
Provision
for sales returns and doubtful accounts
|
1,860
|
878
|
4,073
|
|||||||||
Provision
for excess and obsolete inventories
|
9,057
|
5,854
|
18,496
|
|||||||||
Deferred
income taxes
|
(3,245
|
)
|
(373
|
)
|
(1,972
|
)
|
||||||
Compensation
costs related to stock-based awards
|
4,355
|
4,754
|
4,887
|
|||||||||
Gain
on repurchase of convertible debt
|
(9,767
|
)
|
(26,340
|
)
|
(2,211
|
)
|
||||||
Gain
on disposal of property, plant and equipment
|
(95
|
)
|
(466
|
)
|
(678
|
)
|
||||||
Gain
on settlement of litigation
|
(645
|
)
|
—
|
—
|
||||||||
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||||
Accounts
receivable
|
66,817
|
4,886
|
(19,915
|
)
|
||||||||
Inventories
|
10,247
|
(3,051
|
)
|
38,456
|
||||||||
Prepaid
expenses and other current assets
|
1,330
|
9,640
|
15,665
|
|||||||||
Accounts
payable
|
(55,481
|
)
|
9,881
|
8,341
|
||||||||
Accrued
expenses and other current liabilities
|
(21,501
|
)
|
(44,523
|
)
|
(34,278
|
)
|
||||||
Other
non-current assets
|
500
|
1,542
|
(617
|
)
|
||||||||
Other
non-current liabilities
|
(1,178
|
)
|
246
|
(808
|
)
|
|||||||
Net
cash provided by (used in) operating activities
|
31,269
|
27,306
|
(26,697
|
)
|
||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchase
of property, plant and equipment
|
(10,151
|
)
|
(13,536
|
)
|
(14,307
|
)
|
||||||
Restricted
cash
|
833
|
3,933
|
(1,074
|
)
|
||||||||
Proceeds
from the sale of property, plant and equipment
|
394
|
4,513
|
13,753
|
|||||||||
Proceeds
from the sale of business
|
500
|
500
|
500
|
|||||||||
Proceeds
from the sale of assets held for sale
|
3,889
|
—
|
—
|
|||||||||
Acquisitions,
net of cash acquired
|
1,960
|
(4,105
|
)
|
6,783
|
||||||||
Net
cash provided by (used in) investing activities
|
(2,575
|
)
|
(8,695
|
)
|
5,655
|
|||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds
from long-term debt
|
—
|
—
|
150,000
|
|||||||||
Debt
issuance costs
|
(1,305
|
)
|
—
|
(4,863
|
)
|
|||||||
Proceeds
from stock-based compensation arrangements
|
281
|
1,086
|
3,434
|
|||||||||
Repurchase
of common stock
|
(15
|
)
|
(524
|
)
|
(352
|
)
|
||||||
Retirement
of short-term debt
|
—
|
(13,630
|
)
|
—
|
||||||||
Retirement
of long-term debt
|
(12,445
|
)
|
(10,872
|
)
|
(113,740
|
)
|
||||||
Net
cash provided by (used in) financing activities
|
(13,484
|
)
|
(23,940
|
)
|
34,479
|
|||||||
EFFECT
OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
|
(1,677
|
)
|
(5,916
|
)
|
3,170
|
|||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
13,533
|
(11,245
|
)
|
16,607
|
||||||||
CASH
AND CASH EQUIVALENTS, beginning of period
|
46,906
|
58,151
|
41,544
|
|||||||||
CASH
AND CASH EQUIVALENTS, end of period
|
$
|
60,439
|
$
|
46,906
|
$
|
58,151
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS, CONTINUED
(in
thousands)
Fiscal Year Ended | ||||||||||||
January
3,
2010
(As
Restated)
|
December 28,
2008
(As
Restated)
|
December 30,
2007
(As
Restated)
|
||||||||||
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
||||||||||||
Cash
paid for:
|
||||||||||||
Interest
expense
|
$
|
9,117
|
$
|
10,161
|
$
|
6,090
|
||||||
Income
taxes
|
$
|
9,095
|
$
|
23,103
|
$
|
7,549
|
||||||
SUPPLEMENTAL
SCHEDULE OF NON-CASH ACTIVITIES:
|
||||||||||||
Unpaid
purchases of property and equipment
|
$
|
1,774
|
$
|
895
|
$
|
752
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular
amounts in thousands, except per share data)
Note
1. Nature of Operations
Powerwave
Technologies Inc. (the “Company”) is a global supplier of end-to-end wireless
solutions for wireless communications networks. The Company designs,
manufactures and markets antennas, boosters, combiners, cabinets, shelters,
filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers,
remote radio head transceivers and advanced coverage solutions for use in
cellular, PCS, 3G and 4G networks throughout the world.
Note
2. Summary of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in the
accompanying consolidated financial statements.
Fiscal
Year
The
Company operates on a conventional 52-53 week accounting fiscal year that ends
on the Sunday closest to December 31. The Company’s fiscal quarters
generally span 13 weeks, with the exception of a 53-week fiscal year, when an
additional week is added during the fourth quarter to adjust the year to the
Sunday closest to December 31. Fiscal year 2007 ended on December 30,
2007, fiscal year 2008 ended on December 28, 2008, fiscal year 2009 ended
on January 3, 2010, and fiscal year 2010 ends on January 2, 2011. Fiscal years
2007 and 2008 each consisted of 52 weeks, and fiscal year 2009 consisted of 53
weeks.
Foreign
Currency
In
accordance with Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 830, “Foreign Currency Matters,”
some of the Company’s international operations use the respective local
currencies as their functional currency while other international operations use
the U.S. Dollar as their functional currency. Gains and losses from foreign
currency transactions are recorded in other income (expense), net. Revenue and
expenses from the Company’s international subsidiaries are translated using the
monthly average exchange rates in effect for the period in which they occur. The
Company’s international subsidiaries that have the U.S. Dollar as their
functional currency translate monetary assets and liabilities using current
rates of exchange at the balance sheet date and translate non-monetary assets
and liabilities using historical rates of exchange. Gains and losses from
remeasurement for such subsidiaries are included in other income (expense), net.
The Company’s international subsidiaries that do not have the U.S. Dollar
as their functional currency translate assets and liabilities at current rates
of exchange in effect at the balance sheet date. The resulting gains and losses
from translation for such subsidiaries are included as a component of
shareholders’ equity.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during reporting years. Actual results may differ from
those estimates.
Cash
and Cash Equivalents
Cash and
cash equivalents generally consist of cash, time deposits, commercial paper,
money market funds and other money market instruments with original maturity
dates of three months or less. The Company invests its excess cash in only
investment grade money market instruments from companies in a variety of
industries and, therefore, believes that it bears minimal principal risk. Such
investments are stated at cost, which approximates fair value.
Restricted
Cash
Restricted
cash consists of cash and cash equivalents which the Company has pledged to
fulfill certain obligations and is not available for general corporate
purposes.
64
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Accounts
Receivable
The
Company performs ongoing credit evaluations of its customers and adjusts credit
limits based upon payment history, the customer’s creditworthiness and various
other factors, as determined by its review of their credit information. The
Company monitors collections and payments from its customers and maintains an
allowance for estimated credit losses based upon its historical experience and
any customer-specific collection issues that it has identified.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable. The
Company maintains cash and cash equivalents with major financial institutions
and performs periodic evaluations of the relative credit standing of these
financial institutions in order to limit the amount of credit exposure with any
one institution. The Company’s customers are concentrated in the wireless
communications industry and may be influenced by the prevailing macroeconomic
conditions present in this industry.
Receivables
from the Company’s customers are generally unsecured. To reduce the overall risk
of collection, the Company performs ongoing evaluations of its customers’
financial condition. The Company’s product sales have historically been
concentrated in a small number of customers. During the fiscal years ended
January 3, 2010, December 28, 2008 and December 30, 2007, sales to
customers that accounted for 10% or more of revenues for the fiscal year totaled
$195.3 million, $424.9 million and $396.9 million, respectively. For fiscal year
2009, sales to Nokia Siemens accounted for approximately 34% of revenues. For
fiscal year 2008, sales to Nokia Siemens accounted for approximately 31% of
revenues, and sales to Alcatel-Lucent accounted for approximately 17% of
revenues. For fiscal year 2007, sales to Nokia Siemens accounted for
approximately 35% of revenues, and sales to Alcatel-Lucent accounted for
approximately 16% of revenues.
As of
January 3, 2010, approximately 33% of total accounts receivable related to Nokia
Siemens. The inability to collect outstanding receivables from Nokia Siemens or
the loss of, or reduction in, sales to this customer could have a material
adverse effect on the Company’s business, financial condition and results of
operations.
Inventories
The
Company values inventories at the lower of cost (determined on an average cost
basis) or fair market value and includes materials, labor and manufacturing
overhead. The Company writes down excess and obsolete inventory to estimated net
realizable value. In assessing the ultimate realization of inventories, the
Company makes judgments as to future demand requirements and compares those
requirements with the current or committed inventory levels. Depending on the
product line and other factors, the Company estimates future demand based on
either historical usage for the preceding twelve months, adjusted for known
changes in demand for such products, or the forecast of product demands and
production requirements for the next twelve months. These provisions reduce the
cost basis of the respective inventory and are recorded as a charge to cost of
sales.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation.
Depreciation expense includes amortization of assets under capital leases. The
Company depreciates or amortizes these assets using the straight-line method
over the estimated useful lives of the various asset classes, as
follows:
Machinery
and equipment
|
2 to 10 years
|
Office
furniture and equipment
|
3
to 10 years
|
Buildings
|
30
years
|
Building
improvements
|
Shorter
of useful life or
remaining life of building
|
Leasehold
improvements are amortized over the shorter of their estimated useful life or
the remaining lease term.
Goodwill
and Intangible Assets
The
Company records the assets acquired and liabilities assumed in business
combinations at their respective fair values at the date of acquisition, with
any excess purchase price recorded as goodwill. Because of the expertise
required to value intangible assets and in-process research and development, the
Company typically engages third-party valuation specialists to assist it in
determining those values. Valuation of intangible assets and in-process research
and development entails significant estimates and assumptions including, but not
limited to, determining the timing and expected costs to complete development
projects, estimating future cash flows from product sales, developing
appropriate discount rates, estimating probability rates for the successful
completion of development projects, continuation of customer relationships and
renewal of customer contracts, and approximating the useful lives of the
intangible assets acquired.
The
Company reviews the recoverability of the carrying value of goodwill on an
annual basis or more frequently when an event occurs or circumstances change to
indicate that an impairment of goodwill has possibly occurred. The determination
of whether any potential impairment of goodwill exists is based upon a
comparison of the fair value of the reporting unit to the carrying value of the
underlying net assets of such reporting unit. To determine the fair value of the
reporting unit, the Company utilizes subjective valuations for the reporting
unit based upon market capitalization and/or a discounted cash flow analysis.
The discounted cash flow analysis is dependent upon a number of various factors
including estimates of forecasted revenues and costs, appropriate discount rates
and other variables. If the fair value of the reporting unit is less than the
carrying value of the underlying net assets, goodwill is deemed impaired and an
impairment loss is recorded to the extent that the carrying value of goodwill is
less than the difference between the fair value of the reporting unit and the
fair value of all its underlying identifiable assets and
liabilities.
Purchased
intangible assets with determinable useful lives are carried at cost less
accumulated amortization, and are amortized using the straight-line method over
their estimated useful lives, which generally range up to 6 years. The Company
reviews the recoverability of the carrying value of identified intangibles and
other long-lived assets, including fixed assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of these assets is determined based upon the
forecasted undiscounted future net cash flows expected to result from the use of
such asset and its eventual disposition. The Company’s estimate of future cash
flows is based upon, among other things, certain assumptions about expected
future operating performance, growth rates and other factors. The actual cash
flows realized from these assets may vary significantly from its estimates due
to increased competition, changes in technology, fluctuations in demand,
consolidation of its customers and reductions in average selling prices. If the
carrying value of an asset is determined not to be recoverable from future
operating cash flows, the asset is deemed impaired and an impairment loss is
recognized to the extent the carrying value exceeds the estimated fair market
value of the asset. The Company does not have any goodwill or
intangible assets remaining on its consolidated balance sheet as of January 3,
2010.
Long-Lived
Assets
The
Company periodically reviews the recoverability of its long-lived assets using
the methodology prescribed in accounting guidance now codified as FASB ASC Topic
360, “Property, Plant and
Equipment.” The Company also reviews these assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of these assets is determined by
comparing the forecasted undiscounted future net cash flows from the operations
to which the assets relate, based on management’s best estimates using
appropriate assumptions and projections at the time, to the carrying amount of
the assets. If the carrying value is determined not to be recoverable from
future operating cash flows, the asset is deemed impaired and an impairment loss
is recognized equal to the amount by which the carrying amount exceeds the
estimated fair value of the asset.
Vendor
Cancellation Liabilities
The
Company purchases subassemblies and finished goods from contract manufacturers
under purchase agreements that limit its ability to cancel deliveries inside
defined lead time windows. When a contract manufacturer submits a
cancellation claim, the Company estimates the amount of inventory remaining to
be purchased against that claim. Any excess of the estimated purchase
over the projected consumption of the related product is recorded as a charge to
cost of sales and an increase to accrued expenses and other current
liabilities. Depending on the product line and other factors, the
Company estimates future demand based on either historical usage for the
preceding twelve months, adjusted for known changes in demand for such products,
or the forecast of product demands and production requirements for the next
twelve months.
Warranties
The
Company offers warranties of various lengths to its customers depending upon the
specific product and terms of the customer purchase agreement. The Company’s
standard warranties require it to repair or replace defective product returned
during the warranty period at no cost to the customer. The Company records an
estimate for standard warranty-related costs based on its actual historical
return rates and repair costs at the time of the sale and updates such estimates
throughout the warranty period. The Company also has contractual commitments to
various customers that require it to incur costs to repair an epidemic defect
with respect to its products outside of its standard warranty period if such
defect were to occur. Any costs related to epidemic defects are generally
recorded at the time the epidemic defect becomes known to the Company and the
costs of repair can be reasonably estimated.
