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EXCEL - IDEA: XBRL DOCUMENT - POWERWAVE TECHNOLOGIES INCFinancial_Report.xls
EX-32.2 - CEO CERTIFICATION Q2 2011 - POWERWAVE TECHNOLOGIES INCq2_11ex32-2.htm
EX-31.2 - CEO CERTIFICATION OF PERIODIC REPORT - POWERWAVE TECHNOLOGIES INCq2_11ex31-2.htm
EX-31.1 - CEO CERTIFICATION OF PERIODIC REPORT - POWERWAVE TECHNOLOGIES INCq2_11ex31-1.htm
EX-32.1 - CEO CERTIFICATION Q2 2011 - POWERWAVE TECHNOLOGIES INCq2_11ex32-1.htm


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
 
 
Form 10-Q

 
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended July 3, 2011
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 
Commission File Number 000-21507

 
 
 
POWERWAVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

 
 
 

 
   
Delaware
11-2723423
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
1801 E. St. Andrew Place, Santa Ana, CA 92705
(Address of principal executive offices, zip code)
 
(714) 466-1000
(Registrant’s telephone number, including area code)

 
 
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller-reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  ¨        Accelerated filer  þ         Non-accelerated filer  ¨         Smaller reporting company  ¨
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
 
As of August 3, 2011, the registrant had 158,343,298 shares of Common Stock outstanding.

 
 

 
 
POWERWAVE TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED JULY 3, 2011
 
 
     
   
PAGE
 
 
         3
   
         3
   
   
         4
     
Item 1.
         4
     
 
         4
     
 
         5
     
 
         6
     
 
         7
     
 
         8
     
Item 2.
         17
     
Item 3.
         29
     
Item 4.
         30
   
         31
     
Item 1.
         31
     
Item 1A.
         32
     
Item 2.
         45
     
Item 6.
         46
   
         47
 
 
 
    This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report, including, without limitation, statements regarding future events, our future financial performance, our business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Actual results could differ materially from those projected in forward-looking statements as a result of the following factors, among others:
 
·  
our reliance upon a few customers to generate the majority of our revenues;
 
·  
the competitiveness of our industry, which is characterized by rapid technological change;
 
·  
our ability to enhance our existing products or develop new products that meet our customers’ needs and requirements;
 
·  
a reduction in our sales due to our strategic focus on growing sales of higher margin products;
 
·  
our dependence upon single sources or limited sources for key components and products;
 
·  
financial difficulties of our key customers or suppliers;
 
·  
potential unexpected cost increases in coverage systems projects;
 
·  
continuing declines in the sales prices of our products;
 
·  
potential direct competition from our suppliers, contract manufacturers and customers;
 
·  
the future growth, or lack of growth, in the wireless communications industry;
 
·  
inventory fluctuations due to our reliance on contract manufacturers,  components and supply chains with long lead times;
 
·  
our ability to hire and retain highly-qualified technical and managerial personnel;
 
·  
risks related to our international operations, including with respect to operations in Asia and Europe;
 
·  
our ability to protect our intellectual property and third party claims of intellectual property infringement;
 
·  
increasing commodity and energy costs;
 
·  
the nature and complexity of regulatory requirements that apply to us, and our ability to obtain or maintain any required regulatory approvals;
 
·  
continued or increased economic uncertainty resulting from the recent economic recession; and
 
·  
other risks set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q, entitled “Risk Factors.”
 
Readers are urged to carefully review and consider the various disclosures made by the Company, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business, operating results, financial condition and stock price, including without limitation the disclosures made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and in the consolidated financial statements and notes thereto included elsewhere in this report, as well as the disclosures made under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors”, “Consolidated Financial Statements” and “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2011, and in other filings we make with the SEC. Because the risks and uncertainties discussed in this report and other important unanticipated factors may affect the Company’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.  Furthermore, such forward-looking statements speak only as of the date of this report. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations except as required by applicable law or the rules of the NASDAQ Stock Market.
 
 
 
All reports filed by the Company 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.  The Company also provides copies of its Forms 8-K, 10-K, 10-Q , Proxy Statement, 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.
 
 
 
FINANCIAL STATEMENTS
 
 
POWERWAVE TECHNOLOGIES, INC.
 
(Unaudited)
(In thousands, except share data)

   
July 3,
2011
 
January 2,
2011
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
48,763
   
$
61,601
 
Restricted cash
   
985
     
930
 
Accounts receivable, net of allowance for sales returns and doubtful accounts of $4,879 and $4,595, respectively
   
213,512
     
186,960
 
Inventories
   
69,664
     
50,417
 
Prepaid expenses and other current assets
   
49,466
     
39,236
 
Deferred income taxes
   
6,331
     
6,331
 
Total current assets
   
388,721
     
345,475
 
Property, plant and equipment, net
   
74,296
     
76,276
 
Other assets
   
3,562
     
3,833
 
TOTAL ASSETS
 
$
466,579
   
$
425,584
 
                 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
 
$
147,333
   
$
112,906
 
Accrued payroll and employee benefits
   
14,690
     
14,237
 
Accrued restructuring costs
   
268
     
749
 
Accrued expenses and other current liabilities
   
25,570
     
30,453
 
Current portion of long term debt
   
11,084
     
55,371
 
Total current liabilities
   
198,945
     
213,716
 
Long-term debt
   
195,722
     
150,000
 
Other liabilities
   
605
     
589
 
Total liabilities
   
395,272
     
364,305
 
Commitments and contingencies (Notes 8 and 9)
               
Shareholders’ equity (deficit):
               
Preferred Stock, $0.0001 par value, 5,000,000 shares authorized and no shares issued or outstanding
   
     
 
Common Stock, $0.0001 par value, 250,000,000 shares authorized, 169,208,352 and 168,468,792 shares issued and outstanding, respectively
   
887,606
     
882,720
 
Accumulated other comprehensive income
   
15,206
     
10,110
 
Accumulated deficit
   
(831,505
)
   
(831,551
)
Net shareholders’ equity
   
71,307
     
61,279
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
466,579
   
$
425,584
 





The accompanying notes are an integral part of these consolidated financial statements.
 
POWERWAVE TECHNOLOGIES, INC.
 
(Unaudited)
(In thousands, except per share data)

                         
   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2011
   
July 4,
2010
   
July 3,
2011
   
July 4,
2010
 
Net sales
  $ 170,641     $ 144,580     $ 307,265     $ 259,053  
Cost of sales:
                               
Cost of goods
    122,849       101,886       223,613       186,527  
Restructuring and impairment charges
          705             726  
Total cost of sales
    122,849       102,591       223,613       187,253  
Gross profit
    47,792       41,989       83,652       71,800  
Operating expenses:
                               
Sales and marketing
    8,015       8,362       17,151       17,758  
Research and development
    15,748       15,685       32,351       29,961  
General and administrative
    11,332       11,302       23,323       22,576  
Restructuring and impairment charges
    41       214       42       560  
Total operating expenses
    35,136       35,563       72,867       70,855  
Operating income
    12,656       6,426       10,785       945  
Other (expense), net
    (4,155 )     (4,564 )     (6,836 )     (8,137 )
Income (loss) before income taxes
    8,501       1,862       3,949       (7,192 )
Income tax provision
    1,480       1,638       3,903       3,402  
Net income (loss)
  $ 7,021     $ 224     $ 46     $ (10,594 )
Basic earnings (loss) per share:
  $ 0.04     $ 0.00     $ 0.00     $ (0.08 )
Diluted earnings (loss) per share:
  $ 0.04     $ 0.00     $ 0.00     $ (0.08 )
Shares used in the computation of earnings (loss) per share:
                               
Basic
    169,152       132,609       168,979       132,516  
Diluted
    173,550       135,340       173,437       132,516  
















The accompanying notes are an integral part of these consolidated financial statements.
 
POWERWAVE TECHNOLOGIES, INC.
 
(Unaudited)
(In thousands)

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2011
   
July 4,
2010
   
July 3,
2011
   
July 4,
2010
 
Net income (loss)
  $ 7,021     $ 224     $ 46     $ (10,594 )
Other comprehensive income (loss):
                               
Foreign currency translation adjustments, net of income taxes
    2,418       (1,898 )     5,096       (4,285 )
Comprehensive income (loss)
  $ 9,439     $ (1,674 )   $ 5,142     $ (14,879 )

 
































The accompanying notes are an integral part of these consolidated financial statements.
 
POWERWAVE TECHNOLOGIES, INC.
 
(Unaudited)
(In thousands)
   
Six Months Ended
   
July 3,
2011
 
July 4,
2010
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
 
$
46
   
$
(10,594
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
Depreciation
   
7,095
     
9,162
 
Amortization
   
1,999
     
2,925
 
Non-cash restructuring and impairment charges
   
42
     
1,286
 
Provision for sales returns and doubtful accounts
   
491
     
1,077
 
Provision for excess and obsolete inventories
   
549
     
4,857
 
Compensation costs related to stock-based awards
   
3,943
     
1,741
 
Gain on repurchase of convertible debt
   
     
(85
)
Gain on exchange of convertible debt
   
     
(483
)
Gain on disposal of property, plant and equipment
   
(325
)
   
(221
)
Changes in operating assets and liabilities, net of acquisitions:
               
Accounts receivable
   
(25,894
)
   
334
 
Inventories
   
(18,191
)
   
(1,960
)
Prepaid expenses and other current assets
   
(8,487
)
   
(8,412
)
Accounts payable
   
33,295
     
3,674
 
Accrued expenses and other current liabilities
   
(5,395
)
   
1,515
 
Other non-current assets
   
23
     
7
 
Other non-current liabilities
   
(9
)
   
(43
)
Net cash provided by (used in) operating activities                                                                                                
   
(10,818
)
   
4,780
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property, plant and equipment
   
(3,529
)
   
(1,906
)
Restricted cash
   
(55
)
   
1,716
 
Proceeds from the sale of property, plant and equipment
   
357
     
266
 
Net cash provided by (used in) investing activities                                                                                                
   
(3,227
)
   
76
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Debt issuance costs
   
(297
)
   
(1,263
)
Proceeds from stock-based compensation arrangements
   
979
     
399
 
Repurchase of common stock
   
(36
)
   
(12
)
Retirement of long-term debt
   
     
(2,685
)
Net cash provided by (used) in financing activities                                                                                                
   
646
     
(3,561
)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
   
561
     
(299
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(12,838
)
   
996
 
CASH AND CASH EQUIVALENTS, beginning of period
   
61,601
     
60,439
 
CASH AND CASH EQUIVALENTS, end of period
 
$
48,763
   
$
61,435
 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for:
               
Interest expense
 
$
3,709
   
$
4,425
 
Income taxes
 
$
4,761
   
$
6,419
 
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
               
Unpaid purchases of property and equipment
 
$
808
   
$
332
 
Exchange of 1.875% Convertible Subordinated Notes due 2024
 
$
   
$
60,000
 

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

 
7

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
 
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 wireless networks throughout the world.
 
 
Note 2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial statements. The interim financial information is unaudited; however, it reflects all normal adjustments and accruals which are in the opinion of management considered necessary to provide a fair presentation for the interim periods presented. All intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements.
 
The results of operations for the interim periods are not necessarily indicative of the results to be expected for the future quarters or full fiscal year ending January 1, 2012 (“fiscal 2011”). The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2011.
 
Newly Adopted Accounting Pronouncements
 
In October 2009, the Financial Accounting Standards Board (FASB) issued an update to Accounting Standards Codification (ASC) Topic 605, “Revenue Recognition.”  This Accounting Standards Update (ASU) No. 2009-13, “Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force,” provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Previous accounting guidance required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under previous accounting guidance, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined.
 
In October 2009, the FASB issued an update to ASC Topic 985, ”Software.” This ASU No. 2009-14, “Software – Certain Revenue Arrangements that Include Software Elements,” modifies the software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software components that functions together to deliver a product’s essential functionality.
 
These pronouncements were effective in the first quarter of 2011.  The adoption of these pronouncements did not have a material impact on the Company’s business, financial condition or results of operations.
 
Stock-Based Compensation
 
The Company accounts for stock-based compensation in accordance with accounting guidance now codified as ASC Topic 718, “Compensation – Stock Compensation.”  Under the fair value recognition provision of ASC Topic 718, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option pricing model and a multiple option award approach. The fair value of restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant.  Stock-based compensation, adjusted for estimated forfeitures, is amortized on a straight-line basis over the requisite service period of the award, which is generally the vesting period.
 
 
8

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
Stock-based compensation expense was recognized as follows in the consolidated statement of operations:
 
   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2011
   
July 4,
2010
   
July 3,
2011
   
July 4,
2010
 
Cost of sales
  $ 199     $ 106     $ 409     $ 214  
Sales and marketing expenses
    159       48       284       86  
Research and development expenses
    403       126       849       317  
General and administrative expenses
    1,144       496       2,401       1,124  
Decrease to operating income before income taxes
    1,905       776       3,943       1,741  
Income tax benefit recognized
                       
Impact on net income (loss)
  $ 1,905     $ 776     $ 3,943     $ 1,741  
Impact to net income (loss) per share:
                               
Basic and diluted
  $ 0.01     $ 0.01     $ 0.02     $ 0.01  
 
As of July 3, 2011, unrecognized compensation expense related to the unvested portion of the Company’s stock-based awards and employee stock purchase plan was approximately $7.5 million, net of estimated forfeitures of $0.8 million, which is expected to be recognized over a weighted-average period of 1.4 years.
 
