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

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

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

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

Integration of LGP Allgon and REMEC, Inc.'s Wireless Systems Business

The Company recorded liabilities in connection with the acquisitions for estimated restructuring and integration costs related to the consolidation of REMEC, Inc.'s wireless systems business and LGP Allgon's operations, including severance and future lease obligations on excess facilities. These estimated costs were included in the allocation of the purchase consideration and resulted in additional goodwill pursuant to the accounting guidance now codified as FASB ASC Topic 805, "Business Combinations." The costs associated with these exit activities were recorded in accordance with the accounting guidance in FASB ASC Topic 420. The implementation of the restructuring and integration plan is complete.

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

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

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

Restructuring and Impairment Charges

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

In the first nine months of 2008, the Company recorded charges of approximately $8.6 million for the impairment of inventory at closed or consolidated facilities that either has been or will be disposed of and is not expected to generate future revenue. Included in these charges is $4.7 million and $3.3 million, respectively, of inventory charges related to the closure of the Company's facilities in China and Salisbury, Maryland. The Company also incurred charges of $0.9 million for professional fees related to the Company's restructuring plans. In addition, the Company recorded lease cancellation charges of $2.0 million associated with the closure of the Company's facilities in Bristol, UK and Hungary, charges of $2.2 million related to impairment charges and fees associated with the closure of the Company's entities in Salisbury, Maryland, Bristol, UK, Costa Rica and Hungary, and incurred certain vendor cancellation charges of $0.6 million related to closed facilities in China. Also in the first nine months of 2008, the Company incurred severance costs of $3.4 million which related to its restructuring plans. The aggregate of all such charges was $17.7 million of which $13.9 million was included in cost of sales and $3.8 million was included in operating expenses.

Note 7. Other Income (Expense), Net

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


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

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

Note 8. Earnings (Loss) Per Share

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

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

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

Note 9. Commitments and Contingencies

In the first quarter of 2007, four purported shareholder class action complaints were filed in the United States District Court for the Central District of California against the Company, its President and Chief Executive Officer, its former Executive Chairman of the Board of Directors and its Chief Financial Officer. The complaints were Jerry Crafton v. Powerwave Technologies, Inc., et. al., Kenneth Kwan v. Powerwave Technologies, Inc., et. al., Achille Tedesco v. Powerwave Technologies, Inc., et. al. and Farokh Etemadieh v. Powerwave Technologies, Inc. et. al. and were brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In June 2007, the four cases were consolidated into one action before the Honorable Judge Philip Gutierrez, and a lead plaintiff was appointed. In October 2007, the lead plaintiff filed an amended complaint asserting the same causes of action and purporting to state claims on behalf of all persons who purchased Powerwave securities between May 2, 2005 and November 2, 2006. The essence of the allegations in the amended complaint was that the defendants made misleading statements or omissions concerning the Company's projected and actual sales revenues, the integration of certain acquisitions and the sufficiency of the Company's internal controls. In December 2007, the defendants filed a motion to dismiss the amended complaint. On April 17, 2008, the Court granted defendants' motion to dismiss plaintiffs' claims in connection with the Company's projected sales revenues, but denied defendants' motion to dismiss plaintiffs' other claims. On August 29, 2008, the defendants answered the amended complaint. On May 14, 2009, the parties executed a stipulation of settlement to resolve the consolidated action. According to the terms of the proposed settlement, the settlement payment will be funded by the Company's directors and officers liability insurance. The Court granted preliminary approval of the proposed settlement and provisionally certified a settlement class on June 22, 2009, and on October 19, 2009 entered a judgment that granted final approval of the settlement.

In March 2007, one additional lawsuit that relates to the pending shareholder class action was filed. The lawsuit, Cucci v. Edwards, et al., filed in the Superior Court of California, is a shareholder derivative action, purported to be brought by an individual shareholder on behalf of Powerwave, against current and former directors of Powerwave. Powerwave is also named as a nominal defendant. The allegations of the derivative complaint closely resemble those in the class action and pertain to the time period of May 2, 2005 through October 9, 2006. Based on those allegations, the derivative complaint asserts various claims for breach of fiduciary duty, waste of corporate assets, mismanagement, and insider trading under state law. The derivative complaint was removed to federal court, and is also pending before Judge Gutierrez. On May 15, 2009, the parties executed a stipulation of settlement to resolve the derivative action. According to the terms of the proposed settlement, the Company will adopt certain enhancements to its corporate governance policies and procedures and counsel for the derivative plaintiff will be reimbursed its legal fees and expenses, which will be funded by the Company's directors and officers liability insurance. The Court granted preliminary approval of the proposed settlement on June 22, 2009, and on October 19, 2009 entered a judgment that granted final approval of the settlement.