66
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Revenue
Recognition
The
majority of the Company’s revenue is derived from the sale of products. The
Company recognizes revenue from product sales at the time of shipment or
delivery and passage of title depending upon the terms of the sale provided that
persuasive evidence of an arrangement exists, the fee is fixed or determinable
and collectibility is reasonably assured. The Company offers certain of its
customers the right to return products within a limited time after delivery
under specified circumstances, generally related to product defects. The Company
monitors and tracks product returns and records a provision for the estimated
amount of future returns based on historical experience and any notification it
receives of pending returns.
Advertising
Advertising
costs are expensed as incurred and such amounts are included in sales and
marketing expenses. Total advertising costs, including participation at industry
trade shows were $2.9 million, $5.2 million and $6.5 million for fiscal years
ended January 3, 2010, December 28, 2008 and December 30, 2007,
respectively.
Shipping
and Handling
Shipping
and handling expenses are expensed as incurred and such amounts are included in
cost of sales.
Research &
Development
Research
and development expenses are expensed as incurred.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with accounting
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 using the Black-Scholes-Merton option pricing model and a
multiple option award approach. The fair value of restricted stock awards is
based on the closing market price of the Company’s common stock on the date of
grant. Stock-based compensation, adjusted for estimated forfeitures,
is amortized on a straight-line basis over the requisite service period of the
award, which is generally the vesting period.
Income
Taxes
The
Company accounts for income taxes in accordance with accounting guidance now
codified as FASB ASC Topic 740, “Income Taxes,” which
requires that the Company recognize deferred tax liabilities and assets based on
the differences between the financial statement carrying amounts and the tax
bases of assets and liabilities, using enacted tax rates in effect in the years
the differences are expected to reverse. Deferred income tax benefit (expense)
results from the change in net deferred tax assets or deferred tax liabilities.
A valuation allowance is recorded when it is more likely than not that some or
all deferred tax assets will not be realized.
Accounting
guidance now codified as FASB ASC Topic 740-20, “Income Taxes – Intraperiod Tax
Allocation,” clarifies the accounting for uncertainties in income taxes
recognized in accordance with FASB ASC Topic 740-20 by prescribing guidance for
the recognition, de-recognition and measurement in financial statements of
income tax positions taken in previously filed tax returns or tax positions
expected to be taken in tax returns, including a decision whether to file or not
to file in a particular jurisdiction. FASB ASC Topic 740-20 requires that any
liability created for unrecognized tax benefits is disclosed. The application of
FASB ASC Topic 740-20 may also affect the tax bases of assets and liabilities
and therefore may change or create deferred tax liabilities or assets. The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense.
Earnings
(Loss) Per Share
In
accordance with 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.
Potential common shares include stock options using the treasury stock
method.
67
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
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 non-governmental 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 were effective for
interim and annual periods ending after September 15, 2009 and,
accordingly, were 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, financial condition or results of operations, but will
impact the Company’s financial reporting process by eliminating all references
to pre-codification standards. On the effective date of FASB ASC Topic 105, 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 was 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 was effective
for periods ending after June 15, 2009. The adoption of this pronouncement
did not have a material impact on the Company’s business, financial condition or
results of operations; however, these provisions of FASB ASC Topic 820 resulted
in additional disclosures with respect to the fair value of the Company’s
financial instruments.
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 was 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, financial condition or results of operations.
In May
2008, the FASB issued guidance now codified as FASB ASC Topic 470-20, “Debt with Conversion and Other
Option,” which clarifies how a convertible debt instrument must be
accounted for if the instrument may be settled in cash or some combination of
cash and stock upon conversion of the debt. The Company is required
to account for the liability and equity components of the convertible debt
separately. The
liability component is measured at its estimated fair value such that the
effective interest expense associated with the convertible debt reflects the
issuer’s borrowing rate at the time of issuance for similar debt instruments
without the conversion feature. The difference between the cash proceeds
associated with the convertible debt and the estimated fair value is recorded as
a debt discount and amortized to interest expense over the life of the
convertible debt using the effective interest rate method. In
addition, direct issuance costs associated with the convertible debt instruments
are required to be allocated to the liability and equity components in
proportion to the allocation of proceeds and accounted for as debt issuance
costs and equity issuance costs, respectively. The Company has restated its
previously issued financial statements to reflect the retrospective adoption of
this guidance for its 1.875% Convertible Subordinated Notes due 2024 (“2024
Notes”). See Note 5 for information on the impact of the restatement on the
consolidated financial statements related to the adoption of the new
standard.
In April
2008, the FASB issued 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, financial condition or results
of operations.
In
December 2007, the FASB issued guidance now codified as FASB ASC Topic 805-10,
“Business Combinations,”
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 805-10 were effective in the first quarter of 2009.
The adoption of the provisions of FASB ASC Topic 805-10 did not have a material
impact on the Company’s business, financial condition or results of
operations.
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, financial condition and results of
operations.
Note
3. Supplemental Balance Sheet Information
Inventories
Inventories
are as follows:
January
3,
2010
|
December
28,
2008
|
|||||||
Parts
and components
|
$
|
27,937
|
$
|
28,547
|
||||
Work-in-process
|
1,363
|
2,618
|
||||||
Finished
goods
|
31,244
|
49,933
|
||||||
Total
inventories
|
$
|
60,544
|
$
|
81,098
|
Inventories
are net of an allowance for excess and obsolete inventories of approximately
$22.6 million and $43.4 million as of January 3, 2010 and December 28,
2008, respectively.
Property,
Plant and Equipment
Net
property, plant and equipment are as follows:
January
3,
2010
|
December 28,
2008
|
|||||||
Machinery
and equipment
|
$
|
169,638
|
$
|
164,102
|
||||
Buildings
and improvements
|
66,408
|
63,545
|
||||||
Land
|
15,562
|
15,521
|
||||||
Office
furniture and equipment
|
51,562
|
48,606
|
||||||
Leasehold
improvements
|
8,457
|
7,801
|
||||||
Gross
property, plant and equipment
|
311,627
|
299,575
|
||||||
Less:
Accumulated depreciation and amortization
|
(221,744
|
)
|
(200,959
|
)
|
||||
Total
property, plant and equipment, net
|
$
|
89,883
|
$
|
98,616
|
Depreciation
expense totaled $19.4 million, $21.0 million and $21.9 million for 2009, 2008
and 2007, 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 was separately presented in the accompanying
balance sheet under the caption “Asset Held for Sale” and this asset was no
longer depreciated. During 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 FASB ASC Topic 360. 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 resulting in net proceeds of approximately $3.9
million.
Accrued
Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities are as follows:
January
3,
2010
|
December 28,
2008
|
|||||||
Accrued
vendor cancellation costs
|
$
|
5,458
|
$
|
10,563
|
||||
Accrued
warranty costs
|
7,038
|
10,763
|
||||||
Other
accrued expenses and other current liabilities
|
11,450
|
16,064
|
||||||
Total
accrued expenses and other current liabilities
|
$
|
23,946
|
$
|
37,390
|
Warranty
Accrued
warranty costs are as follows:
Fiscal
Year Ended
|
||||||||
Description
|
January
3,
2010
|
December 28,
2008
|
||||||
Warranty
reserve beginning balance
|
$
|
10,763
|
$
|
26,975
|
||||
Reductions
for warranty costs incurred
|
(12,144
|
)
|
(16,628
|
)
|
||||
Warranty
accrual related to current period sales
|
8,387
|
6,692
|
||||||
Settlement
of previous warranty claims
|
—
|
(2,858
|
)
|
|||||
Change
in estimate related to previous warranty accruals
|
—
|
(2,360
|
)
|
|||||
Effect
of exchange rates
|
32
|
(1,058
|
)
|
|||||
Warranty
reserve ending balance
|
$
|
7,038
|
$
|
10,763
|
Note
4. Intangible Assets
Intangible
Assets
Intangible
assets, excluding goodwill, are as follows:
Intangible Assets Subject to
Amortization:
|
December 28,
2008
|
|||
Developed
technology (net of accumulated amortization of
$3,206)
|
$
|
2,494
|
||
Customer
relationships (net of accumulated amortization of
$3,479)
|
1,309
|
|||
Intangible
assets, net
|
$
|
3,803
|
Amortization
expense related to intangible assets totaled $3.4 million, $29.3 million and
$30.2 million for 2009, 2008 and 2007, respectively. The
remaining intangible assets were fully amortized in 2009.
70
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Note
5. Financing Arrangements, Long-Term Debt and Restatement Matters
Credit
Agreement
On
April 3, 2009, the Company entered into a Credit Agreement (“Credit
Agreement”), with Wells Fargo Capital Finance, LLC (formerly Wells Fargo
Foothill, LLC), as arranger and administrative agent. Pursuant to the Credit
Agreement, Wells Fargo Capital Finance made available to the Company a senior
secured revolving credit facility up to a maximum of $50.0 million. Availability
under the Credit Agreement is based on the calculation of the Company’s
borrowing base as defined in the Credit Agreement. The Credit
Agreement is secured by a first priority security interest on a majority of the
Company’s assets, including without limitation, all accounts, equipment,
inventory, chattel paper, records, intangibles, deposit accounts and cash and
cash equivalents. The Credit Agreement expires on August 15, 2011. The
Credit Agreement contains customary affirmative and negative covenants for
credit facilities of this type, including limitations on the Company with
respect to indebtedness, liens, investments, distributions, mergers and
acquisitions and dispositions of assets. The Credit Agreement also
includes financial covenants including minimum EBITDA and maximum capital
expenditures that are applicable only if the availability under the Company’s
line of credit falls below $20.0 million. On December 31, 2009, the Company
entered into a Waiver, Consent, Amendment to the Credit
Agreement. Under the amendment, certain immaterial technical defaults
by the Company were waived by Wells Fargo. In addition, certain
financial covenants were amended, including the lowering of the minimum EBITDA
thresholds. As of January 3, 2010, the Company had approximately
$29.4 million of availability under the Credit Agreement, of which approximately
$5 million was utilized by an outstanding letter of credit.
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.
Long-term
debt
January
3,
2010
|
December 28,
2008
|
|||||||
3.875%
Convertible Subordinated Notes due 2027
|
$
|
150,000
|
$
|
150,000
|
||||
1.875%
Convertible Subordinated Notes due 2024
|
130,887
|
156,321
|
||||||
Less
unamortized discount
Notes
|
(11,904
|
)
|
(21,065
|
)
|
||||
Total
long-term debt
|
$
|
268,983
|
$
|
285,256
|
During
2009, the Company repurchased $25.4 million in aggregate par value of its
outstanding 2024 Notes, resulting in a gain of $9.8 million on the purchase.
After the purchase, the Company had $130.9 million remaining on the 1.875%
convertible subordinated notes.
On
September 24, 2007, the Company completed the private placement of $150.0
million aggregate principal amount of convertible subordinated notes due October
2027 (“2027 Notes”). The notes are convertible into the Company’s common stock
at a conversion rate of $8.71 per share and accrue interest at an annual rate of
3.875%.. The Company may redeem the notes beginning on October 8, 2013
until October 7, 2014, if the closing price of the Company’s common stock
is more than $11.32 for at least 20 trading days within a 30 consecutive trading
day period ending on the last trading day of the calendar month preceding the
calendar month in which the notice of redemption is made. The notes may be
redeemed by the Company at any time after October 8, 2014. Holders of the
notes may require the Company to repurchase all or a portion of their notes for
cash on October 1, 2014, 2017 and 2022 at 100% of the principal amount of
the notes, plus accrued and unpaid interest up to but not including the date of
such repurchase. The Company received net cash proceeds of approximately $145.5
million from the sale of the notes.
On
November 10, 2004, the Company completed the private placement of $200.0
million aggregate principal amount of the 2024 Notes. The notes are convertible
into the Company’s common stock at a conversion price of $11.09 per share and
accrue interest at an annual rate of 1.875%. The Company may redeem the notes
beginning on November 21, 2009 until November 20, 2010 and on or after
November 21, 2010 until November 20, 2011, if the closing price of the
Company’s common stock is more than $17.74 and $14.42, respectively, for at
least 20 trading days within a 30 consecutive trading day
71
period.
The notes may be redeemed by the Company at any time after November 21,
2011. Holders of the notes may require the Company to repurchase all or a
portion of their notes for cash on November 15, 2011, 2014 and 2019 at 100%
of the principal amount of the notes, plus accrued and unpaid interest up to but
not including the date of such repurchase. Holders of the notes may also require
the Company to repurchase all or a portion of their notes in the case of a
change in control. In addition, under certain circumstances related to a change
in control, the conversion price of the notes may be adjusted downwards, thereby
increasing the number of shares issuable upon conversion, if holders of the
notes elect to convert their notes at a time when the notes are not redeemable
by the Company. The Company used a portion of the proceeds of the offering to
fund the repurchase of $40.0 million of its common stock (5,050,505 shares)
simultaneously with the issuance of the notes. The Company received net cash
proceeds of approximately $154.2 million after the deduction of the amount used
for the common stock repurchase and debt issuance costs.
The 2027
Notes and the 2024 Notes are general unsecured obligations of the Company and
are subordinate in right of payment to all of the Company’s existing and future
senior indebtedness. In addition, the indenture for the notes does not restrict
the Company from incurring senior debt or other indebtedness and does not impose
any financial covenants on the Company.
Impact
of the Adoption of FASB ASC Topic 470-20 and Restatement
Subsequent
to the issuance of its consolidated financial statements for the year ended
January 3, 2010 the Company identified an error in the accounting for its 2024
Notes and the application of FASB ASC Topic 470-20, Debt with Conversion and Other
Options, to that instrument. FASB ASC Topic 470-20, which was
effective on December 29, 2008, requires the liability and equity components of
convertible debt instruments that may be settled in cash upon conversion to be
separately accounted for in a manner that reflects the issuer’s nonconvertible
debt borrowing rate. To allocate the proceeds from a convertible debt offering
in this manner, a company would first need to determine the carrying amount of
the liability component, which would be based on the fair value of a similar
liability, excluding any embedded conversion options. The resulting debt
discount is then amortized over the period during which the debt is expected to
be outstanding as additional non-cash interest expense. The adoption of FASB ASC
Topic 470-20 generally requires retrospective application to all periods
presented. The Company had not properly applied FASB ASC Topic 470-20 to
its 2024 Notes. As a result, the accompanying consolidated financial
statements for the years ended January 3, 2010, December 28, 2008 and December
30, 2007 have been restated to correct for this error. The effect of the
restatement is described below.
