UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-34196
Clearwire Corporation
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DELAWARE
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56-2408571
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(State Of
Incorporation)
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(I.R.S.
ID)
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4400 CARILLON POINT, KIRKLAND, WASHINGTON 98033
(425) 216-7600
Securities registered pursuant to Section 12(b) of the
Act:
CLASS A COMMON STOCK
Securities registered pursuant to Section 12(g) of the
Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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
during the preceding 12 months (or for such shorter period
that registrant was required to submit and post such files.) Yes
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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):
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Large accelerated
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of the last business day of
the registrants most recently completed second fiscal
quarter, based on the closing sale price of the
registrants Class A common stock on June 30,
2009 as reported on the NASDAQ Global Select Market was
$663,140,639. As of February 19, 2010, there were
197,621,344 shares of Class A common stock and
734,238,872 shares of Class B common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of
Shareholders to be held on June 15, 2010 are incorporated
by reference into Part III.
CLEARWIRE
CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON
FORM 10-K
For The Fiscal Year Ended December 31, 2009
Table of Contents
CLEARWIRE
CORPORATION AND SUBSIDIARIES
PART I
Explanatory
Note
This Annual Report on
Form 10-K,
including the Managements Discussion and Analysis of
Financial Condition and Results of Operations, contains
forward-looking statements that represent our
beliefs, projections and predictions about future events. These
statements are necessarily subjective and involve known and
unknown risks, uncertainties and other important factors that
could cause our actual results, performance or achievements, or
industry results, to differ materially from any future results,
performance or achievement described in or implied by such
statements. Actual results may differ materially from the
expected results described in our forward-looking statements,
including with respect to the correct measurement and
identification of factors affecting our business or the extent
of their likely impact, the accuracy and completeness of
publicly available information relating to the factors upon
which our business strategy is based, or the success of our
business. You should review carefully the section entitled
Risk Factors for a discussion of these and other
risks that relate to our business.
Except as otherwise noted, references to we,
us, or our refer to Clearwire
Corporation and its subsidiaries.
Overview
We build and operate next generation mobile broadband networks
that provide high-speed residential and mobile Internet access
services and residential voice services in communities
throughout the country. Our 4G mobile broadband networks not
only create a new communications channel into the home or
office, but also provide a broadband connection anywhere within
our coverage area.
As of December 31, 2009, we operated in 61 markets in the
United States and Europe, covering an estimated
44.7 million people. We had approximately 642,000 retail
and 46,000 wholesale subscribers as of December 31, 2009.
As a result, we believe we are the largest operator of next
generation wireless broadband networks in the world. Our
networks in the United States operate in 57 markets covering an
estimated 41.7 million people. Internationally, as of
December 31, 2009, our networks covered an estimated
3.0 million people in Ghent and Brussels, Belgium, Dublin,
Ireland and Seville, Spain. In January 2010, we launched 4G
services in Malaga, Spain.
We are the first mobile broadband service provider to launch
service in the United States based on the 802.16e standard,
which we refer to as mobile WiMAX. The mobile WiMAX standard
facilitates fourth generation wireless services, which are
commonly referred to in the wireless industry as 4G mobile
broadband services. In our 4G markets, we offer our services
both on a retail basis and through our Wholesale Partners,
including Sprint, Comcast, Time Warner Cable and Bright House.
We operated 4G mobile broadband networks in 27 of our markets in
the United States as of December 31, 2009, covering an
estimated population of 34.5 million people, with
approximately 392,000 retail subscribers and 46,000 wholesale
subscribers in those markets. These markets include, among
others, Atlanta, Baltimore, Charlotte, Chicago, Dallas,
Honolulu, Las Vegas, Philadelphia, Portland, Oregon,
San Antonio and Seattle.
As of December 31, 2009, our other 34 markets continued to
operate with a legacy network technology based on a proprietary
set of technical standards offered by a subsidiary of Motorola,
Inc, which we refer to as Motorola. This pre-4G technology
offers higher broadband speeds than those generally offered by
traditional wireless carriers, but lacks the mobile
functionality of our current 4G technology. In 2009, we
converted 16 of our legacy markets in the United States to 4G
mobile broadband under the
CLEARtm
brand, and we intend to upgrade the majority of our remaining
legacy markets in the United States to 4G technology over the
next year.
We are an early stage company, and as such we are investing
heavily in building our network and acquiring other assets
necessary to expand our business. We have a history of operating
losses, and we expect to have
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significant losses in the future. As of December 31, 2009,
our accumulated deficit was approximately $413.1 million
and the total principal outstanding on our debt was
approximately $2.71 billion.
Our primary focus is expanding the geographic coverage of our 4G
mobile broadband networks in the United States to take advantage
of our more than 44 billion MHz-POPs of spectrum in the
2.5 GHz band. We are currently engaged in the development
and deployment of markets throughout the United States. For
2010, we have plans to develop and launch 4G mobile broadband
networks in large metropolitan areas in the United States,
including Boston, Houston, New York, San Francisco and
Washington, D.C. We currently expect that the combination
of our existing 4G markets, our new market deployments and
existing market conversions will allow us to cover as many as
120 million people with our 4G mobile broadband networks by
the end of 2010. However, our actual network coverage by the end
of 2010 will largely be determined by our ability to
successfully manage ongoing development activities, including
the acquisition, zoning, permitting and construction of over
10,000 sites, and our performance in our launched markets.
We regularly evaluate our plans, and we may elect to pursue new
or alternative strategies which we believe would be beneficial
to our business. These may include among other things, modifying
the pace at which we build our 4G mobile broadband networks,
augmenting our network coverage in markets we launch, changing
our sales and marketing strategy
and/or
acquiring additional spectrum. We also may elect to deploy
alternative technologies to mobile WiMAX, if and when they
become available, on our networks either together with, or in
place of, mobile WiMAX if we determine it is necessary to cause
the 4G mobile broadband services we offer to remain competitive
or to expand the number and types of devices that may be used to
access our services. Whether we pursue any such plans or
strategies may depend on our performance in our launched markets
and our access to any additional financing that may be required.
Corporate
Structure
On November 28, 2008, Clearwire Corporation (f/k/a New
Clearwire Corporation), which we refer to as Clearwire or the
Company, completed the transactions contemplated by the
Transaction Agreement and Plan of Merger dated as of May 7,
2008, as amended, which we refer to as the Transaction
Agreement, with Clearwire Legacy LLC (f/k/a Clearwire
Corporation), which we refer to as Old Clearwire, Sprint Nextel
Corporation, which we refer to as Sprint, Comcast Corporation,
which we refer to as Comcast, Time Warner Cable Inc., which we
refer to as Time Warner Cable, Bright House Networks, LLC, which
we refer to as Bright House, Google Inc., which we refer to as
Google, and Intel Corporation, which we refer to as Intel, and
together with Comcast, Time Warner Cable, Bright House and
Google, the Investors. We refer to Comcast, Time Warner Cable,
Bright House, and Google as the Strategic Investors. Under the
Transaction Agreement, Old Clearwire was combined with
Sprints WiMAX business, which we refer to as the Sprint
WiMAX Business, and the Investors invested an aggregate of
$3.2 billion in the combined entity. We were formed on
November 28, 2008, as a result of the closing of the
transactions, which we refer to as the Closing, under the
Transaction Agreement, which we refer to as the Transactions.
On November 9, 2009, Clearwire and Clearwire Communications
LLC, a subsidiary of Clearwire which we refer to as Clearwire
Communications, entered into an investment agreement, which we
refer to as the Investment Agreement, with each of Sprint,
Comcast, Intel, Time Warner Cable, Bright House and Eagle River
Holdings, LLC, which we refer to as Eagle River, who we
collectively refer to as the Participating Equityholders,
providing for additional equity investments by these investors
and new debt investments by certain of these investors. The
Investment Agreement sets forth the terms of the transactions
pursuant to which the Participating Equityholders agreed to
invest in Clearwire and Clearwire Communications, an aggregate
of approximately $1.564 billion in cash, which investment
we refer to as the Private Placement, and the investment by
certain of the Participating Equityholders in senior secured
notes discussed below, which we refer to as the Rollover Notes,
in replacement of equal amounts of indebtedness under our senior
term loan facility that we assumed from Old Clearwire, which we
refer to as the Senior Term Loan Facility, which investment we
refer to as the Rollover Transactions. We collectively refer to
the Private Placement and the Rollover Transactions as the
Equityholder Investments. We received approximately
$1.057 billion of the proceeds from the Private Placement
on November 16, 2009. We refer to this closing as the First
Investment Closing. We received an approximately
$440.3 million of the proceeds from the Private Placement
on December 21, 2009. We refer to this closing as the
Second Investment Closing. The remaining
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proceeds from the Private Placement of approximately
$66.5 million are expected to close by early March 2010. We
refer to this completion of the Private Placement as the Third
Investment Closing. Additionally, on November 24, 2009
Clearwire Communications completed an offering of its
12% senior secured notes due 2015 with an aggregate
principal amount of approximately $1.85 billion (including
the Rollover Notes), followed by a second offering of the
12% senior secured notes due 2015 that closed on
December 9, 2009 for an additional $920 million, which
we collectively refer to as the Senior Secured Notes. The
offering of the Senior Secured Notes allowed us to retire our
debt under our prior Senior Term Loan Facility.
As required under the Investment Agreement, Clearwire has also
commenced a rights offering, pursuant to which rights to
purchase shares of Clearwire Class A common stock, par
value $0.0001 per share, which we refer to as Class A
Common Stock, were granted to each holder of Class A Common
Stock as of December 17, 2009, which we refer to as the
Rights Offering. Each right is exercisable for approximately
0.4336 shares of Class A Common Stock at a
subscription price of $7.33 per share, which we refer to as the
Rights Offering Price. The rights are exercisable and freely
transferable by holders through June 21, 2010. The
Participating Equityholders and Google waived their respective
rights to participate in the Rights Offering with respect to
shares of Class A Common Stock they each hold as of the
applicable record date.
We intend to use the aggregate of $1.564 billion of
proceeds from the Private Placement and any proceeds of the
Rights Offering, for general corporate purposes, including the
deployment of our 4G mobile broadband networks, and to pay fees
and expenses associated with the Rights Offering and the
Equityholder Investments. The closing of the remaining portion
of the Private Placement is subject to certain customary closing
conditions.
Following the Transactions and the Private Placement, the
Participating Equityholders own shares of Clearwire Class B
common stock, par value $0.0001 per share, which we refer to as
Class B Common Stock. Class B Common Stock has equal
voting rights to our Class A Common Stock, but has only
limited economic rights. Unlike the holders of Class A
Common Stock, the holders of Class B Common Stock have no
right to dividends and no right to any proceeds on liquidation
other than the par value of the Class B Common Stock. The
Participating Equityholders hold the economic rights associated
with their Class B Common Stock through ownership of
Class B non-voting equity interests of Clearwire
Communications, which we refer to as Clearwire Communications
Class B Common Interests. Each share of Class B Common
Stock plus one Clearwire Communications Class B Common
Interest is convertible into one share of Class A Common
Stock. Google and, to the extent of their holdings in Old
Clearwire, Intel and Eagle River hold our Class A Common
Stock.
Including the Transactions, the First Investment Closing and the
Second Investment Closing, the ownership interests of the
Sprint, the Investors and Eagle River in Clearwire as of
December 31, 2009 were as follows:
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Sprint held 524,732,533 shares of Class B Common Stock
and an equivalent number of Clearwire Communications
Class B Common Interests, representing approximately 56.4%
of the voting power of Clearwire.
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Google held 29,411,765 shares of Class A Common Stock,
representing approximately 3.1% of the voting power of Clearwire.
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Intel held 65,354,820 shares of Class B Common Stock,
an equivalent number of Clearwire Communications Class B
Common Interests, and 36,666,666 previously purchased shares of
Class A Common Stock, together representing approximately
11.0% of the voting power of Clearwire.
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Time Warner Cable held 45,807,398 shares of Class B
Common Stock and an equivalent number of Clearwire
Communications Class B Common Interests, representing
approximately 4.9% of the voting power of Clearwire.
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Comcast held 87,367,362 shares of Class B Common Stock
and an equivalent number of Clearwire Communications
Class B Common Interests, representing approximately 9.4%
of the voting power of Clearwire.
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Bright House held 8,364,243 shares of Class B Common
Stock and an equivalent number of Clearwire Communications
Class B Common Interests, representing approximately 0.9%
of the voting power of Clearwire.
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Eagle River held 2,612,516 shares of Class B Common
Stock and an equivalent number of Clearwire Communications
Class B Common Interests, and 35,922,958 previously
purchased shares of Class A Common Stock, together
representing approximately 4.1% of the voting power of Clearwire.
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Clearwire holds all of the outstanding Class A non-voting
equity interests of Clearwire Communications, which we refer to
as Clearwire Communications Class A Common Interests, and
all of the outstanding voting interests of Clearwire
Communications, which we refer to as Clearwire Communications
Voting Interests, representing an approximately 21.1% economic
interest and 100% of the voting power of Clearwire
Communications.
While the respective ownership percentages of Sprint, the
Investors and Eagle River may change as a result of the Rights
Offering, each of Sprint, the Investors and Eagle River will
maintain significant voting power in Clearwire.
At the closing of the Transactions, Clearwire, Sprint, Eagle
River and the Investors entered into the Equityholders
Agreement which sets forth certain rights and obligations of the
parties with respect to the governance of Clearwire, transfer
restrictions on Class A Common Stock and Class B
Common Stock, rights of first refusal and pre-emptive rights,
among other things. As the holders of nearly 90.0% of the total
voting power of Clearwire, Sprint, Eagle River and the Investors
together effectively have control of Clearwire.
We currently conduct our operations through our domestic and
international subsidiaries. Clearwire Communications has three
primary domestic operating subsidiaries that are wholly-owned,
directly or indirectly, by Clearwire Communications: Clear
Wireless LLC, which operates our all of our new 4G mobile
markets; Clearwire US LLC, which operates our legacy domestic
markets and our markets that have been converted from pre-4G
technology to mobile WiMAX technology; and Clear Wireless
Broadband LLC, which operates our 4G mobile broadband market in
Baltimore, Maryland. Our spectrum leases and licenses in the
United States are primarily held by separate holding companies.
Internationally, our operations are conducted through Clearwire
International, LLC, an indirect, wholly-owned subsidiary of
Clearwire Communications, which also indirectly holds
investments in Europe and Mexico.
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The following is a diagram illustrating the structure of
Clearwire, its subsidiaries and its stockholders:
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Includes Eagle River and Intel with respect to Class B
Common Stock and Clearwire Communications Class B Common
Interests. |
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Includes Eagle River and Intel (with respect to shares held in
Old Clearwire that were converted into Clearwire Class A
Common Stock upon closing of the Transactions). |
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Sprint holds its equity interests in Clearwire and Clearwire
Communications through Sprint HoldCo. |
Business
Strategy
We intend to grow our business by pursuing the following
strategies:
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Redefining the broadband user experience: We
deliver a robust, rich and consistent communications experience
to users of next generation devices capable of operating on our
networks. We offer our consumer and business customers a fast
and mobile broadband connection that enables enhanced access to
information, applications and online entertainment, while also
creating new ways for people to communicate with each other. Our
4G mobile broadband network is designed to ultimately serve our
subscribers Internet and voice communications needs, while
also providing subscribers with the flexibility to access our
services anywhere and anytime in our coverage area. We believe
that our 4G services offer faster speeds, greater bandwidth and
lower latency than those currently available from 2G/3G wireless
service providers.
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Broadly deploying our service and rapidly increasing our
subscriber base: We intend to broadly deploy our
4G mobile broadband services in markets throughout the United
States. We are targeting our 4G mobile
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broadband networks in the United States to cover as many as
120 million people by the end of 2010. Our actual network
coverage by the end of 2010 will largely be determined by our
ability to successfully manage ongoing development activities
and our performance in our launched markets. We believe that
this deployment will enable us to rapidly increase our
subscriber base. Our network is positioned to target a range of
subscribers, from individuals, households and businesses to
market segments that depend on mobile communications. We will
offer our services through multiple retail sales channels,
including direct and indirect sales representatives,
company-owned retail stores, independent dealers, Internet
sales, telesales, national retail chains and manufacturers who
embed our high speed internet access capabilities into consumer
electronic devices. Our services are also expected to be offered
by third parties under wholesale arrangements, including
wholesale services through our Strategic Partners
Sprint, Comcast, Time Warner Cable, Bright House, Intel and
Google who serve more than 100 million customers in their
markets.
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Taking advantage of our leading spectrum
position: We believe we hold more wireless
spectrum in the United States than any other mobile carrier,
with holdings at December 31, 2009 exceeding
44 billion MHz-POPs (defined as the product of the number
of megahertz associated with a spectrum license multiplied by
the estimated population of the licenses service area) of
spectrum in the 2.5 GHz
(2496-2690 MHz)
band in our portfolio, including spectrum we own, lease or have
pending agreements to acquire or lease. We hold approximately
150 MHz of spectrum on average in the largest 100 markets
in the United States. In Europe, we hold approximately
8.3 billion MHz-POPs of spectrum as of December 31,
2009, predominantly in the 3.5 GHz band, with a varying
amount of spectrum in each of our markets. We believe that
consumers will continue to demand greater access to information,
applications and online entertainment over the Internet, each of
which will require service providers to be able to offer greater
bandwidth access. With our growing 4G mobile broadband networks
and leading spectrum position, we believe that we are uniquely
positioned to satisfy this demand. We believe that our
significant spectrum holdings, both in terms of spectrum depth
and breadth, in the 2.5 GHz band will be optimal for
delivering broadband access services, and we believe that our
substantial spectrum depth should allow us to offer premium
services and data intensive multimedia content.
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Leveraging key strategic relationships: We
expect to benefit from our key strategic relationships with our
Strategic Partners. Our Wholesale Partners have begun offering
our services as part of their bundled branded offering, or have
announced their intentions to offer these services. We have
commercial agreements with Intel intended to facilitate
embedding mobile WiMAX chipsets in PCs, mobile Internet devices,
which we refer to as MIDs, and other devices. We also have
agreements with Google to provide for search and advertising
revenue sharing, as well as, to jointly develop open
architecture devices, and to make desktop and mobile content and
applications available on our 4G networks. Additionally, our
agreements with Sprint allow us to provide our customers with
dual mode devices that allow roaming between our 4G networks and
Sprints nationwide 3G network, and enable us to leverage
Sprints existing infrastructure for our build out and
network deployment.
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Offering premium value-added services and
content: We believe that our all IP
4G mobile broadband network positions us to generate incremental
revenues, leverage our cost structure and improve subscriber
retention by offering a variety of premium services and content
over our network. We intend initially to focus on voice services
as a primary premium service. As of December 31, 2009, we
offered VoIP telephony services on a fixed basis to our
subscribers homes and offices in 56 of our 57 domestic
markets. We believe that our planned 4G mobile broadband
deployment will enable us to offer additional premium services
and content over our network as manufacturers develop and sell
subscriber devices that take advantage of the capabilities of 4G
technology.
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Achieving efficient economics: We believe our
economic model for deploying our network combines meaningful
early coverage while optimizing the capital outlay required for
us to build the network and obtain subscribers. Our deployment
plan is based on replicable and scalable individual market
builds, allowing us to repeat our build-out processes as we
expand. Under our commercial agreements with Sprint, we expect
to be able to leverage existing Sprint network infrastructure to
both accelerate the build-out and reduce the costs of network
deployment, including utilizing its towers, collocation
facilities and fiber resources. We also expect to achieve lower
subscriber acquisition costs due to manufacturers stated
plans to
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embed 4G mobile broadband chipsets into handheld communications
and consumer electronic devices. We believe third party
development of consumer products with embedded 4G mobile
broadband capabilities will eventually reduce subscriber
acquisition costs by reducing equipment subsidy requirements and
enhance our distribution efficiency by leveraging
manufacturers device distribution networks and marketing
spend.
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Services
As of December 31, 2009, we offered our services primarily
in 57 markets throughout the United States and in 4 markets in
Europe. Our services today consist primarily of providing
wireless broadband connectivity, and, as of December 31,
2009, in 56 of our domestic markets, we also offered fixed VoIP
telephony services. Our retail services are offered under our
CLEAR brand in our 4G markets and under the Clearwire brand in
our legacy markets, and we offer 4G mobile broadband services in
each of our 4G markets through our Wholesale Partners. Domestic
sales accounted for approximately 88% of our service revenue for
the period ended December 31, 2009, while our international
sales accounted for approximately 12% of service revenue over
the same period.
While we serve a large variety of subscribers, we believe that
the majority of our subscriber base can be divided into the
following broad categories:
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subscribers who require a portable or mobile high-speed Internet
connection;
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subscribers who value the flexibility of a portable or mobile
wireless broadband service;
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subscribers who desire a simple way to obtain and use high-speed
Internet access at a reasonable price; and
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subscribers who are dissatisfied fixed or mobile with other
service offerings, often because of perceived or actual poor
quality of service, slow speeds, price, the requirement to
participate in undesired bundled offers, difficulty of
installation or unsatisfactory customer service.
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We offer our subscribers a number of Internet and voice
services, including mobile access, as our primary service
offerings. We also plan to eventually offer value-added services
through partnerships with device manufacturers/developers,
value-added application developers and content development
companies. Unlike existing cellular networks, applications over
our 4G mobile broadband network are Internet Protocol-based with
open Application Programming Interfaces, which can be accessed
on a variety of electronic devices. We believe this approach
should encourage the continual creation of new applications and
the services to support them.
CLEARtm
Mobile Broadband Services
As of December 31, 2009, we offered our
CLEARtm
branded retail services over our 4G mobile broadband networks in
27 markets. We offer our CLEAR subscribers choice and simplicity
in our service offerings, which can be combined in multiple ways
to meet the subscribers specific needs. These offerings
include day passes, service contract and no-contract plans, and
bundled services. Our mobile plans consist of a daily pass for a
fixed fee, limited use monthly plans where subscribers purchase
a specified amount of data usage (e.g., 200 megabytes or 2
gigabytes) for a fixed price (with surcharges for excess data
use) and unlimited monthly plans that do not limit the amount of
data usage, subject to our acceptable use policies. Our
residential plans offer subscribers different maximum download
and upload speeds at various price points. The business services
we currently offer also include faster upload speeds for a fixed
Internet access service and plans that bundle multiple mobile
subscriptions. Additionally, we offer bundled packages that
allow subscribers to pick and choose from among the mobile and
residential plans, as well as our VoIP telephony service,
enabling them to access the Internet when and where they
need it.
We also offer a dual mode device that enables subscribers to
access both our 4G mobile broadband networks and networks
operated by Sprint. Under the commercial agreements with Sprint,
we have the right to offer our subscribers access to
Sprints CDMA and EVDO Rev. A networks, which will expand
the geographic area in which our subscribers that elect to
purchase this access will be able to receive service while we
are building our network.
We also intend to offer a variety of premium services and
content over our 4G mobile broadband network. We are currently
focused on voice services as our primary premium service. As of
December 31, 2009, we offered VoIP telephony services on a
fixed basis to our subscribers homes and offices in 26 of
our 27 4G markets, and we intend to offer fixed VoIP in all new
markets that we launch. We are currently offering a service plan
that provides
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subscribers with unlimited local and long distance calling,
including calls within the United States, Canada, and Puerto
Rico, for a fixed monthly fee, with various promotional
discounts available. The VoIP service may also be purchased in a
bundled offering with our other services. Our VoIP telephony
service permits calls outside these countries on a
charge-per-call
basis. Our VoIP telephony service package includes enhanced
calling features such as voice mail, call waiting, 3-way calling
and caller ID. Our service is also E911 compliant and offers
number portability. In addition, our VoIP subscribers can set a
range of telephony options online, such as call forwarding and
call blocking. We provide optional email notification of
voicemail messages through which a subscriber may choose to
receive a voicemail message attached as a file to an email
message. Our VoIP telephony service is facilities-based, which
means that the service is provided across our network and
switches through infrastructure we control. We believe this
allows us to deliver better average call quality than is
generally available on non facilities-based VoIP systems, while
using less data capacity.
Our subscribers generally make their payments through an
automatic charge to a credit or debit card or bank account. In
addition, in our
CLEARtm
markets, we have implemented a point of sale system that allows
our subscribers to make cash payments, and we expect that we may
offer additional forms of payment in the future as we target new
customer segments.
Clearwire
Pre-4G Mobile Broadband Services
As of December 31, 2009, we offered our pre-4G service in
30 markets in the United States and 4 markets in Europe. We
believe that our subscribers in our legacy markets are attracted
to our wireless broadband services primarily because our
existing networks combine certain features of cable modem, DSL
and cellular networks into a single service offering at an
attractive price.
To use our Clearwire wireless broadband services in our legacy
markets, our subscribers must obtain one of our residential
modems or PC cards. Our subscribers generally lease a
residential modem from us or a PC card, each for a monthly fee,
in our United States markets. We also offer modems and PC cards
for sale to those subscribers who prefer to own rather than
lease. We require subscribers under our no contract
payment plan to purchase a modem or PC card in order to
subscribe for our broadband services. We offer subscribers a
choice of service plans designed to accommodate users that
require greater access speeds or more email addresses and web
hosting accounts. Subscribers may sign up for long-term service
contracts or choose
month-to-month
plans.
As of December 31, 2009, we offered our VoIP telephony
services in all of our 30 domestic legacy markets. We continue
to explore options for deploying residential voice services in
our international markets, but we do not have specific plans to
deploy VoIP telephony services in those markets in the near
term. In our legacy markets, we are currently offering a single
service plan that provides subscribers with unlimited local and
long distance calling, including calls within the United States,
Canada, and Puerto Rico, for a fixed monthly fee, with various
promotional discounts available.
In our legacy markets, our subscribers generally make their
payments through an automatic charge to a credit or debit card
or bank account.
Wholesale
Services
We also offer 4G mobile broadband services through one or more
of our Wholesale Partners in each of our 4G markets. Our
Wholesale Partners have begun offering our services as part of
their bundled branded offering, or have announced their
intentions to offer these services to current and future
subscribers in our markets. Under existing commercial
agreements, our Wholesale Partners are able to offer the same
types of services as Clearwire in our 4G markets. Additionally,
our Wholesale Partners may offer customized services over our
network as long as those services are technically feasible and
will not materially degrade the quality of the other services we
provide over our network.
Markets
Served and Deployment
We use the term market to refer to one or more
municipalities in a geographically distinct location in which we
provide our services. Our markets range from major metropolitan
areas to smaller cities and the surrounding areas.
9
We pursue market clustering opportunities which allow our
customers to roam in areas of regional interest. A clustering
strategy can also deliver cost efficiencies and sales and
marketing synergies compared to areas in which markets are not
deployed in a geographic cluster.
As of December 31, 2009, we offered our services in 57
markets in the United States covering an estimated
41.7 million people, and we had approximately 595,000
retail and 46,000 wholesale subscribers in the United States. We
operate 4G mobile broadband networks in 27 of our markets in the
United States, covering an estimated population of
34.5 million people, as of December 31, 2009. These
markets include, among others, Atlanta, Baltimore, Charlotte,
Chicago, Dallas, Honolulu, Las Vegas, Philadelphia, Portland,
Oregon, San Antonio, and Seattle.
Outside the United States, as of December 31, 2009, we
offered our pre-4G services in Ghent and Brussels, Belgium,
Dublin, Ireland and Seville, Spain, where our networks cover
approximately 3.0 million people. As of December 31,
2009, we had approximately 47,000 subscribers in Belgium,
Ireland and Spain. In January 2010, we launched 4G mobile
broadband services in Malaga, Spain. We also have minority
investments in a company that offers services in Mexico.
We are in the process of expanding the geographic coverage of
our 4G mobile broadband networks to new markets throughout the
United States. During the next year, we expect to launch new
markets, such as Boston, New York and Washington D.C., and to
upgrade the majority of our existing legacy markets, to 4G
technology. If all of the markets currently under various stages
of development are completed, our 4G mobile broadband networks
will cover as many as 120 million people by the end of
2010. Additionally, at least one of our Wholesale Partners is
offering or will offer a branded version of our 4G services in
each of our 4G markets. Our actual network coverage by the end
of 2010 will largely be determined by our ability to
successfully manage ongoing development activities and our
performance in our launched markets.
Sales and
Marketing
Our current marketing efforts include reliance on a full range
of integrated marketing campaigns and sales activities,
including advertising, direct marketing, public relations and
events to support our sales channels. We have offered
promotional pricing plans and other financial incentives, such
as gift cards, to attract new subscribers. We believe that we
currently have a strong local presence in our markets, which
enhances our ability to design marketing campaigns tailored to
the preferences of the local community. We advertise across a
broad range of media, including print, billboards, online, and
radio and television broadcast media, with television only
recently introduced selectively in some of our larger markets.
We also conduct community awareness campaigns that focus on
grass-roots marketing efforts, and host local community events
where potential subscribers can experience our service.
We intend to take advantage of co-branding advertising and
marketing opportunities with our Strategic Partners and
equipment vendors. In some cases, these parties have made
commitments to spend a certain amount on advertising and
marketing efforts that include our services.
We currently use multiple distribution channels to reach
potential subscribers, including:
Direct
and Retail Presence
We have hired salespeople and other agents to sell our services
directly to consumers. Our direct sales and marketing efforts
have included door to door sales and direct mailings to
potential subscribers in our network coverage area. Our
salespeople and agents also set up mobile kiosks at local
community and sporting events and near retail establishments or
educational institutions to demonstrate our services. Each of
these salespeople and agents carries a supply of modems, so that
a new subscriber can activate his or her account and receive
equipment immediately. Our direct sales teams are expanding
their focus to include acquiring small and medium sized business
accounts as subscribers. We also market our products and
services through a number of Clearwire operated retail outlets,
including retail stores, but primarily kiosks located in malls
and shopping centers.
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National
and Local Indirect
Our indirect sales channels include a variety of authorized
representatives, such as traditional cellular retailers,
consumer electronics stores, satellite television dealers and
computer sales and repair stores. These authorized
representatives typically operate retail stores but, subject to
our approval, can also extend their sales efforts online.
Authorized representatives assist in developing awareness of and
demand for our service by promoting our services and brand as
part of their own advertising and direct marketing campaigns. We
also offer our services pursuant to distribution agreements
through national retail chains, such as Best Buy and Radio
Shack, and we believe that the percentage of our total sales
from this indirect sales channel will continue to increase.
Internet
and Telephone Sales
We direct prospective subscribers to our website or our
telesales centers in our advertising. Our website is a fully
functional sales channel where subscribers can check pricing and
service availability, research service plans and activate
accounts using a credit card. Prospective subscribers can also
call into one of our telesales centers to activate service.
Embedded
Devices
An important component of our distribution strategy includes
embedding 4G mobile broadband technology or chip sets into
consumer electronic devices, which is the current distribution
model for Wi-Fi devices. As mobile WiMAX is a standards-based
technology that is already being adopted internationally, we
believe that chipset and device vendors and manufacturers are
contemplating developing and integrating these chipsets into a
number of consumer electronic devices such as notebook
computers, netbooks, MIDs, personal digital assistants, which we
refer to as PDAs, gaming consoles, MP3 players and other
handheld devices. Vendors and manufacturers that have committed
to mobile WiMAX include chip vendors such as Intel, Beceem
Communications Inc., GCT Semiconductor, Inc., Samsung
Electronics Co., Ltd, which we refer to as Samsung, and Sequans
Communications and device manufacturers such as Dell Inc., ZTE,
ZyXEL Communications Inc., Fujitsu Limited, Samsung, Lenovo
Group, and Toshiba Corporation.
Embedding 4G mobile broadband chipsets into consumer electronic
devices is expected to provide greater exposure to potential
subscribers who will be able to purchase devices compatible with
our network through the vendors and manufacturers
existing distribution channels. We believe that embedding 4G
mobile broadband technology into consumer electronic devices
will enable those who purchase these devices to have the option
to immediately activate services within our market coverage
areas without the need for an external modem, professional
installation or a separate visit to a Clearwire retail or other
location.
Wholesale
Distribution
We have wholesale partnership agreements with Comcast, Time
Warner Cable, Bright House and Sprint. These agreements provide
us with significant additional distribution channels for our
services. Under these agreements, our Wholesale Partners are
permitted to market and resell wireless broadband services over
our network to their end user customers as part of a defined
bundle, subject to certain exceptions. Currently all of our
Wholesale Partners have begun offering, or have announced plans
to offer, our 4G mobile broadband services as part of their
branded bundled offering. Sprint offers our services in 27
markets, including among others Philadelphia, Chicago, Atlanta,
Seattle, Dallas, and Las Vegas. Comcast offers our services in
seven markets including Philadelphia, Chicago, Atlanta, Seattle,
Portland and Salem, Oregon, and Bellingham, Washington. Time
Warner Cable offers our service in eight markets including
Dallas and Charlotte, Greensboro and Raleigh, NC. Any purchasers
of 4G mobile broadband services through these partnerships
remain customers of our Wholesale Partners but we are entitled
to receive payment directly from our Wholesale Partners for
providing the 4G mobile broadband services to those customers.
In addition to our wholesale agreements with our current
Wholesale Partners, we may seek to enter into other wholesale
agreements with other third parties.
11
Customer
Service and Technical Support
We are focused on providing a simple, yet comprehensive, set of
set-up and
self-service tools. The intent is to support an environment
where customers acquire their 4G mobile broadband devices from a
variety of distribution channels and have the option to easily
subscribe and initiate self-activation through an online
web-based portal. However, while pursuing a self-service
strategy, there will still be a need for live support for
technical and non-technical customer issues.
We believe reliable customer service and technical support are
critical to attracting and retaining subscribers, and we
currently provide the following support for all subscribers:
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toll-free, live telephone and email-based assistance available
seven days a week;
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resources on our website that cover frequently asked questions
and provide signal and networking tips;
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online account access and, for VoIP telephony subscribers,
web-based resources that allow them to control their telephony
features and settings; and
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a network of service technicians available to provide
on-site
customer assistance and technical support.
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We operate two call centers in the United States, which are
staffed with our own employees.
Our
Networks
Overview
Our 4G mobile broadband networks are telecommunications systems
designed to support fixed, portable and mobile service offerings
over a single network architecture. These telecommunications
systems consist of three primary elements, including the radio
access network, which we refer to as RAN, the network core and
the backhaul network.
As of December 31, 2009, we operated 4G mobile broadband
networks in 27 of our markets in the United States, covering an
estimated population of 34.5 million people. These markets
include, among others, Atlanta, Baltimore, Charlotte, Chicago,
Dallas, Honolulu, Las Vegas, Philadelphia, Portland, Oregon,
San Antonio, and Seattle. We intend to deploy mobile WiMAX
technology in all of the networks we currently have under
development and to upgrade the majority of our existing legacy
markets to mobile WiMAX over the next year. We currently operate
networks based on pre-4G radio access technology in 30 of our
markets in the United States and 4 of our markets in Europe. We
believe that both our pre-4G networks and our 4G mobile
broadband networks have certain key advantages over 2G/3G
technologies that are currently available, such as:
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simple self-installation by subscribers and provisioning of
modems;
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supports fixed, portable and mobile service offerings using a
single network architecture;
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flexible and scalable Internet Protocol, which we refer to as
IP, based architecture capable of very high capacity and
efficient Quality of Service;
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a radio access technology that can service large metropolitan or
small rural areas;
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ability to provide overlapping coverage from multiple sites for
reliable and robust connectivity; and
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enhanced reliability and reduced latency provided by linking our
towers via a microwave ring topology that carries the majority
of our backhaul traffic over licensed and unlicensed frequencies.
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Additionally, we will continue to evaluate the option to deploy
other technologies on our network that are complementary or, in
certain cases, alternatives to mobile WiMAX. Technologies, such
as Wi-Fi, may complement our networks by allowing us to offer
additional services to consumers. Additionally, we may elect to
deploy alternative technologies to mobile WiMAX, if and when
they become available, on our networks either together with, or
in place of, mobile WiMAX. We believe that due to our spectrum
depth, common network core and inherent flexibility in the radio
access architecture, deploying other technologies on our network
would be easier and at a lower cost than building a new network.
12
Technology
Both our mobile WiMAX and pre-4G networks are wireless
IP-based,
Ethernet platforms that are also built around orthogonal
frequency-division multiplexing, which we refer to as OFDM, and
Time Division Duplex, which we refer to as TDD, both of
which allow us to address two challenges that face wireless
carriers, namely non-line of sight, which we refer to as NLOS,
performance and frequency utilization. Our pre-4G networks, in
both our domestic and international markets, rely on Expedience,
a proprietary technology, which supports delivery of any
IP-compatible
broadband applications, including high-speed Internet access and
fixed VoIP telephony services.
OFDM allows subdivision of bandwidth into multiple frequency
sub-carriers
so that data can be divided and transmitted separately to ensure
a higher reliability of packet data reception at the receiving
end. This characteristic of OFDM enables a 4G network to more
efficiently serve subscribers in urban and suburban settings
compared to existing 3G technologies. Unlike Frequency
Division Duplex, which we refer to as FDD, which requires
paired spectrum with guard bands, TDD only requires a single
channel for downlink and uplink, making it more flexible for use
in various global spectrum allocations. It also ensures complete
channel reciprocity for better support of closed loop advanced
antenna technologies like Multiple In Multiple Out and
beamforming. Additionally, TDD allows a service provider to
maximize spectrum utilization by allocating up and down link
resources appropriate to the traffic pattern over a given
market. Finally, we believe radio designs for TDD are typically
less complex and less expensive to implement than FDD radios.
Relative to the other commercially available next generation
wireless technologies, we believe mobile WiMAX also has the
following advantages:
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Open Standard. Mobile WiMAX technology is
based on the 802.16e Institute of Electrical and Electronics
Engineers, which we refer to as IEEE, standard. It is an open
standard that builds off the success of the 802.11 IEEE family
of standards more commonly known as Wi-Fi.
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Time-to-Market. Mobile
WiMAX has a unique head start over other 4G technologies. We do
not expect commercial Long-Term Evolution, which we refer to as
LTE, equipment to be widely deployed before the fourth quarter
of 2010, at the earliest.
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Expansive and Diverse Ecosystem. The global
support of mobile WiMAX continues to gain momentum, now with
more than 500 WiMAX deployments in 146 countries, and wireless
operators in Russia and India recently announced additional
commitments to deploy mobile WiMAX networks. While the device
ecosystem for 2G and 3G cellular is primarily focused on
telecommunications, the WiMAX ecosystem extends beyond
telecommunications and includes the consumer electronics and PC
industries.
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Radio
Access Network Components
Our RAN covers the last mile and connects our
subscribers with our tower sites. Our RAN is comprised of base
station transceivers and modems used by our subscribers. The
customer premise equipment, which we refer to as CPE, that
operates on our network is a NLOS wireless modem that connects
to any
IP-based
device, such as a computer or a Wi-Fi router, using a standard
Ethernet connection. It is simple to install and requires no
service provider configuration or support and no software
download or installation, a subscriber only needs to connect the
CPE to an external power source and to their computer. In
addition to the CPE, we also offer our PC card in all of our
domestic markets.
The base station allows for 360 degree coverage by employing
multiple transceivers and antennas on a single tower to maximize
subscriber density and spectral efficiency. This setup is
scalable, expandable and flexible, allowing us to control costs
to promote efficient expansion as our subscriber base grows. Our
base stations generally are located on existing communications
towers, but can also be placed on rooftops of buildings and
other elevated locations. We generally lease our tower locations
from third parties.
We also use a network management system that incorporates a
complete set of management tools to enable the configuration,
management, monitoring and reporting of all network status
elements. This system provides secure, centralized and remote
configuration of base stations, CPE, switches and other network
elements. The system
13
reports to and alerts our system administrators to alarms and
faults, and monitors system performance down to the individual
CPE. It supports customizable report generation to track network
performance, utilization and capacity.
Eventually, we anticipate manufacturers to sell a number of
handheld communications and consumer electronic devices with
embedded mobile WiMAX chipsets that will be enabled to
communicate using our 4G mobile broadband network, such as
notebook computers, netbooks, MIDs, PDAs, gaming consoles and
MP3 players. Currently, there are a number of subscriber devices
that are mobile WiMAX certified already, and many more are in
the mobile WiMAX certification process.
Backhaul
Network
Our backhaul network is responsible for transmitting data and
voice traffic between our tower sites and the network core.
Operators have previously relied primarily upon wireline
backhaul networks to handle this traffic. However, in most of
our markets, whether the networks utilize pre-4G, mobile WiMAX
or some other technology, we intend to rely primarily upon
microwave backhaul. Our microwave backhaul network wirelessly
transmits data traffic from one location to another, such as
from our tower locations to our network core. We believe that
microwave backhaul significantly reduces our overall backhaul
expenses and improves our ability to scale our backhaul network
as the amount of data traffic over our network grows, while at
the same time maintaining the same or better reliability than
wireline based backhaul networks.
Network
Core
The network core routes the data traffic from our backhaul
network to the Internet or, for our voice services, the public
switched telephone network, which we refer to as PSTN, the
primary functions of the mobile WiMAX core include:
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authenticating and authorizing subscribers;
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aggregating and routing traffic to and from the Internet:
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subscriber provisioning and billing;
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controlling IP addresses and connecting to the Internet; and
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offering value-added services such as live video, location-based
services, and music broadcast programming.
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Network
Management and Operational Support Systems
We also use a network management system that incorporates a
complete set of management tools to enable the configuration,
management, monitoring and reporting of all network status
elements. This system provides secure, centralized and remote
configuration of base stations, CPE, switches and other network
elements. The system reports to and alerts our system
administrators to alarms and faults, and monitors system
performance down to the individual CPE. It supports customizable
report generation to track network performance, utilization and
capacity.