The Black-Scholes-Merton option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions including the weighted average risk-free interest rate, the expected life, and the expected stock price volatility. The weighted average risk-free interest rate was determined based upon actual U.S. treasury rates over a one to ten year horizon and the actual life of options granted. The Company grants options with either a five year or ten year life. The expected life is based on the Company’s actual historical option exercise experience. For the employee stock purchase plan, the actual life of 6 months is utilized in this calculation. The expected life was determined based upon actual option grant lives over a 10 year period. The Company has utilized various market sources to calculate the implied volatility factor utilized in the Black-Scholes-Merton option valuation model. These included the implied volatility utilized in the pricing of options on the Company’s Common Stock as well as the implied volatility utilized in determining market prices of the Company’s outstanding convertible notes. Using the Black-Scholes-Merton option valuation model, the estimated weighted average fair value of options granted during the second quarter and first half of fiscal year 2011 was $2.70 and $2.41, respectively, and for the second quarter and first half of 2010 was $0.99 per share and $0.67 per share, respectively.
 
The fair value of options granted under the Company’s stock incentive plans during the first half of 2011 and 2010 was estimated on the date of grant according to the Black-Scholes-Merton option-pricing model utilizing the multiple option approach and the following weighted-average assumptions:
 
   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2011
   
July 4,
2010
   
July 3,
2011
   
July 4,
2010
 
Weighted average risk-free interest rate 
    2.0 %     1.7 %     2.2 %     2.5 %
Weighted average expected life (in years)
    3.6       4.6       3.6       4.6  
Expected stock volatility
    72 %     74 %     77 %     68 %
Dividend yield
 
None
   
None
   
None
   
None
 

 
Note 3. Supplemental Balance Sheet Information
 
Prepaid Expense and Other Current Assets
 
   
July 3,
2011
 
January 2,
2011
Prepaid expense and other current assets
   
15,219
     
9,634
 
Costs and estimated earnings in excess of billings
   
34,247
     
29,602
 
Total prepaid expense and other current assets
 
$
49,466
   
$
39,236
 
 
In the first quarter of 2011, the Company adjusted its cost estimates on a coverage solutions project which reduced both costs and estimated earnings in excess of billings and gross margin by approximately $3.6 million.
 
 
9

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
Inventories
 
Net inventories are as follows:
 
   
July 3,
2011
 
January 2,
2011
Parts and components
 
$
22,358
   
$
22,165
 
Work-in-process
   
6,085
     
5,052
 
Finished goods
   
41,221
     
23,200
 
Total inventories
 
$
69,664
   
$
50,417
 
 
Inventories are net of an allowance for excess and obsolete inventory of approximately $15.4 million and $21.7 million as of July 3, 2011 and January 2, 2011, respectively.
 
Warranty
 
Accrued warranty costs are as follows:
 
   
Six Months Ended
Description
 
July 3,
2011
 
July 4,
2010
Warranty reserve beginning balance
 
$
7,029
   
$
7,038
 
Reductions for warranty costs incurred
   
(5,204
)
   
(3,749
)
Warranty accrual related to current period sales
   
4,592
     
3,565
 
Effect of exchange rates
   
     
 
Warranty reserve ending balance
 
$
6,417
   
$
6,854
 

 
Note 4. Financing Arrangements and Long-Term Debt
 
Long-term debt
 
   
July 3,
2011
 
January 2,
2011
3.875% Convertible Subordinated Notes due 2027
 
$
150,000
   
$
150,000
 
1.875% Convertible Subordinated Notes due 2024
   
57,916
     
57,916
 
Subtotal
   
207,916
     
207,916
 
Less unamortized discount
   
(1,110
)
   
(2,545
)
Subtotal
   
206,806
     
205,371
 
Less: current portion of long-term debt                                                                              
   
(11,084
)
   
(55,371
)
Total long-term debt
 
$
195,722
   
$
150,000
 
 
The Company accounts for its 1.875% Convertible Subordinated Notes due 2024 (the “1.875% Notes”) in accordance with FASB ASC Topic 470-20, Debt with Conversion and Other Options, which 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. The following tables provide additional information about the 1.875% Notes:
 
   
July 3,
2011
   
January 2,
2011
 
Carrying amount of equity component
 
$
49,703
   
$
49,703
 
                 
Principal amount of the 1.875% Notes
   
57,916
     
57,916
 
Unamortized discount of liability component
   
(1,110
   
   (2,545
)
Net carrying amount of liability component
 
$
56,806
   
$
55,371
 
 
 
   
Three Months Ended
 
Six Months Ended
   
July 3,
2011
 
July 4,
2010
 
July 3,
2011
 
July 4,
2010
Effective interest rate on liability component
   
7.07
%
   
7.07
%
   
7.07
%
   
7.07
%
Contractual interest expense recognized
 
$
271
   
$
327
   
$
542
   
$
847
 
Amortization of the discount on liability component
 
$
724
   
$
814
   
$
1,435
   
$
2,082
 
 
 
10

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
The unamortized discount will be recognized using the effective interest method through November 15, 2011.  As of July 3, 2011, the if-converted value of the 1.875% Notes did not exceed the principal amount.  On July 26, 2011 and August 8, 2011, the Company repurchased $42.6 million and $4.0 million, respectively, in aggregate principal amount of the outstanding 1.875% Notes, leaving approximately $11.3 million in principal amount of the 1.875% Notes outstanding.
 
Credit Agreement
 
The Company entered into a Credit Agreement with Wells Fargo Capital Finance, LLC (“Wells Fargo”) on April 3, 2009 (“the Credit Agreement”).  On January 31, 2011, the Company entered into Amendment Number Four to the Credit Agreement and Waiver, and Amendment Number Three to Security Agreement (collectively, the “Amendment”).  The Amendment extended the maturity date and the term of the Credit Agreement from August 15, 2011 to August 15, 2014.  The Amendment also reduced the interest rate under the Credit Agreement by reducing the Base Rate Margin by 1.50% and the LIBOR Base Rate Margin by 0.75%. The Credit Agreement carries an unused line fee of 0.5% per annum.  In connection with the Amendment, the Company incurred issue costs of $0.3 million.
 
  Pursuant to the Credit Agreement, the lenders thereunder have made available to the Company a senior secured credit facility in the form of a revolving line of credit up to a maximum of $50.0 million. Availability under the Credit Agreement is based on the calculation of 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, cash and cash equivalents and proceeds of the foregoing.  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 a financial covenant in the form of a minimum fixed charge coverage ratio that is applicable only if the availability under the Company’s line of credit falls below $15.0 million.  As of July 3, 2011, the Company is in compliance with all financial covenants.  As of July 3, 2011, the Company had approximately $39.8 million of availability under the Credit Agreement, of which approximately $6.5 million was utilized for an outstanding letter of credit. 
 
 
Note 5. Restructuring and Impairment Charges
 
2009 Restructuring Plan
 
In January 2009, the Company formulated and began to implement a plan to further reduce manufacturing overhead costs and operating expenses. As part of this plan, the Company initiated personnel reductions in both its domestic and foreign locations, with primary reductions in the United States, Finland and Sweden. These reductions were undertaken in response to economic conditions and the global macro-economic slowdown that began in the fourth quarter of 2008. The Company finalized this plan in the fourth quarter of 2009; however, additional amounts are expected to be accrued in 2011 related to actions associated with this plan.
 
A summary of the activity affecting its accrued restructuring liability related to the 2009 Restructuring Plan for the first half of 2011 is as follows:
 
   
Workforce Reductions
 
Facility Closures
 & Equipment Write-downs
 
Total
Balance at January 2, 2011
 
$
596
   
$
   
$
596
 
Amounts accrued
   
162
     
(30
)
   
132
 
Amounts paid/incurred
   
(501
)
   
30
     
(471
)
Effects of exchange rates
   
11
     
     
11
 
Balance at July 3, 2011
 
$
268
     
     
268
 
 
The costs associated with these exit activities were recorded in accordance with the accounting guidance now codified as ASC Topic 420, “Exit or Disposal Obligations.”  Pursuant to this guidance, a liability for a cost associated with an exit or disposal activity shall be recognized in the period in which the liability is incurred, except for a liability for one-time employee termination benefits that is incurred over time.  In the unusual circumstance in which fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. The restructuring and integration plan is subject to continued future refinement as additional information becomes available. The Company expects that the workforce reduction amounts will be paid through the first quarter of 2012.

 
11

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
Note 6. Other Income (Expense), Net
 
The components of other income (expense), net, are as follows:
 
   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2011
   
July 4,
2010
   
July 3,
2011
   
July 4,
2010
 
Interest income
  $ 54     $ 46     $ 113     $ 90  
Interest expense
    (2,894 )     (3,486 )     (5,780 )     (7,343 )
Foreign currency gain (loss), net
    (1,475 )     (1,784 )     (2,061 )     (2,481 )
Gain on repurchase of convertible debt
          85             85  
Gain on exchange of convertible debt
                      483  
Other income, net
    160       575       892       1,029  
Total
  $ (4,155 )   $ (4,564 )   $ (6,836 )   $ (8,137 )
 
Other income (expense), net, for the three and six months ended July 3, 2011 includes interest expense related to the Company’s debt of $2.9 million and $5.8 million respectively and foreign exchange loss of $1.5 million and $2.0 million, respectively.
 
Other income (expense), net, for the three and six months ended July 4, 2010 includes interest expense related to the Company’s debt of $3.5 million and $7.3 million respectively and foreign exchange loss of $1.8 million and $2.5 million, respectively. Also included in the three and six months ended July 4, 2010 is a gain of approximately $0.1 million on the repurchase of $3 million in par value of the Company’s 1.875% Notes and the six months ended July 4, 2010 also includes a gain of approximately $0.5 million related to the exchange of approximately $60 million in par value of the Company’s 1.875% Notes.
 
 
Note 7. Earnings (Loss) Per Share
 
In accordance with ASC Topic 260, ”Earnings per Share,” basic earnings (loss) per share is based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based upon the weighted average number of common and potential common shares for each period presented and income available to common stockholders is adjusted to reflect any changes in income or loss that would result from the issuance of the dilutive common shares. The Company’s potential common shares include stock options under the treasury stock method and convertible subordinated debt under the if-converted method. Potential common shares of 22,443,951 and 22,443,951 related to the Company’s stock option programs and convertible debt have been excluded from diluted weighted average common shares for the three and six months ended July 3, 2011, respectively, as the effect would be anti-dilutive.  In addition, potential common shares of 58,637,449 and 61,567,532 related to the Company’s stock option programs and convertible debt have been excluded from diluted weighted average common shares for the three and six months ended July 4, 2010, respectively, as the effect would be anti-dilutive.
 
The following details the calculation of basic and diluted loss per share:
 
   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2011
   
July 4,
2010
   
July 3,
2011
   
July 4,
2010
 
Basic:
                       
Net income (loss)
  $ 7,021     $ 224     $ 46     $ (10,594 )
Weighted average common shares
    169,152       132,609       168,979       132,516  
Basic earnings (loss) per share
  $ 0.04     $ 0.00     $ 0.00     $ (0.08 )
Diluted:
                               
Net income (loss)
  $ 7,021     $ 224     $ 46     $ (10,594 )
Interest expense of convertible debt, net of tax
                       
Net income (loss), as adjusted
  $ 7,021     $ 224     $ 46     $ (10,594 )
Weighted average common shares
    169,152       132,609       168,979       132,516  
Potential common shares
    4,398       2,731       4,458        
Weighted average common shares, as adjusted
    173,550       135,340       173,437       132,516  
Diluted income (loss) per share
  $ 0.04     $ 0.00     $ 0.00     $ (0.08 )
 
 
12

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
Note 8. Commitments and Contingencies
 
The Company is subject to legal proceedings and claims in the normal course of business.  Although the outcome of legal proceedings is inherently uncertain, the Company anticipates that it will be able to resolve these matters in a manner that will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
 
 
Note 9. Contractual Guarantees and Indemnities
 
During the normal course of its business, the Company makes certain contractual guarantees and indemnities pursuant to which the Company may be required to make future payments under specific circumstances. The Company has not recorded any liability for these contractual guarantees and indemnities in the accompanying consolidated financial statements. A description of significant contractual guarantees and indemnities existing as of July 3, 2011 is included below.
 
Intellectual Property Indemnities
 
The Company indemnifies certain customers and its contract manufacturers against liability arising from third-party claims of intellectual property rights infringement related to the Company’s products. These indemnities appear in development and supply agreements with the Company’s customers as well as manufacturing service agreements with the Company’s contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, the Company is unable to determine the maximum amount of losses that it could incur related to such indemnifications. Historically, any amounts payable pursuant to such intellectual property indemnifications have not had a material effect on the Company’s business, financial condition or results of operations.
 
Director and Officer Indemnities and Contractual Guarantees
 
The Company has entered into indemnification agreements with its directors and executive officers which require the Company to indemnify such individuals to the fullest extent permitted by Delaware law. The Company’s indemnification obligations under such agreements are not limited in amount or duration. Certain costs incurred in connection with such indemnifications may be recovered under certain circumstances under various insurance policies. Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit has been filed against a director or executive officer, the Company is unable to determine the maximum amount of losses that it could incur relating to such indemnifications. Historically, any amounts payable pursuant to such director and officer indemnifications have not had a material negative effect on the Company’s business, financial condition or results of operations.
 
The Company has also entered into severance agreements and change in control agreements with certain of its executives. These agreements provide for the payment of specific compensation benefits to such executives upon the termination of their employment with the Company.
 
General Contractual Indemnities/Products Liability
 
During the normal course of business, the Company enters into contracts with customers where it has agreed to indemnify the other party for personal injury or property damage caused by the Company’s products and in certain cases for damages resulting from a breach of the Company’s product warranties. The Company’s indemnification obligations under such agreements are not limited in duration and are generally not limited in amount. Historically, any amounts payable pursuant to such contractual indemnities have not had a material negative effect on the Company’s business, financial condition or results of operations. The Company maintains product liability insurance as well as errors and omissions insurance which may provide a source of recovery to the Company in the event of an indemnification claim.
 