Upon
adoption of FASB ASC Topic 470-20, the Company estimated the fair value, as of
the date of issuance, of the 2024 Notes assuming a 7.05% non-convertible
borrowing rate to be $142.7 million. The difference between the fair
value and the principal amount of the 2024 Notes was $57.3
million. This amount was retrospectively recorded as a debt discount
and as an increase to additional paid-in capital as of the issuance
date. The Company also incurred approximately $6.2 million in
transaction costs, of which $4.4 million was allocated to the debt component as
debt issuance costs and $1.8 million was allocated to the equity component as
equity issuance costs and a decrease to additional
paid-in-capital. The debt issuance costs are being amortized over the
remaining life of the debt (the first put date in 2011) using the effective
interest method and are reported as an increase to interest
expense.
The
following tables set forth the effect of the restatement of the adoption and
retrospective application of FASB ASC Topic 470-20 on certain previously
reported financial statement items:
January
3, 2010
|
December 28,
2008
|
|||||||||||||||
Consolidated Balance
Sheets:
|
As
Reported
|
As
Restated
|
As
Reported
|
As
Restated
|
||||||||||||
Other
assets
|
$ | 5,987 | $ | 5,654 | $ | 6,817 | $ | 6,215 | ||||||||
Total
assets
|
390,185 | 389,852 | 487,896 | 487,294 | ||||||||||||
Long-term
debt
|
280,887 | 268,983 | 306,321 | 285,256 | ||||||||||||
Total
liabilities
|
401,144 | 389,240 | 502,975 | 481,910 | ||||||||||||
Common
Stock
|
769,825 | 825,354 | 765,204 | 820,733 | ||||||||||||
Accumulated
deficit
|
(791,306 | ) | (835,264 | ) | (794,528 | ) | (829,594 | ) | ||||||||
Net
shareholders’ equity (deficit)
|
(10,959 | ) | 612 | (15,079 | ) | 5,384 | ||||||||||
Total
liabilities and shareholders’ equity (deficit)
|
390,185 | 389,852 | 487,896 | 487,294 |
72
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Fiscal
Year Ended
|
||||||||||||||||||||||||
January 3, 2010
|
December 28, 2008
|
December 30, 2007
|
||||||||||||||||||||||
Consolidated Statements of
Operations:
|
As
Reported
|
As
Restated
|
As
Reported
|
As
Restated
|
As
Reported
|
As
Restated
|
||||||||||||||||||
Other
income (expense), net
|
$ | 8,381 | $ | (511 | ) | $ | 34,841 | $ | 21,212 | $ | (2,066 | ) | $ | (9,428 | ) | |||||||||
Income
(loss) before income taxes
|
6,504 | (2,388 | ) | (345,202 | ) | (358,831 | ) | (302,337 | ) | (309,699 | ) | |||||||||||||
Net
income (loss)
|
3,222 | (5,670 | ) | (348,664 | ) | (362,293 | ) | (309,535 | ) | (316,897 | ) | |||||||||||||
Earnings
(loss) per share:
|
||||||||||||||||||||||||
Basic
|
$ | 0.02 | $ | (0.04 | ) | $ | (2.66 | ) | $ | (2.76 | ) | $ | (2.37 | ) | $ | (2.43 | ) | |||||||
Diluted
|
$ | 0.02 | $ | (0.04 | ) | $ | (2.66 | ) | $ | (2.76 | ) | $ | (2.37 | ) | $ | (2.43 | ) |
Fiscal
Year Ended
|
||||||||||||||||||||||||
January 3, 2010
|
December 28, 2008
|
December 30, 2007
|
||||||||||||||||||||||
Consolidated Statements of Cash
Flows:
|
As
Reported
|
As
Restated
|
As
Reported
|
As
Restated
|
As
Reported
|
As
Restated
|
||||||||||||||||||
Net
income (loss)
|
$ | 3,222 | $ | (5,670 | ) | $ | (348,664 | ) | $ | (362,293 | ) | $ | (309,535 | ) | $ | (316,897 | ) | |||||||
Depreciation
and amortization
|
24,509 | 30,142 | 51,219 | 58,378 | 56,015 | 62,352 | ||||||||||||||||||
Gain
on repurchase of convertible debt
|
(12,693 | ) | (9,767 | ) | (32,207 | ) | (26,340 | ) | (2,211 | ) | (2,211 | ) | ||||||||||||
Other
non-current assets
|
167 | 500 | 939 | 1,542 | (1,642 | ) | (617 | ) |
The
following tables provide additional information about the Company’s 2024 Notes
that are subject to FASB ASC Topic 470-20:
January 3,
2010
(As
Restated)
|
December 28,
2008
(As
Restated)
|
|||||||
Carrying
amount of the equity component
|
$
|
55,529
|
$
|
55,529
|
||||
Principal
amount of the 2024 Notes
|
$
|
130,887
|
$
|
156,321
|
||||
Unamortized
discount of liability component
|
$
|
11,904
|
$
|
21,065
|
||||
Net
carrying amount of liability component
|
$
|
118,983
|
$
|
135,256
|
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December 28,
2008
|
December 30,
2007
|
||||||||||
Effective
interest rate on liability component
|
7.07
|
%
|
7.07
|
%
|
7.07
|
%
|
||||||
Contractual
interest expense recognized on the 2024 Notes
|
$
|
3,750
|
$
|
3,750
|
$
|
3,750
|
||||||
Amortization
of the discount on liability component
|
$
|
6,149
|
$
|
8,012
|
$
|
7,610
|
The
unamortized discount will be recognized ratably through November 15,
2011. As of January 3, 2010, the if-converted value of the 2024 Notes
did not exceed the principal amount.
Note
6. Restructuring and Impairment Charges and Accrued Restructuring
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 macroeconomic slowdown that began in the fourth
quarter of 2008. The Company finalized this plan in the fourth quarter of 2009;
however, additional amounts may be accrued in 2010 related to actions associated
with this plan.
73
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(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 fiscal year ended January 3, 2010 is as
follows:
Workforce
Reductions
|
Facility
Closures
&
Equipment Write-downs
|
Total
|
||||||||||
Balance
at December 28, 2008
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
Amounts
accrued
|
2,769
|
78
|
2,847
|
|||||||||
Amounts
paid/incurred
|
(2,268
|
)
|
(78
|
)
|
(2,346
|
)
|
||||||
Effects
of exchange rates
|
—
|
—
|
—
|
|||||||||
Balance
at January 3, 2010
|
$
|
501
|
—
|
501
|
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
second quarter of 2011.
2008
Restructuring Plan
In June
2008, the Company formulated and began to implement a plan to further
consolidate operations and reduce manufacturing and operating expenses. As part
of this plan, the Company closed its Salisbury, Maryland manufacturing facility
and transferred most of the production to its other manufacturing operations. In
addition, the Company closed its design and development center in Bristol, UK
and discontinued manufacturing operations in Kempele, Finland. These actions
were finalized in the first quarter of 2009.
A summary
of the activity affecting the accrued restructuring liability related to the
2008 Restructuring Plan for the fiscal year ended January 3, 2010 is as
follows:
Workforce
Reductions
|
Facility
Closures
&
Equipment Write-downs
|
Total
|
||||||||||
Balance
at December 28, 2008
|
$
|
3,106
|
$
|
585
|
$
|
3,691
|
||||||
Amounts
accrued
|
650
|
95
|
745
|
|||||||||
Amounts
paid/incurred
|
(3,652
|
)
|
(406
|
)
|
(4,058
|
)
|
||||||
Effects
of exchange rates
|
73
|
60
|
133
|
|||||||||
Balance
at January 3, 2010
|
$
|
177
|
334
|
511
|
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 second quarter of 2010, and the facility closure amounts will be
paid out over the remaining lease term, which extends through September
2010.
2007
Restructuring Plan
In the
second quarter of 2007, the Company formulated and began to implement a plan to
further consolidate operations and reduce operating costs. As part of this plan,
the Company closed its design and development centers in El Dorado Hills,
California and Toronto, Canada, and discontinued its design and development
center in Shipley, UK. Also as part of this plan, the Company sold its
manufacturing operations located in Hungary to Sanmina-SCI, a third-party
contract manufacturing supplier, and entered into a manufacturing services
agreement with Sanmina-SCI. The transaction included inventories and fixed
assets and included a sublease of the existing facility, along with the
assumption of certain liabilities, including all transferred employees. The
Company finalized this plan in the fourth quarter of 2007.
A summary
of the activity affecting the accrued restructuring liability related to the
2007 Restructuring Plan for the fiscal year ended January 3, 2010 is as
follows:
Facility
Closures
&
Equipment Write-downs
|
||||
Balance
at December 28, 2008
|
$
|
551
|
||
Amounts
accrued
|
(179
|
)
|
||
Amounts
paid/incurred
|
(375
|
)
|
||
Effects
of exchange rates
|
3
|
|||
Balance
at January 3, 2010
|
$
|
—
|
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 during 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 fiscal year ended January 3,
2010 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 January 3, 2010
|
$
|
—
|
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 during 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.
75
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(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 fiscal year ended January 3, 2010 is as follows:
Facility
Closures
&
Equipment Write-downs
|
||||
Balance
at December 28, 2008
|
$
|
1,425
|
||
Amounts
accrued
|
—
|
|||
Amounts
paid/incurred
|
(634
|
)
|
||
Effects
of exchange rates
|
—
|
|||
Balance
at January 3, 2010
|
$
|
791
|
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
connection with the plans described above, the Company recorded various
restructuring and impairment charges in 2009, 2008 and 2007. A summary of these
charges is listed below:
Fiscal
Year Ended
|
|||||||||||
January
3,
2010
|
December 28,
2008
|
December 30,
2007
|
|||||||||
Intangible
asset impairment
|
$
|
—
|
$
|
18,306
|
$
|
666
|
|||||
Restructuring
and impairment charges:
|
|||||||||||
Inventory
charges
|
—
|
9,656
|
13,327
|
||||||||
Facility
asset impairment
|
955
|
2,604
|
10,729
|
||||||||
Settlement
of contractual commitments
|
—
|
565
|
9,727
|
||||||||
Severance
|
977
|
4,386
|
177
|
||||||||
Other
charges
|
—
|
713
|
544
|
||||||||
Total
cost of sales
|
1,932
|
36,230
|
35,170
|
||||||||
Intangible
asset impairment
|
—
|
11,219
|
2,015
|
||||||||
Restructuring
and impairment charges:
|
|||||||||||
Severance
|
2,442
|
2,299
|
5,886
|
||||||||
Facility
closure and impairment charges
|
169
|
1,729
|
2,718
|
||||||||
Other
charges
|
—
|
931
|
677
|
||||||||
Total
operating expenses
|
2,611
|
16,178
|
11,296
|
||||||||
Goodwill
impairment
|
—
|
315,885
|
151,735
|
||||||||
Total
restructuring and impairment charges
|
$
|
4,543
|
$
|
368,293
|
$
|
198,201
|
In 2009,
the Company recorded charges of approximately $3.4 million in severance costs,
of which $1.0 million and $2.4 million was recorded in cost of sales and
operating expenses, respectively. In connection with these plans, the
Company incurred severance costs in 2008 at various locations of $6.7 million,
of which $4.4 million and $2.3 million was recorded in cost of sales and
operating expenses, respectively. During 2008, the Company also incurred charges
of $1.6 million for professional fees related to these restructuring plans,
including charges related to various professional fees to wind down the
entities, of which $0.7 million was included in cost of goods sold and $0.9
million was included in operating expenses. The Company incurred severance costs
in 2007 of $6.1 million, of which $0.2 million and $5.9 million was recorded in
cost of sales and operating expenses, respectively. During 2007, the Company
also incurred charges of $1.2 million for professional fees related to these
restructuring plans, including a charge related to the Company’s sale of its
manufacturing facility in Hungary.
In 2009,
the Company recorded a charge of approximately $0.2 million related to facility
closures costs. The Company also recorded facility closure charges of
$1.7 million in 2008 consisting primarily of the remaining lease payments for
its closed development facility in Bristol, UK. During 2007, the Company
recorded facility closure charges of $1.7 million related primarily to the
closure of its design and development centers in El Dorado Hills, California and
Toronto, Canada, and the discontinuance of its design and development center in
Shipley, UK.
In 2009,
the Company sold the Salisbury, Maryland building and recorded a charge of
approximately $1.0 million to write the building down to its fair value less
cost to sell. In 2008, the Company recorded a net impairment charge
of $1.2 million related primarily to manufacturing equipment and other assets
located in closed plants in Salisbury, Maryland, Hungary and Costa Rica. In
addition, the Company recorded a charge of $0.3 million to write the Salisbury
building down to its fair value less cost to sell that was classified as held
for sale in 2008. Also in 2008, the Company recorded facility closure charges of
$1.1 million consisting of the remaining lease payments for its closed facility
in Hungary as the cease-use date criteria in FASB ASC Topic 420 was met in 2008.
In 2007, the Company also recorded a net impairment charge of $7.4 million
related to manufacturing equipment located in plants either closed or to be
closed in China, Hungary and Costa Rica. During 2007, the Company recognized a
$1.9 million impairment charge on its building in Costa Rica to reflect its
estimated current market value. The sale of the Costa Rica building was
completed in the second quarter of 2008.
In 2008,
the Company recorded a charge of approximately $9.7 million related to the
impairment of inventory that either has been or will be disposed of and is not
expected to generate future revenue primarily due to consolidations and facility
closures in China, Finland, Hungary, the UK and Salisbury, Maryland. In 2007,
the Company recorded a charge of approximately $13.3 million for the impairment
of the related inventory value that will be disposed of and not generate future
revenues at its facilities in China, Sweden, Hungary and the UK.
In 2008,
the Company recorded a charge of $0.6 million related to vendor cancellation
claims for closed facilities. In 2007, the Company recorded a charge of $9.3
million related to the settlement of its revenue and margin commitments
associated with the sale of its Philippines manufacturing facility in 2006, as
well as an impairment charge of $1.4 million on the land at its Philippines
manufacturing facility that was retained by the Company at the time of the sale.
Based upon a valuation report on the land that the Company obtained when it
settled its revenue and margin commitments, the Company recorded an impairment
charge of $1.4 million to write the land down to its estimated net realizable
value. The Company also recorded a charge of $0.4 million related to certain
other vendor cancellation charges for purchase order commitments on closed
facilities.
In 2007,
the Company sold one of its facilities in Sweden for approximately $11.8 million
and realized a loss of approximately $1.0 million.