Spectrum
Our network operates over licensed spectrum in our domestic and
international markets. Although several broadband technologies
can operate in unlicensed or public access spectrum, we believe
using licensed spectrum enables us to provide a consistently
higher quality of service to our subscribers, without the
interference that is typically associated with unlicensed
frequency bands.
United
States
In the United States, licensed spectrum is governed by Federal
Communications Commission, which we refer to as FCC, rules that
provide a license holder with exclusive use of a specified
spectrum frequency band and restrict interference from other
licensees and spectrum users, providing some protection against
interruption and degradation of service. Under FCC rules,
unlicensed spectrum users do not have exclusive use of any
frequencies, may not cause interference with the operations of
any licensed operators and may suffer interference from others
using
14
licensed frequencies in overlapping geographic areas, making
quality and availability of their services unpredictable.
We are designing our network in the United States to operate
primarily on spectrum located within the 2496 to 2690 MHz
band, commonly referred to as the 2.5 GHz band, which is
designated for Broadband Radio Service, which we refer to as
BRS, and Educational Broadband Service, which we refer to as
EBS. Most BRS and EBS licenses are allocated to specific
Geographic Service Areas. Other BRS licenses provide for 493
separate Basic Trading Areas, which we refer to as BTA. Under
current FCC rules, the BRS and EBS band in each territory is
generally divided into 33 channels consisting of a total of
186 MHz of spectrum, with an additional eight MHz of guard
band spectrum, which further protects against interference from
other license holders. Under current FCC rules, we can access
BRS spectrum either through outright ownership of a BRS license
issued by the FCC or through a leasing arrangement with a BRS
license holder. The FCC rules generally limit eligibility to
hold EBS licenses to accredited educational institutions and
certain governmental, religious and nonprofit entities, but
permit those license holders to lease up to 95% of their
capacity for non-educational purposes. Therefore, apart from a
few EBS licenses we acquired under an old EBS rule, we access
EBS spectrum through long-term leasing arrangements with EBS
license holders. EBS leases entered into before January 10,
2005 may remain in effect for up to 15 years and may
be renewed and assigned in accordance with the terms of those
leases and the applicable FCC rules and regulations. The initial
term of EBS leases entered into after January 10, 2005 is
required by FCC rules to be coterminous with the term of the
license. In addition, these leases typically give the
leaseholder the right to participate in and monitor compliance
by the license holder with FCC rules and regulations. EBS leases
entered into after July 19, 2006 that exceed 15 years
in length must give the licensee the right to reassess their
educational use requirements every five years starting in year
15. Our EBS spectrum leases typically have an initial term equal
to the remaining term of the EBS license, with an option to
renew the lease for additional terms, for a total lease term of
up to 30 years. In addition, we generally have a right of
first refusal for a period of time after our leases expire or
otherwise terminate to match another partys offer to lease
the same spectrum. Our leases are generally transferable.
We have BRS licenses and leases, as well as EBS leases, in a
large number of markets across the United States. We believe
that our significant spectrum holdings, both in terms of
spectrum depth and breadth, in the 2.5 GHz band will be
optimal for delivering our 4G mobile broadband services. As of
December 31, 2009, we believe we were the largest holder of
licensed wireless spectrum in the United States. As of
December 31, 2009, we owned or leased, or had entered into
agreements to acquire or lease, over 44 billion MHz-POPs of
spectrum in the United States. Of this over 44 billion
MHz-POPs of spectrum in the United States, we estimate that we
own approximately 41% of those MHz-POPs with the remainder being
leased from third parties, generally under lease terms that
extend up to 30 years. As of December 31, 2009, the
weighted average remaining life of these spectrum leases based
on the value of all payments that we are amortizing over the
life of the spectrum leases was approximately 26 years,
including renewal terms.
Our pending spectrum acquisition and lease agreements are
subject to various closing conditions, some of which are outside
of our control and, as a result, we may not acquire or lease all
of the spectrum that is subject to these agreements. Nearly all
of such closing conditions relate either to licensee or FCC
consents, which we expect are likely to be granted. A limited
number of our pending acquisition agreements are subject to
closing conditions involving the resolution of bankruptcy or
similar proceedings. As of December 31, 2009, we had
minimum purchase commitments of approximately $30.0 million
to acquire new spectrum.
We engineer our networks to optimize both the service that we
offer and the number of subscribers to whom we can offer
service. Upon the change to 4G mobile broadband technology, we
generally do not expect to launch our services in a market
unless we control, through license or lease, a minimum of three
contiguous blocks of 10 MHz of spectrum bandwidth. However,
we expect the spectral efficiency of technologies we deploy to
continue to evolve, and as a result, we may decide to deploy our
services in some markets with less spectrum. Alternatively, we
may find that new technologies and subscriber usage patterns
make it necessary or practical for us to have more spectrum
available in our markets prior to launching our services in that
market.
We hold approximately 120 MHz of spectrum on average across
our national spectrum footprint. Our deep spectrum position in
most of our markets is expected to enable us to offer faster
download speeds and premium
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services and data-intensive multimedia content, such as
videoconferencing, online games, streaming audio, video on
demand and location-based services.
International
As of December 31, 2009, we held spectrum rights in
Belgium, Germany, Ireland, Poland, Romania and Spain. We also
held a minority investment in a company that holds spectrum in
Mexico. In each of Germany, Poland, Romania and Spain, our
licenses cover the entire country. Our licenses in Belgium and
Ireland cover a significant portion of the countries
populations. A summary of the international spectrum rights held
by our subsidiaries and our equity investees is below, including
the frequency band in which the spectrum is held, an estimate of
the population covered by our spectrum in each country and the
total MHz-POPs of our spectrum.
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Frequency
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Licensed
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Country
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(GHz)
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population(1)
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MHz-POPs(2)
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(In millions)
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(In millions)
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Belgium
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3.5
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7.6
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614.0
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Germany
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3.5
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82.8
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3,477.6
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Ireland
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3.5/3.6
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1.5
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127.5
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Poland
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3.6
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38.1
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1,066.8
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Romania(3)
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3.5
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21.6
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1,209.6
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Spain
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3.5
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45.5
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1,820.0
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Estimates based on country population data derived from the
Economist Intelligence Unit database. |
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Represents the amount of our spectrum in a given area, measured
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We disposed of our holdings in Romania during the first quarter
of 2010. |
As in the United States, we engineer our international networks
to optimize the number of users that the network can support
while providing sufficient capacity and bandwidth. Thus far, we
have chosen not to launch our services in a market using our
current technology unless we control a minimum of 30 MHz of
spectrum. However, we expect the spectral efficiency of
technologies we deploy to continue to evolve, and as a result,
we may decide to deploy our services in some markets with less
spectrum. Alternatively, as in the United States, we could find
that new technologies and subscriber usage patterns require us
to have more spectrum than our current minimum available in our
markets.
The International Telecommunications Union recently approved the
technical requirements for 4G technology and has recommended
that 4G technologies need at least 40 MHz of spectrum, and
preferably up to 100 MHz of spectrum in each market,
regardless of the frequency used, in order to provide sufficient
channel width to enable the data throughput that 4G mobile
broadband services will demand. We believe that our current
spectrum holdings in most of our planned markets in the United
States and in most of our international markets satisfy these
standards.
Research
and Development
Our research and development efforts have focused on the design
of our network, enhancements to the capabilities of our network
and the evolution of our service offerings. A significant
portion of our research and development efforts involves working
with the suppliers of our network infrastructure and subscriber
equipment. We are currently working with Intel, Motorola,
Samsung, Huawei Technologies Co., Ltd, which we refer to as
Huawei, Cisco Systems Inc., which we refer to as Cisco, and
other vendors to further develop network components and
subscriber equipment for our 4G mobile broadband networks.
Our research and development focuses on three key areas, which
include technical requirement assessment, network and
performance validation, and interoperability testing, spanning
access, backhaul, Core (i.e., the central
aggregation points for our network), devices/chipsets, and back
office systems. We continue to work toward improving the
performance and functionality of this technology and products
through our ongoing research and development activities. Several
evolutionary products are currently in the early stages of
development with RAN
16
partners, including, among others, multi-carrier power
amplifiers, remote radio head solutions, high power picocells
(which are base stations designed to cover a small area, such as
within office buildings, shopping malls and airports), and
beamforming solutions; however, there can be no assurance that
these products will be developed as planned, or at all.
Suppliers
For our 4G mobile broadband networks, we are using a number of
suppliers for our network components and subscriber equipment,
including Motorola, Samsung, Huawei, Intel and Cisco, among
others. Motorola, which acquired Old Clearwires NextNet
subsidiary in August 2006, is currently the only supplier of
certain network components and subscriber equipment for the
Expedience system deployed on our legacy networks. Because we
will not be building any more markets with pre-4G technology,
the potential adverse impact of Motorolas position as our
sole supplier of such network components and equipment is
expected to be reduced.
Competition
The market for broadband services is highly competitive and
includes companies that offer a variety of services using a
number of different technological platforms, such as 3G
cellular, cable, DSL, satellite, wireless Internet service and
other emerging technologies. We compete with these companies on
the basis of the ease of use, portability, speed, reliability,
and price of our respective services.
Our principal competitors include wireless providers, cable and
DSL operators, Wi-Fi and, prospectively, other 4G service
providers, satellite providers and others.
Cellular
and PCS Services
Cellular and personal communications services, which we refer to
as PCS, carriers are seeking to expand their capacity to provide
data and voice services that are superior to ours. These
providers have substantially broader geographic coverage than we
have and, for the foreseeable future, than we expect to have.
Carriers such as AT&T Inc., which we refer to as AT&T,
and Verizon Wireless Inc., which we refer to as Verizon
Wireless, among others, have announced plans to deploy LTE
which, when deployed, may deliver performance that is similar
to, or better than, or may be more widely accepted than the
mobile WiMAX technology we are currently deploying on our
network. Verizon Wireless has stated that it will broadly deploy
LTE by the end of 2010. If one or more of these providers can
deploy technologies, such as LTE, that compete effectively with
our services, the mobility and coverage offered by these
carriers will provide even greater competition than we currently
face.
Cable
Modem and DSL Services
We compete with companies that provide Internet connectivity
through cable modems or DSL. Principal competitors include cable
companies, such as Time Warner Cable and Comcast, as well as
incumbent telephone companies, such as AT&T, Qwest
Communications International, Inc. and Verizon Communications,
Inc.
Wireless
Broadband Service Providers
We also face competition from other wireless broadband service
providers that use licensed spectrum. Moreover, if we are
successful, we expect these and other competitors to adopt or
modify our technology or develop a technology similar to ours.
We believe that, as network infrastructure based on mobile WiMAX
and other alternate technologies becomes commercially available
and manufacturers develop and sell handheld communications and
consumer electronic devices that are enabled to communicate
using these networks, other network operators will introduce 4G
mobile broadband services comparable to ours in both our
domestic and international markets.
Satellite
Satellite providers like WildBlue Communications, Inc. and
Hughes Communications, Inc. offer broadband data services that
address a niche market, mainly less densely populated areas that
are unserved or underserved by competing service providers.
Although satellite offers service to a large geographic area,
latency caused by the time
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it takes for the signal to travel to and from the satellite may
challenge the ability to provide some services, such as VoIP,
and reduces the size of the addressable market.
WISPs
and Wi-Fi
We also compete with other wireless Internet service providers,
which we refer to as WISPs, which use unlicensed spectrum for
services over Wi-Fi networks. In addition to these commercial
operators, many local governments, universities and other
governmental or quasi-governmental entities are providing or
subsidizing Wi-Fi networks over unlicensed spectrum, in some
cases at no cost to the user. Unlicensed spectrum may be subject
to interference from other users of the spectrum, which can
result in disruptions and interruptions of service. We rely
exclusively on licensed spectrum for our network and do not
expect significant competition from providers using unlicensed
spectrum to deliver services to their customers.
International
In our international markets, we generally face competition from
incumbent telecommunications companies that provide their own
wireless broadband or VoIP telephony services, as well as from
other companies that provide Internet connectivity services.
Although in certain European countries, incumbent
telecommunications companies may have a dominant market share
based on their past status as the single operator of
telecommunications services in a particular country, these
incumbent telecommunications companies rely on systems initially
designed for voice transmission which have been upgraded to
provide wireless broadband services.
Other
We believe other emerging technologies may also enter the
broadband services market. For example, certain Internet service
providers are working with electric distribution utilities to
install broadband over power line, which we refer to as BPL,
technology on electric distribution lines to provide broadband
services. These Internet service and BPL providers are potential
competitors.
Regulatory
Matters
Overview
The regulatory environment relating to our business and
operations is evolving. A number of legislative and regulatory
proposals under consideration by federal, state and local
governmental entities may lead to the repeal, modification or
introduction of laws or regulations that could affect our
business. Significant areas of existing and potential regulation
for our business include broadband Internet access,
telecommunications, interconnected VoIP telephony service,
spectrum regulation and Internet taxation.
Broadband
Internet Access Regulation
The FCC has classified Internet access services generally as
interstate information services regulated under
Title I of the Communications Act, rather than as
telecommunications services regulated under
Title II. Accordingly, many regulations that apply to
telephone companies and other common carriers currently do not
apply to our mobile broadband Internet access service. For
example, we are not currently required to contribute a
percentage of gross revenues from our Internet access services
to the Universal Service Fund, which we refer to as USF, used to
support local telephone service and advanced telecommunications
services for schools, libraries and rural health care
facilities. Internet access providers also are not required to
file tariffs with the FCC, setting forth the rates, terms and
conditions of their Internet access service offerings. In
addition, potentially burdensome state regulations governing
telecommunications carriers do not apply to our wireless
broadband Internet access service, although the service is
subject to generally applicable state consumer protection laws
enforced by state Attorneys General and general Federal Trade
Commission, which we refer to as FTC, consumer protection rules.
The FCC also has determined that mobile Internet access service
is not a commercial mobile service, under
Section 332 of the Communications Act, even when offered
using mobile technologies. This means that our mobile Internet
access service falls into a different regulatory classification
than commercial mobile radio services, which
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we refer to as CMRS, offered by cellular and PCS carriers. In
general, however, there are more similarities than differences
between the regulations imposed on our service and that offered
by CMRS providers, such as reduced state and federal regulation.
Both our broadband Internet access service and interconnected
VoIP service, discussed below, are subject to the Communications
Assistance for Law Enforcement Act, which we refer to as CALEA,
which requires service providers covered by that statute to
build certain law enforcement surveillance assistance
capabilities into their communications networks and to maintain
CALEA-related system security policies and procedures. The FCC
imposed a May 14, 2007 deadline for service providers to
meet their CALEA compliance obligations established in its order
issued on May 3, 2006. We believe we have taken the
necessary actions to be in compliance with these requirements.
On March 22, 2007, the FCC initiated an inquiry into the
performance of the broadband marketplace under the FCCs
2005 Internet Policy Statement, which we refer to as the Policy
Statement, that put in place principles intended to ensure that
broadband networks are widely deployed, open, affordable and
accessible. In this inquiry, the FCC also seeks comment on
whether the Policy Statement should incorporate a new principle
of nondiscrimination and, if so, how this principle would be
defined and applied. On January 14, 2008, the FCC sought
comment on two petitions related to its Policy Statement seeking
FCC determinations that further define its four broadband
principles as well as what practices constitute reasonable
broadband network management. On August 20, 2008, the FCC
released an enforcement order finding that under the specific
facts of a complaint before it, a certain network management
practice of a broadband provider violated the Policy Statement.
In October 2009, the FCC issued a Notice of Proposed Rulemaking,
which we refer to as NPRM, proposing the codification of the
Policy Statement and the addition of two new principles. The
first would prevent Internet access providers from
discriminating against particular Internet content or
applications, while allowing for reasonable network management.
The second principle would ensure that Internet access providers
are transparent about the network management practices they
implement. The NPRM also proposes clarifying that all six
principles apply to all platforms that access the Internet. It
is expected that the FCC will continue to move forward with this
proposal and if final rules are adopted, they are likely to
apply to us and our networks.
The American Recovery and Reinvestment Act of 2009, which we
refer to as the Recovery Act, was signed into law on
February 17, 2009. The FCC is currently working in
coordination with the National Telecommunications and
Information Administration to perform the FCCs role under
the Recovery Act. Specifically, the FCC was tasked with creating
a National Broadband Plan by February 17, 2010. The FCC
recently extended the deadline for delivering its National
Broadband Plan to March 17, 2010. The Recovery Act states
that the National Broadband Plan shall seek to ensure all people
of the United States have access to broadband capability and
shall establish benchmarks for meeting that goal. In conjunction
with its development of the National Broadband Plan, the FCC has
initiated a series of wide-ranging inquiries into issues
including whether there is enough spectrum available for
wireless services, assessing the state of competition in the
wireless sector, economic issues in broadband competition,
deployment of wireless services, broadband technology
applications and devices, consumer protection issues associated
with broadband; and consumer content. The FCC has also launched
specific inquiries into the status of broadband innovation and
competition. It is possible that these inquiries will be the
foundation for future proposed rulemakings that likely will
apply to broadband carriers including us.
The FCC also is currently considering whether to impose various
consumer protection obligations, similar to Title II
obligations, on broadband Internet access providers. These
requirements may include obligations related to
truth-in-billing,
slamming, discontinuing service, customer proprietary network
information and federal USF mechanisms. In September 2009, the
FCC initiated an inquiry into
truth-in-billing
issues that asks whether the FCCs current
truth-in-billing
regulations should be applied to broadband Internet access
services. The notice also seeks comment on whether carriers
should be required to provide consumers with information
regarding service quality, equipment quality and specific
disclosures regarding service features and plans. Again, it is
possible that this inquiry will be the foundation for a future
proposed rulemaking. The FCC is also considering whether to
impose automatic roaming obligations on wireless broadband
service providers similar to the obligations currently imposed
on CMRS providers.
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Interconnected
VOIP Services Regulation
The FCC has not yet classified interconnected VoIP service as
either an information service or a telecommunications service
under the Communications Act. Nonetheless, the FCC has imposed
certain mandates upon VoIP service providers that, in the past,
applied only to telecommunications services. For example, the
FCC determined that regardless of their regulatory
classification, certain interconnected VoIP services qualify as
interstate services with respect to economic regulation. But the
FCC also preempted state regulations that address such issues as
entry certification, tariffing and E911 requirements, as applied
to certain interconnected VoIP services. The jurisdictional
classification of other types of interconnected VoIP services,
particularly fixed services, remains uncertain at
this time.
The FCC also has determined that all interconnected
VoIP service providers are required to contribute a percentage
of interstate gross revenues to the USF beginning
October 1, 2006. On June 1, 2007, the United States
Court of Appeals for the District of Columbia Circuit upheld the
FCCs order that interconnected VoIP providers contribute
to the USF on the basis of a 64.9% safe harbor or on the basis
of actual traffic studies. Our VoIP service qualifies as
interconnected VoIP for purposes of USF regulation
and therefore is subject to this fee which may be passed on to
our subscribers. We have incorporated this fee requirement into
our VoIP billing system and collect and remit federal USF
payments.
The FCC is conducting a comprehensive proceeding to address all
types of
IP-enabled
services, including interconnected VoIP service, and to consider
what regulations should be applied to such services. The FCC has
imposed E911-related requirements on interconnected VoIP,
including our service that require providers to transmit, via
the wireline E911 network, all 911 calls, as well as a call-back
number and the callers registered location for each call,
to the appropriate public safety answering point. In addition,
all interconnected VoIP providers must obtain a
subscribers registered location before activating service
and allow their subscribers to update their registered location
immediately if the subscriber moves the service to a different
location. Interconnected VoIP providers are also required to
advise subscribers of the differences between dialing 911 using
VoIP service from dialing 911 using traditional telephone
service, and to provide warning labels with VoIP CPE. On
May 31, 2007, the FCC initiated a proceeding proposing to
adopt additional E911 obligations for providers of portable,
nomadic or mobile interconnected VoIP service, including a
requirement to identify subscribers physical locations
through an automatic location technology that meets the same
accuracy standards that apply to providers of CMRS. The FCC has
also proposed to tighten the current accuracy standards into a
single, technology neutral standard and to clarify the
geographic area over which wireless E911 providers must satisfy
the E911 accuracy requirements. If adopted, these rules likely
will apply to Clearwire Communications interconnected VoIP
service. E911 service for interconnected VoIP service is also
subject to E911 funding obligations in certain states.
The FCC also has imposed Customer Proprietary Network
Information, or CPNI, obligations on interconnected VoIP
providers, including Clearwire Communications. The CPNI rules
govern the manner in which carriers handle and protect call
detail information about a customer gained by the service
provider as a result of providing the service, and include such
information as telephone numbers called, duration of such calls,
and calling patterns. The FCC also adopted new rules requiring
interconnected VoIP service and equipment providers to comply
with disability-access regulations also applicable to
traditional telephony service and equipment providers under
Section 255 of the Communications Act. The FCC also adopted
requirements that interconnected VoIP providers contribute to
the Telecommunications Relay Service, which we refer to as TRS,
fund, and provide
711-dialing
for hearing and speech-impaired individuals to reach a local TRS
provider pursuant to Section 225 of the Communications Act.
As discussed above, interconnected VoIP service is subject to
CALEA obligations.
On March 24, 2008 FCC rules became effective extending
local number portability requirements to interconnected VoIP
providers and clarifying that local exchange carriers and CMRS
providers have an obligation to port numbers to VoIP providers.
In May 2009, the FCC also extended new
24-hour
service discontinuance rules to VoIP providers.
The FCC is considering additional issues; including what
intercarrier compensation regime should apply to interconnected
VoIP traffic over the PSTN. Depending upon the outcome of this
proceeding, our costs to provide VoIP service may increase.
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Regulatory policies applicable to broadband Internet access,
VoIP and other
IP-services
are continuing to develop, and it is possible that our broadband
Internet access and VoIP services could be subject to additional
regulations in the future. Despite these recent regulatory
mandates, both our Internet Phone Service and broadband Internet
access are subject to many fewer regulations than traditional
telephone services. The extent of the regulations that will
ultimately be applicable to these services and the impact of
such regulations on the ability of providers to compete are
currently unknown.
Spectrum
Regulation
The FCC routinely reviews its spectrum policies and may change
its position on spectrum allocations from time to time. On
July 29, 2004, the FCC issued rules revising the band plan
for BRS and EBS and establishing more flexible technical and
service rules to facilitate wireless broadband operations in the
2496 to 2690 MHz band. The FCC adopted new rules that
(1) expand the permitted uses of EBS and BRS spectrum to
facilitate the provision of mobile and fixed high-speed data and
voice services on channels previously used primarily for one-way
video delivery to fixed locations; and (2) change some of
the frequencies on which BRS and EBS operations are authorized
to enable more efficient operations. These new rules streamlined
licensing and regulatory burdens associated with the prior
service rules and created a PCS-like framework for
geographic licensing and interference protection. Existing
holders of BRS and EBS licenses and leases generally have
exclusive rights over use of their assigned frequencies to
provide commercial wireless broadband services to residences,
businesses, educational and governmental entities within their
geographic markets. These rules also require BRS licensees to
bear their own expenses in transitioning to the new band plan
and, if they are seeking to initiate a transition, to pay the
costs of transitioning EBS licensees to the new band plan. The
transition rules also provide a mechanism for reimbursement of
transaction costs by other operators in the market. The FCC also
expanded the scope of its spectrum leasing rules and policies to
allow BRS and EBS licensees to enter into flexible, long-term
spectrum leases.
On April 21, 2006, the FCC issued an order adopting
comprehensive rules for relocating incumbent BRS operations in
the 2150 to 2162 MHz band. These rules will further
facilitate the transition to the new 2.5 GHz band plan.
This order is currently subject to Petitions for Reconsideration
and judicial appeal.
On April 27, 2006, the FCC released a further order
revising and clarifying its BRS/EBS rules. The FCC generally
reaffirmed the flexible technical and operational rules on which
our systems are designed and operating and clarified the process
of transitioning from the old spectrum plan to the new spectrum
plan, but reduced the transition area from large major
economic areas, to smaller, more manageable basic
trading areas. Proponents seeking to initiate a transition
to the new band plan will be given a
30-month
timeframe to notify the FCC of their intent to initiate a
transition, followed by a three-month planning period and an
18-month
transition completion period. In markets where no proponent
initiates a transition, licensees may self-transition to the new
band plan. The FCC adopted a procedure whereby the proponent
will be reimbursed for the value it adds to a market through
reimbursement by other commercial operators in a market, on a
pro-rata basis, after the transition is completed and the FCC
has been notified.
The FCC also clarified the procedure by which BRS and EBS
licensees must demonstrate substantial service, and required
them to demonstrate substantial service by May 1, 2011.
Substantial service showings demonstrate to the FCC that a
licensee is not warehousing spectrum. If a BRS or EBS licensee
fails to demonstrate substantial service by May 1, 2011,
its license may be canceled and made available for re-licensing.
We are in the process of preparing a plan to meet the
substantial service deadline.
The FCC reaffirmed its decision to permit mobile satellite
service providers to operate in the 2496 to 2500 MHz band
on a shared, co-primary basis with BRS licensees. It also
concluded that spectrum sharing in the 2496 to 2500 MHz
band between BRS licensees and a limited number of incumbent
licensees, such as broadcast auxiliary service, fixed microwave
and public safety licensees, is feasible. It declined to require
the relocation of those incumbent licensees in the 2496 to
2500 MHz band. The FCC reaffirmed its conclusion that BRS
licensees can share the 2496 to 2500 MHz band with
industrial, scientific and medical devices because such devices
typically operate in a controlled environment and use
frequencies closer to 2450 MHz. The FCC also reaffirmed its
decision
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to permit low-power, unlicensed devices to operate in the 2655
to 2690 MHz band, but emphasized that unlicensed devices in
the band may not cause harmful interference to licensed BRS
operations.
The FCC also reaffirmed the application of its spectrum leasing
rules and policies to BRS and EBS, and ruled that new EBS
spectrum leases may provide for a maximum term (including
initial and renewal terms) of 30 years. The FCC further
required that new EBS spectrum leases with terms of
15 years or longer must allow the EBS licensee to review
its educational use requirements every five years, beginning at
the fifteenth year of the lease.
On March 20, 2008, the FCC released a further order
revising, clarifying and reconsidering certain of its
BRS/EBS
rules as well as seeking comment on additional matters. The
order generally affirmed the technical rules adopted by the FCC
in 2004 and modified in 2006, except for some minor adjustments.
In addition, it clarified that licensees should use the
splitting-the-football
methodology to divide overlapping geographic service areas for
EBS licenses that expired and are later reinstated. This could
impact the geographic service areas in which we are able to
deploy service.
The FCC determined that it would use its existing auction rules
to auction the 78 unassigned BRS BTA spectrum licenses. The
auction started on October 27, 2009 and concluded shortly
thereafter. Of the 78 BTAs available for auction, we
successfully bid for 42. We have made all necessary payments
related to the licenses and our applications for the licenses
are currently pending before the FCC.
The FCC also reinstated a Gulf of Mexico service area for the
BRS band, the boundary of which will be 12 nautical miles from
the shore, to be divided into three zones for licensing
purposes. BRS licensees in the Gulf of Mexico will be subject to
the same service and technical rules that apply to all other BRS
licensees. The Gulf of Mexico BTAs were included among the
licenses slated for auction. The commencement of BRS service in
the Gulf of Mexico may have an impact on our ability to deploy
service in areas near the Gulf of Mexico.
Finally, the FCC clarified that EBS leases executed before
January 10, 2005 cannot run in perpetuity and are limited
to 15 years. The FCC affirmed its general policy that it
should not become enmeshed in interpreting private contracts. In
discussing its prior rulings governing the maximum EBS lease
term, the FCC referred to previous statements regarding EBS
lease terms that it has never made before which may affect some
of our lease rights if not subsequently reconsidered. In
response to petitions for reconsideration on this issue, the FCC
adopted a compromise proposal put forward by the industry that
does impact some leases that had been entered into prior to
January 10, 2005.
The FCC sought further comment on how to license the available
and unassigned white spaces in the EBS spectrum
band, including whether and how to license EBS spectrum in the
Gulf of Mexico. The FCC noted that public and educational
institutions that are eligible to hold EBS licenses may be
constrained from participating in competitive bidding. These
issues remain unresolved by the FCC.
In June 2006, the Federal Aviation Administration, which we
refer to as the FAA, proposed regulations governing potential
interference to navigable airspace from certain FCC-licensed
radio transmitting devices, including 2.5 GHz transmitters.
These regulations would require FAA notice and approval for new
or modified transmitting facilities. If adopted, these
regulations could substantially increase the administrative
burden and costs involved in deploying our service.
In certain international markets, our subsidiaries are subject
to rules that provide that if the subsidiarys wireless
service is discontinued or impaired for a specified period of
time, the spectrum rights may be revoked.
Clearwire/Sprint
Transaction Regulation
The FCCs order approving the Transactions was released on
Nov. 7, 2008. A Petition for Reconsideration of
the order was filed by the Public Interest Spectrum Coalition,
which we refer to as PISC, on December 8, 2008 and is
currently pending at the FCC. In its petition, PISC expressed
its support for the FCCs decision to approve the
Transactions but asked the FCC on reconsideration to
1) remove BRS spectrum from the screen the FCC used to
analyze the competitive effect of the proposed transaction; and
2) impose a condition on us to ensure that we follow
through on our commitment to build and operate an open network
consistent with the FCCs Policy Statement by subjecting
Clearwires third-party contractual arrangements to review.
We opposed PISCs petition but also noted
22
that the PISC petitions narrow scope eliminated any need
for the FCC to subject its decision to approve the Transactions
to further review.
In connection with the FCCs approval of the Transactions,
we committed to meet the Sprint Nextel Merger Order conditions
that require Sprint to offer service in the 2.5 GHz band to
a population of no less than 15 million Americans by
August 7, 2009. This deployment includes areas within a
minimum of nine of the nations most populous 100 BTAs and
at least one BTA less populous than the nations
200th most populous BTA. In these ten BTAs, the deployment
covers at least one-third of each BTAs population. The
parties further committed to offer service in the 2.5 GHz
band to at least 15 million more Americans in areas within
a minimum of nine additional BTAs in the 100 most populous BTAs,
and at least one additional BTA less populous than the
nations 200th most populous BTA, by August 7,
2011. In these additional ten BTAs the deployment will cover at
least one-third of each BTAs population. We expect to
satisfy each of these conditions with our existing markets and
our planned new markets. On August 4, 2009, we filed a
letter with the FCC providing notice that we have fulfilled the
first part of the 2.5 GHz spectrum build-out condition and
indicating that we are well on our way to meeting the second
part of the condition.
Internet
Taxation
The Internet Tax Freedom Act, which was signed into law in
October 2007, renewed and extended until November 2014 a
moratorium on taxes on Internet access and multiple,
discriminatory taxes on electronic commerce under the Internet
Tax Freedom Act. This moratorium was scheduled to expire in
November 2007, and its extension preserved the
grandfathering of states that taxed Internet access
before October 1998 to allow them to continue to do so. The
moratorium does not apply to taxes levied or measured on net
income, net worth or property value and does not extend to a tax
on telecommunications services. Certain states have enacted
various taxes on Internet access or electronic commerce, and
selected states taxes are being contested. State tax laws
may not be successfully contested and future state and federal
laws imposing taxes or other regulations on Internet access and
electronic commerce may arise, any of which could increase the
cost of our services and could materially and adversely affect
our business.
Intellectual
Property
We review our technological developments with our technology
staff and business units to identify and capture innovative and
novel features of our core technology that provide us with
commercial advantages and file patent applications as necessary
to protect these features both in the United States and
elsewhere. We hold 32 issued United States patents, and we also
have well over 100 pending United States patent applications. We
currently hold 22 issued patents and have 30 pending patent
applications in various foreign jurisdictions. Assuming that all
maintenance fees and annuities continue to be paid, the United
States patents expire on various dates from 2017 until 2025 and
the international patents expire on various dates from 2018
until 2022.
With respect to trademarks, Clearwire and the
associated Clearwire corporate logo, ClearBusiness,
ClearClassic, ClearPremium and
ClearValue are among our registered trademarks in
the United States, and we have issued or pending trademark
registrations covering additional trademarks in the United
States and all countries of the European Union and eight other
jurisdictions.
Employees
As of December 31, 2009, we had approximately
3,280 employees in the United States and approximately
160 employees in our international operations.
Our employees enter into agreements containing confidentiality
restrictions. We have never had a work stoppage and no employees
are represented by a labor organization. We believe our employee
relations are good.
Our
Corporate Information
We are a Delaware corporation. Our principal executive offices
are located at 4400 Carillon Point, Kirkland, Washington 98033,
and our telephone number is
(425) 216-7600.
Our website address is
http://www.clearwire.com.
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We make available to investors, free of charge, our reports to
the Securities and Exchange Commission, which we refer to as the
SEC, pursuant to the Securities Exchange Act of 1934, including
our Reports on Forms
8-K,
10-Q and
10-K,
through our website at www.clearwire.com, as soon as
reasonably practicable after such reports are electronically
filed with, or furnished to, the SEC.
We are
an early stage company, and we expect to continue to realize
significant net losses for the foreseeable future.
We are at an early stage of implementing our business strategy.
We have recorded net losses in each reporting period since our
inception, and we cannot anticipate with certainty what our
earnings, if any, will be in any future period. However, we
expect to continue to incur significant net losses for the
foreseeable future as we develop and deploy our network in new
and existing markets, expand our services and pursue our
business strategy. We intend to invest significantly in our
business before we expect cash flow from operations will be
adequate to cover our anticipated expenses. In addition, at this
stage of our development we are subject to the following risks:
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our results of operations may fluctuate significantly, which may
adversely affect the value of an investment in Class A
Common Stock;
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we may be unable to fully develop and deploy our next generation
4G mobile broadband network, expand our services, meet the
objectives we have established for our business strategy or grow
our business profitably, if at all;
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because of our limited operating history, it may be difficult to
predict accurately our key operating and performance metrics
utilized in budgeting and operational decisions;
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our next generation 4G mobile broadband network relies on mobile
WiMAX technology that is new and has not been widely deployed
previously; and
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our network and related technologies may fail or the quality and
number of services we are able to provide may decline if our
network operates at maximum capacity for an extended period of
time or fails to perform to our expectations.
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If we are unable to execute our business strategy and grow our
business, either as a result of the risks identified in this
section or for any other reason, our business, prospects,
financial condition and results of operations will be materially
and adversely affected.
If our
business fails to perform as we expect or if we elect to pursue
new or alternative business strategies, we may require
substantial additional capital, which may not be available on
acceptable terms or at all.
The amount of capital that we will require to implement our
current plans depends on a number of factors, many of which are
difficult to predict and outside of our control. In preparing
our plans, we were required to make certain assumptions as to
the future performance of our business. If any of the
assumptions underlying our plans prove to be incorrect and, as a
result, our business fails to perform as we expect, we may
require substantial additional capital in the near and long-term
to fund operating losses, network expansion plans and spectrum
acquisitions.
Further, we regularly evaluate our plans, and we may elect to
pursue new or alternative strategies which we believe would be
beneficial to our business. These may include, among other
things, modifying the pace at which we build our 4G mobile
broadband networks, augmenting our network coverage in markets
we launch, changing our sales and marketing strategy
and/or
acquiring additional spectrum. We also may elect to deploy
alternative technologies to mobile WiMAX, if and when they
become available, on our networks either together with, or in
place of, mobile WiMAX if we determine it is necessary to cause
the 4G mobile broadband services we offer to remain competitive
or to expand the number and types of devices that may be used to
access our services. If we elect to pursue any of these
strategies, we may be required to seek to raise substantial
additional capital in the near
and/or long
term.
24
The amount and timing of any additional financings to satisfy
these additional capital needs, if any, are difficult to
estimate at this time. To raise additional capital, we may be
required to issue additional equity securities in public or
private offerings, potentially at a price lower than the market
price of Class A Common Stock at the time of such
issuances. We may seek significant additional debt financing,
and as a result, may incur significant interest expense. Our
existing level of debt may make it more difficult for us to
obtain this additional debt financing, may reduce the amount of
money available to finance our operations and other business
activities, may expose us to the risk of increasing interest
rates, may make us more vulnerable to general economic downturns
and adverse industry conditions and may reduce our flexibility
in planning for, or responding to, changing business and
economic conditions. We also may decide to sell additional debt
or equity securities in our domestic or international
subsidiaries, which may dilute our ownership interest in or
reduce or eliminate our income, if any, from those entities. The
recent turmoil in the economy and the worldwide financial
markets may make it more difficult for us to obtain necessary
additional equity and debt financing.
If we are required to obtain additional capital to fund our
business, or if we elect to seek additional capital to pursue
new or alternative business strategies, we may not be able to
secure such additional financing when needed on acceptable terms
or at all. If we fail to obtain additional financing on
acceptable terms, our business prospects, financial condition
and results of operations may be adversely affected, or we may
be forced to curtail our plans to reduce the amount of
additional capital required.
We
have committed to deploy a wireless broadband network using
mobile WiMAX technology and would incur significant costs to
deploy alternative technologies, even if there are alternative
technologies available in the future that would be
technologically superior or more cost effective.
Under the Intel Market Development Agreement, we have committed
to undertake certain marketing efforts with respect to our 4G
mobile broadband services and are subject to certain
restrictions on our ability to commercially deploy wireless
broadband or data technology other than mobile WiMAX on our
networks through February 28, 2012, as long as certain
requirements are satisfied.
We have expended significant resources and made substantial
investments to deploy a 4G mobile broadband network using mobile
WiMAX technology. We depend on original equipment manufacturers
to develop and produce mobile WiMAX equipment and subscriber
devices that will operate on our network, and on Intel and other
manufacturers to cause mobile WiMAX chipsets to be embedded into
laptops and other computing devices. While we have deployed our
mobile WiMAX technology in 27 markets as of December 31,
2009, we cannot assure you that commercial quantities of mobile
WiMAX equipment and subscriber devices that meet our
requirements will continue to be available on the schedule we
expect, or at all, or that vendors will continue to develop and
produce mobile WiMAX equipment and subscriber devices in the
long term, which may require us to deploy alternative
technologies.
We incurred significant expense upgrading 16 of our legacy
markets from pre-4G technology to mobile WiMAX and expect to
continue to upgrade a majority of our remaining legacy markets
to mobile WiMAX in 2010. These future upgrades may cost more or
be more difficult to undertake than we expect. As we continue to
upgrade our legacy markets to mobile WiMAX, we expect that churn
will increase in those markets. Churn is an industry term we use
to measure the rate at which subscribers terminate service. We
calculate this metric by dividing the number of subscribers who
terminate their service in a given month by the average number
of subscribers during that month, in each case excluding those
who subscribe for and terminate our service within 30 days
for any reason or in the first 90 days of service under
certain circumstances.
Additionally, once fully deployed on a commercial basis, mobile
WiMAX may not perform as we expect, and, therefore, we may not
be able to deliver the quality or types of services we expect.
We also may discover unanticipated costs associated with
deploying and maintaining our networks or delivering services we
must offer in order to remain competitive. Other competing
technologies, including other 4G or subsequent technologies such
as LTE, that may have advantages over mobile WiMAX will likely
be developed, and operators of other networks based on those
competing technologies may be able to deploy these alternative
technologies at a lower cost and more quickly than the cost and
speed with which we deploy our networks, which may allow those
operators to compete more effectively, assuming they have
adequate spectrum resources, or may require us to deploy such
technologies when we are permitted to do so.
These risks could reduce our subscriber growth, increase our
costs of providing services or increase our churn.
25
If
third parties fail to develop and deliver the equipment that we
need for both our existing and future networks, we may be unable
to execute our business strategy or operate our
business.
We currently depend on third parties to develop and deliver
complex systems, software and hardware products and components
for our network in a timely manner, and at a high level of
quality. Motorola is our sole supplier of equipment and software
for the Expedience system currently deployed in our legacy
markets. The Expedience system consists of network components
used by us and subscriber equipment used by our subscribers. To
successfully continue to operate in most of our existing
markets, Motorola must continue to support the Expedience
system, including continued production of the software and
hardware components. Any failure by Motorola to meet these needs
for any reason may impair our ability to operate in these
markets. If Motorola failed to meet our needs, we may not be
able to find another supplier on terms acceptable to us, or at
all.
For our existing 4G markets, our planned mobile WiMAX deployment
in new markets and the upgrade of our legacy markets to mobile
WiMAX, we are relying on third parties to continue to develop
and deliver in sufficient quantities the network components and
subscriber devices necessary for us to build and operate our 4G
mobile broadband networks. As mobile WiMAX is a new and highly
sophisticated technology, we cannot be certain that these third
parties will be successful in their continuing development
efforts. The development process for new mobile WiMAX network
components and subscriber devices may be lengthy, has been
subject to some short-term delays and may still encounter more
significant delays. If these third parties are unable or
unwilling to develop and deliver new mobile WiMAX network
components and subscriber devices in sufficient quantities on a
timely basis that perform according to our expectations, we may
be unable to deploy mobile WiMAX technology in our new markets
or to upgrade our existing markets to mobile WiMAX when we
expect, or at all. If we are unable to deploy mobile WiMAX in a
timely manner or mobile WiMAX fails to perform as we expect, we
may be unable to execute our business strategy and our prospects
and results of operations would be harmed.
We may
experience difficulties in constructing, upgrading and
maintaining our network, which could adversely affect customer
satisfaction, increase subscriber churn and costs incurred, and
decrease our revenues.