Other Guarantees and Indemnities
 
The Company occasionally issues guarantees for certain contingent liabilities under various contractual arrangements, including customer contracts, self-insured retentions under certain insurance policies, and governmental value-added tax compliance programs. These guarantees normally take the form of standby letters of credit issued by the Company’s banks, which may be secured by cash deposits or pledges, or performance bonds issued by an insurance company. Historically, any amounts payable pursuant to such guarantees have not had a material negative effect on the Company’s business, financial condition or results of operations. In addition, the Company, as part of the agreements to register the convertible notes it issued in March 2010, September 2007 and November 2004, agreed to indemnify the selling security holders against certain liabilities, including liabilities under the Securities Act of 1933. The Company’s indemnification obligations under such agreements are not limited in duration and generally not limited in amount.
 
 
13

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
Note 10. Income Taxes
 
The Company provides for income taxes in interim periods based on the estimated effective income tax rate for the complete fiscal year. The income tax provision is computed on the pretax income of the consolidated entities located within each taxing jurisdiction based on current tax law. Deferred tax assets and liabilities are determined based on the future tax consequences associated with temporary differences between income and expenses reported for financial accounting and tax reporting purposes. A valuation allowance for deferred tax assets is recorded to the extent that the Company cannot determine that the ultimate realization of the net deferred tax assets is more likely than not.
 
Realization of deferred tax assets is principally dependent upon the achievement of future taxable income, the estimation of which requires significant management judgment. The Company’s judgment regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans and/or tax planning strategies. These changes, if any, may require material adjustments to these deferred tax asset balances. Due to uncertainties surrounding the realization of the Company’s cumulative federal and state net operating losses and other factors, the Company has recorded a valuation allowance against a portion of its gross deferred tax assets. For the foreseeable future, the Federal tax provision related to future earnings will be offset substantially by a reduction in the valuation allowance. Accordingly, current and future tax expense will consist primarily of certain required state income taxes and taxes in certain foreign jurisdictions.
 
In addition to unrecognized tax benefits, the Company has recorded valuation allowances against its net tax benefits in certain jurisdictions arising from net operating losses. On a quarterly basis, the Company reassesses the need for these valuation allowances based on operating results and its assessment of the likelihood of future taxable income and developments in the relevant tax jurisdictions. The Company continues to maintain a valuation allowance against its net deferred tax assets in the U.S. and various foreign jurisdictions in 2011 where the Company believes it is more likely than not that deferred tax assets will not be realized.
 
As of July 3, 2011, the liability for income taxes associated with uncertain tax positions was $21.7 million.  Of this amount, $4.0 million, if recognized, would affect tax expense and would require penalties and interest of $0.6 million, $0.6 million would result in an increase in prepaid assets, and $16.5 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.  Further, the $16.5 million, if realized would result in a $0.5 million decrease of the state deferred tax assets, specifically state net operating losses.
 
The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. 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.
 
The Company’s income tax expense for 2011 was reduced by $1.5 million related to an adjustment to a liability for uncertain tax positions as well as expiration of the statutory audit period and was increased by a $1.0 million withholding tax on a dividend from a foreign subsidiary.
 
As a result of the ongoing tax audits, the total liability for unrecognized tax benefits may change within the next twelve months due to either settlement of audits or expiration of statutes of limitations.  As of July 3, 2011, the Company has concluded all United States federal income tax matters for years through 2006. All other material state, local and foreign income tax matters have been concluded for years through 2005.
 
 
Note 11. Fair Value of Financial Instruments
 
The estimated fair value of the Company’s financial instruments has been determined using available market information and valuation methodologies. Considerable judgment is required in estimating fair values. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange.
 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value.
 
Cash and Cash Equivalents and Restricted Cash
 
The carrying amount approximates fair value because of the short maturity (less than 90 days) and high credit quality of these instruments.
 
 
14

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
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 carries and values these instruments at their stated principal value, which represents the amount due at maturity less any unamortized discount.
 
The estimated fair values of the Company’s financial instruments were as follows:
 
   
July 3, 2011
 
January 2, 2011
   
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and cash equivalents                                                                                   
 
$
48,763
   
$
48,763
   
$
61,601
   
$
61,601
 
Restricted cash                                                                                   
   
985
     
985
     
930
     
930
 
Long-term debt                                                                                   
                               
3.875% Convertible Subordinated Notes due 2027
 
$
150,000
   
$
139,125
   
$
150,000
   
$
134,070
 
1.875% Convertible Subordinated Notes due 2024
   
56,806
     
58,495
     
55,371
     
57,626
 
 
 
Note 12. Customer Concentrations
 
The Company’s product sales have historically been concentrated in a small number of customers. For the first half of 2011 and 2010, sales to customers that accounted for 10% or more of revenues totaled $168.2 million and $68.2 million, respectively. For the first half of 2011, Team Alliance, one of our North American resellers, Nokia Siemens, and Raycom, one of our European resellers, accounted for approximately 22%, 20%, and 13% of total net sales respectively, and in the first half of 2010, Nokia Siemens represented 26% of sales.
 
As of July 3, 2011, approximately 57% of total accounts receivable related to customers that accounted for 10% or more of the Company’s total revenue during the first half of 2011. As of July 3, 2011, Team Alliance, one of our North American resellers, Nokia Siemens, and Raycom, one of our European resellers, accounted for approximately 27%, 15%, and 15% of total accounts receivable, respectively. The inability to collect outstanding receivables from these customers or any other significant customers, the delay in collecting outstanding receivables within the contractual payment terms, or the loss of, or reduction in, sales to any of these customers could have a material adverse effect on the Company’s business, financial condition and results of operations.
 
 
Note 13. Supplier Concentrations
 
Certain of the Company’s products, as well as components utilized in such products, are available in the short-term only from a single or a limited number of sources. In addition, in order to take advantage of volume pricing discounts, the Company purchases certain customized components from single-source suppliers as well as finished products from single-source contract manufacturers. The inability to obtain single-source components or finished products in the amounts needed on a timely basis or at commercially reasonable prices has resulted in delays in product introductions, interruption in product shipments and increases in product costs, which have had a material adverse effect on the Company’s business, financial condition and results of operations and may continue to do so until alternative sources could be developed at a reasonable cost.
 
 
Note 14. Segments and Geographic Data
 
The Company operates in one reportable business segment: “Wireless Communications.” The Company’s revenues are derived from the sale of wireless communications network products and coverage solutions, including antennas, boosters, combiners, cabinets, shelters, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in wireless communications networks throughout the world.
 
The Company manufactures multiple product categories at its manufacturing locations and produces certain products at more than one location. With regards to sales, the Company sells its products through two major sales channels. One channel is the original equipment manufacturers channel, which consists of large global companies such as Alcatel-Lucent, Ericsson, Huawei, Motorola, Nokia Siemens and Samsung. The other channel is direct to wireless network operators, such as AT&T, Bouygues, Clearwire, Orange, Sprint, T-Mobile, Verizon Wireless and Vodafone. A majority of the Company’s products are sold to both sales channels. The Company maintains global relationships with most of the Company’s customers. The Company’s original equipment manufacturer customers normally purchase on a global basis and the sales to these customers, while recognized in various reporting regions, are managed on a global basis. For network operator customers, which have a global presence, the Company typically maintains a global purchasing agreement. Individual sales are made on a regional basis and the Company also utilizes various resellers in the local regional markets.
 
The Company measures its performance by monitoring its net sales by product and consolidated gross margins, with a short-term goal of maintaining a positive operating cash flow while striving to achieve long-term operating profits.
 
 
15

POWERWAVE TECHNOLOGIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
 
Note 15. Subsequent Events
 
On July 26, 2011, the Company completed the private placement of $100 million in original principal amount of 2.75% Convertible Senior Subordinated Notes due 2041 (“2.75% Notes”).  The 2.75% Notes accrue interest at an annual rate of 2.75% payable semi-annually.  They are convertible into the Company’s common stock at an initial conversion price of approximately $3.12 per share, subject to adjustment in certain circumstances.  The 2.75% Notes accrete principal at a rate of 5.00% per year compounded semi-annually.  Accreted principal will not accrue interest, will not be eligible for conversion into common stock and will only be payable to holders upon reaching the mandatory repurchase date if the 2.75% Notes are not converted prior to such date.  The 2.75% Notes will mature on July 15, 2041, unless otherwise redeemed, repurchased or converted in accordance with the terms of the indenture governing the 2.75% Notes.
 
The Company may elect to mandatorily convert all or a portion of the 2.75% Notes on or prior to July 15, 2015 if the closing price of the Company’s common stock equals or exceeds 130% of the then applicable conversion price for at least 20 trading days within a 30 consecutive trading day period.
 
Holders of the 2.75% Notes may convert some or all of their notes into shares of the Company common stock at any time prior to the maturity date at an initial conversion rate of approximately 320.3075 shares of common stock per $1,000 of notes.  Holders of the 2.75% Notes may also require the Company to repurchase all or a portion of their notes on July 15, 2018, July 15, 2025 and July 15, 2032 for a repurchase price equal to 100% of the accreted principal amount of the notes, plus accrued and unpaid interest on the outstanding original principal amount of the notes.
 
In conjunction with the private placement of the 2.75% Notes, the Company repurchased $42.6 million in aggregate principal amount of the 1.875% Notes.  In addition, on August 8, 2011, the Company repurchased $4.0 million in aggregate principal amount of the 1.875% Notes outstanding.  After these repurchases, the Company has approximately $11.3 million in principal amount of the 1.875% Notes outstanding.  In accordance with Accounting Standards Codification (“ASC”) 470-10-45, the carrying amount of the notes repurchased was reclassified from current portion of long-term debt to long-term debt in the accompanying consolidated balance sheet as of July 3, 2011.
 
Additionally, the Company utilized approximately $25 million of the net proceeds from the offering to repurchase 11.2 million shares of its common stock.
 
On July 19, 2011, the Company entered into Amendment Number Five to Credit Agreement, Consent and Waiver with Wells Fargo to, among other things obtain the consent of Wells Fargo to the issuance of the 2.75% Notes and the repurchase of the 1.875% Notes.

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included under Item 1, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements, the realization of which may be impacted by certain important factors including, but not limited to, those discussed in Risk Factors, in Part II, Item 1A included herein. Please see “Cautionary Statement Regarding Forward Looking Statements” at the beginning of this report.
 
 
Introduction and Overview
 
We are a global supplier of end-to-end wireless solutions for wireless communications networks. Our business consists of the design, manufacture, marketing and sale of products to improve coverage, capacity and data speed in wireless communications networks, including antennas, boosters, combiners, cabinets, shelters, filters, radio frequency power amplifiers, remote radio head transceivers, repeaters, tower-mounted amplifiers and advanced coverage solutions. These products are utilized in major wireless networks throughout the world which support voice and data communications by use of cell phones and other wireless communication devices. We sell our products to both original equipment manufacturers, who incorporate our products into their proprietary base stations (which they then sell to wireless network operators), and directly to individual wireless network operators for deployment into their existing networks.
 
During the last ten years, demand for wireless communications infrastructure equipment has fluctuated dramatically. While demand for wireless infrastructure was strong during 2005, it weakened for us during 2006 and 2007 due to significant reductions at three major customers, as well as a general slowdown in overall demand within the wireless infrastructure industry. For most of 2008, demand once again increased, however, in the fourth quarter of 2008 demand for our products was negatively impacted by the global economic recession. The recession significantly impacted demand during 2009 and our revenues fell by 36% from 2008 levels, 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, 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 of our products.
 
Looking back over the last seven years, beginning in fiscal 2004, we focused on cost savings while we expanded our market presence, as evidenced by our acquisition of LGP Allgon. This acquisition involved the integration of two companies based in different countries that previously operated independently, and 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 broadened our RF conditioning and base station solutions product portfolio and added significant additional technology to our intellectual property portfolio. For fiscal years 2007, 2008, 2009, and 2010 we completed the integration of these acquisitions, 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 eight years, these acquisitions do not provide any guarantee that our revenues will increase. We currently have a small number of ongoing restructuring activities which are aimed at further reducing our overall operating cost structure.
 
 We measure our success by monitoring our net sales by product and consolidated gross margins, with a short-term goal of maintaining a positive operating cash flow while striving to achieve long-term operating profits. We believe that there continues to be long-term growth opportunities within the wireless communications infrastructure marketplace, and we are focused on positioning the Company to benefit from these long-term opportunities.
 
 
Critical Accounting Policies and Estimates
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate these estimates and assumptions, including those related to revenue recognition, allowances for doubtful accounts, inventory reserves, warranty obligations, restructuring reserves, asset impairment, income taxes and stock-based compensation expense. We base these estimates on our historical experience and on various other factors which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of certain expenses that are not readily apparent from other sources. These estimates and assumptions by their nature involve risks and uncertainties, and may prove to be inaccurate. In the event that any of our estimates or assumptions are inaccurate in any material respect, it could have a material adverse effect on our reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
 
For a summary of our critical accounting policies and estimates, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Part II of our Annual Report on Form 10-K for the fiscal year ended January 2, 2011.
 
Accruals for Restructuring and Impairment Charges
 
In the first half of 2011 and 2010, we recorded restructuring and impairment charges of less than $0.1 million and $1.3 million, respectively. Such charges relate to our Restructuring Plans. See further discussion of these plans in Note 5 of the Notes to Consolidated Financial Statements under Part I, Item I, Financial Information.
 