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

Note 10. Contractual Guarantees and Indemnities

During the normal course of its business, the Company makes certain contractual guarantees and indemnities pursuant to which the Company may be required to make future payments under specific circumstances. The Company has not recorded any liability for these contractual guarantees and indemnities in the accompanying consolidated financial statements. A description of significant contractual guarantees and indemnities existing as of September 27, 2009 is included below:

Intellectual Property Indemnities

The Company indemnifies certain customers and its contract manufacturers against liability arising from third-party claims of intellectual property rights infringement related to the Company's products. These indemnities appear in development and supply agreements with the Company's customers as well as manufacturing service agreements with the Company's contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, the Company is unable to determine the maximum amount of losses that it could incur related to such indemnifications. Historically, any amounts payable pursuant to such intellectual property indemnifications have not had a material effect on the Company's business, financial condition or results of operations.

Director and Officer Indemnities and Contractual Guarantees

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

The Company has also entered into severance agreements and change in control agreements with certain of its executives. These agreements provide for the payment of specific compensation benefits to such executives upon the termination of their employment with the Company.

General Contractual Indemnities/Products Liability

During the normal course of business, the Company enters into contracts with customers where it has agreed to indemnify the other party for personal injury or property damage caused by the Company's products. The Company's indemnification obligations under such agreements are not limited in duration and are generally not limited in amount. Historically, any amounts payable pursuant to such contractual indemnities have not had a material negative effect on the Company's business, financial condition or results of operations. The Company maintains product liability insurance as well as errors and omissions insurance which may provide a source of recovery to the Company in the event of an indemnification claim.

Other Guarantees and Indemnities

The Company occasionally issues guarantees for certain contingent liabilities under various contractual arrangements, including customer contracts, self-insured retentions under certain insurance policies, and governmental value-added tax compliance programs. These guarantees normally take the form of standby letters of credit issued by the Company's banks, which may be secured by cash deposits or pledges, or performance bonds issued by an insurance company. Historically, any amounts payable pursuant to such guarantees have not had a material negative effect on the Company's business, financial condition or results of operations. In addition, the Company, as part of the agreements to register the convertible notes it issued in September 2007, November 2004, and July 2003, agreed to indemnify the selling security holders against certain liabilities, including liabilities under the Securities Act. The Company's indemnification obligations under such agreements are not limited in duration and generally not limited in amount.

Note 11. Income Taxes

The Company provides for income taxes in interim periods based on the estimated effective income tax rate for the complete fiscal year. The income tax provision is computed on the pretax income of the consolidated entities located within each taxing jurisdiction based on current tax law. Deferred tax assets and liabilities are determined based on the future tax consequences associated with temporary differences between income and expenses reported for financial accounting and tax reporting purposes. A valuation allowance for deferred tax assets is recorded to the extent that the Company cannot determine that the ultimate realization of the net deferred tax assets is more likely than not.

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

In addition to unrecognized tax benefits, the Company has recorded valuation allowances against its net tax benefits in certain jurisdictions arising from net operating losses. On a quarterly basis, the Company reassesses the need for these valuation allowances based on operating results and its assessment of the likelihood of future taxable income and developments in the relevant tax jurisdictions. The Company continues to maintain a valuation allowance against its net deferred tax assets in the U.S. and various foreign jurisdictions in 2009 where the Company believes it is more likely than not that deferred tax assets will not be realized.

As of September 27, 2009, the liability for income taxes associated with uncertain tax positions was $10.0 million, including accrued penalties, interest, and foreign currency fluctuations of $0.5 million. Of this amount, $7.9 million, if recognized, would affect the Company's effective tax rate. In the first quarter of 2009, approximately $1.1 million of the liability was reduced as a result of the expiration of the statutory audit period of the tax jurisdiction. Interest charges associated with all relevant uncertain tax positions were recorded for the period and all other changes to the liability were immaterial.

As a result of ongoing tax audits, the total liability for unrecognized tax benefits may change within the next twelve months due to either settlement of audits or expiration of statutes of limitations. As of September 27, 2009, the Company has concluded all United States federal income tax matters for years through 2005. The Company is currently involved in tax audits with the United States for fiscal year 2006 and Finland for fiscal years 2007 and 2008. All other material state, local and foreign income tax matters have been concluded for years through 2005.

Note 12. Fair Value of Financial Instruments

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

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

Cash and Cash Equivalents and Restricted Cash

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

Long-Term Debt

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

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

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

Note 13. Gain on Settlement of Litigation

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

Note 14. Customer Concentrations

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