Our success depends on developing and providing services that
give subscribers a high quality experience. We expect to expend
significant resources in constructing, maintaining and improving
our network, including the deployment of 4G technologies in new
markets and the upgrade of our legacy markets to 4G mobile
broadband technology. Additionally, as we learn more about the
performance of our networks, as the number of subscribers using
our network increases, as the usage habits of our subscribers
change and as we increase our service offerings, we may need to
upgrade our network to maintain or improve the quality of our
services. We may also need to upgrade our networks to stay
competitive with new technologies introduced by our competitors.
These upgrades could include, among other things, increasing the
density of our networks by building more sites in our markets,
or deciding to pursue other 4G technologies in the future, and
we could incur substantial costs in undertaking these actions.
If we do not successfully construct, maintain and implement
future upgrades to our networks, the quality of our services may
decline and the rate of our subscriber churn may increase.
We may experience quality deficiencies, cost overruns and delays
with our construction, maintenance and upgrade projects,
including the portions of those projects not within our control.
The construction of our networks requires permits and approvals
from numerous governmental bodies, including municipalities and
zoning boards. Such entities often limit the expansion of
transmission towers and other construction necessary for our
networks. In addition, we often are required to obtain rights
from land, building and tower owners to install the antennas and
other equipment that provide our service to our subscribers. We
may not be able to obtain, on terms acceptable to us or at all,
the rights necessary to construct our networks and expand our
services. Additionally, we will need a large number of
additional experienced personnel to build and construct the
networks in new markets, and such personnel may not always be
available in the numbers or in the time frames in which we want
them. Failure to receive approvals in a timely fashion can delay
new market deployments and upgrades in existing markets and
raise the cost of completing construction projects and prevent
us from deploying our networks on our announced timelines.
We also may face challenges in managing and operating our
networks. These challenges could include ensuring the
availability of subscriber devices that are compatible with our
networks and managing sales,
26
advertising, customer support, and billing and collection
functions of our business while providing reliable network
service that meets our subscribers expectations. Our
failure in any of these areas could adversely affect customer
satisfaction, increase subscriber churn, increase our costs,
decrease our revenues and otherwise have a material adverse
effect on our business, prospects, financial condition and
results of operations.
We also outsource some operating functions to third parties.
These third parties may experience errors or disruptions that
could adversely impact us and over which we may have limited
control. We also face risk from the integration of new
infrastructure platforms
and/or new
third party providers of such platforms into our existing
businesses. We are currently undertaking a project to transfer
from an internal billing system to a new billing platform that
will result in a third party providing billing services for our
customer accounts. Our ability to successfully transition to
this new platform as well as the third partys ongoing
ability to provide services to us, could impact our performance
in the future.
The
interests of the controlling stockholders of Clearwire may
conflict with your interests as stockholders.
Sprint, the Investors and Eagle River own a majority of the
voting power of Clearwire through ownership of Class A
Common Stock or Class B Common Stock. Sprint, the Investors
and Eagle River may have interests that diverge from those of
other holders of Clearwires capital stock. Each of Sprint,
the Investors and Eagle River are a party to the
Equityholders Agreement, which requires, among other
things, the approval of:
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75% of the voting power of all outstanding stock of Clearwire
for certain actions, including any merger, consolidation, share
exchange or similar transaction and any issuance of capital
stock that would constitute a change of control of Clearwire or
any of its subsidiaries;
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each of Sprint, Intel and the representative for the Strategic
Investors, as a group, so long as each of Sprint, Intel and the
Strategic Investors, as a group, respectively, owns securities
representing at least 5% of the outstanding voting power of
Clearwire, in order to:
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amend our Amended and Restated Certificate of Incorporation,
which we refer to as the Charter, the bylaws of Clearwire, which
we refer to as the Bylaws, or the Amended and Restated Operating
Agreement governing Clearwire Communications, which we refer to
as the Operating Agreement;
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change the size of the board of directors of Clearwire;
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liquidate Clearwire or Clearwire Communications or declare
bankruptcy of Clearwire or its subsidiaries;
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effect any material capital reorganization of Clearwire or any
of its material subsidiaries, including Clearwire
Communications, other than a financial transaction (including
securities issuances) in the ordinary course of business;
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take any action that could cause Clearwire Communications or any
of its material subsidiaries to be taxed as a corporation for
federal income tax purposes; and
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subject to certain exceptions, issue any Class B Common
Stock or any equity interests of Clearwire Communications;
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Eagle River, for so long as Eagle River owns at least 50% of the
shares of the Clearwire common stock received by it in the
Transactions, and the proposed action would disproportionately
and adversely affect Eagle River, the public stockholders of
Clearwire or Clearwire in its capacity as a member of Clearwire
Communications, in order to amend the Charter, the Bylaws or the
Operating Agreement or to change the size of the board of
directors of Clearwire; and
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each of Sprint, Intel and the Strategic Investors, as a group,
so long as each of Sprint, Intel and the Strategic Investors, as
a group, respectively, owns both (1) at least 50% of the
number of shares of Clearwire common stock received by it in the
Transactions and (2) securities representing at least 5% of
the outstanding voting power of Clearwire, in order for
Clearwire to enter into a transaction involving the sale of a
certain percentage of the consolidated assets of Clearwire and
its subsidiaries to, or the merger of Clearwire with, certain
specified competitors of the Investors.
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27
The Equityholders Agreement also contains provisions
related to restrictions on transfer of Class A Common Stock
and Class B Common Stock, rights of first offer and
preemptive rights.
As a result, Sprint, the Investors and Eagle River may be able
to prevent the taking of actions that align with your best
interests as a stockholder. The interests of Sprint, the
Investors and Eagle River may conflict with your interests as a
stockholder.
Clearwire
and its subsidiaries may be considered subsidiaries of Sprint
under certain of Sprints agreements relating to its
indebtedness.
Sprint owned approximately 56.4% of the voting power of
Clearwire as of December 31, 2009. As a result, Clearwire
and its subsidiaries may be considered subsidiaries of Sprint
under certain of Sprints agreements relating to its
indebtedness. Those agreements govern the incurrence of
indebtedness and certain other activities of Sprints
subsidiaries. Thus, our actions may result in a violation of
covenants in Sprints debt obligations, which may cause
Sprints lenders to declare due and payable all of
Sprints outstanding loan obligations, thereby severely
harming Sprints financial condition, operations and
prospects for growth. The determination of whether or not we
would be considered a subsidiary under Sprints debt
agreements is complex and subject to interpretation. Under the
Equityholders Agreement, if we intend to take any action
that may be prohibited under the terms of certain Sprint debt
agreements, then Sprint will be obligated to deliver to us an
officers certificate, which we refer to as a Compliance
Certificate, and legal opinion from a nationally recognized law
firm stating that our proposed actions do not violate those debt
agreements. If Sprint notifies us that it cannot deliver the
Compliance Certificate and legal opinion, Sprint will be
obligated to take certain actions to ensure that Clearwire is no
longer considered a subsidiary under its debt agreements. These
actions may include surrendering board seats and voting stock of
Clearwire. The unusual nature of this arrangement may make it
more difficult for us to obtain financing on favorable terms or
at all. Moreover, regardless of whether we receive a Compliance
Certificate and legal opinion as described above, we cannot be
sure our actions will not violate Sprints debt covenants,
and, if there is a violation, that Sprints lenders will
waive such non-compliance and forbear from enforcing their
rights, which could include accelerated collection of
Sprints obligations.
We
will incur significant expense in complying with the terms of
our 4G wholesale agreements, and we may not recognize the
benefits we expect if Sprint and certain of the other Investors
are not successful in reselling our services to their customers,
which would adversely affect our business prospects and
results.
Under our 4G wholesale agreements, which we also refer to as 4G
mobile virtual network operator, which we refer to as MVNO,
agreements, which we refer to 4G MVNO Agreements, in this
filing, Sprint and certain of the other Investors have the right
to resell services over our networks to their customers, and for
any of their customers that purchase services over our network,
Sprint and these Investors are required to pay us certain fees.
However, nothing in the 4G MVNO Agreement requires Sprint or any
of the other Investors to resell any of these services, and they
may elect not to do so or to curtail such sales activities if
their efforts prove unsuccessful. In the course of implementing
the terms of the 4G MVNO Agreement, we expect to incur
significant expense in connection with designing billing,
distribution and other systems which are necessary to facilitate
such sales, and we may elect to deploy our networks in markets
requested by Sprint and the other Investors where we would not
otherwise have launched. If Sprint and the other Investors fail
to resell services offered over our network in the amount we
expect or at all, our business prospects and results of
operations would be adversely affected.
A
number of our significant business arrangements are between us
and parties that have an investment in or a fiduciary duty to
us, and the terms of those arrangements may not be beneficial to
us.
We are party to a number of services, development, supply and
licensing agreements with parties that have an ownership or
fiduciary relationship with us, including the various commercial
agreements with Sprint and the other Investors described
elsewhere in this filing. These relationships may create actual
or potential conflicts of interest, and may cause the parties to
these arrangements to make decisions or take actions that do not
reflect our best interests.
28
Our commercial agreement with Sprint and the other Investors
were each entered into concurrently with purchases of shares of
our capital stock by such parties or their affiliates. In
addition, our various commercial agreements with Sprint and the
other Investors provide for, among other things, access rights
to towers that Sprint owns or leases, resales by us and certain
other Investors of bundled 2G and 3G services from Sprint,
resales by Sprint and certain other Investors of our 4G
services, most favored reseller status with respect to economic
and non-economic terms of certain service agreements, collective
development of new 4G services, creation of desktop and mobile
applications on the our network, the embedding of mobile WiMAX
chips into various of our network devices and the development of
Internet services and protocols. Except for the agreements with
Google and Intel, none of these agreements restricts these
parties from entering into similar arrangements with other
parties, but rights could be lost if a party enters into a
similar relationship. For additional information regarding these
relationships, see Certain relationships and related party
transactions.
Clearwire
is a controlled company within the meaning of the
NASDAQ Marketplace Rules and relies on exemptions from certain
corporate governance requirements.
Sprint beneficially owned approximately 56.4% of the outstanding
voting power of Clearwire as of December 31, 2009. In
addition, the Investors collectively owned approximately 29.4%
and Eagle River owned approximately 4.1% of the outstanding
voting power of Clearwire. For further information, please see
Certain relationships and related party
transactions Relationships among certain
stockholders, directors and officers of Clearwire
New equity and debt investments. The Equityholders
Agreement governs the voting of shares of Class A and
Class B Common Stock held by each of the parties thereto in
certain circumstances, including with respect to the election of
the individuals nominated to the board of directors of Clearwire
by Sprint, the Investors and Eagle River.
As a result of the combined voting power of Sprint, the
Investors and Eagle River and the Equityholders Agreement,
Clearwire relies on exemptions from certain NASDAQ corporate
governance standards. Under the NASDAQ Marketplace Rules, a
company of which more than 50% of the voting power is held by
single person or a group of people is a controlled
company and may elect not to comply with certain NASDAQ
corporate governance requirements, including the requirements
that:
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a majority of the board of directors consist of independent
directors;
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the compensation of officers be determined, or recommended to
the board of directors for determination, by a majority of the
independent directors or a compensation committee comprised
solely of independent directors; and
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director nominees be selected, or recommended for the board of
directors selection, by a majority of the independent
directors or a nominating committee comprised solely of
independent directors with a written charter or board resolution
addressing the nomination process.
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If Clearwire chooses to no longer rely on these exemptions in
the future it will be subject to all of the NASDAQ corporate
governance requirements.
The
corporate opportunity provisions in the Charter could enable
certain of Clearwires stockholders to benefit from
corporate opportunities that might otherwise be available to
Clearwire.
The Charter contains provisions related to corporate
opportunities that may be of interest to both Clearwire and
certain of its stockholders, including Sprint, the Investors and
Eagle River, who are referred to in the Charter as the Founding
Stockholders. These provisions provide that unless a director is
an employee of Clearwire, such person does not have a duty to
present to Clearwire a corporate opportunity of which he or she
becomes aware, except where the corporate opportunity is
expressly offered to such person in his or her capacity as a
director of Clearwire.
In addition, the Charter expressly provides that the Founding
Stockholders may, and have no duty not to, engage in any
businesses that are similar to or competitive with that of
Clearwire, do business with Clearwire competitors, customers and
suppliers, and employ Clearwires employees or officers.
The Founding Stockholders or their affiliates may deploy
competing wireless broadband networks or purchase broadband
services from other providers. Further, we may also compete with
the Founding Stockholders or their affiliates in the area of
employee
29
recruiting and retention. These potential conflicts of interest
could have a material adverse effect on our business, financial
condition, results of operations or prospects if attractive
corporate opportunities are allocated by the Founding
Stockholders to themselves or their other affiliates or we lose
key personnel to them.
We may
sustain financial losses if Sprint fails to fulfill its
indemnification obligations to us.
Under the Transaction Agreement, Sprint must indemnify us
against certain losses relating to, among other things, any
breach of certain of Sprints representations as to the
Sprint WiMAX Business, any pre-Closing taxes incurred by any of
Sprints subsidiaries, litigation related to certain of
Sprints affiliates and any liabilities unrelated to the
Sprint WiMAX Business. These indemnification obligations
generally continue until the statute of limitations for the
applicable claim has expired. The indemnification obligations
regarding Sprints representations as to the Sprint WiMAX
Business and for liabilities unrelated to the Sprint WiMAX
Business, however, each survive for three years from the
Closing. Sprints indemnification obligations are generally
unlimited, with the exception of a $25 million deductible
for claims based on a breach of representation that
Sprints subsidiaries that hold the Sprint WiMAX Business
have, subject to certain limited exceptions, a specific, limited
set of liabilities at the Closing.
We cannot provide any assurances that Sprint will fulfill its
indemnification obligations in accordance with the Transaction
Agreement. If it turns out that the representations made by
Sprint as to the Sprint WiMAX Business, for which Sprint is
obligated to indemnify us under the Transaction Agreement, are
inaccurate, we may sustain significant financial losses. If
Sprint fails to fulfill its indemnification obligations under
the Transaction Agreement to indemnify and defend us for any
such financial loss or claim, as the case may be, it could
adversely affect our financial condition, cash flows and results
of operations. In addition, if the time period for any
indemnification claims has expired by way of the statue of
limitations or by operation of the three-year period in the
Transaction Agreement, our business, prospects, operating
results and financial condition may be adversely affected.
If we
fail to maintain adequate internal controls, or if we experience
difficulties in implementing new or revised controls, our
business and operating results could be harmed.
Effective internal controls are necessary for us to prepare
accurate and complete financial reports and to effectively
prevent and detect fraud or material misstatements to our
financial statements. If we are unable to maintain effective
internal controls, our ability to prepare and provide accurate
and complete financial statements may be affected. The
Sarbanes-Oxley Act of 2002 requires us to furnish a report by
management on internal control over financial reporting,
including managements assessment of the effectiveness of
such control. If we fail to maintain adequate internal controls,
or if we experience difficulties in implementing new or revised
controls, our business and operating results could be harmed or
we could fail to meet our reporting obligations.
For example, we concluded that control deficiencies in
procedures we implemented for recording and monitoring the
movement of network infrastructure equipment constituted a
material weakness in our internal control over financial
reporting as of December 31, 2009. During the third quarter
of 2009, we implemented new procedures related to the assembly,
shipment, and storage of network infrastructure equipment to
improve flexibility in deploying network infrastructure
equipment in markets under development. We believed that these
new procedures would improve our ability to manage the
substantial increases in the volume of network infrastructure
equipment shipments necessary to meet our network deployment
targets. These new procedures included increasing the number of
warehouses utilized for receiving, storing and shipping
equipment and outsourcing the management of equipment inventory
movements to third party vendors. However, the new procedures
implemented did not adequately provide for the timely updating
and maintaining of accounting records for the network
infrastructure equipment. As a result, movements of this
equipment were not properly recorded in our accounting system.
Accordingly, we concluded that it is reasonably possible that a
material misstatement of our interim or annual financial
statements may not be prevented or detected on a timely basis
due to these control deficiencies.
Upon identifying the problem, we began undertaking various
mitigation and remediation steps to improve the controls and
update the books of record. As a result of these steps,
management believes the control weakness has not resulted in
material misstatements of the financial statements in the
current or previous reporting periods.
30
However, if our ongoing remediation efforts prove unsuccessful,
our future business and operating results
and/or our
ability to meet our future reporting obligations may be
adversely affected.
Many
of our competitors are better established and have significantly
greater resources than we have, which may make it difficult to
attract and retain subscribers.
The market for broadband, voice and related services is highly
competitive and we compete with several other companies within
each of our markets. Some of our competitors are well
established with larger and better developed networks and
support systems, longer-standing relationships with customers
and suppliers, greater name recognition and greater financial,
technical and marketing resources than we have. Our competitors
may subsidize competing services with revenue from other sources
and, thus, may offer their products and services at prices lower
than ours. Our competitors may also reduce the prices of their
services significantly or may offer broadband connectivity
packaged with other products or services.
Our current competitors include:
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3G cellular PCS and other wireless providers offering wireless
broadband services and capabilities, including developments in
existing cellular and PCS technology that may increase network
speeds or have other advantages over our services, and the
introduction of additional 4G technologies such as LTE, which
may enable these providers to offer services that are comparable
or superior to ours;
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incumbent and competitive local exchange carriers providing DSL
services over their existing wide, metropolitan and local area
networks;
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wireline operators offering high-speed Internet connectivity
services and voice communications over cable or fiber optic
networks;
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satellite and fixed wireless service providers offering or
developing broadband Internet connectivity and VoIP and other
telephony services;
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municipalities and other entities operating Wi-Fi networks, some
of which are free or subsidized;
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Internet service providers offering
dial-up
Internet connectivity;
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electric utilities and other providers offering or planning to
offer broadband Internet connectivity over power lines; and
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resellers, MVNOs, or wholesalers providing wireless Internet or
other wireless services using infrastructure developed and
operated by others, including Sprint and certain of the
Investors who have the right to sell services purchased from us
under the 4G MVNO Agreement.
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Our residential voice and planned mobile voice services will
also face significant competition. Primarily, our mobile VoIP
service offering will compete with many of our current
competitors that also provide voice communications services.
Additionally, we may face competition from companies that offer
VoIP telephony services over networks operated by third parties.
We expect other existing and prospective competitors to adopt
technologies or business plans similar to ours, or seek other
means to develop services competitive with ours, particularly if
our services prove to be attractive in our target markets. There
can be no assurances that there will be sufficient customer
demand for services offered over our network in the same markets
to allow multiple operators, if any, to succeed. Additionally,
AT&T, and Verizon Wireless, among others, have announced
plans to deploy LTE technology, with Verizon Wireless announcing
that they expect to launch service beginning in the fourth
quarter of 2010. This service may provide significant
competition when it becomes available in the future.
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The
industries in which we operate are continually evolving, which
makes it difficult to evaluate our future prospects and
increases the risk of your investment. Our products and services
may become obsolete, and we may not be able to develop
competitive products or services on a timely basis or at
all.
The broadband services industry is characterized by rapid
technological change, competitive pricing, frequent new service
introductions, evolving industry standards and changing
regulatory requirements. Additionally, our planned deployment of
4G technology depends on the continued development and delivery
of commercially sufficient quantities of network equipment and
subscriber devices based on the 4G technology standard from
third-party suppliers. We believe that our success depends on
our ability to anticipate and adapt to these and other
challenges and to offer competitive services on a timely basis.
We face a number of difficulties and uncertainties associated
with our reliance on future technological development, such as:
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existing service providers may use more traditional and
commercially proven means to deliver similar or alternative
services;
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new service providers may use more efficient, less expensive
technologies, including products not yet invented or developed;
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consumers may not subscribe to our services or may not be
willing to pay the amount we expect to receive for our services;
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we may not be able to realize economies of scale;
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our subscribers may elect to cancel our services at rates that
are greater than we expect;
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we may be unable to respond successfully to advances in
competing technologies in a timely and cost-effective manner;
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we may lack the financial and operational resources necessary to
enable the development and deployment of network components and
software that do not currently exist and that may require
substantial upgrades to or replacements of existing
infrastructure; and
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existing, proposed or undeveloped technologies may render our
existing or planned services less profitable or obsolete.
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As our services and those offered by our competitors develop,
businesses and consumers, including our current subscribers, may
not accept our services as an attractive alternative to other
means of receiving wireless broadband services.
If we
do not obtain and maintain rights to use licensed spectrum in
one or more markets, we may be unable to operate in these
markets, which could adversely affect our ability to execute our
business strategy.
To offer our services using licensed spectrum both in the United
States and internationally, we depend on our ability to acquire
and maintain sufficient rights to use spectrum through ownership
or long-term leases in each of the markets in which we operate
or intend to operate. Obtaining the necessary amount of licensed
spectrum in these markets can be a long and difficult process
that can be costly and require a disproportionate amount of our
resources. We may not be able to acquire, lease or maintain the
spectrum necessary to execute our business strategy. In
addition, we have in the past and may continue to spend
significant resources to acquire spectrum in additional or
existing markets, even if the amount of spectrum actually
acquired in certain markets is not adequate to deploy our
network on a commercial basis in all such markets.
Using licensed spectrum, whether owned or leased, poses
additional risks to us, including:
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inability to satisfy build-out or service deployment
requirements on which some of our spectrum licenses or leases
are, or may be, conditioned, which may result in the loss of our
rights to the spectrum subject to the requirements;
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adverse changes to regulations governing our spectrum rights;
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32
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inability to use a portion of the spectrum we have acquired or
leased due to interference from licensed or unlicensed operators
in our band or in adjacent bands or due to international
coordination issues;
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refusal by the FCC or one or more foreign licensing authorities
to recognize our acquisition or lease of spectrum licenses from
others or our investments in other license holders;
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inability to offer new services or to expand existing services
to take advantage of new capabilities of our network resulting
from advancements in technology due to regulations governing our
spectrum rights;
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inability to obtain or lease more spectrum in the future due to
the possible imposition of limits or caps on our spectrum
holdings;
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inability to control leased spectrum due to contractual disputes
with, or the bankruptcy or other reorganization of, the license
holders, or third parties;
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failure of the FCC or other regulators to renew our spectrum
licenses or those of our lessors as they expire;
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failure to obtain extensions or renewals of spectrum leases, or
an inability to renegotiate such leases, on terms acceptable to
us before they expire, which may result in the loss of spectrum
we need to operate our network in the market covered by the
spectrum leases;
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potentially significant increases in spectrum prices, because of
increased competition for the limited supply of licensed
spectrum both in the United States and internationally; and
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invalidation of our authorization to use all or a significant
portion of our spectrum, resulting in, among other things,
impairment charges related to assets recorded for such spectrum.
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We expect the FCC to make additional spectrum available from
time to time. Additionally, other companies hold spectrum rights
that could be made available for lease or sale. The availability
of additional spectrum in the marketplace could change the
market value of spectrum rights generally and, as a result, may
adversely affect the value of our spectrum assets.
Interruption
or failure of our information technology and communications
systems could impair our ability to provide our services, which
could damage our reputation and harm our operating
results.
We have experienced service interruptions in some markets in the
past and we may experience service interruptions or system
failures in the future. Any service interruption adversely
affects our ability to operate our business and could result in
an immediate loss of revenues or increase in churn. If we
experience frequent or persistent system or network failures,
our reputation and brand could be permanently harmed. We may
make significant capital expenditures in an effort to increase
the reliability of our systems, but these capital expenditures
may not achieve the results we expect.
Our services depend on the development and continuing operation
of various IT and communications systems, including our billing
system, some of which are not within our control. Currently, we
do not have in place IT and communication systems that will meet
all of our future business requirements. Thus, we must be able
to develop these IT and communication systems, and any failure
to do so may limit our ability to offer the services we intend
to offer and may adversely affect our operating results. Any
damage to or failure of our current or future IT and
communications systems could result in interruptions in our
service. Interruptions in our service could reduce our revenues
and profits, and our brand could be damaged if people believe
our network is unreliable. Our systems are vulnerable to damage
or interruption from earthquakes and other natural disasters,
terrorist attacks, floods, fires, power loss, telecommunications
failures, computer viruses, computer denial of service attacks
or other attempts to harm our systems, and similar events. Some
of our systems are not fully redundant, and our disaster
recovery planning may not be adequate. The occurrence of a
natural disaster or unanticipated problems at our network
centers could result in lengthy interruptions in our service and
adversely affect our operating results.
33
Our
substantial indebtedness could adversely affect our financial
flexibility and prevent us from fulfilling our obligations under
the Senior Secured Notes.
We have, and will continue to have, a significant amount of
indebtedness. As of December 31, 2009, we have
approximately $2.71 billion of outstanding indebtedness.
Our substantial level of indebtedness increases the risk that we
may be unable to generate cash sufficient to pay amounts due in
respect of our indebtedness. Our substantial indebtedness could
have other important consequences and significant effects on our
business.
For example, it could:
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make it more difficult for us to satisfy our obligations with
respect to the Senior Secured Notes and the Rollover Notes;
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increase our vulnerability to adverse changes in general
economic, industry and competitive conditions;
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require us to dedicate a substantial portion of our cash flow
from operations to make payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures and other general corporate
purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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restrict us from taking advantage of opportunities to grow our
business;
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make it more difficult to satisfy our financial obligations,
including payments on the Senior Secured Notes;
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place us at a competitive disadvantage compared to our
competitors that have less debt obligations; and
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limit our ability to borrow additional funds for working
capital, capital expenditures, acquisitions, debt service
requirements, execution of our business strategy or other
general corporate purposes on satisfactory terms or at all.
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Restrictive
covenants in the Indenture governing the Senior Secured Notes
may limit our current and future operations, particularly our
ability to respond to changes in our business or to pursue our
business strategies.
The indenture governing the Senior Secured Notes, which we refer
to as the Indenture, contains, and any future indebtedness of
ours may contain, a number of restrictive covenants that impose
significant operating and financial restrictions, including
restrictions on our ability to take actions that we believe may
be in our interest. The Indenture, among other things, limits
our ability to:
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incur additional indebtedness and guarantee indebtedness;
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pay dividends on or make distributions in respect of capital
stock or make certain other restricted payments or investments;
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enter into agreements that restrict distributions from
restricted subsidiaries;
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sell or otherwise dispose of assets, including capital stock of
restricted subsidiaries;
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enter into transactions with affiliates;
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create or incur liens;
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merge, consolidate or sell substantially all of our assets;
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make investments and acquire assets;
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make certain payments on indebtedness; and
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issue certain preferred stock or similar equity securities.
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A breach of the covenants or restrictions under the Indenture
could result in a default under the applicable indebtedness.
Such default may allow the creditors to accelerate the related
debt and may result in the acceleration of any other debt to
which a cross-acceleration or crossdefault provision applies. In
the event our lenders and noteholders accelerate the repayment
of our borrowings, we cannot assure that we and our subsidiaries
would have sufficient assets to repay such indebtedness.
Our ability to obtain future financing or to sell assets could
be adversely affected because a very large majority of our
assets have been pledged as collateral for the benefit of the
holders of the Senior Secured Notes. In addition,
34
our financial results, our substantial indebtedness and our
credit ratings could adversely affect the availability and terms
of additional financing.
Certain
aspects of our VoIP residential telephony services differ from
traditional telephone service, which may limit the
attractiveness of our services.
We intend to continue to offer residential VoIP telephony as a
value added service with our wireless broadband Internet
service. Our residential VoIP telephony services differ from
traditional phone service in several respects, including:
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our subscribers may experience lower call quality than they
experience with traditional wireline telephone companies,
including static, echoes and transmission delays;
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our subscribers may experience higher dropped-call rates than
they experience with traditional wireline telephone
companies; and
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a power loss or Internet access interruption may cause our
service to be interrupted.
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If our subscribers do not accept the differences between our
residential VoIP telephony services and traditional telephone
service, they may not adopt or keep our residential VoIP
telephony services or our other services, or may choose to
retain or return to service provided by traditional telephone
companies.
Although we are compliant with the FCCs November 28,
2005 mandate that all interconnected VoIP providers transmit all
911 calls to the appropriate public safety answering point, our
VoIP emergency calling service is significantly more limited
than the emergency calling services offered by traditional
telephone companies. Our VoIP emergency calling service can
transmit to a dispatcher at a public safety answering point only
the location information that the subscriber has registered with
us, which may at times be different from the actual location at
the time of the call due to the portability of our services. As
a result, if our subscribers fail to properly register or update
their registered locations, our emergency calling systems may
not assure that the appropriate public safety answering point is
reached and may cause significant delays, or even failures, in
callers receipt of emergency assistance. Our failure to
develop or operate an adequate emergency calling service could
subject us to substantial liabilities and may result in delays
in subscriber adoption of our VoIP services or our other
services, abandonment of our services by subscribers, and
litigation costs, damage awards and negative publicity, any of
which could harm our business, prospects, financial condition or
results of operations. In addition, our deployment of mobile
interconnected VoIP services faces additional E911 regulatory
uncertainty, as discussed above in Business
Regulatory Matters Interconnected VoIP services
regulation.
Finally, potential changes by the FCC to current intercarrier
compensation mechanisms could result in significant changes to
our costs of providing VoIP telephony, thereby eliminating
pricing benefits between VoIP telephony services and traditional
telephone services and our potential profitability.
If our
data security measures are breached or customer data is
compromised, subscribers may perceive our network and services
as not secure.
Our network security and the authentication of our subscriber
credentials are designed to protect unauthorized access to data
on our network. Because techniques used to obtain unauthorized
access to or to sabotage networks change frequently and may not
be recognized until launched against us, we may be unable to
anticipate or implement adequate preventive measures against
unauthorized access or sabotage. Consequently, unauthorized
parties may overcome our network security and obtain access to
data on our network, including on a device connected to our
network. In addition, because we operate and control our network
and our subscribers Internet connectivity, unauthorized
access or sabotage of our network could result in damage to our
network and to the computers or other devices used by our
subscribers. An actual or perceived breach of network security,
regardless of our responsibility, could harm public perception
of the effectiveness of our security measures, adversely affect
our ability to attract and retain subscribers, expose us to
significant liability and adversely affect our business
prospects.
35
We are
subject to extensive regulation that could limit or restrict our
activities and adversely affect our ability to achieve our
business objectives. If we fail to comply with these
regulations, we may be subject to penalties including fines and
suspensions, which may adversely affect our financial condition
and results of operations.
Our acquisition, lease, maintenance and use of spectrum licenses
are extensively regulated by federal, state, local and foreign
governmental entities. These regulations are subject to change
over time. In addition, a number of other federal, state, local
and foreign privacy, security and consumer laws also apply to
our business, including our interconnected VoIP telephony
service. These regulations and their application are subject to
continual change as new legislation, regulations or amendments
to existing regulations are adopted from time to time by
governmental or regulatory authorities, including as a result of
judicial interpretations of such laws and regulations. Current
regulations directly affect the breadth of services we are able
to offer and may impact the rates, terms and conditions of our
services. FCC spectrum licensing, service and other current or
future rules, or interpretations of current or future rules,
could affect the breadth of the
IP-based
broadband services we are able to offer, including VoIP
telephony, video and certain other services. Regulation of
companies that offer competing services, such as cable and DSL
providers and incumbent telecommunications carriers, also
affects our business indirectly.
In order to provide interconnected VoIP service, we
need to obtain, on behalf of our customers, North American
Numbering Plan telephone numbers, the availability of which may
be limited in certain geographic areas of the United States and
subject to other regulatory restrictions. As an
interconnected VoIP and facilities-based wireless
broadband provider, we are required under FCC rules to comply
with CALEA, which requires service providers to build certain
capabilities into their networks and to accommodate wiretap
requests from law enforcement agencies. We are also required to
comply with FCC number portability and discontinuance of service
rules.
In addition, the FCC or other regulatory authorities may in the
future restrict our ability to manage subscribers use of
our network, thereby limiting our ability to prevent or manage
subscribers excessive bandwidth demands. To maintain the
quality of our network and user experience, we manage our
network by limiting the bandwidth used by our subscribers during
periods of network congestion. These practices are set forth in
our Acceptable Use Policy. Some providers and users have
objected to network management practices of telecommunications
carriers. If the FCC or other regulatory authorities were to
adopt regulations that constrain our ability to employ bandwidth
management practices, excessive bandwidth use would likely
reduce the quality of our services for all subscribers. A
decline in the quality of our services could harm our business,
or even result in litigation from dissatisfied subscribers.
In certain of our international markets, we may be required to
obtain a license for the use of regulated radio frequencies from
national, provincial or local regulatory authorities before
providing our services. Where required, regulatory authorities
may have significant discretion in granting the licenses and in
determining the conditions for use of the frequencies covered by
the licenses, and are often under no obligation to renew the
licenses when they expire. Additionally, even where we currently
hold a license or successfully obtain a license in the future,
we may be required to seek modifications to the license or the
regulations applicable to the license to implement our business
strategy. For example, in certain international markets, the
licenses we hold, and the applicable rules and regulations,
currently do not specifically permit us to provide mobile
services. Thus, before offering mobile services to our
subscribers in those markets, absent action by the regulatory
authorities to modify the licenses and applicable rules, we may
need to obtain the approval of the proper regulatory authorities.
The breach of a license or applicable law, even if inadvertent,
can result in the revocation, suspension, cancellation or
reduction in the term of a license or the imposition of fines.
In addition, regulatory authorities may grant new licenses to
third parties, resulting in greater competition in territories
where we already have rights to licensed spectrum. In order to
promote competition, the FCC or other regulatory authorities may
also require that third parties be granted access to our
bandwidth, frequency capacity, facilities or services. We may
not be able to obtain or retain any required license, and we may
not be able to renew our licenses on favorable terms, or at all.
36
We may
be unable to protect our intellectual property, which could
reduce the value of our services and our brand.
Our ability to compete effectively depends on our ability to
protect our proprietary network and system designs. We may not
be able to safeguard and maintain our proprietary rights. We
rely on patents, trademarks and policies and procedures related
to confidentiality to protect our intellectual property. Some of
our intellectual property, however, is not covered by any of
these protections. Any failure to protect our intellectual
property, including a failure to obtain requested patents or
trademark registrations, may reduce the value of our services
and our brand or may result in the loss of rights in which we
have invested significant time or costs.
Our pending patent applications may not be granted or, in the
case of patents issued or to be issued, the claims allowed may
not be sufficiently broad to protect our intellectual property.
Even if all of our patent applications were issued and were
sufficiently broad, our patents may be challenged or
invalidated. In addition, the United States Patent and Trademark
Office may not grant federal registrations based on our pending
trademark applications. Even if federal registrations are
granted, these trademark rights may be challenged. Moreover,
patent and trademark applications filed in foreign countries may
be subject to laws, rules and procedures that are substantially
different from those of the United States, and any foreign
patents may be difficult and expensive to obtain and enforce. We
could, therefore, incur substantial costs in prosecuting patent
and trademark infringement suits or otherwise protecting our
intellectual property rights.
We
could be subject to claims that we have infringed on the
proprietary rights of others, which claims would likely be
costly to defend, could require us to pay damages and could
limit our ability to use necessary technologies in the
future.
Competitors or other persons may have independently developed or
patented technologies or processes that are substantially
equivalent or superior to ours or that are necessary to permit
us to deploy and operate our network, whether based on legacy or
mobile WiMAX technology, or to offer additional services, such
as VoIP, or competitors may develop or patent such technologies
or processes in the future. These persons may claim that our
services and products infringe on these patents or other
proprietary rights. For instance, certain third parties claim
that they hold patents relating to certain aspects of mobile
WiMAX and VoIP technology. These third parties may seek to
enforce these patent rights against the operators of mobile
WiMAX networks and VoIP telephony service providers, such as us.
Defending against infringement claims can be time consuming,
distracting and costly, even if the claims prove to be without
merit. If we are found to be infringing the proprietary rights
of a third party, we could be enjoined from using such third
partys rights, may be required to pay substantial
royalties and damages, and may no longer be able to use the
intellectual property subject to such rights on acceptable terms
or at all. Failure to obtain licenses to intellectual property
held by third parties on reasonable terms, or at all, could
delay or prevent the development or deployment of our services
and could cause us to expend significant resources to develop or
acquire non-infringing intellectual property.
Our
business will depend on a strong brand, and if we do not
develop, maintain and enhance our brands, our ability to attract
and retain subscribers may be impaired and our business and
operating results may be adversely affected.
We believe that our brands will be a critical part of our
business. Developing, maintaining and enhancing our brands may
require us to make substantial investments with no assurance
that these investments will be successful. If we fail to
develop, promote and maintain strong brands, or if we incur
significant expenses to promote the brands and are still
unsuccessful in maintaining a strong brand, our business,
prospects, operating results and financial condition may be
adversely affected. We anticipate that developing, maintaining
and enhancing our brands will become increasingly important,
difficult and expensive now that we are focused on promoting and
marketing our 4G services under the
CLEARtm
brand.
Our
businesses outside the United States operate in a competitive
environment different than the environment within the United
States. Any difficulties in managing these businesses could
occupy a disproportionate amount of our managements
attention and disrupt our operations.
We operate or hold spectrum outside of the United States through
our subsidiaries in Belgium, Ireland, Germany, Poland and Spain
and an investment in Mexico. Subject to the limitations imposed
by the Equityholders
37
Agreement, we may elect to pursue additional opportunities in
certain international markets through acquisitions and strategic
alliances; however, our focus will be on markets within the
United States. Our activities outside the United States operate
in different environments than we face in the United States,
particularly with respect to regulation of competition and
spectrum. Due to these differences, our activities outside the
United States may require a disproportionate amount of our
management and financial resources, which could disrupt our
operations and adversely affect our business elsewhere.
In a number of international markets, we face substantial
competition from local service providers that offer or may offer
their own wireless broadband or VoIP telephony services and from
other companies that provide Internet connectivity services. We
may face heightened challenges in gaining market share,
particularly in certain European countries, where a large
portion of the population already has broadband Internet
connectivity and incumbent companies already have a dominant
market share in their service areas. Furthermore, foreign
providers of competing services may have a substantial advantage
over us in attracting subscribers due to a more established
brand, greater knowledge of local subscribers preferences
and access to significant financial or strategic resources.
In addition, in some international markets, foreign governmental
authorities may own or control the incumbent telecommunications
companies operating under their jurisdiction. Established
relationships between government-owned or government-controlled
telecommunications companies and their traditional local
telecommunications providers often limit access of third parties
to these markets. The successful expansion of our international
operations in some markets may depend on our ability to locate,
form and maintain strong relationships with established local
communication services and equipment providers. Failure to
establish these relationships or to market or sell our products
and services successfully could limit our ability to attract
subscribers to our services.
We
rely on highly skilled executives and other personnel. If we
cannot retain and motivate key personnel, we may be unable to
implement our business strategy.
Our future success depends largely on the expertise and
reputation of the members of our senior management team. In
addition, we intend to hire additional highly skilled
individuals to staff our operations and our support functions.
Loss of any of our key personnel or the inability to recruit and
retain qualified individuals for our domestic and international
operations could adversely affect our ability to implement our
business strategy and operate our business. Additionally, we
have undergone a number of changes in our senior management team
in recent periods, and we face the risk that some members of our
senior management team will not integrate into our operations as
quickly or perform as successfully as we would expect.
Mandatory
tax distributions may deprive Clearwire Communications of funds
that are required in its business.
Under the Operating Agreement, Clearwire Communications will
make distributions to its members, generally on a pro rata basis
in proportion to the number of Clearwire Communications
Class A Common Interests and Clearwire Communications
Class B Common Interests, which we refer to collectively as
the Clearwire Communications Non-Voting Interests, held by each
member, in amounts so that the aggregate portion distributed to
Clearwire in each instance will be the amount necessary to pay
all taxes then reasonably determined by Clearwire to be payable
with respect to its distributive share of the taxable income of
Clearwire Communications (including any items of income, gain,
loss or deduction allocated to Clearwire under the principles of
Section 704(c) of the Internal Revenue Code of 1986, which
we refer to as the Code), after taking into account all net
operating loss deductions and other tax benefits reasonably
expected to be available to Clearwire. These mandatory tax
distributions, which must be made on a pro rata basis to all
members even if those members are allocated less income,
proportionately, than is Clearwire, may deprive Clearwire
Communications of funds that are required in its business.
The
ability of Clearwire to use its net operating losses to offset
its income and gain is subject to limitation. If use of its net
operating losses are limited, there is an increased likelihood
that Clearwire Communications will be required to make a tax
distribution to Clearwire.
Any limitation on the ability of Clearwire to use its net
operating losses, which we refer to as NOLs, to offset income
allocable to Clearwire increases the likelihood that Clearwire
Communications will be required to make a tax distribution to
Clearwire. If Clearwire Communications does not have sufficient
liquidity to make those distributions, it may be forced to
borrow funds, issue equity or sell assets on terms that are
unfavorable to Clearwire
38
Communications. Sales of assets in order to enable Clearwire
Communications to make the necessary distributions could further
increase the tax liability of Clearwire, resulting in the need
to make additional distributions and, as discussed below,
possible additional tax loans to Sprint.
At present, Clearwire has substantial NOLs for United States
federal income tax purposes. In particular, we believe that
Clearwires cumulative tax loss as of December 31,
2009, for United States federal income tax purposes, was
approximately $1.6 billion. A portion of Clearwires
NOLs is subject to certain annual limitations imposed under
Section 382 of the Code. Subject to the existing
Section 382 limitations, and the possibility that further
limitations under Sections 382 and 384 may arise after
the Closing (as a result of the Rights Offering or other future
transactions), Clearwires NOLs generally will be available
to offset items of income and gain allocated to Clearwire by
Clearwire Communications.