Restructuring and impairment accruals related primarily to workforce reductions, consolidation of facilities, and the discontinuation of certain product lines, including the associated write-downs of inventory, manufacturing and test equipment. Such accruals were based on estimates and assumptions made by management about matters which were uncertain at the time, including the timing and amount of sublease income that will be recovered on vacated property and the net realizable value of used equipment that is no longer needed in our continuing operations. While we used our best current estimates based on facts and circumstances available at the time to quantify these charges, different estimates could reasonably be used in the relevant periods to arrive at different accruals and/or the actual amounts incurred or recovered may be substantially different from the assumptions utilized, either of which could have a material impact on the presentation of our financial condition or results of operations for a given period. As a result, we periodically review the estimates and assumptions used and reflect the effects of those revisions in the period that they become known.
 
New Accounting Pronouncements
 
For a summary of our New Accounting Pronouncements, see Note 2 of the Notes to Consolidated Financial Statements under Part I, Item I, Financial Information, of this Quarterly Report on Form 10-Q.
 
 
Subsequent Events
 
On July 26, 2011 we completed the private placement of $100 million in original principal amount of 2.75% Convertible Senior Subordinated Notes due 2041 (“2.75% Notes).  The 2.75% Notes accrue interest at an annual rate of 2.75% payable semi-annually.  They are convertible into common stock at an initial conversion price of approximately $3.12 per share, subject to adjustment in certain circumstances.  The 2.75% Notes accrete principal at a rate of 5.00% per year compounded semi-annually.  Accreted principal will not accrue interest, will not be eligible for conversion into common stock and will only be payable to holders upon reaching the mandatory repurchase date if the 2.75% Notes are not converted prior to such date.  The 2.75% Notes will mature on July 15, 2041, unless otherwise redeemed, repurchased or converted in accordance with the terms of the indenture governing the 2.75% Notes.
 
 
We may elect to mandatorily convert all or a portion of the 2.75% Notes on or prior to July 15, 2015 if the closing price of our common stock equals or exceeds 130% of the then applicable conversion price for at least 20 trading days within a 30 consecutive trading day period.
 
Holders of the 2.75% Notes may convert some or all of their notes into shares of our common stock at any time prior to the maturity date at an initial conversion rate of approximately 320.3075 shares of common stock per $1,000 of notes.  Holders of the 2.75% Notes may also require that we repurchase all or a portion of their notes on July 15, 2018, July 15, 2025 and July 15, 2032 for a repurchase price equal to 100% of the accreted principal amount of the notes, plus accrued and unpaid interest on the outstanding original principal amount of the notes.
 
In conjunction with the private placement of the 2.75% Notes, we repurchased $42.6 million in aggregate principal amount of the 1.875% Notes.  In addition, on August 8, 2011, we repurchased $4.0 million in aggregate principal amount of the 1.875% Notes outstanding.  After these repurchases, we have approximately $11.3 million in principal amount of the 1.875% Notes outstanding.  In accordance with Accounting Standards Codification (“ASC”) 470-10-45, the carrying amount of the notes repurchased was reclassified from current portion of long-term debt to long-term debt in the accompanying consolidated balance sheet as of July 3, 2011.
 
Additionally, we utilized approximately $25 million of the net proceeds from the offering to repurchase 11.2 million shares of its common stock.
 
On July 19, 2011, we entered into Amendment Number Five to Credit Agreement, Consent and Waiver with Wells Fargo to, among other things obtain the consent of Wells Fargo to the issuance of the 2.75% Notes and the repurchase of the 1.875% Notes.
 
 
Results of Operations
 
The following table summarizes the Company’s results of operations as a percentage of net sales for the three and six months ended July 3, 2011 and July 4, 2010:
 
   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2011
   
July 4,
2010
   
July 3,
2011
   
July 4,
2010
 
Net sales
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of sales:
                               
Cost of goods
    72.0       70.5       72.8       72.0  
Restructuring and impairment charges
          0.5             0.3  
Total cost of sales
    72.0       71.0       72.8       72.3  
Gross profit
    28.0       29.0       27.2       27.7  
Operating expenses:
                               
Sales and marketing
    4.7       5.8       5.6       6.9  
Research and development
    9.2       10.8       10.5       11.6  
General and administrative
    6.7       7.8       7.6       8.7  
Restructuring and impairment charges
    0.0       0.2       0.0       0.1  
Total operating expenses
    20.6       24.6       23.7       27.3  
Operating income (loss)
    7.4       4.4       3.5       0.4  
Other income (expense), net
    (2.4 )     (3.1 )     (2.2 )     (3.2 )
Income (loss) before income taxes
    5.0       1.3       1.3       (2.8 )
Income tax provision (benefit)
    0.9       1.1       1.3       1.3  
Net income (loss)
    4.1 %     0.2 %     0.0 %     (4.1 )%
 
 
Three Months ended July 3, 2011 and July 4, 2010
 
Net Sales
 
Our sales are derived from the sale of wireless communications network products and coverage solutions, including antennas, boosters, combiners, cabinets, shelters, filters, radio frequency power amplifiers, remote radio head transceivers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular, PCS, 3G and 4G wireless communications networks throughout the world.
 
The following table presents a further analysis of our sales based upon our various customer groups:
 
   
Three Months Ended
(in thousands)
Customer Group  
July 3, 2011
 
July 4, 2010
Wireless network operators and other
  $ 120,780       71 %   $ 80,627       56 %
Original equipment manufacturers
    49,861       29 %     63,953       44 %
Total
  $ 170,641       100 %   $ 144,580       100 %
 
Sales increased by 18% to $170.6 million for the second quarter of 2011, from $144.6 million, for the second quarter of 2010. This increase was due to several factors, including increased demand from our direct operator customers, which increased by approximately 50% for the second quarter of 2011 from the second quarter of 2010. The increase in our direct operators and other direct customer’s business helped to offset the decrease in demand from our original equipment manufacturer customers, which decreased by 22% over the same period. This is consistent with our strategic focus on direct customers.
 
The following table presents a further analysis of our sales based upon our various product groups:
 
   
Three Months Ended
(in thousands)
Wireless Communications Product Group
 
July 3, 2011
 
July 4, 2010
Antenna systems
 
$
76,046
     
45 
%
 
$
56,713
     
39 
%
Base station systems
   
77,573
     
45 
%
   
77,533
     
54 
%
Coverage systems
   
17,022
     
10 
%
   
10,334
     
%
Total
 
$
170,641
     
100 
%
 
$
144,580
     
100 
 
 Antenna systems consist of base station antennas and tower-mounted amplifiers. Base station systems consist of products that are installed into or around the base station of wireless networks and include products such as boosters, combiners, filters, radio frequency power amplifiers and VersaFlex cabinets. Coverage systems consist primarily of repeaters and advanced coverage solutions. The increase in antenna systems sales during the second quarter of 2011 as compared with the second quarter of 2010 is due to the growth in demand we experienced from our wireless network operator and other direct customers. The increase in coverage systems business was due to increased project activity during the second quarter of 2011 versus the second quarter of 2010.
 
We track the geographic location of our sales based upon the location of our customers to which we ship our products. Since many of our original equipment manufacturer customers purchase products from us at central locations and then re-ship the product with other base station equipment to locations throughout the world, we are unable to identify the final installation location of many of our products.
 
The following table presents an analysis of our net sales based upon the geographic area to which a product was shipped:
 
   
Three Months Ended
(in thousands)
Geographic Area
 
July 3, 2011
 
July 4, 2010
Americas
 
$
80,207
     
47 
%
 
$
52,445
     
36 
%
Asia Pacific
   
41,823
     
25 
%
   
48,517
     
34 
%
Europe
   
46,859
     
27 
%
   
34,801
     
24 
%
Other International
   
1,752
     
%
   
8,817
     
%
Total
 
$
170,641
     
100 
%
 
$
144,580
     
100 
 
Revenues increased in the Americas and Europe regions in the second quarter of 2011 as compared to the second quarter of 2010. The increase in both regions is attributable to increases in demand with our wireless network operator customers and other direct customers in both regions. In particular, North American operators have commenced the build out of new 4G networks and Eastern European markets have shown increased demand. The reduction in the Other International region is largely due to reduced sales in the Middle East, which has been impacted by civil unrest in many countries. Since wireless network infrastructure spending is dependent on individual network coverage and capacity demands, we do not believe that our revenue fluctuations for any geographic region are necessarily indicative of a trend for our future revenues by geographic area.
 
 
A large portion of our revenues are generated in currencies other than the U.S. Dollar. During the last year, the value of the U.S. Dollar has fluctuated significantly against many other currencies. We have calculated that when comparing exchange rates in effect for the second quarter of 2010 to those in effect for the second quarter of 2011, the change in the value of foreign currencies as compared with the U.S. Dollar did not have a material impact on our net sales.
 
For the second quarter of 2011, sales to Team Alliance, one of our North American resellers, accounted for approximately 28% of our total sales, Nokia Siemens accounted for approximately 16% of our total sales, and sales to Raycom, one of our European resellers, accounted for approximately 15% of our total sales.  For the second quarter of 2010, total sales to Nokia Siemens accounted for approximately 25% of sales and sales to Raycom, one of our European resellers, accounted for approximately 10% of sales. Our business remains largely dependent upon a limited number of customers within the wireless communications market and we cannot guarantee that we will continue to be successful in attracting new customers or retaining or increasing business with our existing customers.
 
A number of factors have caused delays and may cause future delays in new wireless infrastructure and upgrade deployment schedules throughout the world, including deployments in the United States, Europe, Asia, South America and other areas. In addition, a number of factors may cause original equipment manufacturers to alter their outsourcing strategy concerning certain wireless communications network products, which could cause such original equipment manufacturers to reduce or eliminate their demand for external supplies of such products or shift their demand to alternative suppliers or internal suppliers. Such factors include lower perceived internal manufacturing costs and competitive reasons to remain vertically integrated. Due to the possible uncertainties associated with wireless infrastructure deployments and original equipment manufacturer demand, we have experienced and expect to continue to experience significant fluctuations in demand from our original equipment manufacturer and network operator customers. Such fluctuations have caused and may continue to cause significant reductions in our revenues and/or operating results, which has adversely impacted and may continue to adversely impact our business, financial condition and results of operations.
 
Cost of Sales and Gross Profit
 
Our cost of sales includes both fixed and variable cost components and consists primarily of materials, assembly and test labor, overhead, which includes equipment and facility depreciation, transportation costs, warranty costs and amortization of product-related intangibles. Components of our fixed cost structure include test equipment and facility depreciation, purchasing and procurement expenses and quality assurance costs. Given the fixed nature of such costs, the absorption of our overhead costs into inventory decreases and the amount of overhead variances expensed to cost of sales increases as volumes decline since we have fewer units to absorb our overhead costs against. Conversely, the absorption of our overhead costs into inventory increases and the amount of overhead variances expensed to cost of sales decreases as volumes increase since we have more units to absorb our overhead costs against. As a result, our gross profit margins generally decrease as revenue and volumes decline due to lower sales volume and higher amounts of overhead variances expensed to cost of sales. Our gross profit margins generally increase as our revenue and volumes increase due to higher sales volume and lower amounts of overhead variances expensed to cost of sales.
 
The following table presents an analysis of our gross profit:
 
   
Three Months Ended
(in thousands)
   
July 3, 2011
 
July 4, 2010
Net sales
 
$
170,641
     
100.0
%
 
$
144,580
     
100.0
%
Cost of sales:
                               
Cost of sales
   
122,849
     
72.0
%
   
101,886
     
70.5
%
Restructuring and impairment charges
   
     
%
   
705
     
0.5
%
Total cost of sales
   
122,849
     
72.0
%
   
102,591
     
71.0
%
Gross profit
 
$
47,792
     
28.0
%
 
$
41,989
     
29.0
%
 
Our actual gross profit increased during the second quarter of fiscal 2011, compared to the second quarter of fiscal 2010, primarily as a result of our increased revenues. As a percentage of revenue, our gross profit margin decreased slightly during the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010 primarily from a combination of higher warranty costs and higher manufacturing costs when compared to the prior year period. We did not incur any restructuring and impairment charges during the second quarter of 2011. We incurred $0.7 million of restructuring charges during the second quarter of fiscal 2010 related to severance charges and facility closure charges.
 
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.
 
 
A portion of our coverage solution sales include design, customization, installation and implementation services and the supply of coverage solutions products. The Company recognizes revenue using the percentage-of-completion method for these coverage solution projects.  Due to the nature of these types of projects, cost estimates can vary significantly, and the actual cost of such projects can fluctuate significantly during the life of a project. Such fluctuations can have a negative impact on our gross profit margins and profitability, decreasing revenues and adversely impacting our business, financial condition and results of operations, which occurred in the first quarter of 2011.
 
We continue to strive for manufacturing and engineering cost reductions to offset pricing pressures on our products, as evidenced by our decisions to close or transfer our Salisbury, Maryland, Finland, Hungary, Shanghai and Wuxi, China manufacturing operations as part of our restructuring plans to reduce our manufacturing costs. However, we cannot guarantee that these cost reductions, and our outsourcing or product redesign efforts will keep pace with price declines and cost increases. If we are unable to further reduce our costs through our manufacturing, outsourcing and/or engineering efforts, our gross margins and profitability will be adversely affected.
 
Operating Expenses
 
The following table presents a breakdown of our operating expenses by functional category and as a percentage of net sales:
 
   
Three Months Ended
(in thousands)
Operating Expenses  
July 3, 2011
 
July 4, 2010
Sales and marketing
 
$
8,015
     
4.7 
%
 
$
8,362
     
5.8 
%
Research and development
   
15,748
     
9.2 
%
   
15,685
     
10.8 
%
General and administrative
   
11,332
     
6.7 
%
   
11,302
     
7.8 
%
Restructuring and impairment charges
   
41
     
0.0 
%
   
214
     
0.2 
%
Total operating expenses
 
$
35,136
     
20.6 
%
 
$
35,563
     
24.6 
%
 
Sales and marketing expenses consist primarily of salaries and commissions, travel expenses, advertising and marketing expenses, selling expenses, charges for customer demonstration units and trade show expenses. Sales and marketing expenses decreased by $0.3 million, or 4.1%, during the second quarter of 2011 as compared to the second quarter of 2010, primarily due to lower bad debt expense.
 