Intangible
Asset Impairment
In 2008,
the Company performed an analysis of the recoverability of its intangible assets
in accordance with FASB ASC Topic 350, which included a detailed review of its
developed technology and customer relationship intangible assets from prior
acquisitions, including its Filtronic plc, REMEC Wireless, and LGP Allgon
acquisitions. The Company determined that the developed technology and related
customer relationship intangible assets had either been replaced or were at the
end of life and had no future forecasted cash flows. Accordingly, the Company
recorded an intangible asset impairment charge of approximately $29.5 million in
2008, which included approximately $18.3 million for developed technology
intangible assets and $11.2 million related to customer relationship
intangibles. In 2007, the Company performed a similar analysis of the
recoverability of its intangible assets, and an impairment charge of $2.7
million, including $0.7 million of developed technology and $2.0 million of
customer relationship intangible assets was recorded. These charges were related
to intangible assets from prior acquisitions that have either been replaced or
were at the end of life and had no future forecasted cash flows. These charges
were included in the caption, Restructuring and Impairment
Charges in the accompanying Consolidated Statement of
Operations.
Goodwill
Impairment
In the
fourth quarter of 2008, the market value of the Company’s common stock
substantially declined. As a result of this decline, the Company determined that
it had an indicator of impairment of its goodwill, and an interim test of
goodwill impairment was required. As a result, the Company reviewed its goodwill
for impairment under a two-part test in accordance with FASB ASC Topic 350. The
first step of the goodwill impairment test, used to identify potential
impairment, compares the fair value of a reporting unit with its carrying
amount, including goodwill. Based upon this test, the Company determined that
its goodwill was impaired and the second step was required to measure the amount
of the impairment. In the fourth quarter of 2008, the Company completed the
second step to measure the goodwill and recorded a charge of $315.9 million,
representing the write-off of the remaining balance of the
goodwill.
In the
fourth quarter of 2007, the market value of the Company’s common stock
substantially declined. As a result of this decline, the Company determined that
it had an indicator of impairment of its goodwill, and an interim test of
goodwill impairment was required. As a result, the Company reviewed its goodwill
for impairment in accordance with FASB ASC Topic 350 and determined that its
goodwill was impaired and recorded a charge of $151.7 million.
The
Company operates in a single operating segment and reporting unit, and
determined the fair value of the reporting unit, which equates to the entire
company, utilizing the Company’s common stock price which is quoted on the
NASDAQ Global Select Market along with a control premium based upon recent
transactions of comparable companies. The Company determined the fair value of
its intangible assets by using a discounted cash flow method.
Note
7. Other Income (Expense), Net
Other
income (expense), net, includes gains and losses on foreign currency
transactions, interest income and interest expense associated with the Company’s
convertible subordinated notes and fees on its revolving Credit Agreement. The
components of other income (expense), net, are as follows:
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December
28,
2008
|
December
30,
2007
|
||||||||||
Interest
income
|
$
|
572
|
$
|
682
|
$
|
2,137
|
||||||
Interest
expense
|
(17,036
|
)
|
(18,995
|
)
|
(17,448
|
)
|
||||||
Foreign
currency gain, net
|
3,964
|
11,455
|
910
|
|||||||||
Gain
on repurchase of convertible debt
|
9,767
|
26,340
|
2,211
|
|||||||||
Other
income, net
|
2,222
|
1,730
|
2,762
|
|||||||||
Total
other income (expense), net
|
$
|
(511
|
)
|
$
|
21,212
|
$
|
(9,428
|
)
|
Other
income (expense), net for 2009 includes a gain of approximately $9.8 million
related to the repurchase of approximately $25.4 million aggregate principal
value of outstanding 1.875% convertible subordinated notes due
2024. Other income (expense), net for 2008 includes a gain of
approximately $26.3 million related to the repurchase of approximately $43.7
million aggregate principal value of outstanding 1.875% convertible subordinated
notes due 2024. Other income (expense), net for 2007 includes a gain of
approximately $2.2 million related to the repurchase of approximately $116.4
million aggregate principal value of outstanding 1.25% convertible subordinated
notes due July 2008.
Note
8. 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
9. Loss Per Share
In
accordance with FASB ASC Topic 260, basic loss per share is based upon the
weighted average number of common shares outstanding. Diluted 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 30,293,289, 33,341,377 and
31,753,446 related to the Company’s stock option programs and convertible debt
have been excluded from diluted weighted average common shares for the years
ended January 3, 2010, December 28, 2008 and December 30, 2007, as the
effect would be anti-dilutive.
78
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
The
following details the calculation of basic and diluted loss per
share:
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December
28,
2008
|
December
30,
2007
|
||||||||||
Basic:
|
||||||||||||
Net
loss
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
|||
Weighted
average common shares
|
131,803
|
131,077
|
130,396
|
|||||||||
Basic
loss per share
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
|||
Diluted:
|
||||||||||||
Net
loss
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
|||
Interest
expense of convertible debt, net of tax
|
—
|
—
|
—
|
|||||||||
Net
loss, as adjusted
|
$
|
(5,670
|
)
|
$
|
(362,293
|
)
|
$
|
(316,897
|
)
|
|||
Weighted
average common shares
|
131,803
|
131,077
|
130,396
|
|||||||||
Potential
common shares
|
||||||||||||
Employee
stock options
|
—
|
—
|
—
|
|||||||||
Restricted
stock
|
—
|
—
|
—
|
|||||||||
Weighted
average common shares, as adjusted
|
131,803
|
131,077
|
130,396
|
|||||||||
Diluted
loss per share
|
$
|
(0.04
|
)
|
$
|
(2.76
|
)
|
$
|
(2.43
|
)
|
Note
10. Commitments and Contingencies
Lease
Agreements
The
Company leases certain of its manufacturing and office facilities and equipment
under non-cancelable leases, certain of which contain renewal options. In
addition to the base rent, the Company is generally required to pay insurance,
real estate taxes and other operating expenses related to these facilities. In
some cases, the base rent will increase during the term of the lease based on a
predetermined schedule or increases in the Consumer Price Index. The Company
recognizes rent expense on a straight-line basis over the life of the lease for
leases containing stated rent escalations.
Future
minimum lease payments required under all operating leases at January 3, 2010
are payable as follows:
Fiscal Year
|
Total
|
|||
2010
|
$
|
4,238
|
||
2011
|
1,602
|
|||
2012
|
1,246
|
|||
2013
|
750
|
|||
2014
|
521
|
|||
Thereafter
|
734
|
|||
Total
|
$
|
9,091
|
The
Company has subleased certain of its facilities. Future minimum rentals to be
received by the Company under subleases at January 3, 2010 are as
follows:
Fiscal Year
|
Total
|
|||
2010
|
$
|
2,684
|
||
2011
|
2,187
|
|||
2012
|
2,160
|
|||
2013
|
2,224
|
|||
2014
|
1,309
|
|||
Thereafter
|
522
|
|||
Total
|
$
|
11,086
|
Total
rent expense was $5.0 million, $4.9 million and $5.7 million for the years ended
January 3, 2010, December 28, 2008 and December 30, 2007,
respectively.
Legal
Proceedings
In the
first quarter of 2007, four purported shareholder class action complaints were
filed in the United States District Court for the Central District of California
against the Company, its President and Chief Executive Officer, its former
Executive Chairman of the Board of Directors and its Chief Financial Officer.
The complaints were Jerry
Crafton v. Powerwave Technologies, Inc., et. al., Kenneth Kwan v. Powerwave
Technologies, Inc., et. al., Achille Tedesco v. Powerwave Technologies, Inc.,
et. al. and Farokh Etemadieh v. Powerwave Technologies, Inc. et. al. and
were brought under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder. In June 2007, the four cases were consolidated
into one action before the Honorable Judge Philip Gutierrez, and a lead
plaintiff was appointed. In October 2007, the lead plaintiff filed an amended
complaint asserting the same causes of action and purporting to state claims on
behalf of all persons who purchased Powerwave securities between May 2,
2005 and November 2, 2006. The essence of the allegations in the amended
complaint 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 was 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
11. Contractual Guarantees and Indemnities
During
its normal course of 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 January 3, 2010 includes:
Intellectual
Property Indemnities
The
Company indemnifies certain customers and its contract manufacturers against
liability arising from third-party claims of intellectual property rights
infringement related to the Company’s products. These indemnities appear in
development and supply agreements with the Company’s customers as well as
manufacturing service agreements with the Company’s contract manufacturers, are
not limited in amount or duration and generally survive the expiration of the
contract. Given that the amount of any potential liabilities related to such
indemnities cannot be determined until an infringement claim has been made, the
Company is unable to determine the maximum amount of losses that it could incur
related to such indemnifications. Historically, any amounts payable pursuant to
such intellectual property indemnifications have not had a material effect on
the Company’s business, financial condition or results of
operations.
Director
and Officer Indemnities and Contractual Guarantees
The
Company has entered into indemnification agreements with its directors and
executive officers which require the Company to indemnify such individuals to
the fullest extent permitted by Delaware law. The Company’s indemnification
obligations under such agreements are not limited in amount or duration. Certain
costs incurred in connection with such indemnifications may be recovered under
certain circumstances under various insurance policies. Given that the amount of
any potential liabilities related to such indemnities cannot be determined until
a lawsuit has been filed against a director or executive officer, the Company is
unable to determine the maximum amount of losses that it could incur relating to
such indemnifications. Historically, any amounts payable pursuant to such
director and officer indemnifications have not had a material negative effect on
the Company’s business, financial condition or results of
operations.
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 and November 2004 agreed to indemnify the
selling security holders against certain liabilities, including liabilities
under the Securities Act of 1933. The Company’s indemnification obligations
under such agreements are not limited in duration and generally not limited in
amount.
Note
12. 401(k) and Profit-Sharing Plans
The
Company sponsors a 401(k) and profit-sharing plan covering all eligible U.S.
employees and provides for a Company match in cash on a portion of participant
contributions. The Company’s 401(k) and profit sharing plan is managed by
Fidelity Investments, and is an employee self-directed plan which offers a
variety of investment choices via mutual funds. Employees may contribute up to
15% of their base salary, subject to IRS maximums. The Company’s matching
contributions are made in cash and are invested in the same percentage among the
various funds offered as selected by the employee. Effective for fiscal year
2010, the Company matches 100% of the first 3% of eligible compensation
contributed and 50% of the next 2%. For prior periods, the Company
matched 100% of the eligible compensation contributed up to 6%. Employer
matching contributions for the years ended January 3, 2010, December 28,
2008 and December 30, 2007 were $1.7 million, $1.8 million and $1.4
million, respectively. There were no discretionary profit sharing contributions
authorized for the years ended January 3, 2010, December 28, 2008 or
December 30, 2007.
Note
13. Employee Stock Purchase Plan
The
Company’s Extended and Restated 1996 Employee Stock Purchase Plan (the “ESPP”)
provides for shares of common stock that are reserved for issuance under the
plan. The ESPP, which is intended to qualify as an “employee stock purchase
plan” under Section 423 of the Internal Revenue Code, is implemented
utilizing semi-annual offerings with purchases occurring at six-month intervals.
The ESPP administration is overseen by the Board of Directors. Employees are
eligible to participate if they are employed by the Company for at least 20
hours per week and if they have been employed by the Company for at least 90
days. The ESPP permits eligible employees to purchase common stock through
payroll deductions, which may not exceed 20% of an employee’s compensation. The
price of common stock purchased under the ESPP is 85% of the lower of the fair
market value of the common stock at the beginning of each six-month offering
period or on the applicable purchase date. Employees may end their participation
in an offering at any time during the offering period,
81
and
participation ends automatically upon termination of employment. The total
number of shares of common stock that may be purchased by an employee in any
offering period may not exceed 5,000 shares. The Board may at any time amend or
terminate the ESPP, except that no such amendment or termination may adversely
affect shares previously granted under the ESPP. On August 12, 2008, the
Company’s shareholders approved an amendment which increased the authorized
number of common shares available for purchase under the Plan from 390,953 to
1,890,953. At January 3, 2010, there were rights to purchase approximately
340,100 shares under the ESPP’s current offering period, which concluded on
January 31, 2010. There were 1,003,585 shares available for purchase at
January 3, 2010 under the ESPP. The Plan has a termination date of July 31,
2017.
Note
14. Stock Plans and Stock-Based Compensation
The
Company accounts for stock-based compensation in accordance with the guidance
now codified as FASB ASC Topic 718. 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.
During
the year ended January 3, 2010, the Company recognized total compensation
expense of $4.4 million, which consists of $4.3 million for stock options and
$0.1 million for employee stock purchase plan awards in its consolidated
statement of operations. During the year ended December 28, 2008, the Company
recognized total compensation expense of $4.8 million, which consists of $4.4
million for stock options and $0.4 million for employee stock purchase plan
awards in its consolidated statement of operations. During the year ended
December 30, 2007, the Company recognized total compensation expense of $4.9
million, which consists of $4.6 million for stock options and $0.3 million for
employee stock purchase plan awards in its consolidated statement of
operations.
Stock-based
compensation expense was recognized as follows in the consolidated statement of
operations:
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December
28,
2008
|
December
30,
2007
|
||||||||||
Cost
of sales
|
$
|
1,047
|
$
|
1,007
|
$
|
700
|
||||||
Sales
and marketing expenses
|
354
|
388
|
472
|
|||||||||
Research
and development expenses
|
979
|
1,123
|
759
|
|||||||||
General
and administrative expenses
|
1,975
|
2,236
|
2,956
|
|||||||||
Increase
to operating loss before income taxes
|
4,355
|
4,754
|
4,887
|
|||||||||
Income
tax benefit recognized
|
—
|
—
|
—
|
|||||||||
Impact
on net loss
|
$
|
4,355
|
$
|
4,754
|
$
|
4,887
|
||||||
Impact
on loss per share:
|
||||||||||||
Basic
and diluted
|
$
|
0.03
|
$
|
0.04
|
$
|
0.04
|
As of
January 3, 2010, unrecognized compensation expense related to the unvested
portion of the Company’s stock based-awards and employee stock purchase plan was
approximately $2.9 million (net of estimated forfeitures of $0.3 million) which
is expected to be recognized over a weighted-average period of 1.2
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, based upon 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 six months is utilized in this
calculation. The expected life was determined based upon actual option grant
lives over a ten 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 fiscal years
2009, 2008 and 2007 were $0.45 per share, $1.97 per share and $2.62 per share,
respectively.