The use by Clearwire of its NOLs may be further limited if
Clearwire is affected by an ownership change, within
the meaning of Section 382 of the Code. Broadly, Clearwire
will have an ownership change if, over a three-year period, the
portion of the stock of Clearwire, by value, owned by one or
more five-percent stockholders increases by more
than 50 percentage points. Clearwire believes that the
Rights Offering may cause an ownership change. An exchange by an
Investor of Clearwire Communications Class B Common
Interests and Class B Common Stock for Class A Common
Stock may also cause or contribute to an ownership change of
Clearwire. Clearwire has no control over the timing of any such
exchange. If Clearwire undergoes an ownership change, then the
amount of the pre-ownership change NOLs of Clearwire that may be
used to offset income of Clearwire arising in each taxable year
after the ownership change generally will be limited to the
product of the fair market value of the stock of Clearwire at
the time of the ownership change and a specified rate based on
long-term tax-exempt bond yields.
Separately, under Section 384 of the Code, Clearwire may
not be permitted to offset built-in gain in assets acquired by
it in certain tax-free transactions, if the gain is recognized
within five years of the acquisition of the built-in gain
assets, with NOLs arising before the acquisition of the built-in
gain assets. Section 384 may apply to built-in gain to
which Clearwire succeeds in the case of a holding company
exchange by an Investor.
Tax
loans that Clearwire Communications may be required to make to
Sprint in connection with the sale of certain former Sprint
built-in gain assets may deprive Clearwire Communications of
funds that are required to operate its business.
Under the Operating Agreement, if Clearwire Communications or
any of its subsidiaries enters into a transaction that results
in the recognition of any portion of the built-in gain with
respect to a former Sprint asset (other than in connection with
the dissolution of Clearwire Communications or the disposition
of certain specified Sprint assets), Clearwire Communications
will be required, upon delivery by Sprint of a timely request
therefore, to make a tax loan to Sprint on the terms set forth
in the Operating Agreement. The principal amount of any tax loan
to Sprint will be the amount by which the built-in gain
recognized by Sprint on the sale of former Sprint assets exceeds
any tax losses allocated by Clearwire Communications to Sprint
in the taxable year in which the sale of such built in gain
assets occurs, multiplied by then-highest marginal federal and
state income tax rates applicable to corporations resident in
the state in which Sprints principal corporate offices are
located (taking into account the deductibility of state taxes
for federal income tax purposes). Interest on any tax loan will
be payable by Sprint to Clearwire Communications semiannually at
a floating rate equal to the higher of (a) the interest
rate for Clearwire Communications unsecured floating rate
indebtedness and (b) the interest rate for Sprints
unsecured floating rate indebtedness plus 200 basis points.
Principal on any tax loan to Sprint is payable in equal annual
installments from the tax loan date to the later of (x) the
15th anniversary of the Closing or (y) the first
anniversary of the tax loan date. Any tax loan that Clearwire
Communications is required to make to Sprint may deprive
Clearwire Communications of funds that are required in its
business.
The
tax allocation methods adopted by Clearwire Communications are
likely to result in disproportionate allocations of taxable
income.
Clearwire and Sprint have contributed to Clearwire
Communications assets that have a material amount of built-in
gain for income tax purposes meaning that the fair
market value ascribed to those assets at the time of
contribution, as reflected in the initial capital account
balances and percentage interests in Clearwire Communications
received by Clearwire and Sprint, is greater than the current
basis of those assets for tax purposes. For this
39
purpose, the fair market value ascribed to those assets at the
time of contribution was calculated based upon a value of $17
per Clearwire Communications Non-Voting Interest plus
liabilities assumed by Clearwire Communications at the time of
contribution. We refer to contributed assets that have a fair
market value that exceeds the tax basis of those assets on the
date of contribution as built-in gain assets. Under
Section 704(c) of the Code, items of income, gain, loss or
deduction of Clearwire Communications must be allocated among
its members for tax purposes in a manner that takes account of
the difference between the tax basis and the fair market value
of the built-in gain assets. The built-in gain assets of
Clearwire Communications with the largest amounts of built-in
gain are spectrum and other intangible assets.
Clearwire Communications will maintain a capital account for
each member, which will reflect the fair market value of the
property contributed by that member to Clearwire Communications
and the amount of which generally will correspond to the
members percentage interest in Clearwire Communications.
For capital account purposes, Clearwire Communications will
amortize the value of the contributed built-in gain assets,
generally on a straight-line basis over a period of up to
15 years, and each member will be allocated amortization
deductions, generally on a pro rata basis in proportion to the
number of Clearwire Communications Non-Voting Interests held by
the member as compared to the total number of Clearwire
Communications Non-Voting Interests. Tax amortization on a
built-in gain asset, which will be based on the tax basis of
that asset, will be allocated first to the non-contributing
members (meaning members other than Clearwire, in the case of
former Clearwire assets, and members other than Sprint, in the
case of former Sprint assets), in an amount up to the capital
account amortization allocated to that member with respect to
that asset. Thus, the consequence of the built-in gain will be
that Clearwire, in the case of former Clearwire assets, will be
allocated amortization deductions for tax purposes that are less
than its share of the capital account amortization with respect
to those assets. In this circumstance, Clearwire will recognize
over time, in the form of lower tax amortization deductions, the
built-in gain for which it was given economic credit at the time
of formation of Clearwire Communications.
If there is not enough tax basis in a built-in gain asset to
make tax allocations of amortization deductions to the
non-contributing members in an aggregate amount equal to their
capital account amortization with respect to that asset, then
the regulations under Section 704(c) of the Code permit the
members to choose one of several methods to account for this
difference. Under the Operating Agreement all of the built-in
gain assets contributed by Clearwire and 50% of the built-in
gain in the assets contributed by Sprint will be accounted for
under the so-called remedial method. Under that
method, the non-contributing members will be allocated
phantom tax amortization deductions in the amount
necessary to cause their tax amortization deductions to be equal
to their capital account amortization on the built-in gain
asset, and the contributing member (Clearwire, in the case of
Old Clearwire assets) will be allocated a matching item of
phantom ordinary income. The remedial method is intended to
ensure that the entire tax burden with respect to the built-in
gain on a built-in gain asset is borne by the contributing
member. Under the Operating Agreement, the remaining 50% of the
built-in gain in the assets contributed by Sprint will be
accounted for under the so-called traditional
method. Under that method, the tax amortization deductions
allocated to the non-contributing members with respect to a
built-in gain asset are limited to the actual tax amortization
arising from the built-in gain asset. The effect of the
traditional method is that some of the tax burden with respect
to the built-in gain on a built-in gain asset is shifted to the
non-contributing members, in the form of reduced tax
amortization deductions.
The use of the remedial method for all of the Old Clearwire
assets, but for only a portion of the former Sprint assets,
means that Clearwire will bear the entire tax burden with
respect to the built-in gain on the Old Clearwire assets, and
will have shifted to it a portion of the tax burden with respect
to the built-in gain on the former Sprint assets. Accordingly,
Clearwire is likely to be allocated a share of the taxable
income of Clearwire Communications that exceeds its
proportionate economic interest in Clearwire Communications, and
Clearwire may incur a material liability for taxes. However,
subject to the existing and possible future limitations on the
use of Clearwires NOLs under Section 382 and
Section 384 of the Code, Clearwires NOLs are
generally expected to be available to offset, to the extent of
these NOLs, items of income and gain allocated to Clearwire by
Clearwire Communications. See Risk Factors The
ability of Clearwire to use its NOLs to offset its income and
gain is subject to limitation. If use of its NOLs is limited,
there is an increased likelihood that Clearwire Communications
will be required to make a tax distribution to Clearwire
beginning on page 39. Clearwire Communications is required to
make distributions to Clearwire in amounts necessary to pay all
taxes reasonably determined by Clearwire to be payable with
respect to its distributive share of the taxable income of
Clearwire Communications, after taking into
40
account the NOL deductions and other tax benefits reasonably
expected to be available to Clearwire. See the sections titled
Risk Factors Mandatory tax distributions may
deprive Clearwire Communications of funds that are required in
its business and Certain Relationships and Related
Transactions, and Director Independence beginning on
pages 38 and 127, respectively, of this report.
Sales
of certain former Clearwire assets by Clearwire Communications
may trigger taxable gain to Clearwire.
If Clearwire Communications sells, in a taxable transaction, an
Old Clearwire asset that had built-in gain at the time of its
contribution to Clearwire Communications, then, under
Section 704(c) of the Code, the tax gain on the sale of the
asset generally will be allocated first to Clearwire in an
amount up to the remaining (unamortized) portion of the built-in
gain on the Old Clearwire asset. Under the Operating Agreement,
unless Clearwire Communications has a bona fide non-tax business
need (as defined in the Operating Agreement), Clearwire
Communications will not enter into a taxable sale of Old
Clearwire assets that are intangible property and that would
cause Clearwire to be allocated under Section 704(c) more
than $10 million of built-in gains during any
36-month
period. For this purpose, Clearwire Communications will have a
bona fide non-tax business need with respect to the sale of Old
Clearwire assets, if (1) the taxable sale of the Old
Clearwire assets will serve a bona fide business need of
Clearwire Communications wireless broadband business and
(2) neither the taxable sale nor the reinvestment or other
use of the proceeds is significantly motivated by the desire to
obtain increased income tax benefits for the members or to
impose income tax costs on Clearwire. Accordingly, Clearwire may
recognize built-in gain on the sale of Old Clearwire assets
(1) in an amount up to $10 million, in any
36-month
period, and (2) in greater amounts, if the standard of bona
fide non-tax business need is satisfied. If Clearwire
Communications sells Old Clearwire assets with unamortized
built-in gain, then Clearwire is likely to be allocated a share
of the taxable income of Clearwire Communications that exceeds
its proportionate economic interest in Clearwire Communications,
and may incur a material liability for taxes. However, subject
to the existing and possible future limitations on the use of
Clearwires NOLs under Section 382 and
Section 384 of the Code, Clearwires NOLs are
generally expected to be available to offset, to the extent of
these NOLs, items of income and gain allocated to Clearwire by
Clearwire Communications. See the section titled Risk
Factors The ability of Clearwire to use its net
operating losses to offset its income and gain is subject to
limitation If use of its NOLs is limited, there is an increased
likelihood that Clearwire Communications will be required to
make a tax distribution to Clearwire beginning on
page 39 of this report. Clearwire Communications is
required to make distributions to Clearwire in amounts necessary
to pay all taxes reasonably determined by Clearwire to be
payable with respect to its distributive share of the taxable
income of Clearwire Communications, after taking into account
the NOL deductions and other tax benefits reasonably expected to
be available to Clearwire. See the sections titled Risk
Factors Mandatory tax distributions may deprive
Clearwire Communications of funds that are required in its
business and Certain Relationships and Related
Transactions, and Director Independence beginning on
pages 38 and 127, respectively, of this report.
Sprint
and the Investors may shift to Clearwire the tax burden of
additional built-in gain through a holding company
exchange.
Under the Operating Agreement, Sprint or an Investor may affect
an exchange of Clearwire Communications Class B Common
Interests and Class B Common Stock for Class A Common
Stock by transferring to Clearwire a holding company that owns
the Clearwire Communications Class B Common Interests and
Class B Common Stock in a transaction intended to be
tax-free for United States federal income tax purposes (which
the Operating Agreement refers to as a holding company
exchange). In particular, if Clearwire, as the managing member
of Clearwire Communications, has approved a taxable sale by
Clearwire Communications of former Sprint assets that are
intangible property and that would cause Sprint to be allocated
under Section 704(c) of the Code more than $10 million
of built-in gain during any
36-month
period, then, during a specified 15-business-day period,
Clearwire Communications will be precluded from entering into
any binding contract for the taxable sale of the former Sprint
assets, and Sprint will have the right to transfer Clearwire
Communications Class B Common Interests and Class B
Common Stock to one or more holding companies, and to transfer
those holding companies to Clearwire in holding company
exchanges. In any holding company exchange, Clearwire will
succeed to all of the built-in gain and other tax
characteristics associated with the transferred Clearwire
Communications Class B Common Interests, including
(1) in the case of a transfer by Sprint, any remaining
portion of the built-in gain existing at the formation of
41
Clearwire Communications and associated with the transferred
Clearwire Communications Class B Common Interests, and any
Section 704(c) consequences associated with that built-in
gain, and (2) in the case of any transfer, any built-in
gain arising after the formation of Clearwire Communications and
associated with the transferred Clearwire Communications
Class B Common Interests. Section 384 of the Code may
limit the ability of Clearwire to use its NOLs arising before
the holding company exchange to offset any built-in gain of
Sprint or an Investor to which Clearwire succeeds in such an
exchange. Accordingly, Clearwire may incur a material liability
for taxes as a result of a holding company exchange, even if it
has substantial NOLs. Clearwire Communications is required to
make distributions to Clearwire in amounts necessary to pay all
taxes reasonably determined by Clearwire to be payable with
respect to its distributive share of the taxable income of
Clearwire Communications, after taking into account the NOL
deductions and other tax benefits reasonably expected to be
available to Clearwire. See the sections titled Risk
Factors Mandatory tax distributions may deprive
Clearwire Communications of funds that are required in its
business beginning on page 38 and Certain
Relationships and Related Transactions, and Director
Independence beginning on page 127 of this report.
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
There were no unresolved staff comments as of December 31,
2009.
Our executive offices are currently located in the Kirkland,
Washington area, where we lease approximately
185,000 square feet of space. The leases for our executive
offices expire at various dates through 2019.
We believe that substantially all of our property and equipment
is in good condition, subject to normal wear and tear. We
believe that our current facilities have sufficient capacity to
meet the projected needs of our business for the next
12 months.
The following table lists our significant leased properties and
the inside square footage of those properties:
|
|
|
|
|
|
|
Approximate Size
|
|
City, State (Function)
|
|
(Square Feet)
|
|
|
Kirkland, WA area (headquarters and administrative)
|
|
|
185,000
|
|
Herndon, VA (administrative and WiMAX lab)
|
|
|
130,000
|
|
Las Vegas, NV (call center)
|
|
|
55,000
|
|
Henderson, NV (administrative and warehouse space)
|
|
|
53,000
|
|
Milton, FL (call center)
|
|
|
40,000
|
|
We lease additional office space in many of our current and
planned markets. We also lease approximately 120 retail stores
and mall kiosks. Our retail stores, excluding mall kiosks, range
in size from approximately 480 square feet to
2,800 square feet, with leases having terms typically from
three to seven years. Internationally, as of December 31,
2009, we also have offices in Dublin, Ireland; Bucharest,
Romania; Brussels, Belgium; Madrid, Spain and Warsaw, Poland.
The Herndon, VA location has
sub-let a
small portion of the facility to certain of its key WiMAX
infrastructure vendors, including Intel, Motorola and Samsung,
for the purpose of ensuring close collaboration on WiMAX
development with those vendors.
|
|
ITEM 3.
|
Legal
Proceedings
|
As more fully described below, we are involved in a variety of
lawsuits, claims, investigations and proceedings concerning
intellectual property, business practices, commercial and other
matters. We determine whether we should accrue an estimated loss
for a contingency in a particular legal proceeding by assessing
whether a loss is deemed probable and can be reasonably
estimated. We reassess our views on estimated losses on a
quarterly basis to reflect the impact of any developments in the
matters in which we are involved. Legal proceedings are
inherently unpredictable, and the matters in which we are
involved often present complex legal and factual issues. We
vigorously pursue defenses in legal proceedings and engage in
discussions where possible to resolve these matters on terms
favorable to us. It is possible, however, that our business,
financial condition and results of operations in future periods
could be materially affected by increased litigation expense,
significant settlement costs
and/or
unfavorable damage awards.
42
On December 1, 2008, Adaptix, Inc., which we refer to as
Adaptix, filed suit for patent infringement against us and
Sprint in the United States District Court for the Eastern
District of Texas, alleging that we and Sprint infringed six
patents purportedly owned by Adaptix. On February 10, 2009,
Adaptix filed an Amended Complaint alleging infringement of a
seventh patent. Adaptix alleges that by offering 4G mobile WiMAX
services to subscribers in compliance with the 802.16e WiMAX
standard, and by making, using
and/or
selling the supporting WiMAX network used to provide such WiMAX
services, we and Sprint infringe the seven patents. Adaptix is
seeking monetary damages, attorneys fees and a permanent
injunction enjoining us from further acts of alleged
infringement. On February 25, 2009, we filed an Answer to
the Amended Complaint, denying infringement and asserting
several affirmative defenses, including that the asserted
patents are invalid. We filed an Amended Answer on June 25,
2009, adding a counter-claim for declaratory judgment of
non-infringement and invalidity of the subject patents. A trial
is scheduled for December 2010, and the parties commenced
discovery in early 2009. On December 21, 2009, Adaptix
filed but did not serve an additional suit for patent
infringement in the United States District Court for the
Eastern District of Texas. That suit alleges infringement of one
patent related to those asserted in the previously filed suit.
We have not been served and therefore have not appeared in the
newly-filed suit. On February 23, 2010, we reached a
resolution with Adaptix and Sprint regarding Adaptixs
patent infringement litigations pending in the United States
District Court for the Eastern District of Texas, whereby the
pending litigations will be dismissed without prejudice.
On April 22, 2009, a purported class action lawsuit was
filed against us in Superior Court in King County, Washington by
a group of five plaintiffs from Hawaii, Minnesota, North
Carolina and Washington. The lawsuit generally alleges that we
disseminated false advertising about the quality and reliability
of our services; imposed an unlawful early termination fee; and
invoked unconscionable provisions of our Terms of Service to the
detriment of customers. Among other things, the lawsuit seeks a
determination that the alleged claims may be asserted on a
class-wide
basis; an order declaring certain provisions of our Terms of
Service, including the early termination fee provision, void and
unenforceable; an injunction prohibiting us from collecting
early termination fees and further false advertising;
restitution of any early termination fees paid by our
subscribers; equitable relief; and an award of unspecified
damages and attorneys fees. On May 27, 2009, an
amended complaint was filed and served, adding seven additional
plaintiffs, including individuals from New Mexico, Virginia and
Wisconsin. On June 2, 2009, plaintiffs served the amended
complaint. We removed the action to the United States District
Court for the Western District of Washington. On July 23,
2009, we filed a motion to dismiss the amended complaint. The
Court stayed discovery pending its ruling on the motion. The
Court granted our motion to dismiss in its entirety on
February 2, 2010. Plaintiffs have 30 days to move the
Court for leave to amend the complaint. Whether plaintiffs will
seek such leave is not determinable at this time.
On September 1, 2009, we were served with a purported class
action lawsuit filed in King County Superior Court. The
complaint alleges we placed unlawful telephone calls using
automatic dialing and announcing devices. It seeks declaratory,
injunctive,
and/or
equitable relief and statutory damages under federal and state
law. On October 1, 2009, we removed the case to the United
States District Court for the Western District of Washington. On
October 22, 2009, the Court issued a stipulated order
granting plaintiff until October 29, 2009 to file an
Amended Complaint. The parties further stipulated to allow a
Second Amended Complaint, which plaintiffs filed on
December 23, 2009. We then filed a motion to dismiss that
was fully briefed on January 15, 2010. Prior to the Court
ruling on the motion to dismiss, plaintiff moved the Court for
leave to file a further amended complaint. On February 22,
2010 the Court granted our motion to dismiss in part, dismissing
certain claims with prejudice and granting plaintiff
20 days to amend the complaint. The Court dismissed
plaintiffs motion for leave to amend as moot. This case is
in the early stages of litigation, and its outcome is unknown.
In addition to the matters described above, we are often
involved in certain other proceedings which arise in the
ordinary course of business and seek monetary damages and other
relief. Based upon information currently available to us, none
of these other claims are expected to have a material adverse
effect on our business, financial condition or results of
operations.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of the stockholders
during the period.
43
PART II
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
|
Market
Prices of Common Stock
Our Class A Common Stock is traded on the NASDAQ Global
Select Market under the symbol CLWR. Prior to the
closing of the Transactions, we were not publicly listed. The
following table sets forth the quarterly high and low sales
prices of Class A Common Stock as reported on the NASDAQ
Global Select Market for the trading period of December 1,
2008, following the closing of the Transactions (the date at
which we became a publicly listed company), through
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Period From December 1, 2008 to December 31, 2008
|
|
$
|
7.80
|
|
|
$
|
3.24
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
5.15
|
|
|
$
|
2.79
|
|
Second Quarter
|
|
$
|
6.50
|
|
|
$
|
4.24
|
|
Third Quarter
|
|
$
|
9.25
|
|
|
$
|
5.27
|
|
Fourth Quarter
|
|
$
|
8.26
|
|
|
$
|
5.43
|
|
The last reported sales price of our Class A Common Stock
on the NASDAQ Global Select Market on February 19, 2010 was
$6.97.
As of February 19, 2010 there were 151 holders of record of
Class A Common Stock. As many shares of Class A Common
Stock are held by brokers and other institutions on behalf of
shareholders, we are unable to estimate the total number of
beneficial holders of Class A Common Stock represented by
these record holders.
There is currently no established public trading market for our
Class B Common Stock.
Class A
Common Stock Repurchases
There were no Class A Common Stock repurchases during the
period.
Equity
Compensation Plan
In connection with the closing of the Transactions, we assumed
the Old Clearwire 2008 Stock Compensation Plan, the Old
Clearwire 2007 Stock Compensation Plan and the Old Clearwire
2003 Stock Option Plan.
The table below presents information as of December 31,
2009 for our equity compensation plans, which was previously
approved by Old Clearwires stockholders. We do not have
any equity compensation plans that have not been approved by
stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
|
|
|
for Future Issuance
|
|
|
|
To Be Issued Upon
|
|
|
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options
|
|
|
|
|
|
(Excluding
|
|
|
|
And Vesting of
|
|
|
Weighted Average
|
|
|
Securities
|
|
|
|
Restricted
|
|
|
Exercise Price
|
|
|
Reflected in the
|
|
Plan Category
|
|
Stock Units(1)
|
|
|
of Options(3)
|
|
|
First Column)
|
|
|
Equity compensation plans approved by stockholders
|
|
|
33,390,925
|
(2)
|
|
$
|
11.09
|
|
|
|
62,229,805
|
|
|
|
|
(1) |
|
All of the securities were acquired in connection with the
closing of the Transactions. |
|
(2) |
|
Our equity compensation plans authorize the issuance of stock
options, stock appreciation rights, restricted stock, restricted
stock units, and other stock-based awards. Of these shares,
11,853,194 are to be issued upon the exercise of outstanding
options and 21,537,731 are to be issued pursuant to the vesting
of outstanding restricted stock units. |
44
|
|
|
(3) |
|
As there is no exercise price for restricted stock units, this
price represents the weighted average exercise price of stock
options only. |
Dividend
Policy
We have not declared or paid any cash dividends on our
Class A Common Stock since the closing of the Transactions.
We currently expect to retain future earnings, if any, for use
in the operation and expansion of our business. We do not
anticipate paying any cash dividends in the foreseeable future.
In addition, covenants in the indenture governing our Senior
Secured Notes impose significant restrictions on our ability to
pay dividends to our stockholders.
Performance
Graph
The graph below compares the annual percentage change in the
cumulative total return on our Class A Common Stock with
the NASDAQ Composite Index and the NASDAQ Telecom Index. The
graph shows the value as of December 31, 2009, of $100
invested on December 1, 2008, the day our stock was first
publicly traded, in Class A Common Stock, the NASDAQ
Composite Index and the NASDAQ Telecom Index.
Comparison
of Cumulative Total Returns
Among Clearwire, NASDAQ Composite Index, and NASDAQ Telecom
Index
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12/31/08
|
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|
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1/31/09
|
|
|
|
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2/28/09
|
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|
|
3/31/09
|
|
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4/30/09
|
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5/31/09
|
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6/30/09
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7/31/09
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8/31/09
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9/30/09
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10/31/09
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11/30/09
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12/31/09
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|
Clearwire
|
|
|
$
|
100.00
|
|
|
|
$
|
81.14
|
|
|
|
$
|
65.31
|
|
|
|
$
|
104.46
|
|
|
|
$
|
112.37
|
|
|
|
$
|
90.26
|
|
|
|
$
|
112.17
|
|
|
|
$
|
164.30
|
|
|
|
$
|
155.38
|
|
|
|
$
|
164.91
|
|
|
|
$
|
126.98
|
|
|
|
$
|
114.81
|
|
|
|
$
|
137.12
|
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NASDAQ Composite Index
|
|
|
$
|
100.00
|
|
|
|
$
|
93.62
|
|
|
|
$
|
87.37
|
|
|
|
$
|
96.93
|
|
|
|
$
|
108.89
|
|
|
|
$
|
112.51
|
|
|
|
$
|
116.36
|
|
|
|
$
|
125.46
|
|
|
|
$
|
127.40
|
|
|
|
$
|
134.58
|
|
|
|
$
|
129.68
|
|
|
|
$
|
135.99
|
|
|
|
$
|
143.89
|
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|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Telecom Index
|
|
|
$
|
100.00
|
|
|
|
$
|
98.01
|
|
|
|
$
|
91.14
|
|
|
|
$
|
103.14
|
|
|
|
$
|
124.06
|
|
|
|
$
|
128.22
|
|
|
|
$
|
128.56
|
|
|
|
$
|
140.57
|
|
|
|
$
|
138.29
|
|
|
|
$
|
145.25
|
|
|
|
$
|
135.71
|
|
|
|
$
|
141.30
|
|
|
|
$
|
148.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
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|
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45
|
|
ITEM 6.
|
Selected
Financial Data
|
The following selected historical financial data are derived
from our audited financial statements and related notes that are
included elsewhere in this report. The information set forth
below should be read in conjunction with our historical
financial statements, including the notes thereto, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in
this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
274,458
|
|
|
$
|
20,489
|
|
|
$
|
|
|
Cost of goods and services and network costs (exclusive of items
shown separately below)
|
|
|
422,116
|
|
|
|
131,489
|
|
|
|
48,865
|
|
Selling, general and administrative expense
|
|
|
568,063
|
|
|
|
150,940
|
|
|
|
99,490
|
|
Depreciation and amortization
|
|
|
208,263
|
|
|
|
58,146
|
|
|
|
3,979
|
|
Spectrum lease expense
|
|
|
259,359
|
|
|
|
90,032
|
|
|
|
60,051
|
|
Transaction related expenses
|
|
|
|
|
|
|
82,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,457,801
|
|
|
|
513,567
|
|
|
|
212,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,183,343
|
)
|
|
|
(493,078
|
)
|
|
|
(212,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,691
|
|
|
|
1,091
|
|
|
|
|
|
Interest expense
|
|
|
(69,468
|
)
|
|
|
(16,545
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(10,014
|
)
|
|
|
(22,208
|
)
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(69,791
|
)
|
|
|
(37,662
|
)
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,253,134
|
)
|
|
|
(530,740
|
)
|
|
|
(208,363
|
)
|
Income tax provision
|
|
|
(712
|
)
|
|
|
(61,607
|
)
|
|
|
(16,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,253,846
|
)
|
|
|
(592,347
|
)
|
|
|
(224,725
|
)
|
Less: non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
928,264
|
|
|
|
159,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation
|
|
$
|
(325,582
|
)
|
|
$
|
(432,626
|
)
|
|
$
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per Clearwire Corporation Class A Common Share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.72
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.74
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Clearwire Corporation Class A Common
Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
194,696
|
|
|
|
189,921
|
|
|
|
|
|
Diluted
|
|
|
741,071
|
|
|
|
694,921
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
1,540,030
|
|
|
$
|
574,957
|
|
|
$
|
329,469
|
|
|
|
|
(1) |
|
The year ended December 31, 2008 includes the results of
operations for the Sprint WiMAX Business for the first eleven
months of 2008 prior to the closing of the Transactions and the
results of our operations subsequent to the Closing. The 2007
operations data represents the Sprint WiMAX Business
historical results of operations. |
|
(2) |
|
Prior to the Closing, we had no equity as we were a wholly-owned
division of Sprint. As such, we did not calculate or present net
loss per share for the period from January 1, 2008 to
November 28, 2008 and the year ended December 31,
2007. We have calculated and presented basic and diluted net
loss per share for the period from November 29, 2008
through December 31, 2008 and for the year ended
December 31, 2009. |
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribers:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
595
|
|
|
|
424
|
|
|
|
|
|
Wholesale
|
|
|
46
|
|
|
|
|
|
|
|
|
|
International Retail
|
|
|
47
|
|
|
|
51
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the number of households and business or governmental
entities receiving wireless broadband connectivity through our
network. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,698,017
|
|
|
$
|
1,206,143
|
|
|
$
|
|
|
Investments (short- and long-term)
|
|
|
2,194,348
|
|
|
|
1,920,723
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
2,596,520
|
|
|
|
1,319,945
|
|
|
|
491,896
|
|
Spectrum licenses, net
|
|
|
4,495,134
|
|
|
|
4,471,862
|
|
|
|
2,642,590
|
|
Total assets
|
|
|
11,267,853
|
|
|
|
9,124,167
|
|
|
|
3,144,158
|
|
Long-term debt, net
|
|
|
2,714,731
|
|
|
|
1,350,498
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,772,368
|
|
|
|
7,502,810
|
|
|
|
2,464,936
|
|
47
CLEARWIRE
CORPORATION AND SUBSIDIARIES
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis should be read in
conjunction with our consolidated financial statements and
related notes included elsewhere in this filing. The following
discussion and analysis contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the
forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below
and elsewhere in this Annual Report on
Form 10-K,
particularly in the section entitled Risk
Factors.
Forward-Looking
Statements
Statements and information included in this Annual Report on
Form 10-K
that are not purely historical are forward-looking statements
within the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995.
Forward-looking statements in this Annual Report on
Form 10-K
represent our beliefs, projections and predictions about future
events. These statements are necessarily subjective and involve
known and unknown risks, uncertainties and other important
factors that could cause our actual results, performance or
achievements, or industry results, to differ materially from any
future results, performance or achievement described in or
implied by such statements. Actual results may differ materially
from the expected results described in our forward-looking
statements, including with respect to the correct measurement
and identification of factors affecting our business or the
extent of their likely impact, the accuracy and completeness of
publicly available information relating to the factors upon
which our business strategy is based or the success of our
business.
When used in this report, the words believe,
expect, anticipate, intend,
estimate, evaluate, opinion,
may, could, future,
potential, probable, if,
will and similar expressions generally identify
forward-looking statements.
Recent
Developments and Overview
As of December 31, 2009, we operated in 61 markets in the
United States and Europe, covering an estimated
44.7 million people. We had approximately 642,000 retail
and 46,000 wholesale subscribers as of December 31, 2009.
We are the first mobile broadband service provider to launch a
4G mobile broadband network in the United States based on the
802.16e standard, which we refer to as mobile WiMAX. The mobile
WiMAX standard facilitates fourth generation wireless services,
which are commonly referred to in the wireless industry as 4G
mobile broadband services. We operated 4G mobile broadband
networks in 27 of our markets in the United States as of
December 31, 2009, covering an estimated population of
34.5 million people. These markets include, among others,
Atlanta, Baltimore, Charlotte, Chicago, Dallas, Honolulu, Las
Vegas, Philadelphia, Portland, Oregon, San Antonio, and
Seattle.
As of December 31, 2009, our other 34 markets continued to
operate with a legacy network technology. Our legacy network
technology is based on a proprietary set of technical standards
offered by a subsidiary of Motorola. This pre-4G technology
offers higher broadband speeds than traditional wireless
carriers, but lacks the mobile functionality of our current 4G
technology. In 2009, we converted 16 of our legacy markets in
the United States to 4G mobile broadband under the
CLEARtm
brand, and we intend to upgrade the majority of our remaining
legacy markets in the United States to 4G technology over the
next year.
During November 2009, we entered into agreements to raise a
total of $4.336 billion, which included a
$1.564 billion equity investment from the Participating
Equityholders and gross proceeds of $2.772 billion from a
debt issuance. The debt issuance allowed us to retire our
existing indebtedness under our Senior Term Loan Facility and
extend our debt maturity into 2015. We intend to use the net
proceeds of this new financing to continue the expansion of our
4G mobile broadband networks. Our current plan is to expand our
4G mobile broadband networks
48
CLEARWIRE
CORPORATION AND SUBSIDIARIES
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
to reach up to 120 million MHz-POPs by the end of 2010 and
launch our 4G mobile broadband network in several new markets
during 2010, including New York, Boston, Washington D.C.,
Houston, and the San Francisco Bay Area. Our actual network
coverage by the end of 2010 will largely be determined by our
ability to successfully manage ongoing development activities
and our performance in our launched markets.
Business
Segments
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, which
we refer to as the CODM, in deciding how to allocate resources
and in assessing performance. Operating segments can be
aggregated for segment reporting purposes so long as certain
aggregation criteria are met. We define the CODM as our Chief
Executive Officer. As our business continues to mature, we
assess how we view and operate our business. Based on the nature
of our operations, we market a product that is basically the
same product across our United States and international markets.
Our CODM assesses and reviews the Companys performance and
makes resource allocation decisions at the domestic and
international levels. For the years ended December 31, 2009
and 2008, we have identified two reportable segments: the United
States and the International business. In 2007, we only had one
reportable business segment: the United States, as we had no
international operations prior to the completion of the
Transactions on November 28, 2008, when Old Clearwire and
the Sprint WiMAX business combined their next generation
wireless broadband businesses to form Clearwire.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with United
States GAAP. The preparation of these consolidated financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates
used, including those related to long-lived assets and
intangible assets, including spectrum, share-based compensation,
and deferred tax asset valuation allowance.
Our accounting policies require management to make complex and
subjective judgments. By their nature, these judgments are
subject to an inherent degree of uncertainty. These judgments
are based on our historical experience, terms of existing
contracts, observance of trends in the industry, information
provided by our customers and information available from other
outside sources, as appropriate. Additionally, changes in
accounting estimates are reasonably likely to occur from period
to period. These factors could have a material impact on our
financial statements, the presentation of our financial
condition, changes in financial condition or results of
operations.
We have identified the following accounting policies and
estimates that involve a higher degree of judgment or complexity
and that we believe are key to an understanding of our financial
statements: spectrum licenses; impairments of long-lived assets;
share-based compensation; accounting for property,
plant & equipment; and the deferred tax asset
valuation allowance.
Spectrum
Licenses
We have three types of arrangements for spectrum licenses: owned
spectrum licenses with indefinite lives, owned spectrum licenses
with definite lives and spectrum leases. While owned spectrum
licenses in the United States are issued for a fixed time,
renewals of these licenses have occurred routinely and at
nominal cost. Moreover, management has determined that there are
currently no legal, regulatory, contractual, competitive,
economic or other factors that limit the useful lives of our
owned spectrum licenses and therefore, the licenses are
accounted for as intangible assets with indefinite lives.
Changes in these factors may have a significant effect on our
assessment of the useful lives of our owned spectrum licenses.
49
CLEARWIRE
CORPORATION AND SUBSIDIARIES
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
We assess the impairment of intangible assets with indefinite
useful lives, consisting primarily of spectrum licenses, at
least annually, or whenever an event or change in circumstances
indicates that the carrying value of such asset or group of
assets may not be recoverable. Our annual impairment testing is
performed as of each October 1st and we perform a
review of the existence of events or changes in circumstances
related to the recoverability of our intangible assets with
indefinite useful lives on a quarterly basis. Factors we
consider important, any of which could trigger an impairment
review, include:
|
|
|
|
|
significant underperformance relative to expected historical or
projected future operating results;
|
|
|
|
significant changes in our use of the assets or the strategy for
our overall business; and
|
|
|
|
significant negative industry or economic trends.
|
Our spectrum licenses in the United States are combined into a
single unit of account for purposes of testing impairment
because management believes that utilizing these licenses as a
group represents the highest and best use of the assets and is
consistent with the managements strategy of utilizing our
spectrum licenses on an integrated basis as part of our
nationwide network.
The impairment test for intangible assets with indefinite useful
lives consists of a comparison of the fair value of the
intangible asset with its carrying amount. We performed our test
of the fair value of spectrum using a discounted cash flow model
(the Greenfield Approach), which approximates value by assuming
a company is started owning only the spectrum licenses, and then
makes investments required to build an operation comparable to
the one in which the licenses are presently utilized. We
utilized a 10 year discrete period to isolate cash flows
attributable to the licenses including modeling the hypothetical
build out. Assumptions key in estimating fair value under this
method include, but are not limited to, revenue and subscriber
growth rates, operating expenditures, capital expenditures,
availability of adequate funding, market share achieved,
terminal value growth rate, tax rates and discount rate. The
assumptions which underlie the development of the network,
subscriber base and other critical inputs of the discounted cash
flow model were based on a combination of average marketplace
participant data and our historical results and business plans.
The discount rate used in the model represents a weighted
average cost of capital taking into account our cost of debt and
equity financing weighted by the percentage of debt and equity
in our target capital structure and the perceived risk
associated with an intangible asset such as our spectrum
licenses. The terminal value growth rate represents our estimate
of the marketplaces long term growth rate. We had no
impairment of our indefinite lived intangible assets in any of
the periods presented. If the projected rate of growth of
revenues and capital expenditures were to decline by 5%, the
fair values of the licenses, while less than currently
projected, would still be higher than their book values. The
accounting estimates for our intangible assets with indefinite
useful lives require management to make significant assumptions
about fair value based on forecasted cash flows that consider
our business and technology strategy, managements views of
growth rates for the business, anticipated future economic and
regulatory conditions and expected technological availability.
If there is a substantial adverse decline in the operating
profitability of the wireless service industry, we could have
material impairment charges in future years which could
adversely affect our results of operations and financial
condition.
Impairments
of Long-lived Assets
We review our long-lived assets to be held and used, including
property, plant and equipment, which we refer to as PP&E,
and intangible assets with definite useful lives, which consists
primarily of spectrum licenses with definite lives, for
recoverability whenever an event or change in circumstances
indicates that the carrying amount of such long-lived asset or
group of long-lived assets may not be recoverable. Such
circumstances include, but are not limited to the following:
|
|
|
|
|
a significant decrease in the market price of the asset;
|
|
|
|
a significant change in the extent or manner in which the asset
is being used;
|
50
CLEARWIRE
CORPORATION AND SUBSIDIARIES
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
|
|
|
|
|
a significant change in the business climate that could affect
the value of the asset;
|
|
|
|
a current period loss combined with projections of continuing
losses associated with use of the asset;
|
|
|
|
a significant change in our business or technology strategy;
|
|
|
|
a significant change in our managements views of growth
rates for our business; and
|
|
|
|
a significant change in the anticipated future economic and
regulatory conditions and expected technological availability.
|
We evaluate quarterly, or as needed, whether such events and
circumstances have occurred. A significant amount of judgment is
involved in determining the occurrence of an indicator of
impairment that requires an evaluation of the recoverability of
our long-lived assets. When such events or circumstances exist,
we would determine the recoverability of the assets
carrying value by estimating the undiscounted future net cash
flows (cash inflows less associated cash outflows) that are
directly associated with and that are expected to arise as a
direct result of the use of the asset. Recoverability analyses,
when performed, are based on forecasted cash flows that consider
our business and technology strategy, managements views of
growth rates for the business, anticipated future economic and
regulatory conditions and expected technological availability.
For purposes of recognition and measurement, we group our
long-lived assets at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other assets and liabilities and we test for impairment
on an aggregate basis for assets in the United States consistent
with the management of the business on a national scope.
If the total of the expected undiscounted future net cash flows
is less than the carrying amount of the asset, a loss, if any,
is recognized for the difference between the fair value of the
asset and its carrying value. During the year ended
December 31, 2009, there were no triggering events
requiring us to perform an impairment test for long-lived assets.
In addition to the analyses described above, we periodically
assess certain assets that have not yet been deployed in our
network, including network equipment and cell site development
costs. This assessment includes the write-off of network
equipment for estimated shrinkage experienced during the
deployment process and the write-off of network equipment and
cell site development costs whenever events or changes in
circumstances cause us to conclude that such assets are no
longer needed to meet managements strategic network plans
and will not be deployed.
Share-Based
Compensation
We account for our share-based compensation by measuring and
recognizing compensation expense for all share-based awards made
to employees and directors based on estimated fair values. We
recognize compensation costs, net of estimated forfeitures, for
those shares expected to vest on a graded vesting schedule over
the requisite service period of the award, which is generally
the option vesting term of four years.
We issue incentive awards to our employees through stock-based
compensation consisting of stock options and restricted stock
units, which we refer to as RSUs. The value of RSUs is
determined using the fair value method, which in this case, is
based on the number of shares granted and the quoted price of
Class A Common Stock on the date of grant. In determining
the fair value of stock options, we use the Black-Scholes option
pricing model, which we refer to as BSM, to estimate the fair
value of stock options which requires complex and judgmental
assumptions including estimated stock price volatility and
employee exercise patterns (expected life of the option). The
computation of expected volatility is based on an average
historical volatility from common shares of a group of our peers
as well as our own volatility. The expected life of options
granted is based on the simplified calculation of expected life
due to lack of option exercise history. If any of the
assumptions used in the BSM change significantly, share-based
compensation expense may differ materially for future grants as
compared to the current period.
51
CLEARWIRE
CORPORATION AND SUBSIDIARIES
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
We recognize compensation expense for only the portion of stock
options or RSUs that are expected to vest. Therefore, we apply
an estimated forfeiture rate that is derived from historical
employee termination behavior. If the actual number of
forfeitures differs from those estimated by management,
adjustments to stock-based compensation expense may be required
in future periods.