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. Total research and development expenses remained consistent during the second quarter of 2011 as compared to the second quarter of 2010. In addition, non-cash equity based compensation expense pursuant to ASC Topic 718 increased by $0.3 million in the second quarter of 2011 as compared to the second quarter of 2010. The increase in equity based compensation expense is due primarily to options granted in the fourth quarter of 2010, at prices significantly higher than prior period grants.
 
General and administrative expenses consist primarily of salaries and other expenses for management, finance, information systems, legal fees, facilities and human resources. Total general and administrative expenses remained consistent during the second quarter of 2011 as compared to the second quarter of 2010.
 
Restructuring charges of less than $0.1 million were recorded in the second quarter of fiscal 2011, primarily for severance costs in the U.S., Europe and Asia Pacific regions. Restructuring charges of $0.2 million were recorded in the second quarter of fiscal 2010, primarily for severance costs in the Europe and Asia Pacific regions.
 
Other Income (Expense), net
 
The following table presents an analysis of other income (expense), net:
 
   
Three Months Ended
(in thousands)
   
July 3, 2011
 
July 4, 2010
Interest income
 
$
54
     
0.0
%
 
$
46
     
0.0
%
Interest expense
   
(2,894
)
   
(1.7
)%
   
(3,486
)
   
(2.4
)%
Foreign currency gain (loss), net
   
(1,475
)
   
(0.8
)%
   
(1,784
)
   
(1.2
)%
Gain on repurchase of convertible debt
   
     
%
   
85
     
0.0
%
Other income, net
   
160
     
0.1
%
   
575
     
0.5
%
Other income (expense), net
 
$
(4,155
)
   
(2.4
)%
 
$
(4,564
)
   
(3.1
)%
 
Interest income remained consistent during the second quarter of 2011 compared to the second quarter of 2010 due to the historically low interest rates on cash balances.  Interest expense decreased by $0.6 million during the second quarter of fiscal 2011 as compared to the second quarter of 2010 primarily due to the reduction of approximately $67 million of our 1.875% Notes from the second quarter of 2010 to the second quarter of 2011. Included in interest expense are non-cash charges related to the amortization of debt issuance costs and debt discount of $1.0 and $1.3 million for the second quarters of 2011 and 2010, respectively. Additionally, we recognized a net foreign currency translation loss of $1.5 million in the second quarter of 2011, primarily due to the fluctuations of the U.S. Dollar versus the Euro and Chinese RMB, and several other currencies, as compared to the second quarter of 2010 when we recognized a foreign currency translation loss of $1.8 million.
 
Income Tax Provision
 
Our effective tax rate for the second quarter of 2011 was an expense of approximately 17.4% of our pre-tax income of $8.5 million. We have recorded a valuation allowance against a portion of our deferred tax assets pursuant to Accounting Standards Codification (ASC) Topic 740, “Income Taxes,” due to the uncertainty as to the timing and ultimate realization of those assets. As such, for the foreseeable future, the tax provision or tax benefit related to future U.S. earnings or losses will be offset substantially by a reduction or increase in the valuation allowance. Accordingly, the tax expense consisted primarily of taxes from operations in foreign jurisdictions, primarily China and India.  We expect our tax rate to continue to fluctuate based on the percentage of income earned in each jurisdiction. In addition, our income tax expense was reduced by $1.5 million related to an adjustment to a liability for uncertain tax positions as well as expiration of the statutory audit period.  This expense reduction was partially offset by a $1.0 million withholding tax on a dividend from a foreign subsidiary.
 
Net Income
 
The following table presents a reconciliation of operating income to net income:
 
   
Three Months Ended
(in thousands)
   
July 3, 2011
 
July 4, 2010
Operating income
 
$
12,656
   
$
6,426
 
Other income (expense), net
   
(4,155
)
   
(4,564
)
Income before income taxes
   
8,501
     
1,862
 
Income tax provision (benefit) 
   
1,480
     
1,638
 
Net income
 
$
7,021
   
$
224
 
 
Our net income for the second quarter of 2011 was $7.0 million, compared to net income of $0.2 million for the second quarter of 2010. The higher net income in the second quarter of 2011 was largely due to our increased revenue during that period.
 
Six Months ended July 3, 2011 and July 4, 2010
 
Net Sales
 
The following table presents a further analysis of our sales based upon our various customer groups:
 
   
Six Months Ended
(in thousands)
Customer Group
 
July 3, 2011
 
July 4, 2010
Wireless network operators and other
 
$
202,291
     
66 
%
 
$
132,013
     
51 
%
Original equipment manufacturers
   
104,974
     
34 
%
   
127,040
     
49 
%
Total
 
$
307,265
     
100 
%
 
$
259,053
     
100 
 
Sales increased by 19% to $307.3 million for the first half of 2011, from $259.1 million, for the first half of 2010.  This increase was due to an increase in our direct sales to wireless network operators and others to improve both the bandwidth and the technology of their networks. This was offset in part by lower demand from our original equipment manufacturer customers. The global recession and associated tight credit markets impacted our customers’ demand for products throughout the first half of 2010.
 
The following table presents a further analysis of our sales based upon our various product groups:
 
   
Six Months Ended
(in thousands)
Wireless Communications Product Group
 
July 3, 2011
 
July 4, 2010
Antenna systems
 
$
140,991
     
45 
%
 
$
96,134
     
37 
%
Base station systems
   
136,656
     
45 
%
   
142,750
     
55 
%
Coverage systems
   
29,618
     
10 
%
   
20,169
     
%
Total
 
$
307,265
     
100 
%
 
$
259,053
     
100 
 
The increase in antenna systems sales for the first six months of 2011 compared to the first six months of 2010 is primarily due to growth in demand we experienced from our wireless network operator and other direct customers, which is partially driven by initial developments of 4G networks, primarily in North America. This was partially offset by the decrease in base station systems sales during the same period and the corresponding increase in coverage solution sales during the same period.
 
The following table presents an analysis of our net sales based upon the geographic area to which a product was shipped:
 
   
Six Months Ended
(in thousands)
Geographic Area
 
July 3, 2011
 
July 4, 2010
Americas
 
$
134,468
     
44 
%
 
$
86,619
     
33 
%
Asia Pacific
   
85,956
     
28 
%
   
94,186
     
37 
%
Europe
   
76,871
     
25 
%
   
66,988
     
26 
%
Other International
   
9,970
     
%
   
11,260
     
%
Total
 
$
307,265
     
100 
%
 
$
259,053
     
100 
 
Revenues increased in the Americas region for the first half of 2011 due primarily to increased demand from wireless network operators embarking on increased infrastructure spending plans. 2010 spending levels were negatively impacted by global macroeconomic issues. The changes in the other regions largely offset each other for the year-to-year comparison. 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 previously noted, growth in one geographic location may not reflect actual demand growth in that location due to the centralized buying processes of our original equipment manufacturer customers.
 
A large portion of our revenues are generated in currencies other than the U.S. dollar.  During the last year, the value of the U.S. dollar has fluctuated significantly against most other currencies.  We have calculated that when comparing exchange rates in effect for the first half of 2010 to those in effect for the first half of 2011, the change in the value of foreign currencies as compared with the U.S. Dollar did not have a material impact on our net sales.
 
For the first half of 2011, total sales to Team Alliance, one of our North American resellers, accounted for approximately 22% of sales, total sales to Nokia Siemens accounted for approximately 20% of sales, and total sales to Raycom, one of our European resellers, accounted for approximately 13% of sales.  For the first half of 2010, total sales to Nokia Siemens accounted for approximately 26% of sales for the period.
 
 
Cost of Sales and Gross Profit
 
The following table presents an analysis of our gross profit:
 
   
Six Months Ended
(in thousands)
   
July 3, 2011
 
July 4, 2010
Net sales
 
$
307,265
     
100.0 
%
 
$
259,053
     
100 .0
%
Cost of sales:
                               
Cost of sales
   
223,613
     
72.8 
%
   
186,527
     
72.0 
%
Restructuring and impairment charges
   
     
— 
%
   
726
     
0.3 
%
Total cost of sales
   
223,613
     
72.8 
%
   
187,253
     
72.3 
%
Gross profit
 
$
83,652
     
27.2 
%
 
$
71,800
     
27.7 
%
 
Our actual total gross profit increased during the first half of fiscal 2011 compared with the first half of fiscal 2010, primarily as a result of our increased revenue. As a percentage of revenue, our gross profit margin decreased slightly for the first six months of 2011 compared to the first six months of 2010 due primarily to higher warranty costs and increased manufacturing costs. We did not incur restructuring and impairment charges during the first half of fiscal 2011. We incurred approximately $0.7 million of restructuring and impairment charges during the first half of fiscal 2010 related to severance and facility closure charges.
 
Operating Expenses
 
The following table presents a breakdown of our operating expenses by functional category and as a percentage of net sales:
 
   
Six Months Ended
(in thousands)
Operating Expenses  
July 3, 2011
 
July 4, 2010
Sales and marketing
 
$
17,151
     
5.6 
%
 
$
17,758
     
6.9 
%
Research and development
   
32,351
     
10.5 
%
   
29,961
     
11.6 
%
General and administrative
   
23,323
     
7.6 
%
   
22,576
     
8.7 
%
Restructuring and impairment charges
   
42
     
0.0 
%
   
560
     
0.1 
%
Total operating expenses
 
$
72,867
     
23.7 
%
 
$
70,855
     
27.3 
%
 
Sales and marketing expenses decreased by $0.6 million, or 3.4%, during the first half of 2011 as compared with the first half of 2010. The decrease resulted primarily from lower bad debt expense as well as decreased trade show expenditures.
 
Research and development expenses increased by $2.4 million, or 8.0%, during the first half of 2011 as compared with the first half of 2010, primarily due to higher materials costs used in research and development activities. In addition, non-cash equity based compensation expense pursuant to ASC Topic 718 increased by $0.5 million in the first half of 2011 compared to the first half of 2010.
 
General and administrative expenses increased by $0.7 million, or 3.3%, during the first half of 2011 as compared with the first half of 2010. This increase was due to the increase of $1.3 million of non-cash equity based compensation expense offset in part by lower personnel related costs.
 
The increase in equity based compensation expense is due primarily to options granted in the fourth quarter of 2010, at prices significantly higher than prior period grants.
 
Restructuring charges of less than $0.1 million were recorded in the first half of 2011, primarily for severance costs compared with charges of $0.6 million for the first half of 2010, primarily for severance costs.
 
 
Other Income (Expense), net
 
The following table presents an analysis of other income (expense), net:
 
   
Six Months Ended
(in thousands)
   
July 3, 2011
 
July 4, 2010
Interest income
 
$
113
     
0.0
%
 
$
90
     
0.0
%
Interest expense
   
(5,780
)
   
(1.9
)%
   
(7,343
)
   
(2.8
)%
Foreign currency gain (loss), net
   
(2,061
)
   
(0.6
)%
   
(2,481
)
   
(0.9
)%
Gain on repurchase of convertible debt
   
     
%
   
85
     
0.0
%
Gain on exchange of convertible debt
   
     
%
   
483
     
0.2
%
Other income, net
   
892
     
0.3
%
   
1,029
     
0.5
%
Other income (expense), net
 
$
(6,836
)
   
(2.2
)%
 
$
(8,137
)
   
(3.2
)%
 
Interest income remained consistent during the first half of 2011 compared to the first half of 2010 due to our cash balances remaining consistent and the interest rates on such balances remaining consistent.  Interest expense decreased by $1.6 million during the first half of fiscal 2011 as compared to the first half of 2010 primarily due to the reduction of approximately $67 million of our outstanding 1.875% Notes from the first half of 2010 to the first half of 2011. Included in interest expense are non-cash charges related to the amortization of debt issuance costs and debt discount of $2.0 and $2.9 million for the first halves of 2011 and 2010, respectively. Additionally, we recognized a net foreign currency loss of $2.1 million in the first half of 2011, primarily due to the fluctuations of the U.S. Dollar versus several other currencies, primarily the Chinese RMB, as compared to the first half of 2010 when we recognized a foreign currency loss of $2.5 million. The net gain on repurchase of convertible debt of $0.1 million was realized on the repurchase of $3.0 million aggregate par value long term convertible debt during the second quarter of 2010. The gain on exchange of convertible debt of $0.5 million was realized in the exchange of $60.0 million aggregate par value of long term convertible debt during the first quarter of 2010.
 
Income Tax Provision
 
Our effective tax rate for the first half of 2011 was an expense of approximately 98.8% of our pre-tax income of $3.9 million. We have recorded a valuation allowance against a portion of our deferred tax assets pursuant to Accounting Standards Codification (ASC) Topic 740, “Income Taxes,” due to the uncertainty as to the timing and ultimate realization of those assets. As such, for the foreseeable future, the tax provision or tax benefit related to future U.S. earnings or losses will be offset substantially by a reduction or increase in the valuation allowance. For the first half of 2010, we recorded an income tax expense from operations in certain foreign jurisdictions, primarily China, and tax expense associated with uncertain tax positions.  We expect our effective tax rate to continue to fluctuate based on the percentage of income earned in each tax jurisdiction.  In addition, our income tax expense was reduced by $1.5 million related to an adjustment to a liability for uncertain tax positions as well as expiration of the statutory audit period.  This expense reduction was partially offset by a $1.0 million withholding tax on a dividend from a foreign subsidiary.
 