The fair
value of restricted stock awards is based upon the closing market price of the
Company’s common stock on the date of grant. The weighted average grant date
fair value of restricted stock awards granted in 2008 and 2007 was $3.28 and
$6.32, respectively. There were no restricted stock awards granted in
2009.
The fair
value of options granted under the Company’s stock incentive plans during fiscal
years 2009, 2008 and 2007 was estimated on the date of grant using the
Black-Scholes-Merton option-pricing model utilizing the multiple option approach
and the following weighted-average assumptions:
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December 28,
2008
|
December 30,
2007
|
||||||||||
Weighted
average risk-free interest rate
|
1.7
|
%
|
2.6
|
%
|
4.2
|
%
|
||||||
Expected
life (in years)
|
5.1
|
4.6
|
4.5
|
|||||||||
Expected
stock volatility
|
138
|
%
|
58
|
%
|
44
|
%
|
||||||
Dividend
yield
|
None
|
None
|
None
|
The
purposes of the Company’s stock option plans are to attract and retain the best
available personnel for positions of substantial responsibility with the Company
and to provide participants with additional incentives in the form of options to
purchase the Company’s common stock which will encourage them to acquire a
proprietary interest in, and to align their financial interests with those of
the Company and its shareholders. All of the Company’s stock option plans have
been approved by the Company’s shareholders.
1995
Stock Option Plan
The
Company’s 1995 Stock Option Plan (the “1995 Plan”), as amended, permits
executive personnel, key employees and non-employee members of the Board of
Directors of the Company to participate in ownership of the Company. Pursuant to
the amended Stockholder’s Agreement dated as of November 8, 1996, between
the Company and certain of its original shareholders, those certain shareholders
agreed that once the Company issued 3,285,000 shares of common stock under the
1995 Stock Option Plan, any additional shares issued under that Plan upon an
option exercise would be coupled with a redemption from those shareholders of an
equal number of shares at a redemption price equaling the option exercise price.
The Company and those certain shareholders have agreed that this share
redemption agreement applies only to the exercise of options to purchase a total
of 2,530,845 shares of the Company’s common stock. As of January 3, 2010, a
total of 5,766,296 options have been exercised under the 1995 Plan, of which a
total of 2,481,296 shares of common stock have been funded from those
shareholders party to the amended Stockholder’s Agreement. The effect of this
transaction is to eliminate any dilution from the further exercise of options
under the 1995 Plan. At January 3, 2010, there were 16,200 options outstanding
under the 1995 Plan at a weighted average exercise price of $7.07 share. The
ability to grant additional shares under the 1995 Plan expired in December 2005.
Therefore, there are no shares available for grant under the 1995 Plan at
January 3, 2010, and there were a total of 16,200 shares of common stock held in
escrow by the Company on behalf of those shareholders party to the Stockholder’s
Agreement to fund all future exercises under the 1995 Plan.
1996
Stock Incentive Plan
The
Company’s 1996 Stock Incentive Plan (the “1996 Plan”), as amended, provides for
the granting of “incentive stock options,” within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”),
non-statutory options and restricted stock grants to directors, officers,
employees and consultants of the Company, except that incentive stock options
may not be granted to non-employee directors or consultants. As of January 3,
2010, a total of 5,501,071 non-statutory options had been exercised under the
1996 Plan and there were 1,713,509 non-statutory options outstanding under the
1996 Plan at a weighted average exercise price of $13.00 per share. The ability
to grant additional shares under the 1996 Plan expired on December 5, 2006.
Therefore, there were no shares available for grant under the 1996 Plan at
January 3, 2010.
1996
Director Stock Option Plan
The
Company’s 1996 Director Stock Option Plan (the “Director Plan”), as amended,
provides that a total of 1,200,000 shares of the Company’s common stock are
reserved for issuance under the plan. On November 10, 2005, the Company’s
shareholders approved the Director Plan Amendment that extended the term of the
Director Plan from its previous expiration date of December 5, 2006 to
December 5, 2016. Under the Director Plan, the Board of Directors has the
discretion to determine the timing and amount of option grants to directors who
are not employees or paid consultants to the Company. It is the current practice
of the Board to grant outside directors an option to purchase 45,000 shares upon
reelection to the Board
83
of
Directors. The option vests in twelve equal monthly installments so that it is
fully vested after one year. The Director Plan provides that the exercise price
per share of grants issued under the Director Plan shall be equal to 100% of the
fair market value of a share of common stock on the grant date. All options
expire no later than five years after the grant date. As of January 3, 2010, a
total of 208,125 options had been exercised under the Director Plan. There were
510,000 options outstanding under the Director Plan as of January 3, 2010 at a
weighted average exercise price of $3.02 per share. There were 481,875 shares
available for grant under the Director Plan at January 3,
2010.
2000
Stock Option Plan
The
Company’s 2000 Stock Option Plan (the “2000 Plan”) provides that a total of
2,640,000 shares of the Company’s common stock are reserved for issuance under
the 2000 Plan. The 2000 Plan provides for the granting of only non-statutory
stock options to employees, executive officers and consultants of the Company.
The exercise price per share of common stock of the Company covered by each
option shall be equal to 100% of the fair market value of the common stock on
the date that the option is granted. In no event shall any participant under the
2000 Plan be granted options under the 2000 Plan covering more than 300,000
shares in any one calendar year. Authority to control and manage the 2000 Plan
is vested with the Company’s Board of Directors, which has sole discretion and
authority, consistent with the provisions of the 2000 Plan, to determine the
administration of the 2000 Plan. The Board of Directors may delegate such
responsibilities in whole or in part to a committee consisting of two or more
members of the Board of Directors or two or more executive officers of the
Company (the “Administrator”). All option grants to executive officers of the
Company shall be approved by the Board of Directors or the Compensation
Committee of the Board of Directors. The Administrator of the 2000 Plan shall
have the authority, consistent with the provisions of the 2000 Plan and the
authority granted by the Board of Directors, to determine which eligible
participants will receive options, the time when options will be granted, the
terms of options granted and the number of shares which will be subject to
options granted under the 2000 Plan. Notwithstanding the foregoing, the
Administrator shall not have the authority to amend an Option Agreement to
effect a “re-pricing” of the exercise price of an option either by
(i) lowering the exercise price of a previously granted option or
(ii) by canceling a previously granted option and granting a new option,
except that changes in the Company’s capital structure or a change in control of
the Company pursuant to the terms of the 2000 Plan shall not be considered a
re-pricing of such option. Options generally vest at the rate of 25% on the
first anniversary of the grant date and the remaining 75% vests in equal monthly
installments over the following three years. All options expire no later than
five years after the grant date. As of January 3, 2010, 837,691 shares had been
exercised under the 2000 Plan. There were 1,736,583 options outstanding under
the 2000 Plan as of January 3, 2010 at a weighted average exercise price of
$3.42 per share. There were 65,726 shares available for grant under the 2000
Plan at January 3, 2010. The 2000 Plan has a termination date of March 17,
2010.
2002
Stock Option Plan
The
Company’s 2002 Stock Option Plan (the “2002 Plan”) was approved by the
shareholders of the Company on April 24, 2002. The 2002 Plan provides that
a total of 2,000,000 shares of the Company’s common stock are reserved for
issuance under the 2002 Plan. Employees and consultants or independent advisors
who are in the service of the Company or its subsidiaries are eligible to
participate in the 2002 Plan. The Company’s executive officers and other highly
paid employees are also eligible to participate in the 2002 Plan. The 2002 Plan
provides only for the granting of non-statutory stock options. The exercise
price per share of common stock of the Company covered by each option shall be
equal to 100% of the fair market value of the common stock on the date that the
option is granted. In no event shall any participant under the 2002 Plan be
granted options under the 2002 Plan covering more than 300,000 shares in any one
calendar year. All options granted pursuant to the 2002 Plan shall have a
maximum term of no more than ten years from the grant date. Authority to control
and manage the 2002 Plan is vested with the Company’s Board of Directors, which
has sole discretion and authority, consistent with the provisions of the 2002
Plan, to determine the administration of the 2002 Plan. The Board of Directors
may delegate such responsibilities in whole or in part to a committee consisting
of two or more members of the Board of Directors or two or more officers of the
Company. All option grants to executive officers of the Company shall be
approved by the Board of Directors or the Compensation Committee of the Board of
Directors. The Administrator of the 2002 Plan shall have the authority,
consistent with the provisions of the 2002 Plan and the authority of the Board
of Directors, to determine which eligible participants will receive options, the
time when options will be granted, the terms of options granted and the number
of shares which will be subject to options granted under the 2002 Plan.
Notwithstanding the foregoing, the Administrator shall not have the authority to
amend an option agreement to effect a “re-pricing” of the exercise price of such
option either by (1) lowering the exercise price of a previously granted
option or (2) by canceling a previously granted option and granting a new
option except that changes in the Company’s capital structure or a change in
control of the Company pursuant to the terms of the 2002 Plan shall not be
considered a re-pricing of such option. As of January 3, 2010, 641,522 shares
had been exercised under the 2002 Plan. There were 1,339,856 options outstanding
under the 2002 Plan as of January 3, 2010 at a weighted average exercise price
of $4.09 per share. There were 18,622 shares available for grant under the 2002
Plan at January 3, 2010. The 2002 Plan has a termination date of
January 23, 2012.
2005
Stock Incentive Plan
The
Company’s 2005 Stock Incentive Plan (the “2005 Plan”) was approved by the
shareholders of the Company on November 10, 2005. The 2005 Plan provides
that a total of 7,500,000 shares of the Company’s common stock are reserved for
issuance under the 2005 Plan. Any person who is an employee of the Company or
any affiliate thereof, any person to whom an offer of employment with the
Company has been extended, as determined by either the Board of Directors or one
or more committees designated by the Board (the “Committee”), or any person who
is a non-employee director is eligible to be designated by the Committee to
receive awards and become a participant under the 2005 Plan. The 2005 Plan
includes the following equity compensation awards: non-qualified stock options,
restricted stock awards, unrestricted stock awards, stock appreciation rights
and restricted stock units. The exercise price per share of a stock option shall
not be less than the fair market value of the Company’s common stock on the date
the option is granted, provided that the Committee may in its discretion specify
for any stock option an exercise price per share that is higher than the fair
market value of the Company’s common stock on the date the option is granted.
The Committee shall determine the period during which a vested stock option may
be exercised, provided that the maximum term of a stock option shall be ten
years from the date the option is granted. A maximum of 7,500,000 shares of
common stock may be issued and sold under all awards, restricted and
unrestricted, granted under the 2005 Plan. Of such aggregate limit, the maximum
number of shares of common stock that may be issued under all awards of
restricted stock, restricted stock units and stock awards, in the aggregate,
shall be 3,000,000 shares. The maximum number of shares of common stock that may
be subject to stock options, stock appreciation rights, restricted stock, stock
units and stock awards, in the aggregate, granted to any one participant during
any single fiscal year period shall be 500,000 shares. The foregoing limitations
shall each be applied on an aggregate basis taking into account awards granted
to a participant under the 2005 Plan as well as awards of the same type granted
to a participant under any other equity-based compensation plan of the Company
or any affiliate thereof. The 2005 Plan is to be administered by the Committee.
The Committee shall have such powers and authority as may be necessary or
appropriate to carry out the functions of the Committee as described in the 2005
Plan. Subject to the express limitations of the 2005 Plan, the Committee shall
have authority in its discretion to determine the persons to whom, and the time
or times at which, awards may be granted, the number of shares, units or other
rights subject to each award, the exercise, base or purchase price of an award
(if any), the time or times at which an award will become vested, exercisable or
payable, the performance goals and other conditions of an award, the duration of
the award and all other terms of the award. The Committee may prescribe, amend
and rescind rules and regulations relating to the 2005 Plan. All
interpretations, determinations and actions by the Committee shall be final,
conclusive and binding upon all parties. Additionally, the Committee may
delegate to one or more officers of the Company the ability to grant and
determine terms and conditions of awards under the 2005 Plan to certain
employees, and the Committee may delegate to any appropriate officer or employee
of the Company responsibility for performing certain ministerial functions under
the 2005 Plan. Subject to anti-dilution adjustment provisions in the 2005 Plan,
without the prior approval of the Company’s shareholders, evidenced by a
majority of votes cast, neither the Committee nor the Board of Directors shall
cause the cancellation, substitution or amendment of a stock option that would
have the effect of reducing the exercise price of such a stock option previously
granted under the 2005 Plan, or otherwise approve any modification to such a
stock option that would be treated as a “repricing” under the then applicable
rules, regulations or listing requirements adopted by the NASDAQ Stock Market.
As of January 3, 2010, 895,000 shares of restricted stock had been granted under
the 2005 Plan, of which there are 201,563 subject to a risk of forfeiture. There
were 5,256,666 options outstanding under the 2005 Plan as of January 3, 2010 at
a weighted average exercise price of $2.76 per share. There were 1,348,334
shares available for grant under the 2005 Plan at January 3, 2010. The 2005 Plan
has a termination date of September 20, 2015.
85
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Stock
Option and Awards Activity
The
following table summarizes activity for outstanding options under the Company’s
stock option plans for the fiscal year ended January 3, 2010:
Number of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
Aggregate
Intrinsic Value
(in
thousands)
|
|||||||||||||
Balance
at December 28, 2008
|
6,841
|
$
|
8.34
|
|||||||||||||
Granted
|
4,714
|
$
|
0.54
|
|||||||||||||
Exercised
|
—
|
$
|
—
|
|||||||||||||
Forfeited
|
(403
|
)
|
$
|
3.75
|
||||||||||||
Expired
|
(561
|
)
|
$
|
14.32
|
||||||||||||
Balance
at January 3, 2010
|
10,591
|
$
|
4.73
|
6.27
|
$
|
3,358
|
||||||||||
Vested
or expected to vest at January 3, 2010
|
10,060
|
$
|
4.90
|
6.20
|
$
|
3,051
|
||||||||||
Exercisable
at January 3, 2010
|
4,394
|
$
|
8.78
|
4.56
|
$
|
14
|
The
following table summarizes information about all stock options outstanding at
January 3, 2010 under the 1995 Plan, 1996 Plan, Director Plan, 2000 Plan, 2002
Plan and 2005 Plan:
Range
of Exercise Prices
|
Options Outstanding at January
3, 2010
|
Options Exercisable at January
3, 2010
|
||||||||||||||||||||
Options
Outstanding
|
Weighted
Average
Exercise Price
|
Weighted Average
Remaining
Contractual
Life
|
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||
$
|
0.42
|
772
|
$
|
0.42
|
9.10
|
—
|
$
|
—
|
||||||||||||||
$
|
0.48
|
3,070
|
$
|
0.48
|
8.29
|
—
|
$
|
—
|
||||||||||||||
$
|
0.49
- $ 4.88
|
2,152
|
$
|
3.06
|
4.96
|
609
|
$
|
3.80
|
||||||||||||||
$
|
4.96 - $ 6.69
|
2,281
|
$
|
6.05
|
5.60
|
1,748
|
$
|
5.96
|
||||||||||||||
$
|
6.80 - $ 67.08
|
2,316
|
$
|
12.05
|
4.49
|
2,037
|
$
|
12.69
|
||||||||||||||
Total
|
10,591
|
$
|
4.73
|
6.27
|
4,394
|
$
|
8.78
|
The
aggregate intrinsic value of stock options exercised during fiscal 2008 and 2007
was $0.1 million and $2.2 million, respectively. There were no stock
options exercised during fiscal 2009.