Property,
Plant & Equipment
As we continue to deploy our network, a significant portion of
our total assets is PP&E. PP&E represented
$2.6 billion of our $11.3 billion in total assets as
of December 31, 2009. We generally calculate depreciation
on these assets using the straight-line method based on
estimated economic useful lives. The estimated useful life of
equipment is determined based on historical usage of identical
or similar equipment, with consideration given to technological
changes and industry trends that could impact the network
architecture and asset utilization. Since changes in technology
or in our intended use of these assets, as well as changes in
broad economic or industry factors, may cause the estimated
period of use of these assets to change, we periodically review
these factors to assess the remaining life of our asset base.
When these factors indicate that an assets useful life is
different from the previous assessment, we depreciate the
remaining book values prospectively over the adjusted remaining
estimated useful life.
We capitalize certain direct costs incurred to prepare the asset
for its intended use. We also capitalize interest associated
with the acquisition or construction of network-related assets.
Capitalized interest and direct costs are reported as part of
the cost of the network-related assets and as a reduction in the
related expense in the statement of operations.
Deferred
Tax Asset Valuation Allowance
A valuation allowance is provided for deferred tax assets if it
is more likely than not that these items will either expire
before we are able to realize their benefit, or that future
deductibility is uncertain. We record net deferred tax assets to
the extent we believe these assets will more likely than not be
realized. In making such determination, we consider all
available positive and negative evidence, including our limited
operating history, scheduled reversals of deferred tax
liabilities, projected future taxable income/loss, tax planning
strategies and recent financial performance.
52
CLEARWIRE
CORPORATION AND SUBSIDIARIES
Results
of Operations
Within this Results of Operations section, we
disclose results of operations on both an as
reported and a pro forma basis. The reported
results for 2008 and 2007 are not necessarily representative of
our ongoing operations as Old Clearwires results are
included only for the period of time after the November 28,
2008 Closing. Prior to that date, the reported results reflect
only the Sprint WiMAX Business results. Therefore, to
facilitate an understanding of our trends and on-going
performance, we have presented pro forma results in addition to
the reported results. The unaudited pro forma combined
statements of operations were prepared in accordance with
Article 11-
Pro forma Financial Information of Securities and Exchange
Commission
Regulation S-X.
The pro forma results include both the Sprint WiMAX Business and
Old Clearwire for 2008 and 2007, as adjusted for certain pro
forma purchase accounting adjustments and other non-recurring
charges, and give effect to the Transactions as though the
Closing had occurred as of January 1, 2007. A
reconciliation of pro forma amounts to reported amounts has been
included under the heading Pro Forma Reconciliation.
The unaudited pro forma combined statements of operations do not
give effect to the offering of the Senior Secured Notes and the
additional Private Placement or the Rights Offering or the
application of the net proceeds from these transactions.
The following table sets forth as reported operating data for
the periods presented (in thousands, except per share data).
As
Reported Results Year Ended December 31, 2009
Compared to the Years Ended December 31, 2008 and
2007
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
274,458
|
|
|
$
|
20,489
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services and network costs (exclusive of items
shown separately below)
|
|
|
422,116
|
|
|
|
131,489
|
|
|
|
48,865
|
|
Selling, general and administrative expense
|
|
|
568,063
|
|
|
|
150,940
|
|
|
|
99,490
|
|
Depreciation and amortization
|
|
|
208,263
|
|
|
|
58,146
|
|
|
|
3,979
|
|
Spectrum lease expense
|
|
|
259,359
|
|
|
|
90,032
|
|
|
|
60,051
|
|
Transaction related expenses
|
|
|
|
|
|
|
82,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,457,801
|
|
|
|
513,567
|
|
|
|
212,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,183,343
|
)
|
|
|
(493,078
|
)
|
|
|
(212,385
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,691
|
|
|
|
1,091
|
|
|
|
|
|
Interest expense
|
|
|
(69,468
|
)
|
|
|
(16,545
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(10,014
|
)
|
|
|
(22,208
|
)
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(69,791
|
)
|
|
|
(37,662
|
)
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,253,134
|
)
|
|
|
(530,740
|
)
|
|
|
(208,363
|
)
|
Income tax provision
|
|
|
(712
|
)
|
|
|
(61,607
|
)
|
|
|
(16,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,253,846
|
)
|
|
|
(592,347
|
)
|
|
|
(224,725
|
)
|
Less: non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
928,264
|
|
|
|
159,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation
|
|
$
|
(325,582
|
)
|
|
$
|
(432,626
|
)
|
|
$
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation per Class A
Common Share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.72
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.74
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average Clearwire Class A Common Shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
194,696
|
|
|
|
189,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
741,071
|
|
|
|
694,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Prior to the Closing, we had no equity as we were a wholly-owned
division of Sprint. As such, we did not calculate or present net
loss per share for the period from January 1, 2008 to
November 28, 2008. We have calculated and presented basic
and diluted net loss per share for the period from
November 29, 2008 through December 31, 2008 and for
the year ended December 31, 2009. |
Revenues
Revenues are primarily generated from subscription and modem
lease fees for our 4G and pre-4G services, as well as from
activation fees and fees for other services such as email, VoIP,
and web hosting services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Revenues
|
|
$
|
274,458
|
|
|
$
|
20,489
|
|
|
$
|
|
|
|
|
1239.5
|
%
|
|
|
N/M
|
|
The increase in revenues for 2009 compared to 2008 is primarily
due to twelve months of revenues received from our operation of
markets in 2009, compared to one month for 2008 following the
Closing on November 28, 2008, when we acquired all of the
Old Clearwire markets and subscribers. We launched 10 new 4G
markets in 2009 and began offering our services through
Wholesale Partners in all of our 4G markets. Revenues in the
United States represented 88% and international represented 12%
of total revenues for the year ended December 31, 2009,
compared to 87% for the United States and 13% for international
for the year ended December 31, 2008. As of
December 31, 2009, we operated our services in 57 domestic
and 4 international markets, compared to 47 domestic and 4
international markets as of December 31, 2008. Total
subscribers in all markets were approximately 688,000 as of
December 31, 2009, compared to 475,000 as of
December 31, 2008.
The increase in revenues for 2008 compared to 2007 is primarily
due to the revenues received from operations of Clearwire
following the Closing on November 28, 2008, when we
acquired all of the Old Clearwire markets and subscribers. There
were no subscribers as of December 31, 2007.
We expect revenues to continue to increase due to the roll out
of new 4G markets, which will increase the markets we serve and
our subscriber base, and as a result of increased adoption of
new services by our customers. In addition, we expect that
average revenue per user, which we refer to as ARPU, to remain
stable in 2010 compared to 2009 as increases resulting from
multiple service offerings per customer will likely be offset by
the impact of promotional pricing.
Cost
of Goods and Services and Network Costs (exclusive of
depreciation and amortization)
Cost of goods and services includes costs associated with tower
rents, direct Internet access and backhaul, which is the
transporting of data traffic between distributed sites and a
central point in the market or Point of Presence. Cost of goods
and services also includes certain network equipment, site
costs, facilities costs, software licensing and certain office
equipment. Network costs primarily consist of external services
and internal payroll incurred in connection with the design,
development and construction of the network. The external
services include consulting fees, contractor fees and
project-based fees that are not capitalizable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Cost of goods and services and network costs
|
|
$
|
422,116
|
|
|
$
|
131,489
|
|
|
$
|
48,865
|
|
|
|
221.0
|
%
|
|
|
169.1
|
%
|
54
Cost of goods and services and network costs increased
$290.6 million in the year ended December 31, 2009 as
compared to the year ended December 31, 2008, primarily due
to an increase in tower lease and backhaul expenses resulting
from the launch of new 4G markets. We incurred twelve months of
tower lease and backhaul expense during 2009, compared to one
month for 2008 following the Closing on November 28, 2008,
when we acquired all of the Old Clearwire tower leases and
backhaul agreements. During 2009, we incurred approximately
$41.0 million related to write-offs of CPE and network and
base station equipment and an increase in our obsolescence and
shrinkage allowance. Also, we incurred approximately $10.1
million for cost abandonments associated with market redesigns.
Cost of goods and services and network costs increased
$82.6 million in the year ended December 31, 2008 as
compared to the year ended December 31, 2007, primarily due
to an increase in tower lease and backhaul expenses due to our
acquisition of Old Clearwire on November 28, 2008.
We expect costs of goods and services and network costs to
continue to increase in 2010 as we expand our network.
Selling,
General and Administrative Expense
Selling, general and administrative expenses include all of the
following: costs associated with advertising, trade shows,
public relations, promotions and other market development
programs; third-party professional service fees; salaries and
benefits, sales commissions, travel expenses and related
facilities costs for sales, marketing, network development,
executive, finance and accounting, IT, customer care, human
resource and legal personnel; network deployment expenses
representing non-capitalizable costs on network builds in
markets prior to launch, rather than costs related to our
markets after launch, which are included in cost of goods and
services and network costs; and human resources, treasury
services and other shared services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Selling, general and administrative expense
|
|
$
|
568,063
|
|
|
$
|
150,940
|
|
|
$
|
99,490
|
|
|
|
276.4
|
%
|
|
|
51.7
|
%
|
The increase in 2009 compared to 2008 is consistent with the
additional resources, headcount and shared services that we have
utilized as we continue to build and launch our 4G mobile
broadband services in additional markets, especially the higher
sales and marketing and customer care expenses in support of the
launch of new markets. Employee headcount increased at
December 31, 2009 to approximately 3,440 employees
compared to approximately 1,635 employees at
December 31, 2008.
The increase in 2008 compared to 2007 is due to higher employee
compensation and related costs, which includes facilities costs,
resulting from the acquisition of Old Clearwire and all of its
employees and higher sales and marketing and customer care
expenses in support of the launch of the Baltimore market.
Our focus in 2010 will be on development and expansion of our
wireless 4G network. We expect that cost per gross addition will
remain stable in 2010 compared to 2009 as new markets are
launched, consistent with our past operating experiences.
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Depreciation and amortization
|
|
$
|
208,263
|
|
|
$
|
58,146
|
|
|
$
|
3,979
|
|
|
|
258.2
|
%
|
|
|
1361.3
|
%
|
Depreciation and amortization expense primarily represents the
depreciation recorded on PP&E and amortization of
intangible assets and definite-lived owned spectrum. The
increase in 2009 is primarily a result of new network assets
placed into service to support our launches and continued
network expansion. The increase is also due to 12 months
depreciation and amortization expense recorded on assets
acquired in connection with our
55
acquisition of Old Clearwire, compared to approximately one
month in 2008 for the period after the Closing on
November 28, 2008.
During the year ended December 31, 2007, substantially all
of the capital expenditures by the Sprint WiMAX Business
represented construction work in progress and therefore very
little depreciation was recorded.
We expect depreciation and amortization will continue to
increase as additional 4G markets are launched and placed into
service during 2010.
Spectrum
Lease Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Spectrum lease expense
|
|
$
|
259,359
|
|
|
$
|
90,032
|
|
|
$
|
60,051
|
|
|
|
188.1
|
%
|
|
|
49.9
|
%
|
Total spectrum lease expense increased in 2009 compared to 2008
as a direct result of a significant increase in the number of
spectrum leases held by us. We doubled the number of leased call
signs when we acquired all of the Old Clearwire leases. The
increase is also due to 12 months spectrum lease expense
recorded on leases in 2009 for spectrum leases acquired from Old
Clearwire, compared to approximately one month in 2008 for the
period after the Closing on November 28, 2008.
Many of the leases were entered into before 2007 and the
periodic payments before January 1, 2007 were funded by
Sprint.
With the significant number of new spectrum leases and the
increasing cost of these leases, we expect our spectrum lease
expense to increase. As we renegotiate these leases, they are
replaced with new leases, usually at a higher lease cost per
month, but with longer terms.
Transaction
Related Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Transaction related expenses
|
|
$
|
|
|
|
$
|
82,960
|
|
|
$
|
|
|
|
|
N/M
|
|
|
|
N/M
|
|
Transaction related expenses in 2008 include a one-time
$80.6 million settlement loss resulting from the
termination of spectrum lease agreements under which Sprint
leased spectrum to Old Clearwire prior to the Closing. As part
of the Closing, Sprint contributed both the spectrum lease
agreements and the spectrum assets underlying those agreements
to our business. As a result of the Closing, the spectrum lease
agreements were effectively terminated, and the settlement of
those agreements was accounted for as a separate element apart
from the business combination. The settlement loss recognized
from the termination was valued based on the amount by which the
agreements were favorable or unfavorable to our business as
compared to current market rates.
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Interest expense
|
|
$
|
(69,468
|
)
|
|
$
|
(16,545
|
)
|
|
$
|
|
|
|
|
(319.9
|
)%
|
|
|
N/M
|
|
We incurred twelve months of interest costs totaling
$209.6 million, which were partially offset by capitalized
interest of $140.2 million for the year ended
December 31, 2009. Interest expense for 2009 also includes
an adjustment to accrete the debt to par value. Interest expense
for 2008 included $7.9 million of interest expense recorded
on the note payable to Sprint for the repayment of an obligation
to reimburse Sprint for financing the Sprint WiMAX Business
between April 1, 2008 and the Closing, which we refer to as
the Sprint Pre-Closing Financing Amount, and one month of
interest expense totaling $8.6 million on the long-term
debt acquired from Old Clearwire.
56
We acquired our debt as a result of the acquisition of Old
Clearwire on November 28, 2008; therefore we did not incur
any interest expense during 2007.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Other-than-temporary
impairment loss on investments
|
|
$
|
(10,015
|
)
|
|
$
|
(17,036
|
)
|
|
$
|
|
|
|
|
41.2
|
%
|
|
|
N/M
|
|
Loss on undesignated swap contracts, net
|
|
|
(6,976
|
)
|
|
|
(6,072
|
)
|
|
|
|
|
|
|
14.9
|
%
|
|
|
N/M
|
|
Gain on debt extinguishment
|
|
|
8,252
|
|
|
|
|
|
|
|
|
|
|
|
N/M
|
|
|
|
N/M
|
|
Other
|
|
|
(1,275
|
)
|
|
|
900
|
|
|
|
4,022
|
|
|
|
(241.8
|
)%
|
|
|
(77.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(10,014
|
)
|
|
$
|
(22,208
|
)
|
|
$
|
4,022
|
|
|
|
54.9
|
%
|
|
|
(652.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, we recorded an
other-than-temporary
impairment loss of $10.0 million on our auction rate
securities. During the year ended December 31, 2008, we
incurred
other-than-temporary
impairment losses of $17.0 million related to these
securities. We acquired our auction rate securities as a result
of the acquisition of Old Clearwire on November 28, 2008;
therefore we did not incur any
other-than-temporary
impairment losses during 2007.
During November 2009, we recorded a gain of $8.3 million in
connection with the retirement of our Senior Term Loan Facility
and terminated the swap contracts.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Income tax provision
|
|
$
|
(712
|
)
|
|
$
|
(61,607
|
)
|
|
$
|
(16,362
|
)
|
|
|
98.8
|
%
|
|
|
(276.5
|
)%
|
The decrease in the income tax provision for 2009 compared to
2008 is primarily due to the change in our deferred tax position
as a result of the Closing. Prior to the Closing, the income tax
provision was primarily due to increased deferred liabilities
from additional amortization taken for federal income tax
purposes by the Sprint WiMAX Business on certain
indefinite-lived licensed spectrum. As a result of the Closing,
the only United States temporary difference is the basis
difference associated with our investment in Clearwire
Communications, a partnership for United States income tax
purposes.
The increase in the income tax provision for 2008 compared to
2007 is primarily due to increased deferred tax liabilities from
additional amortization taken for federal income tax purposes by
the Sprint WiMAX Business on certain indefinite-lived licensed
spectrum prior to the Closing. The ongoing difference between
book and tax amortization resulted in an additional deferred
income tax provision of $61.4 million in 2008 prior to the
Closing.
We project that the partnership will have additional losses in
the United States in 2010. We do not believe such losses will be
realizable at a more likely than not level and accordingly, the
projected additional losses allocated to us in 2010 will not
result in a United States tax provision or benefit for 2010.
Non-controlling
Interests in Net Loss of Consolidated Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
$
|
928,264
|
|
|
$
|
159,721
|
|
|
$
|
|
|
|
|
481.2
|
%
|
|
|
N/M
|
|
57
The non-controlling interests in net loss represent the
allocation of a portion of the consolidated net loss to the
non-controlling interests in consolidated subsidiaries based on
the ownership by Sprint, Comcast, Time Warner Cable, Intel and
Bright House of Clearwire Communications Class B Common
Interests. The increase in 2009 is primarily due to allocating
12 months of losses to the non-controlling interests in
2009 as compared to approximately one month in 2008. Prior to
the Closing, there were no non-controlling interests.
Pro Forma
Results As Reported Results for the Year Ended
December 31, 2009 Compared to the Pro Forma Results for the
Years Ended December 31, 2008 and 2007
The unaudited pro forma combined statements of operations that
follow are presented for informational purposes only and are not
intended to represent or be indicative of the combined results
of operations that would have been reported had the Transactions
been completed as of January 1, 2007 and should not be
taken as representative of the future consolidated results of
operations of the Company.
The following unaudited pro forma combined statements of
operations for the years ended December 31, 2008 and 2007
were prepared under
Article 11-Pro
forma Financial Information of Securities and Exchange
Commission
Regulation S-X
using (1) the audited consolidated financial statements of
Clearwire for the years ended December 31, 2008 and 2007;
(2) the audited consolidated financial statements of Old
Clearwire for the year ended December 31, 2007; and
(3) the unaudited accounting records for the period
January 1, 2008 to November 28, 2008 for Old
Clearwire. The unaudited pro forma combined statements of
operations should be read in conjunction with these separate
historical financial statements and accompanying notes thereto.
A reconciliation of pro forma amounts to reported amounts has
been included under the heading Pro Forma
Reconciliation. The unaudited pro forma combined
statements of operations do not give effect to the offering of
the Senior Secured Notes and the additional Private Placement or
the Rights Offering or the application of the net proceeds from
these transactions.
58
The following table sets forth pro forma operating data for
Clearwire adjusted for the related purchase accounting
adjustments and other non-recurring charges, for the periods
presented (in thousands):
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Actual)
|
|
|
(Pro Forma)
|
|
|
(Pro Forma)
|
|
|
Revenues
|
|
$
|
274,458
|
|
|
$
|
230,646
|
|
|
$
|
151,440
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services and network costs (exclusive of items
shown separately below)
|
|
|
422,116
|
|
|
|
285,759
|
|
|
|
156,146
|
|
Selling, general and administrative expense
|
|
|
568,063
|
|
|
|
484,421
|
|
|
|
461,553
|
|
Depreciation and amortization
|
|
|
208,263
|
|
|
|
128,602
|
|
|
|
80,766
|
|
Spectrum lease expense
|
|
|
259,359
|
|
|
|
250,184
|
|
|
|
190,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,457,801
|
|
|
|
1,148,966
|
|
|
|
889,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,183,343
|
)
|
|
|
(918,320
|
)
|
|
|
(737,967
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,691
|
|
|
|
18,569
|
|
|
|
65,736
|
|
Interest expense
|
|
|
(69,468
|
)
|
|
|
(192,588
|
)
|
|
|
(192,624
|
)
|
Other income (expense), net
|
|
|
(10,014
|
)
|
|
|
(89,415
|
)
|
|
|
(36,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(69,791
|
)
|
|
|
(263,434
|
)
|
|
|
(163,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,253,134
|
)
|
|
|
(1,181,754
|
)
|
|
|
(901,159
|
)
|
Income tax provision
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,253,846
|
)
|
|
|
(1,181,754
|
)
|
|
|
(901,159
|
)
|
Less: non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
928,264
|
|
|
|
867,608
|
|
|
|
663,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation
|
|
$
|
(325,582
|
)
|
|
$
|
(314,146
|
)
|
|
$
|
(238,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation per Class A
Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.72
|
)
|
|
$
|
(1.62
|
)
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.74
|
)
|
|
$
|
(1.73
|
)
|
|
$
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A Common Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
194,696
|
|
|
|
194,484
|
|
|
|
194,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
741,071
|
|
|
|
723,307
|
|
|
|
723,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues are primarily generated from subscription and modem
lease fees for our 4G and pre-4G services, as well as from
activation fees and fees for other services such as email, VoIP,
and web hosting services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Revenues
|
|
$
|
274,458
|
|
|
$
|
230,646
|
|
|
$
|
151,440
|
|
|
|
19.0
|
%
|
|
|
52.3
|
%
|
The increase in revenues for 2009 compared to 2008 is primarily
due to the addition of 10 new 4G markets in 2009 and the
offering our services through Wholesale Partners in all of our
4G markets. Revenues in the United States represented 88% and
international represented 12% of total revenues for the year
ended December 31, 2009, compared to 84% for the United
States and 16% for international for the year ended
December 31, 2008. As of December 31, 2009, we
operated our services in 57 domestic and 4 international
markets, compared to 47 domestic
59
and 4 international markets as of December 31, 2008. Total
subscribers in all markets were approximately 688,000 as of
December 31, 2009, compared to 475,000 as of
December 31, 2008.
The growth in subscribers and the increase in services available
to customers were the primary reasons for the increase in
revenue when comparing the year ended December 31, 2008 to
the year ended December 31, 2007. Total subscribers in all
markets grew to approximately 475,000 as of December 31,
2008 (actual) from approximately 394,000 as of December 31,
2007 (pro forma).
We expect revenues to continue to increase due to the roll out
of new 4G mobile network markets, which will increase the
markets we serve and our subscriber base, and as a result of
increased adoption of new services by our customers. In
addition, we expect ARPU to remain stable in 2010 compared to
2009 as increases resulting from multiple service offerings per
customer will likely be offset by the impact of promotional
pricing.
Cost
of Goods and Services and Network Costs (exclusive of
depreciation and amortization)
Cost of goods and services includes costs associated with tower
rents, direct Internet access and backhaul, which is the
transporting of data traffic between distributed sites and a
central point in the market or Point of Presence. Cost of goods
and services also includes certain network equipment, site
costs, facilities costs, software licensing and certain office
equipment. Network costs primarily consist of external services
and internal payroll incurred in connection with the design,
development and construction of the network. The external
services include consulting fees, contractor fees and
project-based fees that are not capitalizable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Cost of goods and services and network costs
|
|
$
|
422,116
|
|
|
$
|
285,759
|
|
|
$
|
156,146
|
|
|
|
47.7
|
%
|
|
|
83.0
|
%
|
Cost of goods and services and network costs increased
$136.4 million in the year ended December 31, 2009 as
compared to the year ended December 31, 2008, primarily due
to an increase in tower lease and backhaul expenses due to the
launch of new 4G markets. During 2009, we incurred approximately
$41.0 million related to write-offs of CPE and network and
base station equipment and an increase in our obsolescence and
shrinkage allowance. Also, we incurred approximately
$10.1 million for cost abandonments associated with market
redesigns.
Cost of goods and services and network costs increased
$129.6 million in the year ended December 31, 2008 as
compared to the year ended December 31, 2007, primarily due
to an increase in the number of towers, increases in direct
Internet access and related backhaul costs and additional
expenses as we launched an additional market in 2008 and
prepared for future 4G networks from December 31, 2007 to
December 31, 2008.
We expect costs of goods and services and network costs to
continue to increase in 2010 as we expand our network.
Selling,
General and Administrative Expense
Selling, general and administrative expenses include all of the
following: costs associated with advertising, trade shows,
public relations, promotions and other market development
programs; third-party professional service fees; salaries and
benefits, sales commissions, travel expenses and related
facilities costs for sales, marketing, network development,
executive, finance and accounting, information technology,
customer care, human resource and legal personnel; network
deployment expenses representing non-capitalizable costs on
network builds in markets prior to launch, rather than costs
related to our markets after launch, which are included in cost
of goods and services and network costs; and human resources,
treasury services and other shared services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Selling, general and administrative expense
|
|
$
|
568,063
|
|
|
$
|
484,421
|
|
|
$
|
461,553
|
|
|
|
17.3
|
%
|
|
|
5.0
|
%
|
60
The increase in 2009 compared to 2008 is consistent with the
additional resources, headcount and shared services that we have
utilized as we continue to build and launch our 4G networks in
additional markets, especially the higher sales and marketing
and customer care expenses in support of the launch of new
markets. Employee headcount increased at December 31, 2009
to approximately 3,440 employees compared to approximately
1,635 employees at December 31, 2008.
The increase in 2008 compared to 2007 is due to additional costs
related to the launch of our 4G networks, which was offset by
reductions in employee headcount and related expenses. Our
employee headcount was approximately 1,635 at December 31,
2008 (actual) compared to approximately 2,510 employees at
December 31, 2007 (pro forma).
Our focus in 2010 will be on development and expansion of our
wireless 4G network. We expect that cost per gross addition will
remain stable in 2010 compared to 2009 as new markets are
launched, consistent with our past operating experiences.
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Depreciation and amortization
|
|
$
|
208,263
|
|
|
$
|
128,602
|
|
|
$
|
80,766
|
|
|
|
61.9
|
%
|
|
|
59.2
|
%
|
Depreciation and amortization expense primarily represents the
depreciation recorded on PP&E and amortization of
intangible assets and definite-lived owned spectrum. The
increase in 2009 compared to 2008 is primarily a result of new
network assets placed into service to support our launches and
continued network expansion.
The increase in 2008 compared to 2007 was primarily due to the
additional depreciation expense associated with our continued
network build-out and the depreciation of CPE related to
associated subscriber growth. The majority of the increase in
depreciation and amortization expense relates to the development
of our pre-4G networks between 2007 and 2008.
We expect depreciation and amortization will continue to
increase as additional 4G markets are launched and placed into
service during 2010.
Spectrum
Lease Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Spectrum lease expense
|
|
$
|
259,359
|
|
|
$
|
250,184
|
|
|
$
|
190,942
|
|
|
|
3.7
|
%
|
|
|
31.0
|
%
|
Total spectrum lease expense increased in 2009 compared to 2008
and 2007 as a direct result of a significant increase in the
number of spectrum leases held by us. With the significant
number of new spectrum leases and the increasing cost of these
leases, we expect our spectrum lease expense to increase. As we
renegotiate these leases, they are replaced with new leases,
usually at a higher lease cost per month, but with longer terms.
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Interest income
|
|
$
|
9,691
|
|
|
$
|
18,569
|
|
|
$
|
65,736
|
|
|
|
(47.8
|
)%
|
|
|
(71.8
|
)%
|
The continuing decrease in interest income when comparing 2009,
2008 and 2007 was primarily due to the reduction in interest
rates earned on investments, as well as lower principal balances
of short-term and long-term investments held during the years
ended December 31, 2009, 2008 and 2007.
61
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Interest expense
|
|
$
|
(69,468
|
)
|
|
$
|
(192,588
|
)
|
|
$
|
(192,624
|
)
|
|
|
63.9
|
%
|
|
|
N/M
|
|
We incurred twelve months of interest costs totaling
$209.6 million, which were partially offset by capitalized
interest of $140.2 million for the year ended
December 31, 2009. Interest expense for 2009 also includes
an adjustment to accrete the debt to par value. Interest expense
decreased in 2009 when compared to 2008 and 2007, as more
interest expense in 2009 was capitalized reflecting the increase
in our capital expenditures associated with the increase in the
build-out of our network.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Other-than-temporary
impairment loss on investments
|
|
$
|
(10,015
|
)
|
|
$
|
(78,447
|
)
|
|
$
|
(35,020
|
)
|
|
|
87.2
|
%
|
|
|
(124.0
|
)%
|
Loss on undesignated swap contracts, net
|
|
|
(6,976
|
)
|
|
|
(7,008
|
)
|
|
|
|
|
|
|
0.5
|
%
|
|
|
N/M
|
|
Gain on debt extinguishment
|
|
|
8,252
|
|
|
|
|
|
|
|
|
|
|
|
N/M
|
|
|
|
N/M
|
|
Other
|
|
|
(1,275
|
)
|
|
|
(3,960
|
)
|
|
|
(1,284
|
)
|
|
|
67.8
|
%
|
|
|
(208.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(10,014
|
)
|
|
$
|
(89,415
|
)
|
|
$
|
(36,304
|
)
|
|
|
88.8
|
%
|
|
|
(146.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) decreased in 2009 compared to 2008,
because we recorded an
other-than-temporary
impairment loss of only $10.0 million on our auction rate
securities during 2009 compared to an
other-than-temporary
impairment loss of $78.4 million related to these
securities during 2008. During 2007 we recorded an
other-than-temporary
impairment loss of only $35.0 million related to our
auction rate securities.
During November 2009, we recorded a gain of $8.3 million in
connection with the retirement of our Senior Term Loan Facility.
Non-controlling
Interests in Net Loss of Consolidated Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
Change 2009
|
|
|
Change 2008
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Versus 2008
|
|
|
Versus 2007
|
|
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
$
|
928,264
|
|
|
$
|
867,608
|
|
|
$
|
663,098
|
|
|
|
7.0
|
%
|
|
|
30.8
|
%
|
The non-controlling interests in net loss represent the
allocation of a portion of the consolidated net loss to the
non-controlling interests in consolidated subsidiaries based on
the ownership by Sprint, Comcast, Time Warner Cable, Intel and
Bright House of Clearwire Communications Class B Common
Interests. The increase in 2009 when compared to 2008 and 2007
is due to increased operating losses.
Pro Forma
Reconciliation
The unaudited pro forma combined statements of operations that
follows is presented for informational purposes only and is not
intended to represent or be indicative of the combined results
of operations that would have been reported had the Transactions
been completed as of January 1, 2007 and should not be
taken as representative of the future consolidated results of
operations of the Company.
62
The following unaudited pro forma combined statements of
operations for the years ended December 31, 2008 and 2007
were prepared under
Article 11-Pro
forma Financial Information of Securities and Exchange
Commission
Regulation S-X
using (1) the audited consolidated financial statements of
Clearwire for the years ended December 31, 2008 and 2007;
(2) the audited consolidated financial statements of Old
Clearwire for the year ended December 31, 2007; and
(3) the unaudited accounting records for the period
January 1, 2008 to November 28, 2008 for Old
Clearwire. The unaudited pro forma combined statements of
operations should be read in conjunction with these separate
historical financial statements and accompanying notes thereto.
The unaudited pro forma combined statements of operations do not
give effect to the offering of the Senior Secured Notes and the
additional Private Placement or the Rights Offering or the
application of the net proceeds from these transactions.
The following table provides a reconciliation from the as
reported results to the pro forma results presented above for
the Company for the years ended December 31, 2008 and 2007
(in thousands):
UNAUDITED
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
Year Ended December 31, 2007
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
12 Month Period
|
|
|
11 Month Period
|
|
|
Purchase
|
|
|
Clearwire
|
|
|
12 Month Period
|
|
|
12 Month Period
|
|
|
Purchase
|
|
|
Clearwire
|
|
|
|
Clearwire
|
|
|
Old
|
|
|
Acctng and
|
|
|
Corporation
|
|
|
Clearwire
|
|
|
Old
|
|
|
Acctng and
|
|
|
Corporation
|
|
|
|
Corporation(1)
|
|
|
Clearwire
|
|
|
Other(2)
|
|
|
Pro Forma
|
|
|
Corporation(1)
|
|
|
Clearwire
|
|
|
Other(2)
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
REVENUES:
|
|
$
|
20,489
|
|
|
$
|
210,157
|
|
|
$
|
|
|
|
$
|
230,646
|
|
|
$
|
|
|
|
$
|
151,440
|
|
|
$
|
|
|
|
$
|
151,440
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services and network costs (exclusive of items
shown separately below):
|
|
|
131,489
|
|
|
|
154,270
|
|
|
|
|
|
|
|
285,759
|
|
|
|
48,865
|
|
|
|
107,281
|
|
|
|
|
|
|
|
156,146
|
|
Selling, general and administrative expense
|
|
|
150,940
|
|
|
|
372,381
|
|
|
|
(38,900
|
)(a)
|
|
|
484,421
|
|
|
|
99,490
|
|
|
|
362,063
|
|
|
|
|
|
|
|
461,553
|
|
Depreciation and amortization
|
|
|
58,146
|
|
|
|
104,817
|
|
|
|
(52,865
|
)(b)
|
|
|
128,602
|
|
|
|
3,979
|
|
|
|
84,694
|
|
|
|
(29,399
|
)(b)
|
|
|
80,766
|
|
|
|
|
|
|
|
|
|
|
|
|
18,504
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,492
|
(c)
|
|
|
|
|
Spectrum lease expense
|
|
|
90,032
|
|
|
|
128,550
|
|
|
|
34,163
|
(c)
|
|
|
250,184
|
|
|
|
60,051
|
|
|
|
96,417
|
|
|
|
37,268
|
(c)
|
|
|
190,942
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,561
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,794
|
)(d)
|
|
|
|
|
Transaction related expenses
|
|
|
82,960
|
|
|
|
46,166
|
|
|
|
(48,553
|
)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,573
|
)(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
513,567
|
|
|
|
806,184
|
|
|
|
(170,785
|
)
|
|
|
1,148,966
|
|
|
|
212,385
|
|
|
|
650,455
|
|
|
|
26,567
|
|
|
|
889,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(493,078
|
)
|
|
|
(596,027
|
)
|
|
|
170,785
|
|
|
|
(918,320
|
)
|
|
|
(212,385
|
)
|
|
|
(499,015
|
)
|
|
|
(26,567
|
)
|
|
|
(737,967
|
)
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,091
|
|
|
|
17,478
|
|
|
|
|
|
|
|
18,569
|
|
|
|
|
|
|
|
65,736
|
|
|
|
|
|
|
|
65,736
|
|
Interest expense
|
|
|
(16,545
|
)
|
|
|
(94,438
|
)
|
|
|
94,055
|
(g)
|
|
|
(192,588
|
)
|
|
|
|
|
|
|
(96,279
|
)
|
|
|
95,285
|
(g)
|
|
|
(192,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(175,660
|
)(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191,630
|
)(h)
|
|
|
|
|
Other income (expense), net
|
|
|
(22,208
|
)
|
|
|
(64,646
|
)
|
|
|
(2,561
|
)(d)
|
|
|
(89,415
|
)
|
|
|
4,022
|
|
|
|
(196,725
|
)
|
|
|
(2,794
|
)(d)
|
|
|
(36,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,193
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(37,662
|
)
|
|
|
(141,606
|
)
|
|
|
(84,166
|
)
|
|
|
(263,434
|
)
|
|
|
4,022
|
|
|
|
(227,268
|
)
|
|
|
60,054
|
|
|
|
(163,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(530,740
|
)
|
|
|
(737,633
|
)
|
|
|
86,619
|
|
|
|
(1,181,754
|
)
|
|
|
(208,363
|
)
|
|
|
(726,283
|
)
|
|
|
33,487
|
|
|
|
(901,159
|
)
|
Income tax provision
|
|
|
(61,607
|
)
|
|
|
(5,379
|
)
|
|
|
66,986
|
(i)
|
|
|
|
|
|
|
(16,362
|
)
|
|
|
(5,427
|
)
|
|
|
21,789
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(592,347
|
)
|
|
|
(743,012
|
)
|
|
|
153,605
|
|
|
|
(1,181,754
|
)
|
|
|
(224,725
|
)
|
|
|
(731,710
|
)
|
|
|
55,276
|
|
|
|
(901,159
|
)
|
Less: non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
159,721
|
|
|
|
3,492
|
|
|
|
704,395
|
(f),(j)
|
|
|
867,608
|
|
|
|
|
|
|
|
4,244
|
|
|
|
658,854
|
(j)
|
|
|
663,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation
|
|
$
|
(432,626
|
)
|
|
$
|
(739,520
|
)
|
|
$
|
858,000
|
|
|
$
|
(314,146
|
)
|
|
$
|
(224,725
|
)
|
|
$
|
(727,466
|
)
|
|
$
|
714,130
|
|
|
$
|
(238,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation per Class A
Common Share(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A Common Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
723,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
723,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Basis of Presentation |
63
Sprint Nextel Corporation entered into an agreement with Old
Clearwire to combine both of their next generation wireless
broadband businesses to form a new independent company. On
Closing, Old Clearwire and the Sprint WiMAX Business completed
the combination to form Clearwire. The Transactions were
accounted for as a reverse acquisition with the Sprint WiMAX
Business deemed to be the accounting acquirer.
At the Closing, the Investors made an aggregate
$3.2 billion capital contribution to Clearwire and its
subsidiary, Clearwire Communications. In exchange for the
contribution of the Sprint WiMAX Business and their investments,
as applicable, Google initially received 25,000,000 shares
of Class A Common Stock and Sprint and the other Investors
received in aggregate 505,000,000 shares of Class B
Common Stock and an equivalent amount of Clearwire
Communications Class B Common Interests. The number of
shares of Class A and B Common Stock and Clearwire
Communications Class B Common Interests, as applicable,
that the Investors were entitled to receive under the
Transaction Agreement was subject to a post-closing adjustment
based on the trading price of Class A Common Stock on NASDAQ
over 15 randomly-selected trading days during the
30-day
period ending on the 90th day after the Closing, or
February 26, 2009, which we refer to as the Adjustment
Date, with a floor of $17.00 per share and a cap of $23.00 per
share. During the measurement period, Class A Common Stock
traded below $17.00 per share on NASDAQ, so on the Adjustment
Date, we issued to the Investors an additional
4,411,765 shares of Class A Common Stock and
23,823,529 shares of Class B Common Stock and
Clearwire Communications Class B Common Interests to
reflect the $17.00 final price per share. Additionally, in
accordance with the subscription agreement, on February 27,
2009, CW Investment Holdings LLC purchased 588,235 shares
of Class A Common Stock at $17.00 per share for a total
investment of $10.0 million. For the purpose of determining
the number of shares outstanding within the unaudited pro forma
condensed combined statements of operations, we assumed that the
additional shares and common interests issued to the Investors
and CW Investment Holdings LLC on the Adjustment Date and
February 27, 2009, respectively, were issued as of the
Closing and that the Closing was consummated on January 1,
2007.
In connection with the integration of the Sprint WiMAX Business
and Old Clearwire operations, we expect that certain
non-recurring charges will be incurred. We also expect that
certain synergies might be realized due to operating
efficiencies or future revenue synergies expected to result from
the Transactions. However, in preparing the unaudited pro forma
condensed combined statements of operations, which give effect
to the Transactions as if they were consummated on
January 1, 2007, no pro forma adjustments have been
reflected to consider any such costs or benefits.
(2) Pro Forma Adjustments Related to Purchase Accounting
and Other Non-recurring Charges for the Years Ended
December 31, 2008 and 2007
The pro forma adjustments related to purchase accounting have
been derived from the allocation of the purchase consideration
to the identifiable tangible and intangible assets acquired and
liabilities assumed of Old Clearwire, including the allocation
of the excess of the estimated fair value of net assets acquired
over the purchase price.
Article 11 of
Regulation S-X
requires that pro forma adjustments reflected in the unaudited
pro forma condensed combined statements of operations are
directly related to the transaction for which pro forma
financial information is presented and have a continuing impact
on the results of operations. Certain charges have been excluded
in the unaudited pro forma condensed combined statements of
operations as such charges were incurred in direct connection
with or at the time of the Transactions and are not expected to
have an ongoing impact on the results of operations after the
Closing.
|
|
|
|
(a)
|
Represents the accelerated vesting of stock options for certain
members of management upon the Closing, which resulted in a
one-time charge of approximately $38.9 million recorded by
Old Clearwire in its historical financial statements for the
11 months ended November 28, 2008. As these are
non-recurring charges directly attributable to the Transactions,
they are excluded from the unaudited pro forma combined
statement of operations for the year ended December 31, 2008.
|
|
|
(b)
|
Represents adjustments in the depreciation expense on a pro
forma basis related to items of Old Clearwire PP&E that are
being depreciated over their estimated remaining useful lives on
a straight-line basis. The reduction in depreciation expense
results from a decrease in the carrying value of Old Clearwire
PP&E
|
64
|
|
|
|
|
due to the allocation of the excess of the estimated fair value
of net assets acquired over the purchase price used in purchase
accounting for the Transactions.
|
|
|
|
|
(c)
|
Represents adjustments to record amortization on a pro forma
basis related to Old Clearwire spectrum lease contracts and
other intangible assets over their estimated weighted average
remaining useful lives on a straight-line basis. The increase in
the amortization expense results from an increase in the
carrying value of the Old Clearwire spectrum lease contracts and
other intangible assets resulting from purchase accounting.
|
|
|
(d)
|
Represents the elimination of intercompany other income and
related expenses associated with the historical agreements
pre-Closing between the Sprint WiMAX Business and Old Clearwire,
where Old Clearwire leased spectrum licenses from the Sprint
WiMAX Business. The other income and related expenses were
$2.6 million and $2.8 million for twelve months ended
December 31, 2008 and 2007, respectively.
|
|
|
(e)
|
Represents the reversal of transaction costs of
$48.6 million for the year ended December 31, 2008,
comprised of $33.4 million of investment banking fees and
$15.2 million of other professional fees, recorded in the
Old Clearwire historical financial statements for the year ended
December 31, 2008. As these are non-recurring charges
directly attributable to the Transactions, they are excluded
from the unaudited pro forma combined statement of operations
for the year ended December 31, 2008.
|
|
|
(f)
|
Prior to the Closing, Sprint leased spectrum to Old Clearwire
through various spectrum lease agreements. As part of the
Transactions, Sprint contributed both the spectrum lease
agreements and the spectrum assets underlying those agreements.
As a result of the Transactions, the spectrum lease agreements
were effectively terminated, and the settlement of those
agreements was accounted for as a separate element from the
business combination. A settlement loss of $80.6 million
resulted from the termination as the agreements were considered
to be unfavorable to Clearwire relative to current market rates.