Net income (loss)
 
The folowing table presents a reconciliation of operating (loss) to net loss:
 
   
Six Months Ended
(in thousands)
   
July 3, 2011
 
July 4, 2010
Operating income
 
$
10,785
   
$
945
 
Other income (expense), net
   
(6,836
)
   
(8,137
)
Income (loss) before income taxes
   
3,949
     
(7,192
)
Income tax provision
   
3,903
     
3,402
 
Net income (loss)
 
$
46
   
$
(10,594
)
 
Our net income for the first half of 2011 was less than $0.1 million compared with a loss of $10.6 million for the first half of 2010.  Our net income during the first half of 2011 as compared with our net loss for the first half of 2010 is largely the result of the increase in revenue during the first half of 2011.
 
 
Liquidity and Capital Resources
 
We have historically financed our operations through a combination of cash on hand, cash provided from operations, equipment lease financings, available borrowings under our bank line of credit, private debt placements and both private and public equity offerings. Our principal sources of liquidity consist of existing cash balances, funds expected to be generated from future operations and borrowings under our receivables credit facility (“Credit Agreement”) with Wells Fargo Capital Finance LLC (“Wells Fargo”). As of July 3, 2011, we had working capital of $185.9 million, including $48.8 million in unrestricted cash and cash equivalents as compared to working capital of $131.8 million at January 2, 2011, which included $61.6 million in unrestricted cash and cash equivalents. We currently invest our excess cash in short-term, investment-grade, money-market instruments with maturities of three months or less. We typically hold such investments until maturity and then reinvest the proceeds in similar money market instruments. We believe that all of our cash investments would be readily available to us should the need arise.
 
Cash Flows
 
The following table summarizes our cash flows for the six months ended July 3, 2011 and July 4, 2010:
 
   
Six Months Ended
 (in thousands)
   
July 3, 2011
 
July 4, 2010
Net cash provided by (used in):
           
Operating activities
 
$
(10,818
)
 
$
4,780
 
Investing activities
   
(3,227
)
   
76
 
Financing activities
   
646
     
(3,561
)
Effect of foreign currency translation on cash and cash equivalents
   
561
     
(299
)
Net increase (decrease) in cash and cash equivalents
 
$
(12,838
)
 
$
996
 
 
Operating Activities
 
Net cash used in operations in the first half of 2011 was $10.8 million as compared to $4.8 million provided by operations in the first half of 2010. The $15.6 million reduction in cash flow from operations from the prior year period is due to the increase in working capital, primarily increases in inventory and accounts receivable.
 
Investing Activities
 
Net cash used in investing in the first half of 2011 was $3.2 million as compared to $0.1 million provided by investing in the first half of 2010. The $3.2 million in net cash used in investing activities during the first half of 2011 reflects capital expenditures of $3.5 million, an increase in our restricted cash of $0.1 million, partially offset by proceeds from the sale of property, plant and equipment of $0.4 million. Total capital expenditures during the first half of 2011 and 2010 were approximately $3.5 million and $1.9 million, respectively. The majority of the capital spending during both periods related to computer hardware and test equipment utilized in our manufacturing and research and development areas. We expect our capital spending requirements for the remainder of this year to range between $4 million and $5 million, consisting of test and production equipment, as well as computer hardware and software.
 
Financing Activities
 
Net cash provided by financing activities of $0.6 million during the first half of 2011 relates primarily to the $1.0 million of proceeds from stock-based compensation arrangements, offset by $0.3 million of debt issuance costs related to the exchange of our 1.875% Notes.  Net cash used in financing activities of $3.6 million during the first half of 2010 relates primarily to the $1.3 million debt issuance costs related to the exchange of our 1.875% Notes and the repurchase of $3 million in aggregate par value of our outstanding 1.875% Notes, partially offset by $0.4 million in proceeds related to our employee stock purchase plan.
 
Future Cash Requirements
 
We currently believe that our existing cash balances, funds expected to be generated from operations and borrowings under our Credit Agreement will provide us with sufficient funds to finance our current operations for at least the next twelve months. Our principal sources of liquidity consist of our existing cash balances, funds expected to be generated from operations and our Credit Agreement, described below. We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand and cash provided by operations. Our ability to increase revenues and generate profits is subject to numerous risks and uncertainties, and any significant decrease in our revenues or profitability would reduce our operating cash flows and erode our existing cash balances. No assurances can be given that we will be able to generate positive operating cash flows in the future or maintain and/or grow our existing cash balances.
 
 
We had a total of $208 million of convertible subordinated notes outstanding at July 3, 2011, consisting of $58 million in principal of the 1.875% Notes and $150.0 million of 3.875% Convertible Subordinated Notes due 2027 (“3.875% Notes”). Holders of the 1.875% 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 3.875% Notes may require us to repurchase all or a portion of their notes for cash on October 1, 2014, 2017 and 2022 at 100% of the principal amount of the notes, plus accrued and unpaid interest. No assurance can be given that we will be able to generate positive operating cash flows in the future or maintain and/or grow our existing cash balances. If we do not generate sufficient cash from operations, or improve our ability to generate cash, we may not have sufficient funds available to pay our maturing debt. If we have not retired the debt prior to maturity, and if we do not have adequate cash available at that time, we would be required to refinance the notes and no assurance can be given that we will be able to refinance the notes on terms acceptable to us or at all given current conditions in the credit markets. If our financial performance is poor or if credit markets remain tight, we will likely encounter a more difficult environment in terms of raising additional financing. If we are not able to repay or refinance the notes or if we experience a prolonged period of reduced customer demand for our products, our ability to maintain operations may be impacted.
 
Subsequent Events
 
On July 26, 2011 we completed the issuance of $100 million in original principal amount of the 2.75% Notes in a private placement.  In conjunction with the private placement of the 2.75% Notes, we repurchased $42.6 million in aggregate principal amount of the 1.875% Notes.  In addition, on August 8, 2011, we repurchased $4.0 million in aggregate principal amount of the 1.875% Notes outstanding.  After these repurchases, we have approximately $11.3 million in principal amount of the 1.875% Notes outstanding.  We also utilized approximately $25 million of the net proceeds from the offering to repurchase 11.2 million shares of our common stock. For additional information regarding the 2.75% Notes, see Note 15 of the Notes to Consolidated Financial Statements.
 
Credit Agreement
 
We entered into the Credit Agreement on April 3, 2009.   On January 31, 2011 we entered into the Amendment to, among other things, extend the maturity of the facility to August 2014 from August 2011 and reduce the interest rates payable under the Credit Agreement at all borrowing levels.  See Note 4 of the Notes to Consolidated Financial Statements under Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.  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 for 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 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 a financial covenant in the form of a minimum fixed charge coverage ratio that is applicable only if the availability under our line of credit falls below $15.0 million.  As of July 3, 2011, we are in compliance with all covenants.  As of July 3, 2011, we had approximately $39.8 million of availability under the Credit Agreement, of which approximately $6.5 million was utilized by outstanding letters of credit.
 
On July 19, 2011, the Company entered into Amendment Number Five to Credit Agreement, Consent and Waiver with Wells Fargo to, among other things obtain the consent of Wells Fargo to the issuance of the 2.75% Notes and the repurchase of the 1.875% Notes.
 
On occasion, we have previously utilized both operating and capital lease financing for certain equipment purchases used in our manufacturing and research and development operations and may selectively continue to do so in the future. We may also require additional funds in the future to support our working capital requirements or for other purposes such as acquisitions, and we may seek to raise such additional funds through the sale of public or private equity and/or debt financing, as well as from other sources. Our ability to secure additional financing or sources of funding is dependent upon our financial performance, credit rating and the market price for our Common Stock, which are all directly impacted by our ability to grow revenues and generate profits. In addition, our ability to obtain financing is directly dependent upon the availability of financial markets to provide sources of financing on reasonable terms and conditions. We can make no guarantee that we will be able to obtain additional financing or secure new financing arrangements in the future on terms that are favorable to us or at all. If our operating performance was to deteriorate and our cash balances were to be significantly reduced, we would likely encounter a more difficult environment in terms of raising additional funding to support our business, the cost of additional funding or borrowing could increase, and we may be required to further reduce operating expenses or scale back operations.
 
 
Off-Balance Sheet Arrangements
 
Our off-balance sheet arrangements consist primarily of conventional operating leases, purchase commitments and other commitments arising in the normal course of business, as further discussed in our Annual Report on Form 10-K for the fiscal year ended January 2, 2011, in Part II, Item 7 under the heading Contractual Obligations and Commercial Commitments. As of July 3, 2011, 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.
 
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 July 3, 2011, the carrying values of our financial instruments approximated their fair values based upon current market prices and rates except for long-term debt for which the fair value is estimated based on the quoted market price for the debt.
 
We are exposed to a number of market risks in the ordinary course of business. These risks, which include foreign currency risk, interest rate risk and commodity price risk, arise in the normal course of business rather than from trading. We have examined our exposures to these risks and do not believe that any of our market exposures will result in material changes to our financial condition or results of operations.
 
 
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, 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 60% of our net sales during the first half of 2011, 63% of our net sales during fiscal 2010 and 73% of our net sales during fiscal 2009. International sources include Europe, Middle East, Africa, Asia and South America, where there has been historical volatility in several of the regions’ currencies. Changes in the value of the U.S. Dollar versus the local currency in which our products are sold exposes us to foreign currency risk since the weakening of an international customer’s local currency and banking market may negatively impact such customer’s ability to meet their payment obligations to us. Alternatively, if a sale price is denominated in U.S. Dollars and the value of the Dollar falls, we may suffer a loss due to the lower value of the Dollar. In addition, some of our international customers require that we transact business with them in their own local currency, regardless of the location of our operations, which also exposes us to foreign currency risk. Since we sell products or services in foreign currencies, we are required to convert the payments received into U.S. Dollars, which gives rise to foreign currency gains or losses. Given the uncertainty as to when and what specific foreign currencies we may be required or choose to accept as payment from our international customers, we cannot predict the ultimate impact that such a decision would have on our business, financial condition and results of operations. For the first half of 2011, we recorded a foreign exchange translation loss of $2.1 million due to fluctuations in the value of the U.S. Dollar. There can be no assurance that we will not incur foreign exchange translation losses in the future as the value of the Dollar fluctuates.
 
 
Interest Rate Risk
 
As of July 3, 2011, we had cash equivalents of approximately $49.7 million in both interest and non-interest bearing accounts, including restricted cash. We also had a total of $58 million of the 1.875% Notes and $150.0 million of the 3.875% Notes. We have exposure to interest rate risk primarily through our Credit Agreement and our cash investment portfolio. Short-term investment rates decreased during 2010 and have remained low in 2011 as the U.S. Federal Reserve has attempted to mitigate the impact of the recession. Despite this exposure, we believe that we are not subject to material fluctuations in principal given the short-term maturities and high-grade investment quality of our investment portfolio, and the fact that the effective interest rate of our portfolio tracks closely to various short-term money market interest rate benchmarks. Therefore, we currently do not use derivative instruments to manage our interest rate risk. Based on our overall interest rate exposure at July 3, 2011, 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 components in order to mitigate the impact of any fluctuations in commodity prices. These supply agreements are not long-term supply agreements. If we or our contract manufacturers become subject to a significant increase in the price of one of these components, we may be unable to pass such costs onto our customers. During 2010, we experienced supply shortages of various electronic components as well as significantly increased order lead times for such components.  While we have generally not experienced significant price increases for such components, if there continues to be significant shortages, the prices may increase resulting in a negative impact on our product costs.  In addition, certain transistors and semiconductors are regularly revised or changed by their manufacturers, which may result in a requirement for us to redesign a product that utilizes these components or cease the production of such products. In such events, our business, financial condition or results of operations could be adversely affected. Additionally, we require specialized electronic test equipment, which is utilized in both the design and manufacture of our products. The electronic test equipment is available from limited sources and may not be available in the time periods required for us to meet our customers’ demand. If required, we may be forced to pay higher prices for equipment and/or we may not be able to obtain the equipment in the time periods required, which would then delay our development or production of new products. These delays and any potential additional costs could have a material adverse effect on our business, financial condition or results of operations. Prior increases to the price of oil and energy have translated into higher freight and transportation costs and, in certain cases, higher raw material supply costs. These higher costs negatively impacted our production costs. We may not be able to pass on these higher costs to our customers and if we insist on raising prices, our customers may curtail their purchases from us. There are significant concerns in our industry about inflationary pressures on commodity costs, including those which affect our business. Further increases in energy prices may negatively impact our business, financial condition and results of operations.
 
CONTROLS AND PROCEDURES
 
 
Evaluation of Controls and Procedures
 
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 3, 2011.  We maintain disclosure controls and procedures that are designed to provide a reasonable assurance level that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of July 3, 2011, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
 
 
Changes in Internal Controls Over Financial Reporting
 
There were no changes to our internal controls over financial reporting during the quarter ended July 3, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 
 
 
LEGAL PROCEEDINGS
 
We are subject to legal proceedings and claims in the normal course of business.  We are currently defending these proceedings and claims, and, although the outcome of legal proceedings is inherently uncertain, we anticipate that we will be able to resolve these matters in a manner that will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
 
RISK FACTORS
 
Our business faces significant risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial also may impair our business operations. If any of the events or circumstances described in the following risks actually occur, our business, financial condition and results of operation could suffer, and the trading price of our Common Stock could decline, and you may lose all or a part of your investment.
 
 
Risks Related to our Business
 
We rely upon a few customers for the majority of our revenues and the loss of any one or more of these customers, or a significant loss, reduction or rescheduling of orders from any of these customers, would have a material adverse effect on our business, financial condition and results of operations.
 