The total
fair value of restricted stock awards vested during fiscal 2009, fiscal 2008 and
fiscal 2007 was $0.2 million, $0.8 million and $1.0 million,
respectively.
The
following table summarizes activity for restricted stock awards for the fiscal
year ended January 3, 2010:
Number of
Shares
|
Weighted
Average
Grant
Date Fair Value
|
|||||||
Balance
at December 28, 2008
|
380
|
$
|
4.29
|
|||||
Granted
|
—
|
—
|
||||||
Released
|
(178
|
)
|
3.98
|
|||||
Forfeited
|
—
|
—
|
||||||
Balance
at January 3, 2010
|
202
|
$
|
4.56
|
Note
15. Income Taxes
The
components of loss before income taxes and income tax provision for the fiscal
years ended January 3, 2010, December 28, 2008 and December 30, 2007
consist of the following:
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December 28,
2008
|
December 30,
2007
|
||||||||||
Loss
before income taxes:
|
||||||||||||
United
States
|
$
|
(33,266
|
)
|
$
|
(249,021
|
)
|
$
|
(156,087
|
)
|
|||
Foreign
|
30,878
|
(109,810
|
)
|
(153,612
|
)
|
|||||||
Total
loss before income
taxes
|
$
|
(2,388
|
)
|
$
|
(358,831
|
)
|
$
|
(309,699
|
)
|
Income
tax provision:
|
||||||||||||
Current
|
||||||||||||
Federal
|
(34
|
)
|
121
|
715
|
||||||||
State
|
152
|
134
|
—
|
|||||||||
Foreign
|
4,641
|
8,638
|
8,455
|
|||||||||
Total
current income tax
provision
|
4,759
|
8,893
|
9,170
|
|||||||||
Deferred
|
||||||||||||
Federal
|
—
|
—
|
—
|
|||||||||
State
|
—
|
—
|
—
|
|||||||||
Foreign
|
(1,477
|
)
|
(5,431
|
)
|
(1,972
|
)
|
||||||
Total
deferred tax provision
(benefit)
|
(1,477
|
)
|
(5,431
|
)
|
(1,972
|
)
|
||||||
Total
income tax
provision
|
$
|
3,282
|
$
|
3,462
|
$
|
7,198
|
The
provision for income taxes in the accompanying consolidated financial statements
reconciles to the amount computed by applying the federal statutory rate of 35%
to loss before income taxes for the fiscal years ended January 3, 2010,
December 28, 2008 and December 30, 2007 as follows:
Fiscal
Year Ended
|
||||||||||||
January
3,
2010
|
December 28,
2008
|
December 30,
2007
|
||||||||||
Taxes
at federal statutory rate
|
$
|
(836
|
)
|
$
|
(125,591
|
)
|
$
|
(108,395
|
)
|
|||
State
taxes, net
|
152
|
134
|
—
|
|||||||||
Foreign
income taxed at different rates
|
(4,218
|
)
|
(9,757
|
)
|
(4,052
|
)
|
||||||
Goodwill
impairment
|
—
|
59,962
|
32,242
|
|||||||||
Earnings
of foreign subsidiaries subject to U.S. tax
|
11,806
|
28,407
|
10,167
|
|||||||||
Imputed
interest income
|
412
|
857
|
1,727
|
|||||||||
Change
in FASB ASC Topic 740 reserve
|
(2,664
|
)
|
4,473
|
2,769
|
||||||||
Stock
compensation – Non – U.S.
|
1,504
|
123
|
119
|
|||||||||
China
withholding tax
|
738
|
1,056
|
—
|
|||||||||
Other
|
28
|
(2,168
|
)
|
2,919
|
||||||||
Change
in valuation allowance
|
(3,640
|
)
|
45,966
|
69,702
|
||||||||
Income
tax provision
|
$
|
3,282
|
$
|
3,462
|
$
|
7,198
|
87
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Deferred
income taxes reflect the net tax effects of tax carry-forwards and temporary
differences between the carrying amount of assets and liabilities for tax and
financial reporting purposes. The Company’s deferred tax assets and liabilities
were comprised of the following major components:
January
3,
2010
|
December 28,
2008
|
|||||||
Deferred
tax assets
|
||||||||
Accruals
and provisions
|
$
|
12,882
|
$
|
25,119
|
||||
Net
operating loss carry-forwards
|
168,318
|
129,123
|
||||||
Property,
plant and equipment
|
3,698
|
10,742
|
||||||
Intangibles
|
93,007
|
99,827
|
||||||
Tax
credit carry-forwards
|
19,025
|
22,543
|
||||||
Other
|
5,000
|
(472
|
)
|
|||||
Convertible
debt
|
(8,076
|
)
|
(7,827
|
)
|
||||
Inventory
reserve
|
(33
|
)
|
101
|
|||||
Gross
deferred tax assets
|
293,821
|
279,156
|
||||||
Less:
valuation allowance
|
(287,372
|
)
|
(275,952
|
)
|
||||
Net
deferred tax assets
|
$
|
6,449
|
$
|
3,204
|
As of
January 3, 2010, deferred income taxes were impacted by the change in the
applicable statutory tax rate in China as a result of a special tax incentive
granted to the Company. The net effect was a decrease to deferred tax
assets of $1.2 million. As of December 28, 2008, deferred income
taxes were impacted by the change in the applicable statutory tax rate mainly in
Sweden as a result of legislation. The net effect was an increase to
deferred tax assets of $1.2 million.
As of
January 3, 2010, the Company has $1,186.5 million of United States federal and
state net operating loss carry-forwards and $108.2 million of foreign net
operating losses, net of uncertain tax positions, some of which will begin to
expire in 2023 if not utilized. Net operating loss carry-forwards, and the
related carry-forward periods, at January 3, 2010, are summarized as
follows:
Net Operating
Loss
|
Tax Benefit
Amount
|
Valuation
Allowance
|
Expected Tax
Benefit
|
Carry-forward
Period
Ends
|
|||||||||||||
United
States Federal net operating loss
|
$
|
367,664
|
$
|
128,683
|
$
|
(128,683
|
)
|
$
|
—
|
2023
|
|||||||
United
States State net operating loss
|
837,837
|
13,559
|
(13,559
|
)
|
—
|
2009
|
|||||||||||
Foreign
net operating losses
|
108,181
|
34,176
|
(33,300
|
)
|
876
|
Indefinite
|
|||||||||||
Total
|
$
|
1,313,682
|
$
|
176,418
|
$
|
(175,542
|
)
|
$
|
876
|
|
Approximately
$42.7 million of the U.S. federal net operating loss is subject to annual
limitations on utilization equal to approximately $18.5 million pursuant to
Section 382 of the Internal Revenue Code.
A
valuation allowance of approximately $176.4 million has been provided for
certain of the above carry-forwards. This valuation allowance reduces the
deferred tax asset related to net operating loss carry-forwards of $0.9 million
to an amount that is more likely than not to be realized.
The
Company also has Federal and California tax credit carry-forwards of $8.0
million and $16.9 million, respectively. The Federal credits will begin to
expire in 2021 and the California tax credits began to expire in 2009. A full
valuation allowance has been provided for these tax credits.
The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income and the actual timing within which the underlying
temporary differences become taxable or deductible. Based on historical and
forecasted earnings, the Company removed a valuation allowance of approximately
$0.2 million, $1.1 million and $0.6 million in Brazil, Canada and Finland during
the fourth quarter of 2009. The Company continued 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.
Foreign
earnings of the Company are primarily considered to be indefinitely reinvested.
Upon distribution of those earnings in the form of dividends or otherwise, some
portion of the distribution would be subject to both foreign withholding taxes
and U.S. income taxes, less applicable foreign tax credits. Determination of the
amount of U.S. income tax liability that
88
would be
incurred is not practicable because of the complexities associated with its
hypothetical calculation, but is not expected to result in additional U.S. tax
expense as a result of the Company’s U.S. net operating losses and valuation
allowance.
On
January 2, 2006, the Company began reporting results in accordance with
FASB ASC Topic 718 and recognized expense in 2007, 2008 and 2009 related to
stock-based compensation. Some of those costs are not deductible in the U.S. or
in foreign countries. In the future, approximately $3.1 million of the valuation
allowance will reverse to equity.
FASB ASC
Topic 740 clarifies the accounting for uncertainties in income taxes by
prescribing guidance for the recognition, de-recognition and measurement in
financial statements of income tax positions taken in previously filed tax
returns or tax positions expected to be taken in tax returns, including a
decision whether to file or not to file in a particular jurisdiction. FASB ASC
Topic 740 requires that any liability created for unrecognized tax benefits be
disclosed. The application of FASB ASC Topic 740 may also affect the tax bases
of assets and liabilities and therefore may change or create deferred tax
liabilities or assets. The tax years subject to examination for the Company’s
U.S. federal return are the 2007 through 2009 tax years, including adjustments
to net operating loss carryovers in those years. In addition, the Company has
subsidiaries in various foreign jurisdictions that have statutes of limitations
generally ranging from 3 to 6 years.
As of
January 3, 2010, the liability for income taxes associated with uncertain tax
positions was $14.8 million. Of this amount, $5.5 million, if recognized, would
affect tax expense and would require penalties and interest of $0.4 million,
$1.2 million would result in a decrease in prepaid assets, and $7.7 million
would result in a decrease of deferred tax assets in jurisdictions where the
deferred tax assets are currently offset by a full valuation
allowance.
As of
December 28, 2008, the liability for income taxes associated with uncertain
tax positions was $10.6 million. Of this amount, $8.2 million, if recognized,
would affect tax expense and would require penalties and interest of $0.3
million, $0.9 million would result in a decrease in prepaid assets, and $1.2
million would result in a decrease of deferred tax assets in jurisdictions where
the deferred tax assets are currently offset by a full valuation
allowance.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits,
excluding interest and penalties, is as follows (in millions):
January
3,
2010
|
December
28,
2008
|
December
30,
2007
|
||||||||||
Unrecognized
tax benefits beginning of year balance
|
$
|
8,238
|
$
|
9,239
|
$
|
8,952
|
||||||
Gross
increases for tax positions of prior years
|
2,034
|
1,110
|
—
|
|||||||||
Gross
decreases for tax positions of prior years
|
(3,514
|
)
|
(529
|
)
|
(2,405
|
)
|
||||||
Gross
increases for tax positions of current year
|
8,632
|
3,804
|
2,692
|
|||||||||
Settlements
|
—
|
(5,386
|
)
|
—
|
||||||||
Lapse
of statute of limitations
|
(1,009
|
)
|
—
|
—
|
||||||||
Unrecognized
tax benefits ending of year balance
|
$
|
14,381
|
$
|
8,238
|
$
|
9,239
|
The
Company strives to resolve open matters with each tax authority at the
examination level and could reach agreement with a tax authority at anytime.
While the Company has accrued for amounts it believes are the expected outcomes,
the final outcome with a tax authority may result in a tax liability that is
more or less than that reflected in the financial statements. Furthermore, the
Company may later decide to challenge any assessments, if made, and may exercise
its right to appeal. The liability is reviewed quarterly and adjusted as events
occur that affect potential liabilities for additional taxes, such as lapsing of
applicable statutes of limitations, proposed assessments by tax authorities,
negotiations between tax authorities, identification of new issues, and issuance
of new legislation, regulations or case law. Management believes that adequate
amounts of tax and related interest, if any, have been provided for any
adjustments that may result from these examinations of uncertain tax
positions.
As a
result of the ongoing tax audits, the total liability for unrecognized tax
benefits may change within the next twelve months due to either settlement of
audits or expiration of statutes of limitations. Additionally, the IRS has
concluded their examination of the 2006 tax year and the Finland tax authorities
have concluded their tax audit for the 2007-2008 tax years with only immaterial
adjustments. At January 3, 2010, the Company has concluded all United States
federal income tax matters for years through 2006. All other material state and
local, and foreign income tax matters have been concluded for years through
2005.
89
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Note
16. 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:
January
3, 2010
|
December
28, 2008
|
|||||||||||||||
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
Cash
and cash
equivalents
|
$
|
60,439
|
$
|
60,439
|
$
|
46,906
|
$
|
46,906
|
||||||||
Restricted
cash
|
2,600
|
2,600
|
3,433
|
3,433
|
||||||||||||
Long-term
debt
|
||||||||||||||||
3.875%
Convertible Subordinated Notes due 2027
|
$
|
150,000
|
$
|
99,000
|
$
|
150,000
|
$
|
35,805
|
||||||||
1.875%
Convertible Subordinated Notes due 2024
|
130,887
|
113,544
|
156,321
|
37,189
|
||||||||||||
Less
unamortized discount
|
(11,904
|
)
|
(21,065
|
)
|
||||||||||||
Total
long-term
debt
|
$
|
268,983
|
$
|
285,256
|
Note
17. Supplier Concentrations
Certain
of the Company’s products, as well as components utilized in such products, are
available in the short-term only from a single or a limited number of sources.
In addition, in order to take advantage of volume pricing discounts, the Company
purchases certain customized components from single-source suppliers as well as
finished products from single-source contract manufacturers. The inability to
obtain single-source components or finished products in the amounts needed on a
timely basis or at commercially reasonable prices could result in delays in
product introductions, interruption in product shipments or increases in product
costs, which could have a material adverse effect on the Company’s business,
financial condition and results of operations until alternative sources could be
developed at a reasonable cost.