This one-time charge recorded by Clearwire at the closing is
excluded from the unaudited pro forma combined statements of
operations.
|
|
|
(g)
|
Prior to the Closing, Old Clearwire refinanced the Senior Term
Loan Facility and renegotiated the loan terms. Historical
interest expense related to the Senior Term Loan Facility before
the refinancing and amortization of the deferred financing fees
recorded by Old Clearwire, in the amounts of $94.1 million
and $95.3 million for the years ended December 31,
2008 and 2007, respectively, have been reversed as if the
Transactions were consummated on January 1, 2007.
Additionally, the loss on extinguishment of debt of
$159.2 million recorded for the year ended
December 31, 2007 was reversed in the unaudited pro forma
combined statement of operations.
|
|
|
(h)
|
Represents the adjustment to record pro forma interest expense
assuming the Senior Term Loan Facility, including the Sprint
Pre-Closing financing (as defined in the Transaction Agreement)
under the Amended Credit Agreement (as defined below), was
outstanding as of January 1, 2007. The Closing would have
resulted in an event of default under the terms of the credit
agreement underlying the Senior Term Loan Facility unless the
consent of the lenders was obtained. On November 21, 2008,
Old Clearwire entered into the Amended and Restated Credit
Agreement with the lenders to obtain their consent and to
satisfy other conditions to closing under the Transaction
Agreement, which we refer to as the Amended Credit Agreement.
The Amended Credit Agreement resulted in additional fees to be
paid and adjustments to the underlying interest rates. The
Sprint Pre-Closing Financing was assumed by Clearwire on the
Closing, as a result of the financing of the Sprint WiMAX
Business operations by Sprint for the period from April 1,
2008, through the Closing, and added as an additional tranche of
term loans under the Amended Credit Agreement.
|
Pro forma interest expense was calculated over the period using
the effective interest method resulting in an adjustment of
$175.7 million and $191.6 million for the years ended
December 31, 2008 and 2007, respectively, based on an
effective interest rate of approximately 14.0 percent. Pro
forma interest expense also reflects an adjustment to accrete
the debt to par value. Pro forma interest expense was calculated
based on the contractual terms under the Amended Credit
Agreement, assuming a term equal to its
65
contractual maturity of 30 months and the underlying
interest rate was the LIBOR loan base rate of 2.75 percent,
as the 3 month LIBOR rate in effect at the Closing was less
than the base rate, plus the applicable margin. The calculation
assumed an applicable margin of 6.00 percent and additional
rate increases as specified in the Amended Credit Agreement over
the term of the loan. A one-eighth percentage change in the
interest rate would increase or decrease interest expense by
$1.6 million and $1.7 million for the years ended
December 31, 2008 and 2007, respectively. Total interest
expense on a pro forma basis does not include an adjustment for
capitalized interest.
|
|
|
|
(i)
|
Represents the adjustment to reflect the pro forma income tax
expense for the years ended December 31, 2008 and 2007,
which was determined by computing the pro forma effective tax
rates for the years ended December 31, 2008 and 2007,
giving effect to the Transactions. Clearwire expects to generate
net operating losses into the foreseeable future and thus has
recorded a valuation allowance for the deferred tax assets not
expected to be realized. Therefore, for years ended
December 31, 2008 and 2007, no tax benefit was recognized.
|
|
|
(j)
|
Represents the allocation of a portion of the pro forma combined
net loss to the non-controlling interests in consolidated
subsidiaries based on Sprints and the Investors
(other than Google) ownership of the Clearwire Communications
Class B Common Interests upon Closing of the Transactions
and reflects the contributions by CW Investment Holdings LLC and
the Investors at $17.00 per share following the
post-closing
adjustment. This adjustment is based on pre-tax loss since
income tax consequences associated with any loss allocated to
the Clearwire Communications Class B Common Interests will
be incurred directly by Sprint and the Investors (other than
Google) and CW Investment Holdings LLC.
|
|
|
(3)
|
Pro Forma
Net Loss per Share
|
The Clearwire combined pro forma net loss per share presented
below assumes the closing of the Transactions and that the
Class A and B Common Stock and Clearwire Communications
Class B Common Interests issued to Sprint, the Investors
and CW Investment Holdings LLC were outstanding from
January 1, 2007, and reflects the resolution of the
post-closing price adjustment at $17.00 per share. The shares of
Class B Common Stock have nominal equity rights. These
shares have no right to dividends of Clearwire and no right to
any proceeds on liquidation other than the par value of
Class B Common Stock.
The following table presents the pro forma number of Clearwire
shares outstanding as if the Transactions had been consummated
on January 1, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Class A Common Stock held by existing stockholders(i)
|
|
|
164,484
|
|
|
|
164,484
|
|
Class A Common Stock sold to Google(i)
|
|
|
29,412
|
|
|
|
29,412
|
|
Class A Common Stock sold to CW Investment Holdings LLC(i)
|
|
|
588
|
|
|
|
588
|
|
Class B Common Stock issued to Sprint(ii)
|
|
|
|
|
|
|
370,000
|
|
Class B Common Stock sold to Comcast(ii)
|
|
|
|
|
|
|
61,765
|
|
Class B Common Stock sold to Intel(ii)
|
|
|
|
|
|
|
58,823
|
|
Class B Common Stock sold to Time Warner Cable(ii)
|
|
|
|
|
|
|
32,353
|
|
Class B Common Stock sold to Bright House(ii)
|
|
|
|
|
|
|
5,882
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A Common Stock outstanding
|
|
|
194,484
|
|
|
|
723,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Shares outstanding related to Class A Common Stock held by
Clearwire stockholders has been derived from the sum of the
number of shares of Old Clearwire Class A Common Stock and
Old Clearwire Class B Common Stock issued and outstanding
at November 28, 2008, and subject to conversion of each
share of Old Clearwire Class A common stock and Old
Clearwire Class B common stock into the right to receive
one share of Class A Common Stock. The basic weighted
average shares outstanding related to Class A Common Stock
are the shares issued in the Transactions and assumed to be
outstanding for the entire period for which loss per share is
being calculated. The computation of pro forma diluted
Class A Common Stock did not include the effects of |
66
|
|
|
|
|
the following options, restricted stock units and warrants as
the inclusion of these securities would have been anti-dilutive
(in thousands): |
|
|
|
|
|
|
|
As of
|
|
|
|
November 28,
|
|
|
|
2008
|
|
|
Stock options
|
|
|
18,431
|
|
Warrants
|
|
|
17,806
|
|
Restricted stock units
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
37,475
|
|
|
|
|
|
|
|
|
|
(ii) |
|
Holders of Class B Common Stock will be entitled at any
time to exchange one share of Class B Common Stock, in
combination with one Clearwire Communications Class B
Common Interest, for one share of Class A Common Stock. |
Shares of Class B Common Stock have no impact on pro forma
basic net loss per share because they do not participate in net
income (loss) or distributions. However, the hypothetical
exchange of Clearwire Communications Class B Common
Interests together with Class B Common Stock for
Class A Common Stock may have a dilutive effect on pro
forma diluted loss per share due to certain tax effects. As
previously mentioned, that exchange would result in a decrease
to the non-controlling interests and a corresponding increase in
net loss attributable to the Class A Common Stock. Further,
to the extent that all of the Clearwire Communications
Class B Common Interests and Class B Common Stock are
converted to Class A Common Stock on a pro forma basis, the
partnership structure is assumed to no longer exist and
Clearwire would be required to recognize a tax charge related to
indefinite lived intangible assets.
Net loss attributable to holders of Class A Common Stock,
assuming conversion of the Clearwire Communications Class B
Common Interests and Class B Common Stock, is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Pro forma net loss
|
|
$
|
(314,146
|
)
|
|
$
|
(238,061
|
)
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
(867,608
|
)
|
|
|
(663,098
|
)
|
Less: Pro forma tax adjustment resulting from dissolution of
Clearwire Communications
|
|
|
(66,986
|
)
|
|
|
(21,789
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Class A Common Stockholders,
assuming the exchange of Class B Common Stock and Clearwire
Communications Class B Common Interests to Class A
Common Stock
|
|
$
|
(1,248,740
|
)
|
|
$
|
(922,948
|
)
|
|
|
|
|
|
|
|
|
|
The pro forma net loss per share attributable to holders of
Class A Common Stock on a basic and diluted basis is
calculated as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Pro forma net loss attributable to Class A Common
Stockholders
|
|
$
|
(314,146
|
)
|
|
$
|
(1,248,740
|
)
|
|
$
|
(238,061
|
)
|
|
$
|
(922,948
|
)
|
Weighted average Clearwire Class A Common Stock outstanding
|
|
|
194,484
|
|
|
|
723,307
|
|
|
|
194,484
|
|
|
|
723,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted pro forma net loss per share of Class A
Common Stock
|
|
$
|
(1.62
|
)
|
|
$
|
(1.73
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
Liquidity
and Capital Resource Requirements
We are currently engaged in the development and deployment of 4G
mobile broadband networks throughout the United States. In 2010,
we plan to develop and launch 4G mobile broadband networks in
large metropolitan areas in the United States, including Boston,
Houston, New York, San Francisco and Washington, D.C.
We expect that the combination of our existing 4G markets, new
market deployments and existing market conversions will allow us
to cover as many as 120 million people with our 4G mobile
broadband networks by the end of 2010. However, our actual
network coverage by the end of 2010 will largely be determined
by our ability to successfully manage ongoing development
activities and our performance in launched markets. We currently
expect a full year 2010 cash spend of $2.8 billion to $3.2
billion.
At the Closing, we received an aggregate of $3.2 billion of
cash proceeds from the Investors. We have used and we expect to
continue to use the proceeds from this investment primarily to
expand our 4G mobile broadband networks in the United States,
for spectrum acquisitions and for general corporate purposes.
In the fourth quarter of 2009, we secured financing of
$4.34 billion as the result of the Private Placement and
the issuance of the Senior Secured Notes. We received aggregate
proceeds of $4.27 billion in the fourth quarter of 2009,
and the Third Investment Closing for an additional
$66.5 million is expected to occur by early March 2010. The
debt issuance allowed us to retire our existing Senior Term Loan
Facility and to extend the maturity of our debt until 2015. We
expect the remaining net cash proceeds of approximately
$2.70 billion from this investment and debt financing to
primarily be used to expand our 4G mobile broadband networks in
the United States, for spectrum acquisitions and for general
corporate purposes. As of December 31, 2009, we had
available cash and short-term investments of approximately
$3.8 billion. As of December 31, 2009, we believe that
we held sufficient cash and short-term investments to provide us
with our required liquidity for at least 12 months.
The amount of capital that we will require to fully implement
our current plans depends on a number of factors, many of which
are difficult to predict and outside of our control. In
preparing our plans, we were required to make certain
assumptions as to the future performance of our business. If any
of the assumptions underlying our plans prove to be incorrect
and, as a result, our business fails to perform as we expect, we
may require additional capital in the near and long-term to fund
operating losses, network expansion plans and spectrum
acquisitions.
Further, we regularly evaluate our plans, and these evaluations
often result in changes, some of which may be material and may
significantly increase or decrease our capital requirements in
the near
and/or long
term. These changes may include, among other things, modifying
the pace at which we build our 4G mobile broadband networks,
augmenting our network coverage in markets we launch, changing
our sales and marketing strategy
and/or
acquiring additional spectrum. We also may elect to deploy
alternative technologies to mobile WiMAX, if and when they
become available, on our networks either in place of, or
together with, mobile WiMAX if we determine it is necessary to
cause the 4G mobile broadband services we offer to remain
competitive or to expand the number and types of devices that
may be used to access our services. Alternatively, if we
determine that we need additional capital for our business, but
are unsuccessful in obtaining additional financing, we may elect
to curtail our current plans to reduce the capital needed.
The amount and timing of any additional financings to satisfy
these additional capital needs, if any, are difficult to
estimate at this time. To raise additional capital, we may be
required to issue additional equity securities in public or
private offerings. We may seek significant additional debt
financing. Our existing level of debt may make it more difficult
for us to obtain this debt financing. We also may decide to sell
additional debt or equity securities in our domestic or
international subsidiaries, which may dilute our ownership
interest in, or reduce or eliminate our income, if any, from,
those entities.
Lastly, recent distress in the financial markets has resulted in
extreme volatility in security prices, diminished liquidity and
credit availability and declining valuations of certain
investments. We have assessed the implications of these factors
on our current business and determined that there has not been a
significant impact to our financial position or liquidity during
2009. If the national or global economy or credit market
conditions in general were to deteriorate further in the future,
it is possible that such changes could adversely affect our
ability to obtain additional external financing.
68
Cash
Flow Analysis
The following analysis includes the sources and uses of cash for
the Sprint WiMAX Business for the first eleven months of 2008
prior to the Closing and for 2007, and the sources and uses of
cash for Clearwire subsequent to the Closing.
The statement of cash flows includes the activities that were
paid by Sprint on behalf of us prior to the Closing. Financing
activities include funding advances from Sprint through
November 28, 2008. Further, the net cash used in operating
activities and the net cash used in investing activities for
capital expenditures and acquisitions of spectrum licenses and
patents represent transfers of expenses or assets paid for by
other Sprint subsidiaries.
The following table presents a summary of our cash flows and
beginning and ending cash balances for the years ended
December 31, 2009, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net cash used in operating activities
|
|
$
|
(472,484
|
)
|
|
$
|
(406,306
|
)
|
|
$
|
(339,519
|
)
|
Net cash used in investing activities
|
|
|
(1,782,999
|
)
|
|
|
(2,245,830
|
)
|
|
|
(683,080
|
)
|
Net cash provided by financing activities
|
|
|
2,745,847
|
|
|
|
3,857,755
|
|
|
|
1,022,599
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
1,510
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net cash flows
|
|
|
491,874
|
|
|
|
1,206,143
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,206,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,698,017
|
|
|
$
|
1,206,143
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash used in operating activities was $472.5 million
for the year ended December 31, 2009 compared to
$406.3 million in 2008. The increase is due primarily to an
increase in all operating expenses, as we continue to expand and
operate our business, and interest payments to service debt.
This is partially offset by $268.1 million in cash received
from customers, which increased as we grew our subscribers and
launched additional markets.
Net cash used in operating activities for the years ended
December 31, 2008 and 2007 was due primarily to payments
for operating expenses, as we continue to expand and operate our
business. For the year ended December 31, 2008, net cash
used in operating activities also included interest payments to
service debt. The 2008 net cash used is partially offset by
$20.2 million in cash received from customers.
Investing
Activities
During the year ended December 31, 2009, net cash used in
investing activities was $1.78 billion. The net cash used
in investing activities was due primarily to $1.45 billion
in cash paid for PP&E, $290.7 million in net purchases
of
available-for-sale
securities and $46.8 million in payments for acquisition of
spectrum licenses and other intangibles.
During the year ended December 31, 2008, net cash used in
investing activities was $2.25 billion. The net cash used
in investing activities was due primarily to $1.77 billion
in purchases of
available-for-sale
securities following the $3.2 billion cash investment from
the Investors, $534.2 million in cash paid for PP&E
and $109.3 million in payments for acquisition of spectrum
licenses and other intangibles. These uses of cash were
partially offset by $171.8 million of cash acquired from
Old Clearwire as a result of the Closing.
During the year ended December 31, 2007, net cash used in
investing activities was $683.1 million. The net cash used
in investing activities is due to $353.6 million in
payments for acquisition of spectrum licenses and other
intangibles and $329.5 million in cash paid for PP&E.
69
Financing
Activities
Net cash provided by financing activities was $2.75 billion
for the year ended December 31, 2009. This is primarily due
to $1.48 billion of cash received from the Private
Placement, $2.47 billion received from the issuance of the
Senior Secured Notes and the Rollover Notes and
$12.2 million in proceeds from the issuance of shares of
Class A Common Stock to CW Investments Holdings LLC and
proceeds from exercises of Class A Common Stock options.
These are partially offset by payments of $1.17 billion on
our Senior Term Loan Facility, which was retired on
November 24, 2009.
Our payment obligations under the Senior Secured Notes and
Rollover Notes are guaranteed by certain domestic subsidiaries
on a senior basis and secured by certain assets of such
subsidiaries on a first-priority lien. The Senior Secured Notes
and Rollover Notes contain limitations on our activities, which
among other things include incurring additional indebtedness and
guarantee indebtedness; making distributions or payment of
dividends or certain other restricted payments or investments;
making certain payments on indebtedness; entering into
agreements that restrict distributions from restricted
subsidiaries; selling or otherwise disposing of assets; merger,
consolidation or sales of substantially all of our assets;
entering transactions with affiliates; creating liens; issuing
certain preferred stock or similar equity securities and making
investments and acquiring assets. At December 31, 2009, we
were in compliance with our debt covenants.
Net cash provided by financing activities was $3.86 billion
for the year ended December 31, 2008. This is primarily due
to $3.20 billion of cash received from the Investors,
$532.2 million pre-transaction funding from Sprint and
$392.2 million from the Sprint Pre-Closing Financing
Amount, up through the Closing. These are partially offset by
$213.0 million paid to Sprint for partial reimbursement of
the pre-closing financing, a $50.0 million debt financing
fee and a $3.6 million payment on our Senior Term Loan
Facility.
Net cash provided by financing activities was $1.02 billion
for the year ended December 31, 2007. This was due to
advances from Sprint.
Contractual
Obligations
The contractual obligations presented in the table below
represent our estimates of future payments under fixed
contractual obligations and commitments as of December 31,
2009. Changes in our business needs or interest rates, as well
as actions by third parties and other factors, may cause these
estimates to change. Because these estimates are complex and
necessarily subjective, our actual payments in future periods
are likely to vary from those presented in the table. The
following table summarizes our contractual obligations including
principal and interest payments under our debt obligations,
payments under our spectrum lease obligations, and other
contractual obligations as of December 31, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
Over 5 Years
|
|
|
Long-term debt obligations
|
|
$
|
2,772,494
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,772,494
|
|
Interest payments(1)
|
|
|
1,997,139
|
|
|
|
333,644
|
|
|
|
665,398
|
|
|
|
665,398
|
|
|
|
332,699
|
|
Operating lease obligations
|
|
|
6,496,660
|
|
|
|
214,717
|
|
|
|
441,279
|
|
|
|
446,768
|
|
|
|
5,393,896
|
|
Spectrum lease obligations
|
|
|
5,164,616
|
|
|
|
127,749
|
|
|
|
275,879
|
|
|
|
290,229
|
|
|
|
4,470,759
|
|
Spectrum service credits
|
|
|
95,672
|
|
|
|
986
|
|
|
|
1,972
|
|
|
|
1,973
|
|
|
|
90,741
|
|
Signed spectrum agreements
|
|
|
29,983
|
|
|
|
29,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network equipment purchase obligations(2)
|
|
|
422,744
|
|
|
|
422,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other purchase obligations(3)
|
|
|
162,474
|
|
|
|
96,030
|
|
|
|
52,978
|
|
|
|
13,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(4)
|
|
$
|
17,141,782
|
|
|
$
|
1,225,853
|
|
|
$
|
1,437,506
|
|
|
$
|
1,417,834
|
|
|
$
|
13,060,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our interest payment obligations are calculated for all years on
debt obligations outstanding as of December 31, 2009, using
an interest rate of a 12%. |
70
|
|
|
(2) |
|
Network equipment purchase obligations represent purchase
commitments with
take-or-pay
obligations and/or volume commitments for equipment that are
non-cancelable and outstanding purchase orders for network
equipment for which we believe delivery is likely to occur. |
|
(3) |
|
Other purchase obligations include minimum purchases we have
committed to purchase from suppliers over time and/or
unconditional purchase obligations where we guarantee to make a
minimum payment to suppliers for goods and services regardless
of whether suppliers fully deliver them. They include, among
other things, agreements for backhaul, customer devices and IT
related and other services. The amounts actually paid under some
of these other agreements will likely be higher than
the minimum commitments due to variable components of these
agreements. The more significant variable components that
determine the ultimate obligation owed include hours contracted,
subscribers and other factors. |
|
(4) |
|
In addition, we are party to various arrangements that are
conditional in nature and create an obligation to make payments
only upon the occurrence of certain events, such as the actual
delivery and acceptance of products or services. Because it is
not possible to predict the timing or amounts that may be due
under these conditional arrangements, no such amounts have been
included in the table above. The table above also excludes
blanket purchase order amounts where the orders are subject to
cancellation or termination at our discretion or where the
quantity of goods or services to be purchased or the payment
terms are unknown because such purchase orders are not firm
commitments. |
We do not have any obligations that meet the definition of an
off-balance-sheet arrangement that have or are reasonably likely
to have a material effect on our financial statements.
Recent
Accounting Pronouncements
In June and December 2009, the Financial Accounting Standards
Board, which we refer to as the FASB, issued new accounting
guidance that amends the consolidation guidance applicable to
variable interest entities. The amendments will affect the
overall consolidation analysis under the current accounting
guidance. The new accounting guidance is effective for fiscal
years and interim periods beginning after November 15,
2009. We are currently evaluating the impact of the new guidance
on our financial condition and results of operations.
In August 2009, the FASB issued new accounting guidance for the
fair value measurement of liabilities when a quoted price in an
active market is not available. We adopted the new accounting
guidance on October 1, 2009. The adoption did not have any
impact on our financial condition or results of operations.
In October 2009, the FASB issued new accounting guidance that
amends the revenue recognition for multiple-element arrangements
and expands the disclosure requirements related to such
arrangements. The new guidance amends the criteria for
separating consideration in multiple-deliverable arrangements,
establishes a selling price hierarchy for determining the
selling price of a deliverable, eliminates the residual method
of allocation, and requires the application of relative selling
price method in allocating the arrangement consideration to all
deliverables. The new accounting guidance is effective for
fiscal years beginning after June 15, 2010. We are
currently evaluating the impact of the new guidance on our
financial condition and results of operations.
In January 2010, the FASB issued new accounting guidance that
requires new disclosures related to fair value measurements. The
new guidance requires separate disclosure for transfers between
Level 1 and 2 and the activities in Level 3
reconciliation on a gross basis. The new accounting guidance is
effective for fiscal years and interim periods beginning after
December 15, 2009, except for the new disclosures related
to Level 3 activities, which are effective for fiscal years
and interim periods beginning after December 15, 2010. The
new accounting guidance only amended the disclosure requirements
related to fair value measurements, therefore we do not expect
the adoption to have any impact on our financial condition or
results of operations.
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Market risk is the potential loss arising from adverse changes
in market rates and prices, such as interest rates, foreign
currency exchange rates and changes in the market value of
investments due to credit risk.
71
Interest
Rate Risk
Our primary interest rate risk is associated with our investment
portfolio. Our investment portfolio is primarily comprised of
money market mutual funds, United States government and agency
issues and other debt securities.
Our investment portfolio has a weighted average maturity of
3 months and a market yield of 0.08% as of
December 31, 2009. Our primary interest rate risk exposure
is to a decline in interest rates which would result in a
decline in interest income. Due to the current market yield, a
further decline in interest rates would have a de minimis
impact on earnings.
Foreign
Currency Exchange Rates
We are exposed to foreign currency exchange rate risk as it
relates to our international operations. We currently do not
hedge our currency exchange rate risk and, as such, we are
exposed to fluctuations in the value of the United States
dollar against other currencies. Our international subsidiaries
and equity investees generally use the currency of the
jurisdiction in which they reside, or local currency, as their
functional currency. Assets and liabilities are translated at
exchange rates in effect as of the balance sheet date and the
resulting translation adjustments are recorded within
accumulated other comprehensive income (loss). Income and
expense accounts are translated at the average monthly exchange
rates during the reporting period. The effects of changes in
exchange rates between the designated functional currency and
the currency in which a transaction is denominated are recorded
as foreign currency transaction gains (losses) and recorded in
the consolidated statement of operations. We believe that the
fluctuation of foreign currency exchange rates did not have a
material impact on our consolidated financial statements.
Credit
Risk
At December 31, 2009, we held
available-for-sale
short-term and long-term investments with a fair value and
carrying value of $2.19 billion and a cost of
$2.19 billion, comprised of United States government and
agency issues and other debt securities. We regularly review the
carrying value of our short-term and long-term investments and
identify and record losses when events and circumstances
indicate that declines in the fair value of such assets below
our accounting basis are
other-than-temporary.
The estimated fair values of certain of our investments are
subject to significant fluctuations due to volatility of the
credit markets in general, company-specific circumstances,
changes in general economic conditions and use of management
judgment when observable market prices and parameters are not
fully available.
Other debt securities are variable rate debt instruments whose
interest rates are normally reset approximately every 30 or
90 days through an auction process. A portion of our
investments in other debt securities represent interests in
collateralized debt obligations, which we refer to as CDOs,
supported by preferred equity securities of insurance companies
and financial institutions with stated final maturity dates in
2033 and 2034. As of December 31, 2009 the total fair value
and carrying value of our security interests in CDOs was
$13.2 million and our cost was $9.0 million. We also
own other debt securities that are Auction Rate Market Preferred
securities issued by a monoline insurance company and these
securities are perpetual and do not have a final stated
maturity. In July 2009, the issuers credit rating was
downgraded to CC and Caa2 by Standard & Poors
and Moodys rating services, respectively, and the total
fair value and carrying value of our Auction Rate Market
Preferred securities was written down to $0 as of
December 31, 2009. Current market conditions do not allow
us to estimate when the auctions for our other debt securities
will resume, if ever, or if a secondary market will develop for
these securities. As a result, our other debt securities are
classified as long-term investments.
72
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
73
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Clearwire
Corporation
Kirkland, Washington
We have audited the accompanying consolidated balance sheets of
Clearwire Corporation and subsidiaries (formerly the WiMAX
Operations of Sprint Nextel Corporation) (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations, cash flows,
and stockholders equity and comprehensive loss for each of
the two years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2009 and 2008, and the results
of their operations and their cash flows for each of the two
years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United
States of America.
As discussed in Note 1 to the consolidated financial
statements, on November 28, 2008, Clearwire Corporation and
the WiMAX Operations of Sprint Nextel Corporation (the
Sprint WiMAX Business) completed a business
combination. The accounts of the Sprint WiMAX Business for the
period from January 1, 2008 through November 28, 2008,
have been prepared from the separate records maintained by
Sprint Nextel Corporation and reflect allocations of expenses
from Sprint Nextel Corporation and, therefore, may not
necessarily be indicative of the financial position, results of
operations, and cash flows that would have resulted had the
Sprint WiMAX Business functioned as a stand-alone operation.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 24, 2010,
expressed an adverse opinion on the Companys internal
control over financial reporting because of a material weakness.
|
|
|
/s/ Deloitte &
Touche LLP
|
Seattle, Washington
February 24, 2010
74
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Clearwire
Corporation
Kirkland, Washington
We have audited Clearwire Corporation and subsidiaries (the
Company) internal control over financial reporting
as of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
that risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
The following material weakness has been identified and included
in managements assessment: the Company did not have
adequately designed procedures to provide for the timely
updating and maintaining of accounting records for the network
infrastructure equipment. This material weakness was considered
in determining the nature, timing, and extent of audit tests
applied in our audit of the consolidated financial statements as
of and for the year ended December 31, 2009, and this
report does not affect our report on such financial statements.
In our opinion, because of the effect of the material weakness
identified above on the achievement of the objectives of the
control criteria, the Company has not maintained effective
internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
75
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the two years
ended December 31, 2009, of the Company, and our report
dated February 24, 2010, expressed an unqualified opinion
on those financial statements and includes an explanatory
paragraph regarding the business combination between Clearwire
Corporation and the WiMAX Operations of Sprint Nextel
Corporation.
|
|
|
/s/ Deloitte &
Touche LLP
|
Seattle, Washington
February 24, 2010
76
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Clearwire Corporation (formerly the
WiMAX Operations of Sprint Nextel Corporation):
We have audited the statements of operations, cash flows and
business equity (included within the statement of
stockholders equity and comprehensive loss) of the WiMAX
Operations of Sprint Nextel Corporation for the year ended
December 31, 2007. These financial statements are the
responsibility of Sprint Nextel Corporations management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of the WiMAX Operations of Sprint
Nextel Corporation for the year ended December 31, 2007, in
conformity with U.S. generally accepted accounting
principles.
Kansas City, Missouri
August 4, 2008
77
CLEARWIRE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,698,017
|
|
|
$
|
1,206,143
|
|
Short-term investments
|
|
|
2,106,661
|
|
|
|
1,901,749
|
|
Restricted cash
|
|
|
1,166
|
|
|
|
1,159
|
|
Accounts receivable, net of allowance of $1,956 and $913
|
|
|
6,253
|
|
|
|
4,166
|
|
Notes receivable
|
|
|
5,402
|
|
|
|
4,837
|
|
Inventory, net
|
|
|
12,624
|
|
|
|
3,174
|
|
Prepaids and other assets
|
|
|
46,466
|
|
|
|
44,644
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,876,589
|
|
|
|
3,165,872
|
|
Property, plant and equipment, net
|
|
|
2,596,520
|
|
|
|
1,319,945
|
|
Restricted cash
|
|
|
5,620
|
|
|
|
8,381
|
|
Long-term investments
|
|
|
87,687
|
|
|
|
18,974
|
|
Spectrum licenses, net
|
|
|
4,495,134
|
|
|
|
4,471,862
|
|
Other intangible assets, net
|
|
|
91,713
|
|
|
|
122,808
|
|
Investments in equity investees
|
|
|
10,647
|
|
|
|
10,956
|
|
Other assets
|
|
|
103,943
|
|
|
|
5,369
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,267,853
|
|
|
$
|
9,124,167
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
|
$
|
527,367
|
|
|
$
|
145,417
|
|
Deferred revenue
|
|
|
16,060
|
|
|
|
11,761
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
14,292
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
543,427
|
|
|
|
171,470
|
|
Long-term debt, net
|
|
|
2,714,731
|
|
|
|
1,350,498
|
|
Deferred tax liabilities, net
|
|
|
6,353
|
|
|
|
4,164
|
|
Other long-term liabilities
|
|
|
230,974
|
|
|
|
95,225
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,495,485
|
|
|
|
1,621,357
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.0001,
1,500,000,000 shares authorized; 196,766,715 and
190,001,706 shares issued and outstanding, respectively
|
|
|
20
|
|
|
|
19
|
|
Class B common stock, par value $0.0001,
1,000,000,000 shares authorized; 734,238,872 and
505,000,000 shares issued and outstanding, respectively
|
|
|
73
|
|
|
|
51
|
|
Additional paid-in capital
|
|
|
2,000,061
|
|
|
|
2,092,861
|
|
Accumulated other comprehensive income
|
|
|
3,745
|
|
|
|
3,194
|
|
Accumulated deficit
|
|
|
(413,056
|
)
|
|
|
(29,933
|
)
|
|
|
|
|
|
|
|
|
|
Total Clearwire Corporation stockholders equity
|
|
|
1,590,843
|
|
|
|
2,066,192
|
|
Non-controlling interests
|
|
|
6,181,525
|
|
|
|
5,436,618
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,772,368
|
|
|
|
7,502,810
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
11,267,853
|
|
|
$
|
9,124,167
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
78
CLEARWIRE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
274,458
|
|
|
$
|
20,489
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services and network costs (exclusive of items
shown separately below)
|
|
|
422,116
|
|
|
|
131,489
|
|
|
|
48,865
|
|
Selling, general and administrative expense
|
|
|
568,063
|
|
|
|
150,940
|
|
|
|
99,490
|
|
Depreciation and amortization
|
|
|
208,263
|
|
|
|
58,146
|
|
|
|
3,979
|
|
Spectrum lease expense
|
|
|
259,359
|
|
|
|
90,032
|
|
|
|
60,051
|
|
Transaction related expenses
|
|
|
|
|
|
|
82,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,457,801
|
|
|
|
513,567
|
|
|
|
212,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,183,343
|
)
|
|
|
(493,078
|
)
|
|
|
(212,385
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,691
|
|
|
|
1,091
|
|
|
|
|
|
Interest expense
|
|
|
(69,468
|
)
|
|
|
(16,545
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(10,014
|
)
|
|
|
(22,208
|
)
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(69,791
|
)
|
|
|
(37,662
|
)
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,253,134
|
)
|
|
|
(530,740
|
)
|
|
|
(208,363
|
)
|
Income tax provision
|
|
|
(712
|
)
|
|
|
(61,607
|
)
|
|
|
(16,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,253,846
|
)
|
|
|
(592,347
|
)
|
|
|
(224,725
|
)
|
Less: non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
928,264
|
|
|
|
159,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation
|
|
$
|
(325,582
|
)
|
|
$
|
(432,626
|
)
|
|
$
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire Corporation per Class A
Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.72
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.74
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A Common Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
194,696
|
|
|
|
189,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
741,071
|
|
|
|
694,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
79
CLEARWIRE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,253,846
|
)
|
|
$
|
(592,347
|
)
|
|
$
|
(224,725
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
712
|
|
|
|
61,607
|
|
|
|
16,362
|
|
Losses from equity investees, net
|
|
|
1,202
|
|
|
|
174
|
|
|
|
|
|
Non-cash fair value adjustments on swaps
|
|
|
(6,939
|
)
|
|
|
6,072
|
|
|
|
|
|
Other-than-temporary
impairment loss on investments
|
|
|
10,015
|
|
|
|
17,036
|
|
|
|
|
|
Non-cash interest expense
|
|
|
66,375
|
|
|
|
1,667
|
|
|
|
|
|
Depreciation and amortization
|
|
|
208,263
|
|
|
|
58,146
|
|
|
|
3,979
|
|
Amortization of spectrum leases
|
|
|
57,898
|
|
|
|
17,109
|
|
|
|
|
|
Non-cash rent
|
|
|
108,953
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
27,512
|
|
|
|
6,465
|
|
|
|
|
|
Loss on settlement of pre-existing lease arrangements
|
|
|
|
|
|
|
80,573
|
|
|
|
|
|
Loss/(gain) on disposal or write-off of property, plant and
equipment
|
|
|
77,957
|
|
|
|
(204
|
)
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
(8,252
|
)
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of effects of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(9,450
|
)
|
|
|
(892
|
)
|
|
|
|
|
Accounts receivable
|
|
|
(2,381
|
)
|
|
|
402
|
|
|
|
|
|
Prepaids and other assets
|
|
|
(64,930
|
)
|
|
|
6,354
|
|
|
|
(135,135
|
)
|
Prepaid spectrum licenses
|
|
|
(23,861
|
)
|
|
|
(63,138
|
)
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
338,288
|
|
|
|
(5,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(472,484
|
)
|
|
|
(406,306
|
)
|
|
|
(339,519
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,450,238
|
)
|
|
|
(534,196
|
)
|
|
|
(329,469
|
)
|
Payments for spectrum licenses and other intangible assets
|
|
|
(46,816
|
)
|
|
|
(109,257
|
)
|
|
|
(353,611
|
)
|
Purchases of
available-for-sale
investments
|
|
|
(3,571,154
|
)
|
|
|
(1,774,324
|
)
|
|
|
|
|
Disposition of
available-for-sale
investments
|
|
|
3,280,455
|
|
|
|
|
|
|
|
|
|
Net cash acquired in acquisition of Old Clearwire
|
|
|
|
|
|
|
171,780
|
|
|
|
|
|
Other investing
|
|
|
4,754
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,782,999
|
)
|
|
|
(2,245,830
|
)
|
|
|
(683,080
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net advances from Sprint Nextel Corporation
|
|
|
|
|
|
|
532,165
|
|
|
|
1,022,599
|
|
Sprint Nextel Corporation pre-closing financing
|
|
|
|
|
|
|
392,196
|
|
|
|
|
|
Repayment of Sprint Nextel Corporation pre-closing financing
|
|
|
|
|
|
|
(213,000
|
)
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(1,171,775
|
)
|
|
|
(3,573
|
)
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
2,467,830
|
|
|
|
|
|
|
|
|
|
Debt financing fees
|
|
|
(44,217
|
)
|
|
|
(50,000
|
)
|
|
|
|
|
Strategic investors cash contribution
|
|
|
1,481,813
|
|
|
|
3,200,037
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
12,196
|
|
|
|
|
|
|
|
|
|
Other financing
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,745,847
|
|
|
|
3,857,755
|
|
|
|
1,022,599
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
1,510
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
491,874
|
|
|
|
1,206,143
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,206,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,698,017
|
|
|
$
|
1,206,143
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
119,277
|
|
|
$
|
7,432
|
|
|
$
|
|
|
Swap interest paid
|
|
$
|
13,915
|
|
|
$
|
|
|
|
$
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Old Clearwire Class A shares into New
Clearwire Class A shares
|
|
$
|
|
|
|
$
|
894,433
|
|
|
$
|
|
|
Common stock of Sprint Nextel Corporation issued for spectrum
licenses
|
|
$
|
|
|
|
$
|
4,000
|
|
|
$
|
100,000
|
|
Fixed asset purchases in accounts payable
|
|
$
|
89,792
|
|
|
$
|
40,761
|
|
|
$
|
|
|
Fixed asset purchases included in advances and contributions
from Sprint Nextel Corporation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
164,652
|
|
Spectrum purchases in accounts payable
|
|
$
|
|
|
|
$
|
10,560
|
|
|
$
|
|
|
See notes to consolidated financial statements
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
|
|
Business Equity of
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Additional Paid In
|
|
|
Sprint WiMAX
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Non-controlling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amounts
|
|
|
Shares
|
|
|
Amounts
|
|
|
Capital
|
|
|
Business
|
|
|
Income
|
|
|
Deficit
|
|
|
Interests
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balances at January 1, 2007 (Inception)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,402,410
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,402,410
|
|
Net advances from Sprint Nextel Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,287,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,287,251
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464,936
|
|
Net advances from Sprint Nextel Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,925
|
|
Net loss(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(402,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(402,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(402,693
|
)
|
Deferred tax liability retained by Sprint Nextel Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sprint Nextel Corporation contribution at
November 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,269,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,269,186
|
|
Allocation of Sprint Nextel Corporation business equity at
closing to Clearwire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,269,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,269,186
|
)
|
Recapitalization resulting from strategic transaction
|
|
|
189,484
|
|
|
|
19
|
|
|
|
505,000
|
|
|
|
51
|
|
|
|
2,092,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,575,480
|
|
|
|
7,667,555
|
|
Net loss(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,933
|
)
|
|
|
(159,721
|
)
|
|
|
(189,654
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,682
|
|
|
|
|
|
|
|
7,129
|
|
|
|
9,811
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
1,361
|
|
|
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151,231
|
)
|
|
|
(177,970
|
)
|
Share-based compensation and other capital transactions
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,369
|
|
|
|
13,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
190,002
|
|
|
|
19
|
|
|
|
505,000
|
|
|
|
51
|
|
|
|
2,092,861
|
|
|
|
|
|
|
|
3,194
|
|
|
|
(29,933
|
)
|
|
|
5,436,618
|
|
|
|
7,502,810
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325,582
|
)
|
|
|
(928,264
|
)
|
|
|
(1,253,846
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254
|
|
|
|
|
|
|
|
42
|
|
|
|
296
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
|
|
|
|
|
1,622
|
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(926,600
|
)
|
|
|
(1,251,631
|
)
|
Issuance of Class A common stock
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Issuance of Clearwire Class A and B common stock related to
post-closing adjustment
|
|
|
4,412
|
|
|
|
1
|
|
|
|
23,824
|
|
|
|
2
|
|
|
|
(33,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,632
|
|
|
|
3
|
|
Issuance of Class B common stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
205,415
|
|
|
|
20
|
|
|
|
(140,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,622,043
|
|
|
|
1,481,810
|
|
Rights offering dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,541
|
|
|
|
|
|
|
|
|
|
|
|
(57,541
|
)
|
|
|
|
|
|
|
|
|
Share-based compensation and other capital transactions
|
|
|
1,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,832
|
|
|
|
29,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
196,767
|
|
|
$
|
20
|
|
|
|
734,239
|
|
|
$
|
73
|
|
|
$
|
2,000,061
|
|
|
$
|
|
|
|
$
|
3,745
|
|
|
$
|
(413,056
|
)
|
|
$
|
6,181,525
|
|
|
$
|
7,772,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Net loss for the year ended
December 31, 2008 was ($592,347) and comprehensive loss was
($580,663).
|
See notes to consolidated financial statements
81
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Description
of Business
|
We started operations on January 1, 2007 as a developmental
stage company representing a collection of assets, related
liabilities and activities accounted for in various legal
entities that were wholly-owned subsidiaries of Sprint Nextel
Corporation, which we refer to as Sprint or the Parent. The
nature of the assets held by the Sprint legal entities was
primarily 2.5 GHz Federal Communications Commission, which
we refer to as FCC, licenses and certain property, plant and
equipment related to the Worldwide Interoperability of Microwave
Access, which we refer to as WiMAX, network. The acquisition of
the assets was funded by the Parent. As Sprint had acquired
significant amounts of FCC licenses on our behalf in the past,
these purchases have been presented as part of the opening
business equity as principal operations did not commence until
January 1, 2007, at which time the operations qualified as
a business pursuant to
Rule 11-01(d)
of
Regulation S-X.
From January 1, 2007 through November 28, 2008, we
conducted our business as the WiMAX Operations of Sprint, which
we refer to as the Sprint WiMAX Business, with the objective of
developing a next generation wireless broadband network.