We sell most of our products to a small number of customers, and while we are continually seeking to expand our customer base, we expect this will continue.  For the first six months of 2011, sales to Nokia Siemens accounted for approximately 20% of revenues, sales to Team Alliance, one of our North American resellers, accounted for approximately 22% of revenues, and sales to Raycom, one of our European resellers, accounted for approximately 13% of revenues.  Any decline in business with our original equipment manufacturer customers, including Nokia Siemens and Samsung, and our direct wireless network operator customers, will have an adverse impact on our business, financial condition and results of operations.  Our future success is dependent upon the continued purchases of our products by a small number of customers such as Nokia Siemens, Samsung, other original equipment manufacturers, wireless network operator customers and our resellers such as Team Alliance and Raycom.  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 operators of wireless networks, our business will continue to be impacted by unanticipated demand fluctuations due to our dependence on a small number of customers.  Unanticipated demand fluctuations can have a negative impact on our revenues and business, and an adverse effect on our business, financial condition and results of operations.  In addition, our dependence on a small number of major customers exposes us to numerous other risks, including:
 
·  
a slowdown or delay in deployment of wireless networks by any one or more customers could significantly reduce demand for our products;
 
·  
reductions in a single customer’s forecasts and demand could result in excess inventories;
 
·  
the recent recession could negatively affect one or more of our major customers and cause them to significantly reduce operations, or file for bankruptcy;
 
·  
consolidation of customers can reduce demand as well as increase pricing pressure on our products due to increased purchasing leverage;
 
·  
each of our customers has significant purchasing leverage over us to require changes in sales terms including pricing, payment terms and product delivery schedules;
 
·  
customers could decide to increase their level of internal designing and/or manufacturing of wireless communication network products and reduce their purchases from us; and
 
·  
concentration of accounts receivable credit risk, which could have a material adverse effect on our liquidity and financial condition if one of our major customers declares bankruptcy or delays payment of its receivables.
 
We have strategically focused our business and sales efforts on growing our sales of higher margin products and solutions, which has reduced our total sales.
 
Over the last two years, a period in which we have experienced a broad decline in the weighted sales price of our products, we have implemented a revised business and sales strategy under which we do not actively pursue low-margin, high-volume business, also referred to as commodity-like business.  This strategy is having the effect of reducing our overall sales to original equipment manufacturer customers such as Alcatel-Lucent and Nokia Siemens.  Any continued reduction in demand from our original equipment manufacturer customers, if not offset by increased demand from other wireless network operator customers, could have an adverse effect on our business, financial condition and results of operations.
 
 
We have experienced, and will continue to experience, significant fluctuations in sales and operating results from quarter to quarter.
 
Our quarterly results fluctuate due to a number of factors, including:
 
·  
the lack of obligation by our customers to purchase their forecasted demand for our products;
 
·  
variations in the timing, cancellation, or rescheduling of customer orders and shipments;
 
·  
production delays on new products that limit our revenue in a quarter;
 
·  
increased costs associated with rising raw material costs, including oil prices;
 
·  
costs associated with consolidating acquisitions;
 
·  
high fixed expenses that increase operating expenses, especially during a quarter with a sales shortfall;
 
·  
product failures and associated warranty and in-field service support costs;
 
·  
discounts given to certain customers for large volume purchases;
 
·  
unanticipated increases in costs associated with projects in our coverage solutions product group; and
 
·  
shortages of materials and components to manufacture our products.
 
We regularly generate 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.  When we introduce new products into production, we may encounter production delays, such as we did in the first quarter of 2011, which limit our revenue and have an adverse effect on our business.  Our major customers generally have no obligation to purchase forecasted amounts and may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice and without penalty.  As a result, we may not be able to accurately predict our quarterly sales.  Because our expense levels are partially based on our expectations of future sales, our expenses may be disproportionately large relative to our revenues, and we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.  Any shortfall in sales relative to our quarterly expectations or any delay of customer orders would adversely affect our business, financial condition and results of operations.
 
Order deferrals and cancellations by our customers, declining average sales prices, changes in the mix of products sold, shortages of materials, delays in the introduction of new products and longer than anticipated sales cycles for our products have adversely affected our business, financial condition and results of operations in the past.  Despite these factors, we, along with our contract manufacturers, attempt to 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 operating results have been adversely impacted by the worldwide economic crisis and credit tightening.
 
Beginning in the fourth quarter of 2008, worldwide economic conditions significantly deteriorated due to the credit crisis and other factors, including slower economic activity, recessionary concerns, increased energy costs, decreased consumer confidence, reduced corporate profits, reduced or canceled capital spending, adverse business conditions and liquidity concerns.  All of these factors have had a negative impact on the availability of financial capital which has contributed 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, some customers continue to find 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.  Although the recessionary conditions have eased somewhat in 2011, they still continue to impact our business negatively.  If the current economic uncertainty continues, or if there is another economic recession, our revenues could be negatively impacted, 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 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 the current economic uncertainty or any future economic recession or the impact on the wireless industry.
 
 
Negative conditions in the financial and credit markets may impact our liquidity.
 
The recent recession and constrained credit markets have had, and we anticipate they will continue to have, an impact on our liquidity.  These impacts include some of our customers facing liquidity shortages which affect their payments to us, and the general tightness in the financial credit markets which limits credit available to us as well as some of our customers.  Given our current operating cash flow, financial assets, access to the capital markets and available lines of credit, we continue to believe that we will be able to meet our financing needs for the foreseeable future.  However, there can be no assurance that global economic conditions will not worsen, which could have a corresponding negative effect on our liquidity.  In addition, while we believe that we have invested our financial assets in sound financial institutions, should these institutions limit access to our assets, breach their 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.
 
We have previously experienced significant reductions in demand for our products by certain customers and if this continues, our operating results will be adversely impacted.
 
We have a history of significant unanticipated reductions in demand that demonstrate the risks related to our customer and industry concentration levels.  While our revenues have increased at times during fiscal years 2005, 2006, 2007 and 2008, a significant portion of this increase was due to our various acquisitions.  During fiscal years 2009, 2010 and 2011, the global economic crisis and related recession continued to have an impact on our customers and their demand for our products.  It is possible that our customers may continue to reduce their demand for wireless infrastructure products in the near term, thereby negatively impacting us as well as other 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 addition, certain network operators may decide to consolidate all purchases of products for their network into a small group of companies in order to gain further perceived cost savings.  If we are not one of these selected companies, or are required to sell our products through such consolidators, our revenues and profits may be reduced which would have an adverse effect on our business, financial condition and results of operations.  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 have continuing effects throughout 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 the deployment of wireless networks, will result in reduced demand for our products, which will have a material adverse effect on our business.
 
We depend on single sources or limited sources for key components and products, which exposes us to risks related to product shortages or delays, as well as potential product quality issues, all of which could increase the cost of our products thereby reducing our operating profits.
 
During fiscal 2010, we experienced significant supply shortages of various electronic components as well as significantly increased order lead times for such components due to delays from increased worldwide demand for electronic components following improved global economic conditions as part of the recovery following the 2008 global recession.  This combined supply shortage and increase in material order lead times impacted our ability to timely produce products, which negatively impacted our revenues during fiscal 2010.  We currently expect some level of supply shortages and increased lead times to continue during 2011.  If these shortages and extended lead times continue, our future revenues may be negatively impacted and our manufacturing costs may significantly increase.  In addition, a number of our products, and certain 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, which in turn may be dependent upon a limited number of suppliers themselves.  Any disruption in this supply chain can negatively affect the timely availability of key components and parts necessary for the production of our products.
 
To take advantage of volume pricing discounts, we also purchase certain products, and along with our contract manufacturers, purchase certain customized components, from single or limited sources.  We have experienced, and expect to continue to experience, shortages of single-source and limited-source components.  Shortages have compelled us to adjust our product designs and production schedules and have caused us to miss customer requested delivery dates.  Missed customer delivery dates have had a material adverse impact on our financial results.  If single-source or limited-source components become unavailable in sufficient quantities in the desired time periods, are discontinued or are available only on unsatisfactory terms, then 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 the production and delivery of our products is 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 need additional capital in the future and such additional financing may not be available on favorable terms or at all.
 
As of July 3, 2011, we had approximately $49.7 million in cash, including $1.0 million in restricted cash.  We cannot provide any guarantee that we will generate sufficient cash in the future to maintain or grow our operations over the long-term.  We rely upon our ability to generate positive cash flow from operations to fund our business.  If we are not able to generate positive cash flow from operations, we may need to utilize sources of financing such as our Credit Agreement or other sources of cash.  While our Credit Agreement provides us with additional sources of liquidity, we may need to raise additional funds through public or private debt or equity financings in order to fund existing operations or to take advantage of opportunities, including acquisitions of complementary businesses or technologies.  In addition, if our business 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.  These circumstances would make it difficult to obtain new sources of financing.  Our ability to secure additional financing is also dependent upon not only our business profitability, but also the credit markets, which became highly constrained due to credit concerns arising from the subprime mortgage lending market and subsequent worldwide economic recession.  If we are unable to generate positive cash flow from our operations or 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 fail to develop products that are of adequate quality and reliability, which could negatively impact our ability to sell our products and could expose us to significant liabilities.
 
We have had quality problems with our products, including those we have acquired in acquisitions.  We may have similar product quality problems in the future.  We have replaced components in some products and replaced entire products in accordance with our product warranties.  We believe that our customers will demand that our products meet increasingly stringent performance and reliability standards.  If we cannot keep pace with technological developments, evolving industry standards and new communications protocols, if we fail to adequately improve product quality and meet the quality standards of our customers, or if our contract manufacturers fail to achieve the quality standards of our customers, we risk losing business which would negatively impact our business, financial condition and results of operations.  Design problems could also damage relationships with existing and prospective customers and could limit our ability to market our products to large wireless infrastructure manufacturers, many of which build their own products and have stringent quality control standards.  In addition, we have incurred significant costs addressing quality issues from products that we have acquired in certain of our acquisitions.  We are also required to honor certain warranty claims for products that we have acquired in previous acquisitions.  While we seek recovery of amounts that we have paid, or may pay in the future to resolve warranty claims through indemnification from the original manufacturer, this can be a costly and time consuming process.  In our contracts with customers, we negotiate liability limits but not all of the contracts contain liability limits and some contracts contain limits which are greater than the price of the products sold.  As a result, if we have quality problems with our products that we cannot fix and our customers bring a claim against us, we could incur significant liabilities which would have a material adverse effect on our business, financial condition and results of operations.
 
We may encounter unanticipated cost increases in coverage systems projects.
 
As part of our Coverage Solutions product group, we occasionally undertake installation projects in which we utilize third party contractors in addition to our personnel to install and deploy Coverage Solutions.  Installation projects can be very complex and unanticipated factors or events may occur during a project which significantly impacts the expected cost of a project.  Therefore, as part of these projects, we may encounter unanticipated deployment and installation costs, which if not reimbursed, will increase the overall costs of such projects and may have a negative impact on our gross margins, financial condition and results of operations.  We encountered such expenses in the first quarter of 2011 and may encounter them in the future.
 
 
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.  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 and 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 economic uncertainty, and the possibility of a future 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 consolidate 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 and our ability to repay our outstanding convertible subordinated debt.
 
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 the last four years and shortages of steel, copper and rare earth materials.  Such fluctuations and shortages have resulted in significant price increases which translated into higher freight and transportation costs and higher raw material supply costs.  These higher costs have negatively impacted our production costs.  We are not normally 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, raw material costs or the onset of inflationary pressures could negatively impact our business, financial condition and results of operations.
 
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 has concentrated purchasing power at the surviving entities, placing further pricing pressures on the products we sell to such customers.  Moreover, the recent recession and current economic uncertainty have 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 negatively impacted 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 in the range of 0% to 15%, depending on the product line, from fiscal 2009 to fiscal 2010 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.  In addition, average sales prices are affected by price discounts negotiated without firm orders for large volume purchases by certain customers.  To offset declining average sales prices, we must reduce manufacturing costs and ultimately develop new products with lower costs or higher average sales prices.  If we cannot achieve such cost reductions or increases in average selling prices, our gross margins will decline.
 
 
Our suppliers, contract manufacturers or customers could become competitors.
 
Many of our customers, particularly our original equipment manufacturer customers, internally design and/or manufacture their own wireless communications network products.  These customers also continuously evaluate whether to manufacture their own wireless communications network products or utilize contract manufacturers to produce their own internal designs.  Certain of our customers regularly produce or design wireless communications network products in an attempt to replace products manufactured by us.  In addition, some customers threaten to undertake such activities if we do not agree to their requested price reductions.  We believe that these practices will continue.  In the event that our customers manufacture or design their own wireless communications network products, these customers might reduce or eliminate their purchases of our products, which would result in reduced revenues and would adversely impact our business, financial condition and results of operations.  Wireless infrastructure equipment manufacturers with internal manufacturing capabilities, including many of our customers, could also sell wireless communications network products externally to other manufacturers, thereby competing directly with us.  In addition, our suppliers or contract manufacturers may decide to produce competing products directly for our customers and, effectively, compete against us.  If, for any reason, our customers produce their wireless communications network products internally, increase the percentage of their internal production, require us to participate in joint venture manufacturing with them, require us to reduce our prices, engage our suppliers or contract manufacturers to manufacture competing products, or otherwise compete directly against us, our revenues would decrease, which would adversely impact our business, financial condition and results of operations.
 
Our success is tied to the growth of the wireless services communications market and our future revenue growth is dependent upon the expected increase in the size of this market.
 
Our revenues come from the sale of wireless communications network products and coverage solutions.  Our future success depends 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 seven years.  Some of our network operator customers rely on credit to finance the build-out or expansion of their wireless networks.  The recent constrained credit environment and the worldwide economic recession resulted in lower revenues in fiscal 2009 and 2010 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 because 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.  For example, in 2009, we established a new manufacturing location in Thailand.  Such activities subject us to numerous risks and uncertainties, including the following:
 
·  
difficulty integrating the new locations into our existing operations;
 
·  
difficulty consolidating existing locations into one location;
 
·  
inability to achieve the anticipated financial and strategic benefits of the specific new location or consolidation;
 
·  
significant unanticipated additional costs incurred to start up a new manufacturing location;
 
·  
inability to attract key technical and managerial personnel to a new location;
 
·  
inability to retain key technical and managerial personnel due to the consolidation of locations to a new location;
 
·  
diversion of our management’s attention from other business issues; and
 
·  
failure of our review and approval process to identify significant issues, including issues related to manpower, raw material supplies, legal and financial contingencies.
 