Note
18. Segment
The
Company operates in one reportable business segment: “Wireless Communications.”
The Company’s revenues are derived from the sale of wireless communications
network products and coverage solutions, including antennas, boosters,
combiners, cabinets, shelters, filters, radio frequency power amplifiers, 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.
90
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Customer
Information
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, Nortel and Samsung. The other major channel is direct to wireless
network operators, such as AT&T, Bouyges, Orange, Reliance, Sprint,
T-Mobile, Verizon Wireless and Vodafone. A majority of the Company’s products
are sold to both sales channels. The Company maintains global relationships with
most of 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 made on
a regional basis.
The
Company measures its success 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.
Product
Group Information
The
following table presents an analysis of the Company’s sales based upon product
groups:
Wireless Communications Product
Groups
|
Fiscal
Year Ended
|
|||||||||||||||||||||||
January
3,
2010
|
December 28,
2008
|
December 30,
2007
|
||||||||||||||||||||||
Antenna
systems
|
$
|
150,610
|
27
|
%
|
$
|
233,090
|
26
|
%
|
$
|
160,974
|
21
|
%
|
||||||||||||
Base
station systems
|
364,166
|
64
|
%
|
571,526
|
64
|
%
|
565,084
|
72
|
%
|
|||||||||||||||
Coverage
systems
|
52,710
|
9
|
%
|
85,618
|
10
|
%
|
54,459
|
7
|
%
|
|||||||||||||||
Total
net sales
|
$
|
567,486
|
100
|
%
|
$
|
890,234
|
100
|
%
|
$
|
780,517
|
100
|
%
|
Antenna
systems consist of base station antennas and tower-mounted amplifiers. Base
station subsystems 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.
Geographic
Information
The
following schedule presents an analysis of the Company’s sales based upon the
geographic area to which a product was shipped:
Geographic Area
|
Fiscal
Year Ended
|
|||||||||||
January
3,
2010
|
December 28,
2008
|
December 30,
2007
|
||||||||||
United
States
|
$
|
148,173
|
$
|
256,200
|
$
|
203,843
|
||||||
Asia
Pacific
|
233,463
|
302,169
|
203,904
|
|||||||||
Europe
|
135,600
|
274,977
|
334,095
|
|||||||||
Other
international
|
50,250
|
56,888
|
38,675
|
|||||||||
Total
net sales
|
$
|
567,486
|
$
|
890,234
|
$
|
780,517
|
Sales to
the Asia Pacific region include sales to China, India, South Korea and other
locations in Asia. Other international sales include sales to Canada, Mexico,
Latin and South America and all other foreign countries. Sales to Canada were
$3.8 million, $3.6 million and $7.6 million during the years ended January 3,
2010, December 28, 2008 and December 30, 2007, respectively. Sales to
Finland were $55.2 million, $74.9 million and $118.2 million during the years
ended January 3, 2010, December 28, 2008 and December 30, 2007,
respectively. Sales to France were $12.3 million, $51.3 million and $48.9
million during the years ended January 3, 2010, December 28, 2008 and
December 30, 2007, respectively.
91
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
The
following table presents an analysis of the Company’s long-lived assets based
upon geographic area to which the asset resides:
Geographic Area
|
Fiscal
Year Ended
|
|||||||
January
3,
2010
|
December 28,
2008
|
|||||||
United
States
|
$
|
55,782
|
$
|
65,563
|
||||
Asia
Pacific
|
19,788
|
20,550
|
||||||
Europe
|
14,008
|
17,121
|
||||||
Other
international
|
305
|
227
|
||||||
Total
long lived assets
|
$
|
89,883
|
$
|
103,461
|
92
POWERWAVE
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
(tabular amounts in thousands,
except per share data)
Quarter
Ended
|
||||||||||||||||
March 29,
2009
(As
Restated)
|
June 28,
2009
(As
Restated)
|
September 27,
2009
(As
Restated)
|
January
3,
2010
(As
Restated)
|
|||||||||||||
Fiscal
2009:
|
||||||||||||||||
Net
sales
|
$
|
149,745
|
$
|
136,110
|
$
|
139,048
|
$
|
142,583
|
||||||||
Gross
profit
|
$
|
32,752
|
$
|
35,898
|
$
|
36,158
|
$
|
37,684
|
||||||||
Net
income (loss)
|
$
|
(4,372
|
)
|
$
|
2,559
|
$
|
(1,111
|
)
|
$
|
(2,746
|
)
|
|||||
Basic
income (loss) per share
|
$
|
(0.03
|
)
|
$
|
0.02
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|||||
Diluted
income (loss) per share
|
$
|
(0.03
|
)
|
$
|
0.02
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|||||
March 30,
2008
(As
Restated)
|
June 29,
2008
(As
Restated)
|
September 28,
2008
(As
Restated)
|
December 28,
2008
(As
Restated)
|
|||||||||||||
Fiscal
2008:
|
||||||||||||||||
Net
sales
|
$
|
226,302
|
$
|
245,642
|
$
|
237,960
|
$
|
180,330
|
||||||||
Gross
profit
|
$
|
42,056
|
$
|
49,134
|
$
|
50,865
|
$
|
5,473
|
||||||||
Net
loss
|
$
|
(16,172
|
)
|
$
|
(12,184
|
)
|
$
|
(3,796
|
)
|
$
|
(330,141
|
)
|
||||
Basic
and diluted loss per share
|
$
|
(0.12
|
)
|
$
|
(0.09
|
)
|
$
|
(0.03
|
)
|
$
|
(2.52
|
)
|
As
discussed in Note 5, the following tables present the impact on our previously
reported financial statements of the adoption of FASB ASC Topic 470-20 for all
quarters of fiscal 2009 and 2008:
2009:
Quarter
Ended March
29, 2009 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
5,430
|
$
|
3,158
|
||||
Loss
before income taxes
|
$
|
(630
|
)
|
$
|
(2,902
|
)
|
||
Net
loss
|
$
|
(2,100
|
)
|
$
|
(4,372
|
)
|
||
Basic
and diluted loss per share
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
||
Basic
and diluted shares outstanding
|
131,491
|
131,491
|
Quarter
Ended June
28, 2009 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
6,288
|
$
|
2,499
|
||||
Income
before income taxes
|
$
|
5,630
|
$
|
1,841
|
||||
Net
income
|
$
|
6,348
|
$
|
2,559
|
||||
Basic
earnings per share
|
$
|
0.05
|
$
|
0.02
|
||||
Diluted
earnings per share
|
$
|
0.05
|
$
|
0.02
|
||||
Basic
shares outstanding
|
131,654
|
131,654
|
||||||
Diluted
shares outstanding
|
134,447
|
134,447
|
Quarter
Ended September
27, 2009 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
(769
|
)
|
$
|
(2,172
|
)
|
||
Income
(loss) before income taxes
|
$
|
1,095
|
$
|
(308
|
)
|
|||
Net
income (loss)
|
$
|
292
|
$
|
(1,111
|
)
|
|||
Basic
earnings (loss) per share
|
$
|
0.00
|
$
|
(0.01
|
)
|
|||
Diluted
earnings (loss) per share
|
$
|
0.00
|
$
|
(0.01
|
)
|
|||
Basic
shares outstanding
|
131,950
|
131,950
|
||||||
Diluted
shares outstanding
|
135,058
|
131,950
|
Quarter
Ended January
3, 2010 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
(2,568
|
)
|
$
|
(3,996
|
)
|
||
Income
(loss) before income taxes
|
$
|
409
|
$
|
(1,019
|
)
|
|||
Net
loss
|
$
|
(1,318
|
)
|
$
|
(2,746
|
)
|
||
Basic
and diluted loss per share
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
||
Basic
and diluted shares outstanding
|
132,115
|
132,115
|
2008:
Quarter
Ended March
30, 2008 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
(5,310
|
)
|
$
|
(7,235
|
)
|
||
Loss
before income taxes
|
$
|
(13,279
|
)
|
$
|
(15,204
|
)
|
||
Net
loss
|
$
|
(14,247
|
)
|
$
|
(16,172
|
)
|
||
Basic
and diluted loss per share
|
$
|
(0.11
|
)
|
$
|
(0.12
|
)
|
||
Basic
and diluted shares outstanding
|
130,927
|
130,927
|
Quarter
Ended June
29, 2008 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
(4,747
|
)
|
$
|
(6,707
|
)
|
||
Loss
before income taxes
|
$
|
(9,218
|
)
|
$
|
(11,178
|
)
|
||
Net
loss
|
$
|
(10,224
|
)
|
$
|
(12,184
|
)
|
||
Basic
and diluted loss per share
|
$
|
(0.08
|
)
|
$
|
(0.09
|
)
|
||
Basic
and diluted shares outstanding
|
131,001
|
131,001
|
Quarter
Ended September
28, 2008 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
(42
|
)
|
$
|
(2,037
|
)
|
||
Loss
before income taxes
|
$
|
(1,261
|
)
|
$
|
(3,256
|
)
|
||
Net
loss
|
$
|
(1,801
|
)
|
$
|
(3,796
|
)
|
||
Basic
and diluted loss per share
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
||
Basic
and diluted shares outstanding
|
131,142
|
131,142
|
Quarter
Ended December
28, 2008 |
||||||||
As
Reported
|
As
Restated
|
|||||||
Other
income (expense), net
|
$
|
44,940
|
|
$
|
37,191
|
|
||
Loss
before income taxes
|
$
|
(321,444
|
)
|
$
|
(329,193
|
)
|
||
Net
loss
|
$
|
(322,392
|
)
|
$
|
(330,141
|
)
|
||
Basic
and diluted loss per share
|
$
|
(2.46
|
)
|
$
|
(2.52
|
)
|
||
Basic
and diluted shares outstanding
|
131,238
|
131,238
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
CONTROLS
AND PROCEDURES
|
Controls
and Procedures
We have
established disclosure controls and procedures to ensure that material
information relating to Powerwave and its consolidated subsidiaries is made
known to the officers who certify the Company’s financial reports, as well as
other members of senior management and the Board of Directors, to allow timely
decisions regarding required disclosures. As of the end of the period covered by
this report, Powerwave carried out an evaluation, under the supervision and with
the participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities and Exchange Act of 1934. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are ineffective
in timely alerting them to material information related to the Company that is
required to be included in Powerwave’s annual and periodic SEC
filings.
Other
than the material weakness discussed below, there were no changes in our
internal controls over financial reporting during the fourth quarter of the year
ended January 3, 2010 that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.
During
the first quarter of 2010, we completed the design and implementation of control
activities that we believe will prevent or detect material misstatements that
might exist related to our debt agreements. Specifically, we have
thoroughly reviewed our outstanding debt agreements and have created a process
for review of all new debt agreements. The remediation was completed in the
first quarter of 2010 and we believe that these controls are operating
effectively.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within Powerwave have been detected.
Management’s
Report on Internal Control Over Financial Reporting (As Revised)
Our
management is responsible for establishing and maintaining adequate internal
control over our financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934, as amended). Our management assessed the
effectiveness of our internal controls over financial reporting as of January 3,
2010. In making its assessment of the effectiveness of our internal controls
over financial reporting, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated Framework. Based upon this assessment, our
management has concluded that, as of January 3, 2010, our internal control over
financial reporting was not effective to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with GAAP because of
the following material weakness:
§
|
We
did not timely adopt a new accounting standard due to insufficient
analysis of our debt agreements and the related impact of such standard on
our financial statements which resulted in a restatement of the fiscal
2009 consolidated financial statements. This material weakness resulted in
the need for us to record various adjustments during 2009, but also
resulted in a more than reasonable possibility that a material
misstatement to the annual or interim financial statements would not have
been prevented or
detected.
|
We
reviewed the results of management’s assessment with the Audit Committee of our
Board of Directors. Our independent registered public accounting
firm, which audited the consolidated financial statements included in this
amended Annual Report on Form 10-K/A, has issued an attestation report included
elsewhere herein, which expresses an adverse opinion on the effectiveness of our
internal control over financial reporting.
OTHER
INFORMATION
|
None.
PART
III
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
(a) Identification of Director’s
and Executive Officers.
The
information required hereunder is incorporated by reference from the sections of
our Proxy Statement filed in connection with our 2010 Annual Meeting of
Stockholders under the captions “Election of Directors” and “Executive
Compensation.”
(b) Compliance with Section
16(a) of the Exchange Act.
The
information required hereunder is incorporated by reference from the sections of
our Proxy Statement filed in connection with our 2010 Annual Meeting of
Stockholders under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance.”
(c) Code of
Ethics.
The
information required hereunder is incorporated by reference from the sections of
our Proxy Statement filed in connection with our 2010 Annual Meeting of
Stockholders under the caption “Code of Ethics.”
(d) Audit Committee and Audit
Committee Financial Expert.
The
information required hereunder is incorporated by reference from the sections of
our Proxy Statement filed in connection with our 2010 Annual Meeting of
Stockholders under the caption “What committees has the Board
established?”
EXECUTIVE
COMPENSATION
|
The
information required hereunder is incorporated by reference from the sections of
our Proxy Statement filed in connection with its 2010 Annual Meeting of
Stockholders under the heading “Executive Compensation.”
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
information required hereunder is incorporated by reference from the sections of
our Proxy Statement filed in connection with its 2010 Annual Meeting of
Stockholders under the caption “Stock Ownership.”
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The
information required hereunder is incorporated by reference from the sections in
our Proxy Statement filed in connection with its 2010 Annual Meeting of the
Stockholders under the captions “Certain Relationships and Transactions with
Management and Others” and “Election of Directors.”
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The
information required hereunder is incorporated by reference from the sections in
our Proxy Statement filed in connection with its 2010 Annual Meeting of the
Stockholders under the captions “Audit and Non-Audit Fees.”
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a) Documents filed as a part of this
report:
|
(1)
|
Financial
Statements
|
The
financial statements included in Part II, Item 8 of this document are filed
as part of this Report.
|
(2)
|
Financial
Statement Schedule
|
The
financial statement schedule included in Part II, Item 8 of this document
is filed as part of this Report. All other schedules are omitted as the required
information is inapplicable or the information is included in the consolidated
financial statements or related notes.
|
(3)
|
Exhibits
|
The
following exhibits are filed as part of this Report:
Exhibit
Number
|
Description
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Company as amended
through April 27, 2004 (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-K filed with the Securities and Exchange Commission on
March 2, 2009).
|
3.2
|
Amended
and Restated Bylaws of the Company as amended through November 1, 2007
(incorporated by reference to Exhibit 3.2 of the Company’s Form 10-K filed
with the Securities and Exchange Commission on March 2,
2009).
|
3.3
|
Certificate
of Designation of Rights, Preferences and Privileges of Series A
Junior Participating Preferred Stock of Powerwave Technologies, Inc.