On May 7, 2008, Sprint announced that it had entered into a
definitive agreement with the legacy Clearwire Corporation,
which we refer to as Old Clearwire, to combine both of their
next generation wireless broadband businesses to form a new
independent company to be called Clearwire Corporation, which we
refer to as Clearwire. In addition, five independent partners,
including Intel Corporation, Google Inc., Comcast Corporation,
Time Warner Cable Inc. and Bright House Networks LLC,
collectively, whom we refer to as the Investors, agreed to
invest $3.2 billion in Clearwire and its subsidiary
Clearwire Communications LLC, which we refer to as Clearwire
Communications. On November 28, 2008, which we refer to as
the Closing, Old Clearwire and the Sprint WiMAX Business
completed the combination to form Clearwire and the
Investors contributed a total of $3.2 billion of new equity
to Clearwire and Clearwire Communications. Prior to the Closing,
the activities and certain assets of the Sprint WiMAX Business
were transferred to a single legal entity that was contributed
to Clearwire at close in exchange for an equity interest in
Clearwire. The transactions described above are collectively
referred to as the Transactions. Immediately after the
Transactions, we owned 100% of the voting interests and 27% of
the economic interests in Clearwire Communications, which we
consolidate as a controlled subsidiary. Clearwire holds no
assets other than its interests in Clearwire Communications.
On the Closing, Old Clearwire, and the Sprint WiMAX Business,
combined to form a new independent company, Clearwire. The
consolidated financial statements of Clearwire and subsidiaries
are the results of the Sprint WiMAX Business, from
January 1, 2007 through November 28, 2008 and include
the results of the combined entities thereafter for the period
from November 29, 2008 through December 31, 2009. For
financial reporting purposes, the Sprint WiMAX Business was
determined to be the accounting acquirer and accounting
predecessor. The assets acquired and liabilities assumed of Old
Clearwire have been accounted for at fair value in accordance
with the purchase method of accounting, and its results of
operations have been included in our consolidated financial
results beginning on November 29, 2008.
The accounts and financial statements of Clearwire for the
period from January 1, 2007 through November 28, 2008
have been prepared from the separate records maintained by
Sprint. Further, such accounts and financial statements include
allocations of expenses from Sprint and therefore may not
necessarily be indicative of the financial position, results of
operations and cash flows that would have resulted had we
functioned as a stand-alone operation. Sprint directly assigned,
where possible, certain costs to us based on our actual use of
the shared services. These costs include network related
expenses, office facilities, treasury services, human resources,
supply chain management and other shared services. Cash
management was performed on a consolidated basis, and Sprint
processed payables, payroll and other transactions on our
behalf. Assets and liabilities which were not specifically
identifiable to us included:
|
|
|
|
|
Cash, cash equivalents and investments, with activity in our
cash balances being recorded through business equity;
|
82
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Accounts payable, which were processed centrally by Sprint and
were passed to us through intercompany accounts that were
included in business equity; and
|
|
|
|
Certain accrued liabilities, which were passed through to us
through intercompany accounts that were included in business
equity.
|
Our statement of cash flows prior to the Closing presents the
activities that were paid by Sprint on our behalf. Financing
activities include funding advances from Sprint, presented as
business equity, since Sprint managed our financing activities
on a centralized basis. Further, the net cash used in operating
activities and the net cash used in investing activities for
capital expenditures and acquisitions of FCC licenses and
patents represent transfers of expenses or assets paid for by
other Sprint subsidiaries. No cash payments were made by us for
income taxes or interest prior to the Closing.
We will be focused on expediting the deployment of the first
nationwide 4G mobile broadband network to provide a true mobile
broadband experience for consumers, small businesses, medium and
large enterprises, public safety organizations and educational
institutions. We expect to deploy our mobile WiMAX technology,
based on the IEEE 802.16e standard, in our planned markets using
2.5 GHz FCC licenses.
|
|
2.
|
Summary
of Significant Accounting Policies
|
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission, which we
refer to as the SEC. The following is a summary of our
significant accounting policies:
Principles of Consolidation The consolidated
financial statements include all of the assets, liabilities and
results of operations of our wholly-owned subsidiaries, and
subsidiaries we control or in which we have a controlling
financial interest. Investments in entities that we do not
control and are not the primary beneficiary, but for which we
have the ability to exercise significant influence over
operating and financial policies, are accounted for under the
equity method. All intercompany transactions are eliminated in
consolidation.
Non-controlling interests on the consolidated balance sheets
include third-party investments in entities that we consolidate,
but do not wholly own. We classify our non-controlling interests
as part of equity and include net income (loss) attributable to
our non-controlling interests in net income (loss). We allocate
net income (loss), other comprehensive income (loss) and other
equity transactions to our non-controlling interests in
accordance with their applicable ownership percentages. We also
continue to attribute our non-controlling interests their share
of losses even if that attribution results in a deficit
non-controlling interest balance.
Reclassifications Certain reclassifications
have been made to prior period amounts to conform with the
current period presentation.
Use of Estimates Our accounting policies
require management to make complex and subjective judgments. By
their nature, these judgments are subject to an inherent degree
of uncertainty. These judgments are based on our historical
experience, terms of existing contracts, observance of trends in
the industry, information provided by our customers and
information available from other outside sources, as
appropriate. Additionally, changes in accounting estimates are
reasonably likely to occur from period to period. These factors
could have a material impact on our financial statements, the
presentation of our financial condition, changes in financial
condition or results of operations.
Significant estimates inherent in the preparation of the
accompanying financial statements include: impairment analysis
of spectrum licenses with indefinite lives, the recoverability
and determination of useful lives for long-lived assets, which
include property, plant and equipment and other intangible
assets, tax valuation allowances, and share-based compensation
related to equity-based awards granted.
83
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Subsequent Events We evaluated subsequent
events occurring through the date the financial statements were
issued.
Cash and Cash Equivalents Cash equivalents
consist of money market mutual funds and highly liquid
short-term investments with original maturities of three months
or less. Cash equivalents are stated at cost, which approximates
market value. Cash and cash equivalents exclude cash that is
contractually restricted for operational purposes. We maintain
cash and cash equivalent balances with financial institutions
that exceed federally insured limits. We have not experienced
any losses related to these balances, and management believes
the credit risk related to these balances to be minimal.
Restricted Cash Restricted cash consists
primarily of amounts we have set aside to satisfy certain
contractual obligations and is classified as a current or
noncurrent asset based on its designated purpose. The majority
of this restricted cash relates to outstanding letters of credit.
Investments We have an investment portfolio
comprised of U.S. Treasuries and other debt securities. The
value of these securities is subject to market and credit
volatility during the period the investments are held and until
their sale or maturity. We classify marketable debt securities
as
available-for-sale
investments and these securities are stated at their estimated
fair value. Our investments that are available for current
operations are recorded as short-term investments when the
original maturities are greater than three months but remaining
maturities are less than one year. Our investments with
maturities of more than one year are recorded as long-term
investments. Unrealized gains and losses are recorded within
accumulated other comprehensive income (loss). Realized gains
and losses are measured and reclassified from accumulated other
comprehensive income (loss) on the basis of the specific
identification method.
We recognize realized losses when declines in the fair value of
our investments below their cost basis are judged to be
other-than-temporary.
In determining whether a decline in fair value is
other-than-temporary,
we consider various factors including market price (when
available), investment ratings, the financial condition and
near-term prospects of the issuer, the length of time and the
extent to which the fair value has been less than the cost
basis, and our intent and ability to hold the investment until
maturity or for a period of time sufficient to allow for any
anticipated recovery in market value. We make significant
judgments in considering these factors. If it is judged that a
decline in fair value is
other-than-temporary,
a realized loss equal to the decline is reflected in the
consolidated statement of operations, and a new cost basis in
the investment is established.
We account for certain of our investments using the equity
method based on our ownership interest and our ability to
exercise significant influence. Accordingly, we record our
investment initially at cost and we adjust the carrying amount
of the investment to recognize our share of the earnings or
losses of the investee each reporting period. We cease to
recognize investee losses when our investment basis is zero.
Fair Value Measurements Fair value is the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. In determining fair value,
we use various methods including market, cost and income
approaches. Based on these approaches, we utilize certain
assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk. Based on
the observability of the inputs used in the valuation
techniques, we are required to provide the following information
according to the fair value hierarchy. The fair value hierarchy
ranks the quality and reliability of the information used to
determine fair values. Financial assets and financial
liabilities carried at fair value will be classified and
disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets
for identical assets or liabilities
Level 2: Observable market based inputs or
unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not
corroborated by market data
84
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We maximize the use of observable inputs and minimize the use of
unobservable inputs when developing fair value measurements. If
listed prices or quotes are not available, fair value is based
upon internally developed models that primarily use, as inputs,
market-based or independently sourced market parameters,
including but not limited to interest rate yield curves,
volatilities, equity or debt prices, and credit curves. We
utilize certain assumptions that market participants would use
in pricing the financial instrument, including assumptions about
risk, such as credit, inherent and default risk. The degree of
management judgment involved in determining the fair value of a
financial instrument is dependent upon the availability of
quoted market prices or observable market parameters. For
financial instruments that trade actively and have quoted market
prices or observable market parameters, there is minimal
judgment involved in measuring fair value. When observable
market prices and parameters are not fully available, management
judgment is necessary to estimate fair value. In addition,
changes in market conditions may reduce the availability and
reliability of quoted prices or observable data. In these
instances, we use certain unobservable inputs that cannot be
validated by reference to a readily observable market or
exchange data and rely, to a certain extent, on our own
assumptions about the assumptions that a market participant
would use in pricing the security. These internally derived
values are compared with non-binding values received from
brokers or other independent sources, as available. See
Note 12, Fair Value, for further information.
Accounts Receivable Accounts receivables are
stated at amounts due from customers net of an allowance for
doubtful accounts.
Inventory Inventory primarily consists of
customer premise equipment, which we refer to as CPE, and other
accessories sold to customers and is stated at the lower of cost
or net realizable value. Cost is determined under the average
cost method. We record inventory write-downs for obsolete and
slow-moving items based on inventory turnover trends and
historical experience.
Property, Plant and Equipment Property, plant
and equipment, which we refer to as PP&E, is stated at
cost, net of accumulated depreciation. Depreciation is
calculated on a straight-line basis over the estimated useful
lives of the assets once the assets are placed in service. Our
network construction expenditures are recorded as construction
in progress until the network or other asset is placed in
service, at which time the asset is transferred to the
appropriate PP&E category. We capitalize costs of additions
and improvements, including direct costs of constructing
PP&E and interest costs related to construction. The
estimated useful life of equipment is determined based on
historical usage of identical or similar equipment, with
consideration given to technological changes and industry trends
that could impact the network architecture and asset
utilization. Leasehold improvements are recorded at cost and
amortized over the lesser of their estimated useful lives or the
related lease term, including renewals that are reasonably
assured. Maintenance and repairs are expensed as incurred.
PP&E is assessed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. When such events or circumstances exist,
we would determine the recoverability of the assets
carrying value by estimating the expected undiscounted future
cash flows that are directly associated with and that are
expected to arise as a direct result of the use of the asset. If
the expected undiscounted future cash flows are less than the
carrying amount of the asset, a loss is recognized for the
difference. For purposes of recognition and measurement, we
group our long-lived assets, including PP&E and intangible
assets with definite useful lives, at the lowest level for which
there are identifiable cash flows which are largely independent
of other assets and liabilities, and we test for impairment on
an aggregated basis for assets in the United States consistent
with the management of the business on a national scope. There
were no PP&E impairment losses recorded in the years ended
December 31, 2009, 2008 and 2007.
In addition to the analyses described above, we periodically
assess certain assets that have not yet been deployed in our
network, including equipment and cell site development costs.
This assessment includes the write-off of network equipment for
estimated shrinkage experienced during the deployment process
and the write-off of network equipment and cell site development
costs whenever events or changes in circumstances cause us to
conclude that such assets are no longer needed to meet
managements strategic network plans and will not be
deployed.
85
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Internally Developed Software We capitalize
costs related to computer software developed or obtained for
internal use. Software obtained for internal use has
generally been enterprise-level business and finance software
customized to meet specific operational needs. Costs incurred in
the application development phase are capitalized and amortized
over the useful life of the software, which is generally three
years. Costs recognized in the preliminary project phase and the
post-implementation phase, as well as maintenance and training
costs, are expensed as incurred.
Spectrum Licenses Spectrum licenses primarily
include owned spectrum licenses with indefinite lives, owned
spectrum licenses with definite lives, and favorable spectrum
leases. Indefinite lived spectrum licenses acquired are stated
at cost and are not amortized. While owned spectrum licenses in
the United States are issued for a fixed time, renewals of these
licenses have occurred routinely and at nominal cost. Moreover,
we have determined that there are currently no legal,
regulatory, contractual, competitive, economic or other factors
that limit the useful lives of our owned spectrum licenses and
therefore, the licenses are accounted for as intangible assets
with indefinite lives. The impairment test for intangible assets
with indefinite useful lives consists of a comparison of the
fair value of an intangible asset with its carrying amount. If
the carrying amount of an intangible asset exceeds its fair
value, an impairment loss will be recognized in an amount equal
to that excess. The fair value is determined by estimating the
discounted future cash flows that are directly associated with,
and that are expected to arise as a direct result of the use and
eventual disposition of, the asset. Spectrum licenses with
indefinite useful lives are assessed for impairment annually, or
more frequently, if an event indicates that the asset might be
impaired. We had no impairment of our indefinite lived
intangible assets in any of the periods presented.
Spectrum licenses with definite useful lives and favorable
spectrum leases are stated at cost, net of accumulated
amortization, and are assessed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The carrying value of the definite
lived licenses and spectrum leases are amortized on a
straight-line basis over their estimated useful lives or lease
term, including expected renewal periods, as applicable. There
were no impairment losses for spectrum licenses with definite
useful lives and favorable spectrum leases in the years ended
December 31, 2009, 2008 and 2007.
Other Intangible Assets Other intangible
assets consist of subscriber relationships, trademarks and
patents, and are stated at cost net of accumulated amortization,
for those other intangible assets with definite lives.
Amortization is calculated using either the straight-line method
or an accelerated method over the assets estimated
remaining useful lives. Other intangible assets are assessed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.
There were no impairment losses for our other intangible assets
in the years ended December 31, 2009, 2008 and 2007.
Derivative Instruments and Hedging Activities
In the normal course of business, we may be exposed to the
effects of interest rate changes. We have limited our exposure
by adopting established risk management policies and procedures,
including the use of derivative instruments. It is our policy
that derivative transactions are executed only to manage
exposures arising in the normal course of business and not for
the purpose of creating speculative positions or trading. We
record all derivatives on the balance sheet at fair value as
either assets or liabilities. The accounting for changes in the
fair value of derivatives depends on the intended use of the
derivative and whether it qualifies for hedge accounting. Our
derivative instruments are undesignated, with changes in fair
value recognized currently in the consolidated statement of
operations. See Note 11, Derivative Instruments, for
further information.
Debt Issuance Costs Debt issuance costs are
initially capitalized as a deferred cost and amortized to
interest expense under the effective interest method over the
expected term of the related debt. Unamortized debt issuance
costs related to extinguishment of debt are expensed at the time
the debt is extinguished and recorded in other income
(expenses), net in the consolidated statements of operations.
Unamortized debt issuance costs are recorded in other assets in
the consolidated balance sheets.
Interest Capitalization We capitalize
interest related to our owned spectrum licenses and the related
construction of our network infrastructure assets.
Capitalization of interest commences with pre-construction
86
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
period administrative and technical activities, which includes
obtaining leases, zoning approvals and building permits, and
ceases when the construction is substantially complete and
available for use (generally when a market is launched).
Interest is capitalized on construction in progress and spectrum
licenses accounted for as intangible assets with indefinite
useful lives. Interest capitalization is based on rates
applicable to borrowings outstanding during the period and the
balance of qualified assets under construction during the
period. Capitalized interest is reported as a cost of the
network assets and depreciated over the useful life of those
assets.
Income Taxes We record deferred income taxes
based on the estimated future tax effects of differences between
the financial statement and tax basis of assets and liabilities
using the tax rates expected to be in effect when the temporary
differences reverse. Deferred tax assets are also recorded for
net operating loss, capital loss, and tax credit carryforwards.
Valuation allowances, if any, are recorded to reduce deferred
tax assets to the amount considered more likely than not to be
realized. We also apply a recognition threshold that a tax
position is required to meet before being recognized in the
financial statements.
Revenue Recognition We primarily earn revenue
by providing access to our high-speed wireless network. Also
included in revenue are leases of CPE and additional add-on
services, including personal and business email and static
Internet Protocol. Revenue from customers is billed one month in
advance and recognized ratably over the contracted service
period. Revenues associated with the sale of CPE and other
equipment to customers is recognized when title and risk of loss
is transferred to the customer. Shipping and handling costs
billed to customers are classified as revenue. Activation fees
charged to the customer are deferred and recognized as revenues
on a straight-line basis over the average estimated life of the
customer relationship of 3 years.
Revenue arrangements with multiple deliverables are divided into
separate units of accounting based on the deliverables
relative fair values if the there is objective and reliable
evidence of fair value for all deliverables in the arrangement.
When we are the primary obligor in a transaction, are subject to
inventory risk, have latitude in establishing prices and
selecting suppliers, or have several but not all of these
indicators, gross revenue is recorded. If we are not the primary
obligor and amounts earned are determined using a fixed
percentage, a fixed-payment schedule, or a combination of the
two, we record the net amounts as commissions earned.
Promotional discounts treated as cash consideration are recorded
as a reduction of revenue.
Advertising Costs Advertising costs are
expensed as incurred or the first time the advertising occurs.
Advertising expense was $99.1 million, $7.5 million
and $0 for the years ended December 31, 2009, 2008 and
2007, respectively.
Research and Development Research and
development costs are expensed as incurred. Research and
development expense was $6.4 million, $350,000 and $0 for
the years ended December 31, 2009, 2008 and 2007,
respectively.
Net Loss per Share Basic net loss per common
share is computed by dividing loss attributable to common
stockholders by the weighted-average number of common shares
outstanding during the period. Diluted net loss per common share
is computed by dividing loss attributable to common stockholders
by the weighted-average number of common shares and dilutive
common stock equivalents outstanding during the period. Common
stock equivalents typically consist of the common stock issuable
upon the exercise of outstanding stock options, warrants and
restricted stock using the treasury stock method. The effects of
potentially dilutive common stock equivalents are excluded from
the calculation of diluted loss per share if their effect is
antidilutive. We have two classes of common stock, Class A
and Class B. See Note 16, Net Loss Per Share, for
further information.
Share-Based Compensation The estimate of
share-based compensation expense requires complex and subjective
assumptions, including the stock price volatility, employee
exercise patterns (expected life of the options), future
forfeitures, and related tax effects. Share-based compensation
expense on new awards and for awards modified, repurchased, or
cancelled is based on the estimated grant-date fair value, using
the Black-Scholes option pricing model, and is recognized, net
of a forfeiture rate on those shares expected to vest over a
graded
87
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
vesting schedule on a straight-line basis over the requisite
service period for each separately vesting portion of the award
as if the award was, in substance, multiple awards.
Operating Leases We have operating leases for
spectrum licenses, towers and certain facilities, and equipment
for use in our operations. Certain of our spectrum licenses are
leased from third-party holders of Educational Broadband
Service, which we refer to as EBS, spectrum licenses granted by
the FCC. EBS licenses authorize the provision of certain
communications services on the EBS channels in certain markets
throughout the United States. We account for these spectrum
leases as executory contracts which are similar to operating
leases. Signed leases which have unmet conditions required to
become effective are not amortized until such conditions are met
and are included in spectrum licenses in the accompanying
consolidated balance sheets, if such leases require upfront
payments. For leases containing scheduled rent escalation
clauses, we record minimum rental payments on a straight-line
basis over the term of the lease, including the expected renewal
periods as appropriate. For leases containing tenant improvement
allowances and rent incentives, we record deferred rent, which
is a liability, and that deferred rent is amortized over the
term of the lease, including the expected renewal periods as
appropriate, as a reduction to rent expense.
Foreign Currency Our international
subsidiaries generally use their local currency as their
functional currency. Assets and liabilities are translated at
exchange rates in effect at the balance sheet date. Resulting
translation adjustments are recorded within accumulated other
comprehensive income (loss). Income and expense accounts are
translated at the average monthly exchange rates. The effects of
changes in exchange rates between the designated functional
currency and the currency in which a transaction is denominated
are recorded as foreign currency transaction gains (losses) and
recorded in the consolidated statement of operations.
Concentration of Risk We believe that the
geographic diversity of our customer base and retail nature of
our product minimizes the risk of incurring material losses due
to concentrations of credit risk.
Recent
Accounting Pronouncements
In June and December 2009, the Financial Accounting Standards
Board, which we refer to as the FASB, issued new accounting
guidance that amends the consolidation guidance applicable to
variable interest entities. The amendments will affect the
overall consolidation analysis under the current accounting
guidance. The new accounting guidance is effective for fiscal
years and interim periods beginning after November 15,
2009. We are currently evaluating the impact of the new guidance
on our financial condition and results of operations.
In August 2009, the FASB issued new accounting guidance for the
fair value measurement of liabilities when a quoted price in an
active market is not available. We adopted the new accounting
guidance on October 1, 2009. The adoption did not have any
impact on our financial condition or results of operations.
In October 2009, the FASB issued new accounting guidance that
amends the revenue recognition for multiple-element arrangements
and expands the disclosure requirements related to such
arrangements. The new guidance amends the criteria for
separating consideration in multiple-deliverable arrangements,
establishes a selling price hierarchy for determining the
selling price of a deliverable, eliminates the residual method
of allocation, and requires the application of relative selling
price method in allocating the arrangement consideration to all
deliverables. The new accounting guidance is effective for
fiscal years beginning after June 15, 2010. We are
currently evaluating the impact of the new guidance on our
financial condition and results of operations.
In January 2010, the FASB issued new accounting guidance that
requires new disclosures related to fair value measurements. The
new guidance requires separate disclosure for transfers between
Level 1 and 2 and the activities in Level 3
reconciliation on a gross basis. The new accounting guidance is
effective for fiscal years and interim periods beginning after
December 15, 2009, except for the new disclosures related
to Level 3 activities, which are effective for fiscal years
and interim periods beginning after December 15, 2010. The
new accounting guidance only amended the disclosure requirements
related to fair value measurements, therefore we do not expect
the adoption to have any impact on our financial condition or
results of operations.
88
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Strategic
Transactions
|
Private
Placement
On November 9, 2009, we entered into an investment
agreement, which we refer to as the Investment Agreement, with
each of Sprint, Comcast Corporation, which we refer to as
Comcast, Intel Corporation, which we refer to as Intel, Time
Warner Cable Inc., which we refer to as Time Warner Cable,
Bright House Networks, LLC, which we refer to as Bright House,
and Eagle River Holdings LLC, which we refer to as Eagle River,
who we collectively refer to as the Participating Equityholders,
providing for additional equity investments by the Participating
Equityholders and new debt investments by certain of these
investors. The Investment Agreement sets forth the terms of the
transactions pursuant to which the Participating Equityholders
will invest in Clearwire Communications an aggregate of
approximately $1.564 billion in exchange for
213,369,711 shares of Clearwire Communications non-voting
Class B equity interests and Clearwire Communications
voting interests, which we refer to as the Private Placement,
and the investment by certain of the Participating Equityholders
in senior secured notes, discussed below, which we refer to as
the Rollover Notes, in replacement of equal amounts of
indebtedness under the senior term loan facility that we assumed
from Old Clearwire, which we refer to as the Senior Term Loan
Facility.
Additionally, on November 24, 2009, Clearwire
Communications completed an offering of $1.85 billion
12% senior secured notes due 2015 (including the Rollover
Notes), followed by a second offering of $920 million
12% senior secured notes due 2015 that closed on
December 9, 2009, which we refer to collectively as the
Senior Secured Notes. See Note 10, Long-term Debt.
The Private Placement was to be consummated in three closings.
On November 9, 2009, the Participating Equityholders
contributed in aggregate approximately $1.057 billion in
cash in exchange for 144,231,268 Clearwire Communications
non-voting Class B equity interests, which we refer to as
Clearwire Communications Class B Common Interests, and
Clearwire Communications voting interests, which we refer to as
Clearwire Communications Voting Interests, pro rata based on
their respective investment amounts. We refer to this closing as
the First Investment Closing. On December 21, 2009, the
Participating Equityholders contributed in aggregate
approximately $440.3 million in cash in exchange for
60,066,822 Clearwire Communications Class B Common
Interests and Clearwire Communications Voting Interests. We
refer to this closing as the Second Investment Closing. The
remaining approximately $66.5 million to be contributed
under the Investment Agreement will close when certain financial
information is provided to Sprint for use in its financial
reporting with respect to the fiscal year ending
December 31, 2009. We refer to the consummation of this
purchase as the Third Investment Closing.
In the Private Placement, the Participating Equityholders agreed
to invest in Clearwire Communications a total of
$1.564 billion in exchange for Clearwire Communications
Class B Common Interests and Clearwire Communications
Voting Interests in the following amounts (in millions, except
for Interests):
|
|
|
|
|
|
|
|
|
Investor
|
|
Investment
|
|
|
Interests
|
|
|
Sprint
|
|
$
|
1,176.0
|
|
|
|
160,436,562
|
|
Comcast
|
|
|
196.0
|
|
|
|
26,739,427
|
|
Time Warner Cable
|
|
|
103.0
|
|
|
|
14,051,841
|
|
Bright House
|
|
|
19.0
|
|
|
|
2,592,087
|
|
Intel
|
|
|
50.0
|
|
|
|
6,821,282
|
|
Eagle River
|
|
|
20.0
|
|
|
|
2,728,512
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,564.0
|
|
|
|
213,369,711
|
|
|
|
|
|
|
|
|
|
|
Immediately following the receipt by the Participating
Equityholders of Clearwire Communications Class B Common
Interests and Clearwire Communications Voting Interests, each of
the Participating Equityholders agreed
89
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to contribute to Clearwire its Clearwire Communications Voting
Interests in exchange for an equal number of shares of
Clearwires Class B common stock, par value $0.0001
per share, which we refer to as Class B Common Stock.
Under the Investment Agreement, in exchange for the purchase by
Sprint, Comcast, Time Warner Cable and Bright House of Clearwire
Communications Class B Common Interests and Clearwire
Communications Voting Interests in amounts exceeding certain
amounts stipulated in the Investment Agreement, Clearwire
Communications agreed to pay a fee, which we refer to as an Over
Allotment Fee, equal to the following amounts. Such fee is
payable in cash, or Clearwire Communications Class B Common
Interests and Clearwire Communications Voting Interests, at the
option of the Participating Equityholder:
|
|
|
|
|
Investor
|
|
Over Allotment Fee
|
|
|
Sprint
|
|
$
|
18,878,934
|
|
Comcast
|
|
$
|
3,135,911
|
|
Time Warner Cable
|
|
$
|
1,659,287
|
|
Bright House
|
|
$
|
315,325
|
|
At the Second Investment Closing, Clearwire Communications
delivered a portion of the Over Allotment Fee, $6.9 million
in cash and $9.5 million in Clearwire Communications
Class B Common Interests, valued at $7.33 per interest, and
an equal number of Clearwire Communications Voting Interests to
Sprint, $2.7 million in cash to Comcast, $1.4 million
in cash to Time Warner Cable and $275,000 in cash to Bright
House. The remaining Over Allotment Fee of $3.2 million
will be paid in cash or Clearwire Communications Class B
Common Interests and Clearwire Communications Voting Interests
at the Third Investment Closing.
Immediately after the Third Investment Closing, Sprint will own
71.5% of the Class B Common Stock, Comcast will own 11.9%
of the Class B Common Stock, Time Warner Cable will own
6.2% of the Class B Common Stock, Bright House will own
1.1% of the Class B Common Stock, Intel will own 8.9% of
the Class B Common Stock and Eagle River will own 0.4% of
the Class B Common Stock. These percentages include
1,287,785 of Clearwire Communications Class B Common
Interests and Clearwire Communications Voting Interests to be
issued to Sprint, as Sprint has agreed to accept half of its
Over Allotment Fee in Clearwire Communications Class B
Common Interests.
Clearwire holds all of the outstanding Clearwire Communications
non-voting Class A equity interests, which we refer to as
Clearwire Communications Class A Common Interests, and all
the outstanding Clearwire Communications Voting Interests,
representing 21.1% of the economics and 100% of the voting
rights of Clearwire Communications as of December 31, 2009.
The following table lists the interests in Clearwire as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common
|
|
|
|
|
|
Class B Common
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Stock %
|
|
|
Class B Common
|
|
|
Stock %
|
|
|
|
|
|
Total %
|
|
Investor
|
|
Common Stock
|
|
|
Outstanding
|
|
|
Stock(1)
|
|
|
Outstanding
|
|
|
Total
|
|
|
Outstanding
|
|
|
Sprint
|
|
|
|
|
|
|
|
|
|
|
524,732,533
|
|
|
|
71.5
|
%
|
|
|
524,732,533
|
|
|
|
56.4
|
%
|
Comcast
|
|
|
|
|
|
|
|
|
|
|
87,367,362
|
|
|
|
11.9
|
%
|
|
|
87,367,362
|
|
|
|
9.4
|
%
|
Time Warner Cable
|
|
|
|
|
|
|
|
|
|
|
45,807,398
|
|
|
|
6.2
|
%
|
|
|
45,807,398
|
|
|
|
4.9
|
%
|
Bright House
|
|
|
|
|
|
|
|
|
|
|
8,364,243
|
|
|
|
1.1
|
%
|
|
|
8,364,243
|
|
|
|
0.9
|
%
|
Intel
|
|
|
36,666,666
|
|
|
|
18.6
|
%
|
|
|
65,354,820
|
|
|
|
8.9
|
%
|
|
|
102,021,486
|
|
|
|
11.0
|
%
|
Eagle River
|
|
|
35,922,958
|
|
|
|
18.3
|
%
|
|
|
2,612,516
|
|
|
|
0.4
|
%
|
|
|
38,535,474
|
|
|
|
4.1
|
%
|
Google Inc.
|
|
|
29,411,765
|
|
|
|
14.9
|
%
|
|
|
|
|
|
|
|
|
|
|
29,411,765
|
|
|
|
3.1
|
%
|
Other Shareholders
|
|
|
94,177,091
|
|
|
|
47.9
|
%
|
|
|
|
|
|
|
|
|
|
|
94,177,091
|
|
|
|
10.1
|
%
|
CW Investment Holdings LLC
|
|
|
588,235
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
588,235
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,766,715
|
|
|
|
100.0
|
%
|
|
|
734,238,872
|
|
|
|
100.0
|
%
|
|
|
931,005,587
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
The holders of Class B Common Stock hold an equivalent
number of Clearwire Communications Class B Common Interests. |
Sprint and the Investors, other than Google, Inc, which we refer
to as Google, own shares of Class B Common Stock, which
have equal voting rights to Clearwires Class A,
$0.0001 par value, common stock, which we refer to as
Class A Common Stock, but have only limited economic
rights. Unlike the holders of Class A Common Stock, the
holders of Class B Common Stock, have no right to dividends
and no right to any proceeds on liquidation other than the par
value of the Class B Common Stock. Sprint and the
Investors, other than Google, hold their economic rights through
ownership of Clearwire Communications Class B Common
Interests. Google owns shares of Class A Common Stock.
Under the Investment Agreement, Clearwire committed to a rights
offering, pursuant to which rights to purchase shares of
Class A Common Stock were granted to each holder of
Class A Common Stock along with certain participating
securities as of December 17, 2009, which we refer to as
the Rights Offering. We distributed subscription rights
exercisable for up to 93,903,300 shares of Class A
Common Stock. Each subscription right entitled a shareholder to
purchase 0.4336 shares of Class A Common Stock at a
subscription price of $7.33 per share. The subscription rights
will expire if they are not exercised by June 21, 2010. The
Participating Equityholders and Google waived their respective
rights to participate in the Rights Offering with respect to
shares of Class A Common Stock they each hold as of the
applicable record date.
Business
Combinations
On the Closing, Old Clearwire and the Sprint WiMAX business
combined to form a new independent company, Clearwire. The
Investors contributed a total of $3.2 billion of new equity
to Clearwire and Clearwire Communications. In exchange for the
contribution of the Sprint WiMAX business and the
$3.2 billion, Sprint and the Investors received an
aggregate of 25 million shares of Class A Common
Stock, par value $0.0001 per share, and 505 million shares
of Class B Common Stock, par value $0.0001 per share, and
an equivalent number of Clearwire Communications Class B
Common Interests, at an initial share price of $20 per share.
The number of shares issued to the Investors was subject to a
post-closing adjustment based on the trading prices of the
Class A Common Stock on NASDAQ Global Select Market over 15
randomly-selected trading days during the
30-day
period ending on the 90th day after the Closing, which we
refer to as the Adjustment Date, with a floor of $17.00 per
share and a cap of $23.00 per share. The adjustment resulted in
an additional 28,235,294 shares being issued to the
Investors on February 26, 2009. The adjustment did not
affect the purchase consideration; however it did result in an
equity reallocation of $33.6 million to the non-controlling
interests. On February 27, 2009, CW Investment Holdings
LLC, which we refer to as CW Investment Holdings, an affiliate
of John Stanton, a director of Clearwire, contributed
$10.0 million in cash in exchange for 588,235 shares
of Class A Common Stock. Concurrent with the Closing, we
entered into commercial agreements with each of the Investors,
which establish the framework for development of the combined
WiMAX businesses.
The combination was accounted for as a purchase and as a reverse
acquisition with the Sprint WiMAX Business considered the
accounting acquirer. As a result, the historical financial
statements of the Sprint WiMAX Business have become the
financial statements of Clearwire effective as of the Closing.
Purchase
Consideration
As a result of the Transactions, we acquired Old
Clearwires net assets and each share of Old Clearwire
Class A common stock was exchanged for one share of
Class A Common Stock, and each option and warrant to
purchase shares of Old Clearwire Class A Common Stock and
each share of restricted stock was exchanged for an option or
warrant to purchase the same number of shares of Class A
Common Stock, or a restricted share of Class A Common
Stock, as applicable.
91
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Purchase consideration was based on the fair value of the Old
Clearwire Class A common stock as of the Closing, which had
a closing price of $6.62 on November 28, 2008.
The total purchase consideration to acquire Old Clearwire is
approximately $1.12 billion, calculated as follows (in
thousands, except per share amount):
|
|
|
|
|
Number of shares of Old Clearwire Class A common stock
exchanged in the Transactions
|
|
|
164,484
|
|
Closing price per share of Old Clearwire Class A common
stock
|
|
$
|
6.62
|
|
|
|
|
|
|
Fair value of Old Clearwire Class A common stock exchanged
|
|
|
1,088,884
|
|
Fair value adjustment for Old Clearwire stock options exchanged
|
|
|
38,014
|
|
Fair value adjustment for restricted stock units exchanged
|
|
|
1,398
|
|
Fair value adjustment for warrants exchanged
|
|
|
18,490
|
|
Transaction costs
|
|
|
51,546
|
|
|
|
|
|
|
Purchase consideration for Old Clearwire before settlement loss
|
|
|
1,198,332
|
|
Less: net loss from settlement of pre-existing relationships
|
|
|
(80,573
|
)
|
|
|
|
|
|
Purchase consideration for Old Clearwire
|
|
$
|
1,117,759
|
|
|
|
|
|
|
Purchase
Price Allocation
The total purchase consideration was allocated to the respective
assets and liabilities based upon their estimated fair values on
the date of the acquisition. At the date of acquisition, the
estimated fair value of the net assets acquired exceeded the
purchase price; therefore, no goodwill is reflected in the
purchase price allocation. The excess of estimated fair value of
net assets acquired over the purchase price was allocated to
eligible non-current assets, specifically property, plant and
equipment, other non-current assets and intangible assets, based
upon their relative fair values.
During 2009, we finalized the allocation of the purchase
consideration to the identifiable tangible and intangible assets
acquired and liabilities assumed of Old Clearwire. In connection
therewith, there was a reduction in the amount allocated to
consolidated property, plant and equipment of approximately
$11.3 million, and a corresponding increase in the amount
allocated to spectrum, primarily based on the receipt of
additional information and final appraisal valuations. The
following table sets forth the final allocation of the purchase
consideration to the identifiable tangible and intangible assets
acquired and liabilities assumed of Old Clearwire, including the
allocation of the excess of the estimated fair value of net
assets acquired over the purchase price (in thousands):
|
|
|
|
|
Working capital
|
|
$
|
128,532
|
|
Property, plant and equipment
|
|
|
393,551
|
|
Other non-current assets
|
|
|
106,676
|
|
Spectrum licenses
|
|
|
1,644,825
|
|
Intangible assets
|
|
|
122,673
|
|
Term debt
|
|
|
(1,187,500
|
)
|
Deferred tax liability
|
|
|
(4,952
|
)
|
Other non-current liabilities and non-controlling interests
|
|
|
(86,046
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,117,759
|
|
|
|
|
|
|
92
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table includes the amounts assigned and estimated
remaining useful lives for each class of property, plant and
equipment (in thousands):
|
|
|
|
|
|
|
|
|
Value
|
|
|
Estimated Remaining
|
|
|
Assigned
|
|
|
Useful Life
|
|
|
|
|
|
(Years)
|
|
Network and base station equipment
|
|
$
|
116,029
|
|
|
5
|
Customer premise equipment
|
|
|
19,886
|
|
|
1 to 2
|
Furniture, fixtures and equipment
|
|
|
28,595
|
|
|
2
|
|
|
|
|
|
|
The lesser of the
|
Leasehold improvements
|
|
|
7,324
|
|
|
lease term or 5
|
Construction in progress
|
|
|
221,717
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
$
|
393,551
|
|
|
|
|
|
|
|
|
|
|
The following table includes the amounts assigned and estimated
weighted average remaining useful lives for owned and leased
spectrum licenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Value
|
|
|
Remaining Useful
|
|
|
Assigned
|
|
|
Life
|
|
|
|
|
|
(Years)
|
|
Indefinite-lived owned spectrum
|
|
$
|
480,028
|
|
|
Indefinite
|
Definite-lived owned spectrum
|
|
|
120,915
|
|
|
18
|
Spectrum leases
|
|
|
1,043,882
|
|
|
27
|
|
|
|
|
|
|
|
|
|
$
|
1,644,825
|
|
|
|
|
|
|
|
|
|
|
The following table includes the amounts assigned and estimated
weighted average remaining useful lives for each class of
intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
Value
|
|
|
Weighted Average
|
|
|
Assigned
|
|
|
Remaining Useful Life
|
|
|
|
|
|
(Years)
|
|
Subscriber relationships
|
|
$
|
118,869
|
|
|
4 - 7
|
Trade names and trademarks
|
|
|
3,804
|
|
|
5
|
|
|
|
|
|
|
|
|
|
$
|
122,673
|
|
|
|
|
|
|
|
|
|
|
Net
Loss From Settlement of Pre-existing Relationships
Before the Closing, Sprint leased spectrum to Old Clearwire
through various spectrum lease agreements. As part of the
Transactions, Sprint contributed both the spectrum lease
agreements and the spectrum assets underlying those agreements
to our business. As a result of the Transactions, the spectrum
lease agreements were effectively terminated, and the settlement
of those agreements was accounted for as a separate element
apart from the business combination. The settlement gain or loss
recognized from the termination was valued based on the amount
by which the agreements are favorable or unfavorable to our
business relative to current market rates. The spectrum lease
agreements were considered to be unfavorable to our business by
approximately $80.6 million on a net basis. As such, we
reduced the purchase consideration paid and recorded a
non-recurring expense of approximately $80.6 million, which
is included in transaction related expenses, related to the
settlement of the unfavorable spectrum lease agreements in
connection with the Transactions.
93
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments as of December 31, 2009 and 2008 consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Agency Issues
|
|
$
|
2,106,584
|
|
|
$
|
231
|
|
|
$
|
(154
|
)
|
|
$
|
2,106,661
|
|
|
$
|
1,899,529
|
|
|
$
|
2,220
|
|
|
$
|
|
|
|
$
|
1,901,749
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Agency Issues
|
|
|
74,670
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
74,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities
|
|
|
8,959
|
|
|
|
4,212
|
|
|
|
|
|
|
|
13,171
|
|
|
|
18,974
|
|
|
|
|
|
|
|
|
|
|
|
18,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term
|
|
|
83,629
|
|
|
|
4,212
|
|
|
|
(154
|
)
|
|
|
87,687
|
|
|
|
18,974
|
|
|
|
|
|
|
|
|
|
|
|
18,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
2,190,213
|
|
|
$
|
4,443
|
|
|
$
|
(308
|
)
|
|
$
|
2,194,348
|
|
|
$
|
1,918,503
|
|
|
$
|
2,220
|
|
|
$
|
|
|
|
$
|
1,920,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009 and 2008, we recorded
an
other-than-temporary
impairment loss of $10.0 million and $17.0 million,
respectively, related to our other debt securities.
At December 31, 2009, U.S. Government and Agency
Issues securities with an amortized cost basis of
$929.9 million had unrealized losses of approximately
$308,000. All of these securities have been in an unrealized
loss position for less than two months and the unrealized losses
resulted from changes in interest rates.
Other debt securities include investments in collateralized debt
obligations, which we refer to as CDOs, supported by preferred
equity securities of insurance companies and financial
institutions with stated final maturity dates in 2033 and 2034.
These are variable rate debt instruments whose interest rates
are normally reset approximately every 30 or 90 days
through an auction process. As of December 31, 2009, the
total fair value and cost of our security interests in CDOs was
$13.2 million and $9.0 million, respectively. The
total fair value and cost of our security interests in CDOs as
of December 31, 2008 was $12.9 million. We also own
Auction Market Preferred securities issued by a monoline
insurance company and these securities are perpetual and do not
have a final stated maturity. In July 2009, the issuers
credit rating was downgraded to CC and Caa2 by
Standard & Poors and Moodys rating
services, respectively and the total fair value and cost of our
Auction Market Preferred securities was written down to $0. The
total fair value and cost of our Auction Market Preferred
securities as of December 31, 2008 was $6.1 million.