If we are unable to manage these risks effectively as part of any investment in a new manufacturing location or consolidation of locations, our business would be adversely affected.
 
Future acquisitions, or strategic alliances, may present risks, and we may be unable to achieve the financial and strategic goals intended at the time of any acquisition or strategic alliance.
 
In the past, we have acquired and made investments in other companies, products and technologies and entered into strategic alliances with other companies.  We continually evaluate these types of opportunities.  We may acquire or invest in other companies, products or technologies, or we may enter into joint ventures, mergers or strategic alliances with other companies.  Such transactions subject us to numerous risks, including the following:
 
·  
difficulty integrating the operations, technology and personnel of the acquired company;
 
·  
inability to achieve the anticipated financial and strategic benefits of the specific acquisition or strategic alliance;
 
·  
significant additional warranty costs due to product failures and or design differences that were not identified during due diligence, which could result in charges to earnings if they are not recoverable from the seller;
 
·  
inability to retain key technical and managerial personnel from the acquired company;
 
·  
difficulty in maintaining controls, procedures and policies during the transition and integration process;
 
·  
diversion of our management’s attention from other business concerns;
 
·  
failure of our due diligence process to identify significant issues, including issues with respect to product quality, product architecture, legal and financial contingencies, and product development; and
 
·  
significant exit charges if products acquired in business combinations are unsuccessful.
 
If we are unable to manage these risks effectively as part of any acquisition or joint venture, our business would be adversely affected.
 
 
We may fail to develop products that are sufficiently manufacturable, which could negatively impact our ability to sell our products.
 
Manufacturing our products is a complex process that requires significant time and expertise to meet customers’ specifications.  Successful manufacturing is substantially dependent upon the ability to assemble and tune these products to meet specifications in an efficient manner.  In this regard, we largely depend on our staff of assembly workers and trained technicians at our internal manufacturing operations in the U.S. and Asia, as well as our contract manufacturers’ staff of assembly workers and trained technicians. We have previously experienced problems in the manufacturing of new products where our actual costs have exceeded our expectations and our production yields have not met our internal expectations. Such issues have had a negative impact on gross margins and results of operations. 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.
 
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.  Consequently, we have had employees leave us to work for competitors, and we may continue to experience this.
 
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, the U.S. and Thailand.  There are particular risks of doing business in each jurisdiction and to doing business in foreign jurisdictions generally.
 
For example, 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 U.S., 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 U.S. 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 U.S. 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.
 
As another example, in September 2006, Thailand experienced a military coup which overturned the existing government.  In late 2008, anti-government protests and civilian occupations culminated with a court-ordered ouster of Thailand’s prime minister.  In 2009 and 2010, continuing turmoil impacted the government of Thailand.  To date, this has not had a significant 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.
 
Furthermore, we require air or ocean transport to deliver products built in our various manufacturing locations to our customers.  High energy costs have increased our transportation costs which have had a negative impact on our production costs.  Transportation costs would also escalate if there were a shortage of air or ocean cargo space and any significant increase in transportation costs would cause an increase in our expenses and negatively impact our business, financial condition and results of operations.  In addition, if we are unable to obtain cargo space or secure delivery of components or products due to labor strikes, lockouts, work slowdowns or work stoppages by longshoremen, dock workers, airline pilots or other transportation industry workers, our delivery of products could be delayed.
 
 
The initial sales cycle associated with our products is typically lengthy, often lasting from nine to eighteen months, which could cause delays in forecasted sales and cause us to incur substantial expenses before we record any associated revenues.
 
Our customers normally conduct significant technical evaluations, trials and qualifications of our products before making purchase commitments.  This qualification process involves a significant investment of time and resources from both our customers and us in order to ensure that our product designs are fully qualified to perform as required.  The qualification and evaluation process, as well as customer field trials, may take longer than initially forecasted, thereby delaying the shipment of sales forecasted for a specific customer for a particular quarter and causing our operating results for the quarter to be less than originally forecasted.  Such a sales shortfall would reduce our profitability and negatively impact our business, financial condition and results of operations.
 
We conduct a significant portion of our business internationally, which exposes us to increased business risks.
 
For the first half of 2011 and for fiscal years 2010, 2009 and 2008, international revenues (excluding North American sales) accounted for approximately 60%, 63%, 73% and 70% of our net sales, respectively.  There are many risks that currently impact, and will continue to impact, our international business and multinational operations, including the following:
 
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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;
 
·  
differences in intellectual property protections throughout the world;
 
·  
difficulties in staffing and managing foreign operations in Europe, Asia and South America, including relations with unionized labor pools in Europe and in Asia;
 
·  
longer accounts receivable collection cycles in Europe, Asia and South America;
 
·  
currency fluctuations and resulting losses on currency translations;
 
·  
terrorist attacks on American companies;
 
·  
economic instability, including inflation and interest rate fluctuations, such as those previously seen in South Korea and Brazil;
 
·  
competition for foreign-based suppliers and from foreign-based competitors throughout the world;
 
·  
overlapping or differing tax structures;
 
·  
the complexity of global tax and transfer pricing rules and regulations and our potential inability to benefit/offset losses in one tax jurisdiction with income from another;
 
·  
cultural and language differences between the U.S. and the rest of the world; and
 
·  
political or civil turmoil, such as that occurring in Thailand.
 
Any failure on our part to manage these risks effectively would seriously reduce our competitiveness in the wireless infrastructure marketplace.
 
 
Protection of our intellectual property is limited.
 
We rely upon trade secrets and patents to protect our intellectual property.  We execute confidentiality and non-disclosure agreements with certain employees and our suppliers, as well as limit access to and distribution of our proprietary information.  We have an ongoing program to identify and file applications for U.S. and other international patents.
 
The departure of any of our management and technical personnel, the breach of their confidentiality and non-disclosure obligations to us, or the failure to achieve our intellectual property objectives could have a material adverse effect on our 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 employees leave us and go to work for competitors and we may continue to experience this.  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 may result in delayed or canceled customer orders.
 
We are subject to numerous governmental regulations concerning the manufacturing and use of our products.  We must stay in compliance with all such regulations and any future regulations.  Any failure to comply with such regulations, and the unanticipated costs of complying with future regulations, may adversely affect our business, financial condition and results of operations.
 
We manufacture and sell products which contain electronic components, and as such components may contain materials that are subject to government regulation in both the locations that we manufacture and assemble our products, as well as the locations where we sell our products.  An example of a regulated material is the use of lead in electronic components.  We maintain compliance with all current government regulations concerning the materials utilized in our products, for all the locations in which we operate.  Since we operate on a global basis, this is a complex process which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations.  There are areas where future regulations may be enacted which could increase our cost of the components that we utilize.  While we do not currently know of any proposed regulation regarding components in our products, which would have a material impact on our business, if there is an unanticipated new regulation which significantly impacts our use of various components or requires more expensive components, that would have a material adverse impact on our business, financial condition and results of operations.
 
Our manufacturing process is also subject to numerous governmental regulations, which cover both the use of various materials as well as environmental concerns.  We maintain compliance with all current government regulations concerning our production processes, for all locations in which we operate.  Since we operate on a global basis, this is also a complex process which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations.  There are areas where future regulations may be enacted which could increase our manufacturing costs.  One area which has a large number of potential changes in regulations is the environmental area.  Environmental areas such as pollution and climate change have had significant legislative and regulatory efforts on a global basis, and there are expected to be additional changes to the regulations in these areas.  These changes could directly increase the cost of energy which may have an impact on the way we manufacture products or utilize energy to produce our products.  In addition, any new regulations or laws in the environmental area might increase the cost of raw materials we use in our products.  While future changes in regulations appears likely, we are currently unable to predict how any such changes will impact us and if such impacts will be material to our business.  If there is a new law or regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this would have a material adverse effect 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:
 
·  
performance;
 
·  
functionality;
 
·  
reliability;
 
·  
pricing;
 
·  
quality;
 
·  
designs that can be efficiently manufactured in large volumes;
 
·  
time-to-market delivery capabilities; and
 
·  
compliance with industry standards.
 
If we fail to address the above factors in the design and manufacturing of our products, there could be a material adverse effect on our business, financial condition and results of operations.
 
Our current competitors include Comba Telecom Systems Holdings Ltd, CommScope, Inc., Fujitsu Limited, Hitachi Kokusai Electric Inc., Japan Radio Co., Ltd., Kathrein-Werke KG,  Radio Frequency Systems, and Tyco Electronics 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 the various factors outlined in the risk factor above.  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.
 
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.  On August 8, 2011, the bid price of our Common Stock was $1.60.  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.  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 in 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 such alternative exchange 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 July 3, 2011, the closing price of our Common Stock ranged from a high of $5.05 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 financial condition and operating performance.  These broad fluctuations may negatively impact the market price of shares of our Common Stock.
 
 
The price of our Common Stock may continue to fluctuate greatly in the future due to a variety of factors, including:
 
·  
fluctuations in our results of operations or the operations of our competitors or customers;
 
·  
failure of our results of operations and sales revenues to meet the expectations of stock market analysts and investors;
 
·  
the aggregate amount of our outstanding debt and perceptions about our ability to make debt service payments;
 
·  
reductions in wireless infrastructure demand or expectations regarding future wireless infrastructure demand by our customers;
 
·  
delays or postponement of wireless infrastructure deployments, or larger than anticipated costs associated with such 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;
 
·  
increases in the number of shares of our Common Stock outstanding, including upon the conversion of outstanding debt securities;
 
·  
changes in the wireless industry.
 
·  
changes in the general financial and other market conditions; and
 
·  
domestic and international economic and regulatory conditions.
 
In addition, the potential conversion of our outstanding convertible debt and other instruments could result in a significant increase in the number of outstanding shares of our Common Stock.  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 foregoing factors, 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.
 
A material decline in the price of our Common Stock may result in the assertion of certain claims against us, and/or the commencement of inquiries and/or investigations against us. A prolonged decline in the price of our Common Stock could result in a reduction in the liquidity of our Common Stock or a reduction in our ability to raise capital. Any reduction in our ability to raise equity capital in the future may force us to allocate funds from other planned uses and could have a significant negative effect on our business plans and operations.
 
Issuance of shares of our Common Stock upon conversion of our outstanding convertible instruments and future sales of our Common Stock could adversely affect our Common Stock price.
 
As of August 8, 2011, an aggregate of 16,284,083 shares of our Common Stock were issuable upon exercise of outstanding stock options under our stock option plans, and an additional 15,809,150 shares of our Common Stock were reserved for the issuance of additional options and shares under these plans.  Furthermore, an aggregate of 1,018,936 shares of our Common Stock were issuable upon conversion of our 1.875% Notes, and an aggregate of 17,221,590 shares of our Common Stock were issuable upon conversion of our 3.875% Notes, and an aggregate of 32,030,750 shares of our Common Stock were issuable upon conversion of our 2.75% Notes.
 
Future sales of our Common Stock and instruments convertible or exchangeable into our Common Stock, or the perception that such sales or transactions could occur, could adversely affect the market price of our Common Stock.  In addition, this may also make it more difficult for us to sell equity securities in the future at a time and a price that we deem appropriate.
 
Certain provisions contained in our charter and bylaws could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders.
 
Certain provisions of our certificate of incorporation, as amended, and bylaws, as amended, 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.  These provisions may have the effect of deterring hostile takeovers or delaying or preventing changes in control or our management.  For example, our bylaws provide that special meetings of stockholders may be called only by our board of directors or certain officers, and may not be called by our stockholders.  In addition, our bylaws provide that stockholders seeking to present proposals before, or nominate candidates for election as directors at, a meeting of stockholders must provide advanced notice to us in writing and must provide specified information.  Our certificate of incorporation grants our board of directors the authority to issue preferred stock, which could potentially be used to discourage attempts by third parties to obtain control of us through a merger, tender offer, proxy or consent solicitation or otherwise, by making those attempts more difficult to achieve or more costly.  Furthermore, Section 203 of the Delaware General Corporation Law, which continues to apply to us, prohibits a public Delaware corporation from engaging in certain business combinations with an “interested stockholder” (as defined in such section) for a period of three years following the time that such stockholder became an interested stockholder without the prior consent of our board of directors.  This section, as well as certain provisions of our certificate of incorporation, may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 
Issuer Purchases of Equity Securities
 
The following table details the repurchases that were made during the second quarter of 2011:
 
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)
 
April 4 – May 8
   
     
     
     
 
May 9 – June 5
   
5,498
(1)
 
$
4.08
     
     
 
June 6 – July 3
   
     
     
     
 

 
(1)  
During May 2011, 5,498 shares of Common Stock were surrendered to us to cover tax withholding obligations with respect to the vesting of 14,374 shares under restricted stock grants.
 
EXHIBITS
 
The following exhibits are filed as part of this report:
 
Exhibit
Number
Description
   
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
   
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of 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.*
   
101.INS
XBRL Instance Document**
   
101.SCH
XBRL Taxonomy Extension Schema Document**
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document**
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document**
   
101.LAB
XBRL Taxonomy Extension Label Linkbase Document**
   
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document**

 
*
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 Rule 406T of Regulation S-T, this XBRL information will 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 will it be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections.

 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
         
        POWERWAVE TECHNOLOGIES, INC.
Date: August 10, 2011  
By:
/s/    KEVIN T. MICHAELS
       
Kevin T. Michaels
       
Chief Financial Officer