(incorporated herein by reference to Exhibit 2.1 to Registrant’s Form 8-A
dated June 4, 2001).
|
4.1
|
Stockholders’
Agreement, dated October 10, 1995, among the Company and certain
stockholders (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
Securities and Exchange Commission on October 8,
1996).
|
4.1.1
|
Amendment
to Stockholders Agreement (incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form-S-1 (File No. 333-13679) as filed
with the Securities and Exchange Commission on October 8,
1996).
|
4.2
|
Rights
Agreement, dated as of June 1, 2001 between Powerwave Technologies, Inc.
and U.S. Stock Transfer Corporation, as Rights Agent, which includes as
Exhibit A thereto the form of Certificate of Designation for the Series A
Junior Participating Preferred Stock, as Exhibit B thereto the Form
of Rights Certificate and as Exhibit C thereto a Summary of Terms of
Stockholder Rights Plan (incorporated herein by reference to Exhibit 2.1
to Registrant’s Form 8-A12G dated June 4, 2001).
|
4.2.1
|
First
Amendment to Rights Agreement, dated June 19, 2003, between Powerwave
Technologies, Inc. and U.S. Stock Transfer Corporation, as Rights Agent
(incorporated by reference to Exhibit 2 of the Company’s Form 8-A12G/A as
filed with the Securities and Exchange Commission on July 10,
2003).
|
4.2.2
|
Second
Amendment to Rights Agreement, dated September 29, 2006, between
Powerwave Technologies, Inc. and U.S. Stock Transfer Corporation, as
Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 29, 2006).
|
4.3
|
Indenture,
dated as of November 10, 2004, by and between Powerwave Technologies, Inc.
and Deutsche Bank Trust Company Americas, as trustee (incorporated by
reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated
November 4, 2004 filed with the Securities and Exchange Commission on
November 10, 2004).
|
4.4
|
Registration
Rights Agreement, dated as of November 10, 2004, by and between Powerwave
Technologies, Inc. and Deutsche Bank Securities Inc. (incorporated by
reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K dated
November 4, 2004 filed with the Securities and Exchange Commission on
November 10, 2004).
|
4.5
|
Form
of Global 1.875% Convertible Subordinated Note due 2024 (included in
Exhibit 4.7).
|
4.6
|
Indenture,
dated September 24, 2007, by and between Powerwave Technologies, Inc. and
Deutsche Bank Trust Company America (incorporated by reference to Exhibit
4.1 of the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on September 24, 2007).
|
Exhibit
Number
|
Description
|
4.7
|
Registration
Rights Agreement, dated September 24, 2007 by and between the Company and
Deutsche Bank Securities, Inc. (incorporated by reference to Exhibit 4.2
of the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 24, 2007).
|
4.8
|
Form
of Global 3.875% Convertible Subordinated Note due 2027 (incorporated by
reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 24,
2007).
|
10.1
|
Powerwave
Technologies, Inc. 1996 Stock Incentive Plan (the “1996 Plan”)
(incorporated by reference to Exhibit 10.4 to the Company’s Registration
Statement on Form-S-1 (File No. 333-13679) as filed with the Securities
and Exchange Commission on October 8, 1996).*
|
10.1.1
|
Amendment
No. 1 to 1996 Plan (incorporated by reference to Exhibit 10.6.1 to the
Company’s Registration Statement on Form-S-1 (File No. 333-28463) as filed
with the Securities and Exchange Commission on June 4,
1997).*
|
10.1.2
|
Amendment
No. 2 to 1996 Plan (incorporated by reference to Exhibit 4.6 to the
Company’s Registration Statement on Form S-8 (File No. 333-20549) as filed
with the Securities and Exchange Commission on October 8,
1998).*
|
10.2
|
Form
of Stock Option Agreement for 1996 Plan (incorporated by reference to
Exhibit 10.5 to the Company’s Registration Statement on Form-S-1 (File No.
333-13679) as filed with the Securities and Exchange Commission on
October 8, 1996).*
|
10.3
|
Form
of Restricted Stock Purchase Agreement for 1996 Plan (incorporated by
reference to Exhibit 10.6 to the Company’s Registration Statement on
Form-S-1 (File No. 333-13679) as filed with the Securities and Exchange
Commission on October 8, 1996).*
|
10.4
|
Powerwave
Technologies, Inc. Amended and Restated 1996 Director Stock Option Plan
(the “Director Plan”) as amended through August 12,
2009.*
|
10.5
|
Form
of Stock Option Agreement for the Director Plan (incorporated by reference
to Exhibit 10.8 to the Company’s Registration Statement on Form-S-1 (File
No. 333-13679) as filed with the Securities and Exchange Commission on
October 8, 1996).*
|
10.6
|
Redemption
Agreement, dated October 10, 1995, among the Company and certain
stockholders (incorporated by reference to Exhibit 10.11 to the Company’s
Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
Securities and Exchange Commission on October 8,
1996).
|
10.7
|
Form
of Indemnification Agreement (incorporated by reference to Exhibit 10.14
to the Company’s Registration Statement on Form-S-1 (File No. 333-13679)
as filed with the Securities and Exchange Commission on October 8,
1996).*
|
10.8
|
Powerwave
Technologies, Inc. 2000 Stock Option Plan (the “2000 Plan”) (incorporated
by reference to Exhibit 4.1 to the Company’s Form S-8 (File No. 333-38568)
as filed with the Securities and Exchange Commission on June 5,
2000).*
|
10.9
|
Form
of Stock Option Agreement for the 2000 Plan (incorporated by reference to
Exhibit 4.2 to the Company’s Form S-8 (File No. 333-38568) as filed with
the Securities and Exchange Commission on June 5,
2000).*
|
10.10
|
Powerwave
Technologies, Inc. 2002 Stock Option Plan (“2002 Plan”) (incorporated by
reference to Exhibit 4.1 to the Company’s Form S-8 (File No. 333-88836) as
filed with the Securities and Exchange Commission on May 22,
2002).*
|
10.11
|
Form
of Stock Option Agreement for the 2002 Plan (incorporated by reference to
Exhibit 4.2 to the Company’s Form S-8 (File No. 333-88836) as filed with
the Securities and Exchange Commission May 22,
2002).*
|
10.12
|
Powerwave
Technologies, Inc. 2005 Stock Incentive Plan (the “2005 Plan”)
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
November 17, 2005).*
|
10.13
|
Form
of Stock Option Agreement under the 2005 Plan (incorporated by reference
to Exhibit 10.3 of the Company’s Current Report on Form 8-K as filed with
the Securities and Exchange Commission on November 17,
2005).*
|
10.14
|
Form
of Restricted Stock Award Agreement under the 2005 (incorporated by
reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K as
filed with the Securities and Exchange Commission on November 17,
2005).*
|
Exhibit
Number
|
Description |
10.15
|
Form
of Stock Appreciation Rights Award Agreement under the 2005 Plan
(incorporated by reference to Exhibit 10.5 of the Company’s Current Report
on Form 8-K as filed with the Securities and Exchange Commission on
November 17, 2005).*
|
10.16
|
Form
of Restricted Stock Unit Award Agreement under the 2005 Plan (incorporated
by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K
as filed with the Securities and Exchange Commission on November 17,
2005).*
|
10.17
|
Form
of Stock Award Agreement under the 2005 Plan (incorporated by reference to
Exhibit 10.7 of the Company’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on November 17,
2005).*
|
10.18
|
Powerwave
Technologies Executive Officer Cash Compensation Plan (incorporated by
reference to Exhibit 10.58 of the Company’s Current Report on Form 8-K as
filed with the Securities and Exchange Commission on November 16,
2006).*
|
10.19
|
Extended
and Restated Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 7,
2007).*
|
10.19.1
|
Amendment
to the Powerwave Technologies, Inc. Extended and Restated 1996 Employee
Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 13, 2008).
|
10.20
|
Amended
and Restated Change in Control Agreement dated as of August 13, 2008,
between the Company and Ronald J. Buschur (incorporated by reference to
Exhibit 10.25 of the Company’s Form 10-K filed with the Securities and
Exchange Commission on March 2, 2009).*
|
10.21
|
Amended
and Restated Change in Control Agreement dated as of August 13, 2008,
between the Company and Kevin T. Michaels (incorporated by reference to
Exhibit 10.26 of the Company’s Form 10-K filed with the Securities and
Exchange Commission on March 2, 2009).*
|
10.22
|
Amended
and Restated Severance Agreement dated as of August 13 2008, between the
Company and Ronald J. Buschur (incorporated by reference to Exhibit 10.27
of the Company’s Form 10-K filed with the Securities and Exchange
Commission on March 2, 2009).*
|
10.23
|
Amended
and Restated Severance Agreement dated as of August 13, 2008, between the
Company and Kevin T. Michaels (incorporated by reference to Exhibit 10.28
of the Company’s Form 10-K filed with the Securities and Exchange
Commission on March 2, 2009).*
|
10.24
|
Letter
Agreement regarding Change of Control Benefits between the Company and J.
Marvin MaGee dated December 17, 2008 (incorporated by reference to
Exhibit 10.29 of the Company’s Form 10-K filed with the Securities and
Exchange Commission on March 2, 2009).*
|
10.25
|
Letter
Agreement Regarding Change of Control Benefits between the Company and
Khurram Sheikh dated December 17, 2008 (incorporated by reference to
Exhibit 10.30 of the Company’s Form 10-K filed with the Securities and
Exchange Commission on March 2, 2009).*
|
10.26
|
Letter
Agreement Regarding Change of Control Benefits between the Company and
Basem Anshasi dated December 17, 2008 (incorporated by reference to
Exhibit 10.33 of the Company’s Form 10-K filed with the Securities and
Exchange Commission on March 2, 2009). *
|
10.27
|
Credit
Agreement dated April 3, 2009 by and among Powerwave Technologies, Inc.,
as borrower, the lenders that are signatories and Wells Fargo Foothill,
LLC, as arranger and administrative agent (incorporated by reference to
Exhibit 10.27 of the Company’s Annual Report on Form 10-K as filed with
the Securities and Exchange Commission on February 19,
2010).
|
10.28
|
Waiver,
Consent, Amendment Number One to Credit Agreement and Amendment Number One
to Security Agreement dated December 31, 2009 with the lenders named
therein and Wells Fargo Foothill, LLC, as arranger and administrative
agent (incorporated by reference to Exhibit 10.28 of the Company’s Annual
Report on Form 10-K as filed with the Securities and Exchange Commission
on February 19, 2010).
|
14
|
Code
of Ethics (incorporated by reference to Exhibit 14 to the Company’s Form
10-K for the fiscal year ended
December
28, 2003 as filed with the Securities and Exchange Commission on February
13, 2004).
|
Exhibit
Number
|
Description |
21.1
|
Subsidiaries
of the registrant (incorporated by reference to Exhibit 21.1 of the
Company’s Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on February 19, 2010).
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
24.1
|
Power
of Attorney (included in signature page) (incorporated by reference to
Exhibit 24.1 of the Company’s Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on February 19,
2010).
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
32.1
|
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.***
|
32.2
|
Certification
of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.***
|
*
|
Indicates
Item 15(a)(3) exhibit (management contract or compensation plan or
arrangement).
|
**
|
Registrant
has sought confidential treatment pursuant to Rule 24b-2 of the Exchange
Act for a portion of the referenced
exhibit.
|
***
|
In
accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit
shall not be deemed “filed” for the purposes of Section 18 of the
Securities and Exchange Act of 1934 or otherwise subject to the liability
of that section, nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 to the Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Ana, State of California, on the 4th day
of March 2010.
POWERWAVE
TECHNOLOGIES, INC.
|
||||
By:
|
/s/ KEVIN
T. MICHAELS
|
|||
Kevin
T. Michaels
|
||||
Chief
Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
*
|
President,
Chief Executive Officer and Director
(Principal
Executive Officer)
|
March 4,
2010
|
||
Ronald
J. Buschur
|
||||
/s/
KEVIN T. MICHAELS
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
March 4,
2010
|
||
Kevin
T. Michaels
|
||||
*
|
Chairman
of the Board of Directors
|
March 4,
2010
|
||
Carl
W. Neun
|
||||
*
|
Director
|
March 4,
2010
|
||
John
L. Clendenin
|
||||
*
|
Director
|
March 4,
2010
|
||
Moiz
M. Beguwala
|
||||
*
|
Director
|
March 4,
2010
|
||
David
L. George
|
||||
*
|
Director
|
March 4,
2010
|
||
Eugene
L. Goda
|
||||
*
|
Director
|
March 4,
2010
|
||
Ken
J. Bradley
|
*
By:
|
/s/
KEVIN T. MICHAELS
|
|
Kevin
T. Michaels
|
||
(Attorney-In-Fact)
|
(in
thousands)
Description
|
Balance at
Beginning
of
Period
|
Charges to
Costs
and
Expenses
|
Deductions
|
Balance at
End
of
Period
|
||||||||||||
Year
ended January 3, 2010:
|
||||||||||||||||
Allowance for doubtful
accounts and sales returns
|
$
|
9,478
|
1,860
|
(2,989
|
)
|
$
|
8,349
|
|||||||||
Allowance for excess and
obsolete inventory
|
$
|
43,377
|
9,057
|
(29,809
|
)
|
$
|
22,625
|
|||||||||
Year
ended December 28, 2008:
|
||||||||||||||||
Allowance for doubtful
accounts and sales returns
|
$
|
11,897
|
966
|
(3,385
|
)
|
$
|
9,478
|
|||||||||
Allowance for excess and
obsolete inventory
|
$
|
47,251
|
15,435
|
(19,309
|
)
|
$
|
43,377
|
|||||||||
Year
ended December 30, 2007:
|
||||||||||||||||
Allowance for doubtful
accounts and sales returns
|
$
|
9,074
|
5,245
|
(2,422
|
)
|
$
|
11,897
|
|||||||||
Allowance for excess and
obsolete inventory
|
$
|
48,938
|
31,823
|
(33,510
|
)
|
$
|
47,251
|