Current market conditions do not allow us to estimate when the
auctions for our other debt securities will resume, if ever, or
if a secondary market will develop for these securities. As a
result, our other debt securities are classified as long-term
investments.
The cost and fair value of investments at December 31,
2009, by contractual
years-to-maturity,
are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Due within one year
|
|
$
|
2,106,584
|
|
|
$
|
2,106,661
|
|
Due between one and five years
|
|
|
74,670
|
|
|
|
74,516
|
|
Due in ten years or greater
|
|
|
8,959
|
|
|
|
13,171
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,190,213
|
|
|
$
|
2,194,348
|
|
|
|
|
|
|
|
|
|
|
94
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Property,
Plant and Equipment
|
Property, plant and equipment as of December 31, 2009 and
2008 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
December 31,
|
|
|
|
Lives (Years)
|
|
2009
|
|
|
2008
|
|
|
Network and base station equipment
|
|
5-15
|
|
$
|
901,814
|
|
|
$
|
353,752
|
|
Customer premise equipment
|
|
2
|
|
|
60,108
|
|
|
|
23,141
|
|
Furniture, fixtures and equipment
|
|
3-7
|
|
|
216,598
|
|
|
|
167,325
|
|
|
|
Lesser of useful
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
life or lease term
|
|
|
18,128
|
|
|
|
12,786
|
|
Construction in progress
|
|
N/A
|
|
|
1,623,703
|
|
|
|
823,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,820,351
|
|
|
|
1,380,197
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
(223,831
|
)
|
|
|
(60,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,596,520
|
|
|
$
|
1,319,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Supplemental information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest
|
|
$
|
140,168
|
|
|
$
|
4,469
|
|
|
$
|
|
|
Depreciation expense
|
|
$
|
170,131
|
|
|
$
|
54,811
|
|
|
$
|
3,936
|
|
Owned and leased spectrum licenses as of December 31, 2009
and 2008 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Wtd Avg
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Lease Life
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Indefinite-lived owned spectrum
|
|
Indefinite
|
|
$
|
3,082,401
|
|
|
$
|
|
|
|
$
|
3,082,401
|
|
|
$
|
3,035,473
|
|
|
$
|
|
|
|
$
|
3,035,473
|
|
Definite-lived owned spectrum
|
|
16-20 years
|
|
|
118,069
|
|
|
|
(6,268
|
)
|
|
|
111,801
|
|
|
|
112,303
|
|
|
|
(974
|
)
|
|
|
111,329
|
|
Spectrum leases and prepaid spectrum
|
|
26 years
|
|
|
1,323,405
|
|
|
|
(62,937
|
)
|
|
|
1,260,468
|
|
|
|
1,270,058
|
|
|
|
(5,039
|
)
|
|
|
1,265,019
|
|
Pending spectrum and transition costs
|
|
N/A
|
|
|
40,464
|
|
|
|
|
|
|
|
40,464
|
|
|
|
60,041
|
|
|
|
|
|
|
|
60,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total spectrum licenses
|
|
|
|
$
|
4,564,339
|
|
|
$
|
(69,205
|
)
|
|
$
|
4,495,134
|
|
|
$
|
4,477,875
|
|
|
$
|
(6,013
|
)
|
|
$
|
4,471,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite and Definite-lived Owned Spectrum
Licenses Spectrum licenses, which are issued on
both a site-specific and a wide-area basis, authorize wireless
carriers to use radio frequency spectrum to provide service to
certain geographical areas in the United States and
internationally. These licenses are generally acquired as an
asset purchase or through a business combination. In some cases,
we acquire licenses directly from the governmental authority in
the applicable country. These licenses are considered
indefinite-lived intangible assets, except for the licenses
acquired in Poland, Spain, Germany and Romania, which are
considered definite-lived intangible assets due to limited
license renewal history in these countries.
Spectrum Leases and Prepaid Spectrum We also
lease spectrum from third parties who hold the spectrum
licenses. These leases are accounted for as executory contracts,
which are treated like operating leases. Upfront consideration
paid to third-party holders of these leased licenses at the
inception of a lease agreement is capitalized
95
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
as prepaid spectrum lease costs and is expensed over the term of
the lease agreement, including expected renewal terms, as
applicable. As part of the purchase accounting for the
Transactions, favorable spectrum leases of $1.0 billion
were recorded at the Closing. The favorable component of the
acquired spectrum leases has been capitalized as an asset and is
amortized over the lease term.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Supplemental Information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prepaid spectrum licenses
|
|
$
|
57,898
|
|
|
$
|
17,109
|
|
|
$
|
|
|
Amortization of definite-lived owned spectrum
|
|
$
|
5,689
|
|
|
$
|
447
|
|
|
$
|
|
|
Consideration paid relating to owned spectrum licenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
46,800
|
|
|
$
|
108,265
|
|
|
$
|
352,295
|
|
Stock (Sprint)
|
|
$
|
|
|
|
$
|
4,000
|
|
|
$
|
100,000
|
|
Based on the definite-lived spectrum licenses and favorable
spectrum leases as of December 31, 2009, future
amortization of spectrum licenses, spectrum leases and prepaid
spectrum lease costs (excluding pending spectrum and spectrum
transition costs) is expected to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spectrum
|
|
|
Definite-
|
|
|
|
|
|
|
Leases and
|
|
|
Lived Owned
|
|
|
|
|
|
|
Prepaid Spectrum
|
|
|
Spectrum
|
|
|
Total
|
|
|
2010
|
|
$
|
55,796
|
|
|
$
|
7,709
|
|
|
$
|
63,505
|
|
2011
|
|
|
53,956
|
|
|
|
7,996
|
|
|
|
61,952
|
|
2012
|
|
|
53,791
|
|
|
|
7,996
|
|
|
|
61,787
|
|
2013
|
|
|
52,802
|
|
|
|
7,501
|
|
|
|
60,303
|
|
2014
|
|
|
52,449
|
|
|
|
6,511
|
|
|
|
58,960
|
|
Thereafter
|
|
|
991,674
|
|
|
|
74,088
|
|
|
|
1,065,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,260,468
|
|
|
$
|
111,801
|
|
|
$
|
1,372,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect that all renewal periods in our leases will be renewed
by us, and that the costs to renew to be immaterial.
|
|
7.
|
Other
Intangible Assets
|
Other intangible assets as of December 31, 2009 and 2008
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Useful lives
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Subscriber relationships
|
|
|
4 7 years
|
|
|
$
|
120,231
|
|
|
$
|
(34,084
|
)
|
|
$
|
86,147
|
|
|
$
|
118,787
|
|
|
$
|
(2,606
|
)
|
|
$
|
116,181
|
|
Trade names and trademarks
|
|
|
5 years
|
|
|
|
3,804
|
|
|
|
(824
|
)
|
|
|
2,980
|
|
|
|
3,804
|
|
|
|
(63
|
)
|
|
|
3,741
|
|
Patents and other
|
|
|
10 years
|
|
|
|
3,164
|
|
|
|
(578
|
)
|
|
|
2,586
|
|
|
|
3,148
|
|
|
|
(262
|
)
|
|
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangibles
|
|
|
|
|
|
$
|
127,199
|
|
|
$
|
(35,486
|
)
|
|
$
|
91,713
|
|
|
$
|
125,739
|
|
|
$
|
(2,931
|
)
|
|
$
|
122,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Based on the other intangible assets recorded as of
December 31, 2009, the future amortization is expected to
be as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
27,394
|
|
2011
|
|
|
22,426
|
|
2012
|
|
|
17,322
|
|
2013
|
|
|
12,292
|
|
2014
|
|
|
7,728
|
|
Thereafter
|
|
|
4,551
|
|
|
|
|
|
|
Total
|
|
$
|
91,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Supplemental Information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
$
|
32,443
|
|
|
$
|
2,888
|
|
|
$
|
43
|
|
Consideration paid
|
|
$
|
16
|
|
|
$
|
992
|
|
|
$
|
1,316
|
|
We evaluate all of our patent renewals on a case by case basis,
based on renewal costs.
|
|
8.
|
Accounts
Payable and Other Current Liabilities
|
Accounts payable and other current liabilities consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable
|
|
$
|
377,890
|
|
|
$
|
78,695
|
|
Accrued interest
|
|
|
28,670
|
|
|
|
8,953
|
|
Salaries and benefits
|
|
|
44,326
|
|
|
|
26,337
|
|
Business and income taxes payable
|
|
|
25,924
|
|
|
|
7,264
|
|
Other
|
|
|
50,557
|
|
|
|
24,168
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
527,367
|
|
|
$
|
145,417
|
|
|
|
|
|
|
|
|
|
|
We determine deferred income taxes based on the estimated future
tax effects of differences between the financial statement and
tax bases of assets and liabilities using the tax rates expected
to be in effect when any temporary differences reverse or when
the net operating loss, capital loss or tax credit carryforwards
are utilized.
Prior to the Transactions, the legal entities representing the
Sprint WiMAX Business were included in the filing of
Sprints consolidated federal and certain state income tax
returns. Income tax expense and related income tax balances were
accounted for and presented in the financial statements, as if
we were filing stand-alone separate returns using an estimated
combined federal and state marginal tax rate of 39% up to and
including the date of the Transactions. We recorded deferred tax
assets related to the pre-closing net operating loss and tax
credit carryforwards and recorded a valuation allowance against
our deferred tax assets, net of certain schedulable deferred tax
liabilities. The net deferred tax liabilities reported in these
financial statements prior to the Closing are related to FCC
licenses recorded as indefinite-lived spectrum intangibles,
which are not amortized for book purposes. The change to the
deferred tax position as a result of the Closing was reflected
as part of the accounting for the acquisition of Old Clearwire
and was recorded in equity. The net operating loss and tax
credit carryforwards
97
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
associated with the Sprint WiMAX Business prior to the Closing
were not transferred to either Clearwire Communications or
Clearwire, but instead were retained by Sprint.
The income tax provision consists of the following for the years
ended December 31, 2009, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
$
|
(389
|
)
|
|
$
|
325
|
|
|
$
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current taxes
|
|
|
(241
|
)
|
|
|
325
|
|
|
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
953
|
|
|
|
(87
|
)
|
|
|
|
|
Federal
|
|
|
|
|
|
|
51,686
|
|
|
|
13,745
|
|
State
|
|
|
|
|
|
|
9,683
|
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred taxes
|
|
|
953
|
|
|
|
61,282
|
|
|
|
16,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
712
|
|
|
$
|
61,607
|
|
|
$
|
16,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Sprint WiMAX Business incurred significant deferred tax
liabilities related to the indefinite-lived spectrum licenses.
Since certain of these spectrum licenses acquired were recorded
as indefinite-lived intangible assets for book purposes, they
are not subject to amortization and therefore we could not
estimate the amount of future period reversals, if any, of the
deferred tax liabilities related to those spectrum licenses. As
a result, the valuation allowance was increased accordingly and
we continued to amortize acquired spectrum licenses for federal
income tax purpose. The difference between book and tax
amortization resulted in a deferred income tax provision prior
to the Closing.
98
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Components of deferred tax assets and liabilities as of
December 31, 2009 and 2008 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
718,853
|
|
|
$
|
590,767
|
|
Capital loss carryforward
|
|
|
6,230
|
|
|
|
6,187
|
|
Other assets
|
|
|
13,573
|
|
|
|
3,519
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
738,656
|
|
|
|
600,473
|
|
Valuation allowance
|
|
|
(573,165
|
)
|
|
|
(349,001
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
165,491
|
|
|
|
251,472
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Investment in Clearwire Communications
|
|
|
142,434
|
|
|
|
221,373
|
|
Spectrum licenses
|
|
|
19,437
|
|
|
|
14,943
|
|
Other intangible assets
|
|
|
9,937
|
|
|
|
19,113
|
|
Other
|
|
|
36
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
171,844
|
|
|
|
255,636
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
6,353
|
|
|
$
|
4,164
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the Transactions, the assets of Old Clearwire and
its subsidiaries were combined with the spectrum and certain
other assets of the Sprint WiMAX Business. In conjunction with
the acquisition of Old Clearwire by the Sprint WiMAX Business,
these assets along with the $3.2 billion of capital from
the Investors were contributed to Clearwire Communications.
Clearwire is the sole holder of voting interests in Clearwire
Communications. As such, Clearwire controls 100% of the decision
making of Clearwire Communications and consolidates 100% of its
operations. Clearwire Communications is treated as a partnership
for United States federal income tax purposes and therefore does
not pay income tax in the United States and any current and
deferred tax consequences arise at the partner level, including
Clearwire. Other than balances associated with the
non-United
States operations, the only temporary difference for Clearwire
after the Closing is the basis difference associated with our
investment in the partnership. Consequently, we recorded a
deferred tax liability for the difference between the financial
statement carrying value and the tax basis we hold in our
interest in Clearwire Communications as of the date of the
Transactions.
As of December 31, 2009, we had United States federal tax
net operating loss carryforwards of approximately
$1.6 billion. A portion of the net operating loss
carryforward is subject to certain annual limitations imposed
under Section 382 of the Internal Revenue Code of 1986. The
net operating loss carryforwards begin to expire in 2021. We had
$386.4 million of tax net operating loss carryforwards in
foreign jurisdictions; $234.2 million have no statutory
expiration date, $130.5 million begins to expire in 2015,
and the remainder of $21.7 million begins to expire in 2010.
We have recorded a valuation allowance against our deferred tax
assets to the extent that we determined that it is more likely
than not that these items will either expire before we are able
to realize their benefits or that future deductibility is
uncertain. As it relates to the United States tax jurisdiction,
we determined that our temporary taxable difference associated
with our investment in Clearwire Communications will reverse
within the carryforward period of the net operating losses and
accordingly represents relevant future taxable income.
99
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax rate computed using the federal statutory rates
is reconciled to the reported effective income tax rate as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes (net of federal benefit)
|
|
|
0.8
|
|
|
|
(1.5
|
)
|
|
|
(0.8
|
)
|
Non-controlling interest
|
|
|
(25.9
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Valuation allowance
|
|
|
(10.7
|
)
|
|
|
(50.3
|
)
|
|
|
(42.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(0.1
|
)%
|
|
|
(16.6
|
)%
|
|
|
(7.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We file income tax returns for Clearwire and our subsidiaries in
the United States Federal jurisdiction and various state and
foreign jurisdictions. As of December 31, 2009, the tax
returns for Old Clearwire for the years 2003 through 2008 remain
open to examination by the Internal Revenue Service and various
state tax authorities. In addition, Old Clearwire acquired
United States and foreign entities which operated prior to 2003.
Most of the acquired entities generated losses for income tax
purposes and certain tax returns remain open to examination by
United States and foreign tax authorities for tax years as far
back as 1998.
Our policy is to recognize any interest related to unrecognized
tax benefits in interest expense or interest income. We
recognize penalties as additional income tax expense. As
December 31, 2009, we had no uncertain tax positions and
therefore accrued no interest or penalties related to uncertain
tax positions.
Long-term debt at December 31, 2009 and 2008 consisted of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Senior Secured Notes and Rollover Notes, due in 2015, interest
due-bi-annually
|
|
$
|
2,714,731
|
|
|
$
|
|
|
Senior Term Loan Facility, due in 2011, 1% of principal due
annually; residual at maturity
|
|
|
|
|
|
|
1,364,790
|
|
Less: current portion
|
|
|
|
|
|
|
(14,292
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
2,714,731
|
|
|
$
|
1,350,498
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Notes and Rollover Notes On
November 24, 2009, we issued $1.60 billion in
12% Senior Secured Notes due 2015 for cash proceeds of
$1.57 billion, net of debt discount. We used
$1.16 billion of the proceeds to retire our Senior Term
Loan Facility and recognized a gain on extinguishment of debt of
$8.3 million, net of transaction costs. The Senior Secured
Notes provide for bi-annual payments of interest in June and
December, beginning in June 2010, and bear interest at the rate
of 12% per annum. In connection with the issuance of the Senior
Secured Notes, on November 24, 2009, we also issued
$252.5 million of Rollover Notes to Sprint and Comcast with
identical terms as the Senior Secured Notes. The proceeds from
the Rollover Notes were used in 2009 to retire the principal
amounts owed to Sprint and Comcast under our Senior Term Loan
Facility.
On December 9, 2009, we issued an additional
$920 million in Senior Secured Notes with the same terms as
the Senior Secured Notes issued on November 24, 2009, which
resulted in cash proceeds of $901.1 million, net of debt
discount.
100
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, $2.71 billion in aggregate
principal amount was outstanding under the Senior Secured Notes
and Rollover Notes. The weighted effective interest rate of the
Senior Secured Notes and Rollover Notes was 13.02% at
December 31, 2009.
The holders of the Senior Secured Notes and Rollover Notes have
the right to require us to repurchase all of the notes upon the
occurrence of a change of control event or a sale of certain
assets at a price of 101% of the principal amount or 100% of the
principal amount, respectively, plus any unpaid accrued interest
to the repurchase date. Prior to December 1, 2012, we may
redeem up to 35% of the aggregate principal amount of the Senior
Secured Notes at a redemption price of 112% of the aggregate
principal amount, plus any unpaid accrued interest to the
repurchase date. After December 1, 2012, we may redeem all
or a part of the Senior Secured Notes by paying a make-whole
premium as stated in the terms, plus any unpaid accrued interest
to the repurchase date.
Our payment obligations under the Senior Secured Notes and
Rollover Notes are guaranteed by certain domestic subsidiaries
on a senior basis and secured by certain assets of such
subsidiaries on a first-priority lien. The Senior Secured Notes
and Rollover Notes contain limitations on our activities, which
among other things include incurring additional indebtedness and
guarantee indebtedness; making distributions or payment of
dividends or certain other restricted payments or investments;
making certain payments on indebtedness; entering into
agreements that restrict distributions from restricted
subsidiaries; selling or otherwise disposing of assets; merger,
consolidation or sales of substantially all of our assets;
entering transactions with affiliates; creating liens; issuing
certain preferred stock or similar equity securities and making
investments and acquiring assets.
Future payments of interest and principal on our Senior Secured
Notes and Rollover Notes, for the remaining years are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
|
|
Principal
|
|
|
Interest
|
|
|
2010
|
|
$
|
|
|
|
$
|
333,644
|
|
2011
|
|
|
|
|
|
|
332,699
|
|
2012
|
|
|
|
|
|
|
332,699
|
|
2013
|
|
|
|
|
|
|
332,699
|
|
2014
|
|
|
|
|
|
|
332,699
|
|
2015
|
|
|
2,772,494
|
|
|
|
332,699
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,772,494
|
|
|
$
|
1,997,139
|
|
|
|
|
|
|
|
|
|
|
Senior Term Loan Facility In conjunction with
the Transactions, we assumed from Old Clearwire the Senior Term
Loan Facility, which had a balance as of the Closing of
$1.19 billion, net of discount. The Senior Term Loan
Facility was set to be due in 2011, but was repaid with the
proceeds from the Senior Secured Notes and Rollover Notes. As of
December 31, 2008, $1.41 billion in aggregate
principal amount was outstanding under the Senior Term Loan
Facility.
Interest Expense Interest expense included in
our consolidated statements of operations for the years ended
December 31, 2009, 2008 and 2007, consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest coupon
|
|
$
|
145,453
|
|
|
$
|
19,347
|
|
|
$
|
|
|
Accretion of debt discount
|
|
|
64,183
|
|
|
|
1,667
|
|
|
|
|
|
Capitalized interest
|
|
|
(140,168
|
)
|
|
|
(4,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,468
|
|
|
$
|
16,545
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Derivative
Instruments
|
During 2009 and 2008, we held two interest rate swap contracts
which were based on
3-month
LIBOR with a combined notional value of $600 million. We
used these swaps as economic hedges of the interest rate risk
related to a portion of our Senior Term Loan Facility. The
interest rate swaps were used to reduce the variability of
future interest payments on our LIBOR based debt. We were not
holding these interest rate swap contracts for trading or
speculative purposes. We did not apply hedge accounting to these
swaps, therefore the gains and losses due to changes in fair
value were reported in other income (expense), net in our
consolidated statements of operations.
The following table sets forth information regarding our
interest rate swap contracts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Notional
|
|
|
|
|
|
Receive
|
|
|
Pay
|
|
Derivative
|
|
Amount
|
|
|
Maturity Date
|
|
|
Index Rate
|
|
|
Fixed Rate
|
|
|
Swap
|
|
$
|
300,000
|
|
|
|
3/5/2010
|
|
|
|
3-month LIBOR
|
|
|
|
3.50
|
%
|
Swap
|
|
$
|
300,000
|
|
|
|
3/5/2011
|
|
|
|
3-month LIBOR
|
|
|
|
3.62
|
%
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
Nature of Activity:
|
|
2009
|
|
|
Periodic swap payment
|
|
$
|
(13,915
|
)
|
Unrealized gain on undesignated interest rate swap contracts
|
|
|
6,939
|
|
|
|
|
|
|
Loss on undesignated swap contracts, net(1)
|
|
$
|
(6,976
|
)
|
|
|
|
|
|
|
|
|
(1) |
|
Included in Other income (expense), net in the consolidated
statements of operations. |
We computed the fair value of the swaps using an income approach
whereby we estimate net cash flows and discount the cash flows
at a risk-based rate. See Note 12, Fair Value, for further
information. We monitor the risk of our nonperformance as well
as that of our counterparties on an ongoing basis.
At December 31, 2008, the swap fair value of
$21.6 million was reported in other long-term liabilities
on our consolidated balance sheet. During the fourth quarter of
2009, we terminated the swap contracts and paid the swap
counterparties $18.4 million which consisted of
$14.7 million mark to market losses and $3.7 million
accrued interest.
102
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table is a description of the pricing assumptions
used for instruments measured and recorded at fair value on a
recurring basis, including the general classification of such
instruments pursuant to the valuation hierarchy. A financial
instruments categorization within the valuation hierarchy
is based upon the lowest level of input that is significant to
the fair value measurement.
|
|
|
|
|
Financial Instrument
|
|
Hierarchy
|
|
Pricing Assumptions
|
|
Cash equivalents: Money market mutual funds
|
|
Level 1
|
|
Market quotes
|
Short-term investment: U.S. Government and Agency Issues
|
|
Level 1
|
|
Market quotes
|
Long-term investment: U.S. Government and Agency Issues
|
|
Level 1
|
|
Market quotes
|
Long-term investment: Other debt securities
|
|
Level 3
|
|
Discount of forecasted cash flows adjusted for default/loss
probabilities and estimate of final maturity
|
Derivative: Interest rate swaps
|
|
Level 3
|
|
Discount of forecasted cash flows adjusted for risk of
non-performance
|
Cash
Equivalents and Investments
Where quoted prices for identical securities are available in an
active market, we use quoted market prices to determine the fair
value of investment securities and cash equivalents, and they
are classified in Level 1 of the valuation hierarchy.
Level 1 securities include U.S. Treasuries and money
market mutual funds for which there are quoted prices in active
markets.
For other debt securities which are classified in Level 3,
we use discounted cash flow models to estimate the fair value
using various methods including the market and income
approaches. In developing these models, we utilize certain
assumptions that market participants would use in pricing the
investment, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. We maximize
the use of observable inputs in the pricing models where quoted
market prices from securities and derivatives exchanges are
available and reliable. We also use certain unobservable inputs
that cannot be validated by reference to a readily observable
market or exchange data and rely, to a certain extent, on
managements own assumptions about the assumptions that
market participants would use in pricing the security. We use
many factors that are necessary to estimate market values,
including interest rates, market risks, market spreads, timing
of contractual cash flows, market liquidity, review of
underlying collateral and principal, interest and dividend
payments.
Derivatives
Derivatives are classified in Level 3 of the valuation
hierarchy. To estimate fair value, we use an income approach
whereby we estimate net cash flows and discount the cash flows
at a risk-adjusted rate. The inputs include the contractual
terms of the derivatives, including the period to maturity,
payment frequency and day-count conventions, and market-based
parameters such as interest rate forward curves and interest
rate volatility. A level of subjectivity is used to estimate the
risk of our non-performance or that of our counterparties.
103
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes our financial assets and
liabilities by level within the valuation hierarchy at
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,698,017
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,698,017
|
|
Short-term investments
|
|
$
|
2,106,661
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,106,661
|
|
Long-term investments
|
|
$
|
74,516
|
|
|
$
|
|
|
|
$
|
13,171
|
|
|
$
|
87,687
|
|
The following table summarizes our financial assets and
liabilities by level within the valuation hierarchy at
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,206,143
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,206,143
|
|
Short-term investments
|
|
$
|
1,901,749
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,901,749
|
|
Long-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,974
|
|
|
$
|
18,974
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,591
|
|
|
$
|
21,591
|
|
The following table provides a reconciliation of the beginning
and ending balances for the major classes of assets and
liabilities measured at fair value using significant
unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
Level 3
|
|
|
|
Financial Assets
|
|
|
Financial Liabilities
|
|
|
Balance at January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
Balances acquired from Old Clearwire
|
|
|
36,011
|
|
|
|
(15,519
|
)
|
Total losses for 2008 included in net loss(1)
|
|
|
(17,037
|
)
|
|
|
(6,072
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
18,974
|
|
|
|
(21,591
|
)
|
Total gains (losses) for 2009 included in:
|
|
|
|
|
|
|
|
|
Net loss(1)
|
|
|
(10,015
|
)
|
|
|
6,939
|
|
Other comprehensive income
|
|
|
4,212
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
14,652
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
13,171
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses included in net loss for 2009 relating to
financial assets held at December 31, 2009
|
|
$
|
(10,015
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in Other income (expense), net in the consolidated
statements of operations. |
The following is the description of the fair value for financial
instruments we hold that are not subject to fair value
recognition.
104
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Notes
Receivable
Notes receivable with a carrying value of $5.4 million and
a fair value of $1.7 million were outstanding at
December 31, 2009. Notes receivable with a carrying value
of $4.8 million and a fair value of $1.2 million were
outstanding at December 31, 2008. The notes receivable are
not publicly traded. The fair value of these notes is estimated
based on the fair value of the underlying collateral.
Debt
Instruments
Senior Secured Notes and Rollover Notes with a carrying value of
$2.71 billion and an approximate fair value of
$2.81 billion were outstanding at December 31, 2009.
To estimate fair value of these notes we used the average
indicative price from several market makers.
A Senior Term Loan Facility with a carrying value and an
approximate fair value of $1.36 billion was outstanding at
December 31, 2008. The Senior Term Loan Facility was not
publicly traded. To estimate fair value of the Senior Term Loan
Facility, we used an income approach whereby we estimated
contractual cash flows and discounted the cash flows at a
risk-adjusted rate. The inputs included the contractual terms of
the Senior Term Loan Facility and market-based parameters such
as interest rate forward curves. A level of subjectivity and
judgment was used to estimate credit spread. The Senior Term
Loan Facility was retired in the fourth quarter of 2009.
|
|
13.
|
Commitments
and Contingencies
|
Future minimum payments under obligations listed below
(including all optional expected renewal periods on operating
leases) as of December 31, 2009, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including all
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
renewal periods
|
|
|
Long-term debt obligations
|
|
$
|
2,772,494
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,772,494
|
|
Interest payments
|
|
|
1,997,139
|
|
|
|
333,644
|
|
|
|
332,699
|
|
|
|
332,699
|
|
|
|
332,699
|
|
|
|
332,699
|
|
|
|
332,699
|
|
Operating lease obligations
|
|
|
6,496,660
|
|
|
|
214,717
|
|
|
|
219,522
|
|
|
|
221,757
|
|
|
|
223,383
|
|
|
|
223,385
|
|
|
|
5,393,896
|
|
Spectrum lease obligations
|
|
|
5,164,616
|
|
|
|
127,749
|
|
|
|
135,073
|
|
|
|
140,806
|
|
|
|
140,369
|
|
|
|
149,860
|
|
|
|
4,470,759
|
|
Spectrum service credits
|
|
|
95,672
|
|
|
|
986
|
|
|
|
986
|
|
|
|
986
|
|
|
|
986
|
|
|
|
987
|
|
|
|
90,741
|
|
Signed spectrum agreements
|
|
|
29,983
|
|
|
|
29,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network equipment purchase obligations
|
|
|
422,744
|
|
|
|
422,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other purchase obligations
|
|
|
162,474
|
|
|
|
96,030
|
|
|
|
30,938
|
|
|
|
22,040
|
|
|
|
13,054
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,141,782
|
|
|
$
|
1,225,853
|
|
|
$
|
719,218
|
|
|
$
|
718,288
|
|
|
$
|
710,491
|
|
|
$
|
707,343
|
|
|
$
|
13,060,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spectrum and operating lease
obligations Our commitments for
non-cancelable operating leases consist mainly of leased
spectrum license fees, office space, equipment, and leased
sites, including towers and rooftop locations. Certain of the
leases provide for minimum lease payments, additional charges
and escalation clauses. Certain of the tower leases specify a
minimum number of new leases to commence by December 31,
2011. Charges apply if these commitments are not satisfied.
Leased spectrum agreements have terms of up to 30 years.
Operating leases generally have initial terms of five years with
multiple renewal options for additional five-year terms totaling
between 20 and 25 years.
105
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Expense recorded related to spectrum and operating leases was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Spectrum lease expense
|
|
$
|
201,461
|
|
|
$
|
72,923
|
|
|
$
|
60,051
|
|
Amortization of prepaid spectrum licenses
|
|
|
57,898
|
|
|
|
17,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total spectrum lease expense
|
|
$
|
259,359
|
|
|
$
|
90,032
|
|
|
$
|
60,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
245,351
|
|
|
$
|
51,345
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other spectrum commitments We have
commitments to provide Clearwire services to certain lessors in
launched markets, and reimbursement of capital equipment and
third-party service expenditures of the lessors over the term of
the lease. We accrue a monthly obligation for the services and
equipment based on the total estimated available service credits
divided by the term of the lease. The obligation is reduced as
actual invoices are presented and paid to the lessors. During
the years ended December 31, 2009 and 2008 we satisfied
$779,000 and $76,000, respectively, related to these
commitments. The maximum remaining commitment at
December 31, 2009 is $95.7 million and is expected to
be incurred over the term of the related lease agreements, which
generally range from
15-30 years.
As of December 31, 2009, we have signed agreements to
acquire approximately $30.0 million in new spectrum,
subject to closing conditions. These transactions are expected
to be completed within the next twelve months.
Network equipment purchase obligations
We have purchase commitments with
take-or-pay
obligations
and/or
volume commitments for equipment that are non-cancelable and
outstanding purchase orders for network equipment for which we
believe delivery is likely to occur.
Other purchase obligations We
have purchase obligations that include minimum purchases we have
committed to purchase from suppliers over time
and/or
unconditional purchase obligations where we guarantee to make a
minimum payment to suppliers for goods and services regardless
of whether suppliers fully deliver them. They include, among
other things, agreements for backhaul, customer devices and IT
related and other services. In addition, we are party to various
arrangements that are conditional in nature and create an
obligation to make payments only upon the occurrence of certain
events, such as the actual delivery and acceptance of products
or services. Because it is not possible to predict the timing or
amounts that may be due under these conditional arrangements, no
such amounts have been included in the table above. The table
above also excludes blanket purchase order amounts where the
orders are subject to cancellation or termination at our
discretion or where the quantity of goods or services to be
purchased or the payment terms are unknown because such purchase
orders are not firm commitments.
AMDOCS Agreement On
March 31, 2009, we entered into a Customer Care and Billing
Services Agreement, which we refer to as the AMDOCS Agreement,
with AMDOCS Software Systems Limited, which we refer to as
AMDOCS, under which AMDOCS will provide a customized customer
care and billing platform, which we refer to as the Platform, to
us. In connection with the provision of these services and the
establishment of the Platform, AMDOCS will also license certain
of its software to us.
The initial term of the AMDOCS Agreement commences on
March 31, 2009 and ends on the earliest to occur of seven
years from the date of the AMDOCS Agreement (to be extended
under certain circumstances relating to conversion of
subscribers to the new system) or the termination of the AMDOCS
Agreement pursuant to its terms, as defined. Under the terms of
the AMDOCS Agreement, we are required to pay AMDOCS licensing
fees, implementation fees, monthly subscriber fees, and
reimbursable expenses. In addition, the AMDOCS Agreement
contains detailed terms governing implementation and maintenance
of the Platform; performance specifications; acceptance testing;
charges, credits and payments; and warranties. We capitalized
$52.9 million in costs incurred during the application
development stage associated with the Platform for the year
ended December 31, 2009.
106
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Legal proceedings As more fully
described below, we are involved in a variety of lawsuits,
claims, investigations and proceedings concerning intellectual
property, business practices, commercial and other matters. We
determine whether we should accrue an estimated loss for a
contingency in a particular legal proceeding by assessing
whether a loss is deemed probable and can be reasonably
estimated. We reassess our views on estimated losses on a
quarterly basis to reflect the impact of any developments in the
matters in which we are involved. Legal proceedings are
inherently unpredictable, and the matters in which we are
involved often present complex legal and factual issues. We
vigorously pursue defenses in legal proceedings and engage in
discussions where possible to resolve these matters on terms
favorable to us. It is possible, however, that our business,
financial condition and results of operations in future periods
could be materially affected by increased litigation expense,
significant settlement costs
and/or
unfavorable damage awards.
On December 1, 2008, Adaptix, Inc., which we refer to as
Adaptix, filed suit for patent infringement against us and
Sprint in the United States District Court for the Eastern
District of Texas, alleging that we and Sprint infringed six
patents purportedly owned by Adaptix. On February 10, 2009,
Adaptix filed an Amended Complaint alleging infringement of a
seventh patent. Adaptix alleges that by offering 4G mobile WiMAX
services to subscribers in compliance with the 802.16e WiMAX
standard, and by making, using
and/or
selling the supporting WiMAX network used to provide such WiMAX
services, we and Sprint infringe the seven patents. Adaptix is
seeking monetary damages, attorneys fees and a permanent
injunction enjoining us from further acts of alleged
infringement. On February 25, 2009, we filed an Answer to
the Amended Complaint, denying infringement and asserting
several affirmative defenses, including that the asserted
patents are invalid. We filed an Amended Answer on June 25,
2009, adding a counter-claim for declaratory judgment of
non-infringement and invalidity of the subject patents. A trial
is scheduled for December 2010, and the parties commenced
discovery in early 2009. On December 21, 2009, Adaptix
filed but did not serve an additional suit for patent
infringement in the United States District Court for the
Eastern District of Texas. That suit alleges infringement of one
patent related to those asserted in the previously filed suit.
We have not been served and therefore have not appeared in the
newly-filed suit. On February 23, 2010, we reached a
resolution with Adaptix and Sprint regarding Adaptixs
patent infringement litigations pending in the United States
District Court for the Eastern District of Texas, whereby the
pending litigations will be dismissed without prejudice.
On April 22, 2009, a purported class action lawsuit was
filed against us in Superior Court in King County, Washington by
a group of five plaintiffs from Hawaii, Minnesota, North
Carolina and Washington. The lawsuit generally alleges that we
disseminated false advertising about the quality and reliability
of our services; imposed an unlawful early termination fee; and
invoked unconscionable provisions of our Terms of Service to the
detriment of customers. Among other things, the lawsuit seeks a
determination that the alleged claims may be asserted on a
class-wide
basis; an order declaring certain provisions of our Terms of
Service, including the early termination fee provision, void and
unenforceable; an injunction prohibiting us from collecting
early termination fees and further false advertising;
restitution of any early termination fees paid by our
subscribers; equitable relief; and an award of unspecified
damages and attorneys fees. On May 27, 2009, an
amended complaint was filed and served, adding seven additional
plaintiffs, including individuals from New Mexico, Virginia and
Wisconsin. On June 2, 2009, plaintiffs served the amended
complaint. We removed the action to the United States District
Court for the Western District of Washington. On July 23,
2009, we filed a motion to dismiss the amended complaint. The
Court stayed discovery pending its ruling on the motion. The
Court granted our motion to dismiss in its entirety on
February 2, 2010. Plaintiffs have 30 days to move the
Court for leave to amend the complaint. Whether plaintiffs will
seek such leave is unknown.
On September 1, 2009, we were served with a purported class
action lawsuit filed in King County Superior Court. The
complaint alleges we placed unlawful telephone calls using
automatic dialing and announcing devices. It seeks declaratory,
injunctive,
and/or
equitable relief and statutory damages under federal and state
law. On October 1, 2009, we removed the case to the United
States District Court for the Western District of Washington. On
October 22, 2009, the Court issued a stipulated order
granting plaintiff until October 29, 2009 to file an
Amended Complaint. The parties further stipulated to allow a
Second Amended Complaint, which plaintiffs filed on
107
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 23, 2009. We then filed a motion to dismiss that
was fully briefed on January 15, 2010. Prior to the Court
ruling on the motion to dismiss, plaintiff moved the Court for
leave to file a further amended complaint. On February 22,
2010 the Court granted our motion to dismiss in part, dismissing
certain claims with prejudice and granting plaintiff
20 days to amend the complaint. The Court dismissed
plaintiffs motion for leave to amend as moot. This case is
in the early stages of litigation, and its outcome is unknown.
In addition to the matters described above, we are often
involved in certain other proceedings which arise in the
ordinary course of business and seek monetary damages and other
relief. Based upon information currently available to us, none
of these other claims are expected to have a material adverse
effect on our business, financial condition or results of
operations.
Indemnification agreements We are
currently a party to indemnification agreements with certain
officers and each of the members of our Board of Directors. No
liabilities have been recorded in the consolidated balance
sheets for any indemnification agreements, because they are not
probable nor estimable.
In connection with the Closing, we assumed the Old Clearwire
2008 Stock Compensation Plan, which we refer to as the 2008
Plan, the Old Clearwire 2007 Stock Compensation Plan, which we
refer to as the 2007 Plan, and the Old Clearwire 2003 Stock
Option Plan, which we refer to as the 2003 Plan. Share grants
generally vest ratably over four years and expire no later than
ten years after the date of grant. Grants to be awarded under
the 2008 Plan will be made available at the discretion of the
Compensation Committee of the Board of Directors from authorized
but unissued shares, authorized and issued shares reacquired and
held as treasury shares, or a combination thereof. At
December 31, 2009, there were 62,229,805 shares
available for grant under the 2008 Plan, which authorizes us to
grant incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock, restricted stock
units, and other stock awards to our employees, directors and
consultants. With the adoption of the 2008 Plan, no additional
stock options will be granted under the 2007 Plan or the 2003
Plan.
Share-based compensation expense is based on the estimated
grant-date fair value of the award and is recognized net of
estimated forfeitures on those shares expected to vest over a
graded vesting schedule on a straight-line basis over the
requisite service period for each separately vesting portion of
the award as if the award was, in-substance, multiple awards.
Stock
Options
In connection with the Transactions, all Old Clearwire stock
options issued and outstanding at the Closing were exchanged on
a
one-for-one
basis for stock options with equivalent terms. Following the
Closing, we granted options to certain officers and employees
under the 2008 Plan. All options vest over a four-year period.
The fair value of option grants was estimated on the date of
grant using the Black-Scholes option pricing model.
108
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of option activity from January 1, 2007 through
December 31, 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Value As of
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
12/31/2009
|
|
|
|
Options
|
|
|
Price
|
|
|
(Years)
|
|
|
(In millions)
|
|
|
Options outstanding January 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options acquired in purchase accounting
November 28, 2008
|
|
|
19,093,614
|
|
|
$
|
14.38
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
425,000
|
|
|
|
4.10
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(337,147
|
)
|
|
|
11.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,866
|
)
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2008
|
|
|
19,171,601
|
|
|
$
|
14.21
|
|
|
|
6.36
|
|
|
|
|
|
Granted
|
|
|
7,075,000
|
|
|
|
4.30
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4,084,112
|
)
|
|
|
15.13
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(624,758
|
)
|
|
|
3.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2009
|
|
|
21,537,731
|
|
|
$
|
11.09
|
|
|
|
6.39
|
|
|
$
|
25.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest December 31, 2009
|
|
|
19,715,140
|
|
|
$
|
11.45
|
|
|
|
6.23
|
|
|
$
|
22.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable outstanding December 31, 2009
|
|
|
12,066,459
|
|
|
$
|
13.54
|
|
|
|
5.21
|
|
|
$
|
8.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the years ended
December 31, 2009 and 2008 was $2.3 million and
$15,000, respectively.
Information regarding stock options outstanding and exercisable
as of December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Life
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Exercise Prices
|
|
Options
|
|
|
(Years)
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
$2.25 $3.00
|
|
|
1,421,199
|
|
|
|
4.01
|
|
|
$
|
2.89
|
|
|
|
1,421,199
|
|
|
$
|
2.89
|
|
$3.03
|
|
|
3,700,000
|
|
|
|
9.19
|
|
|
|
3.03
|
|
|
|
|
|
|
|
|
|
$3.53 $5.45
|
|
|
1,296,750
|
|
|
|
5.78
|
|
|
|
4.16
|
|
|
|
107,500
|
|
|
|
4.10
|
|
$6.00
|
|
|
3,466,399
|
|
|
|
4.43
|
|
|
|
6.00
|
|
|
|
3,466,399
|
|
|
|
6.00
|
|
$6.07 $11.03
|
|
|
2,856,699
|
|
|
|
8.12
|
|
|
|
8.63
|
|
|
|
279,092
|
|
|
|
10.97
|
|
$11.15 $16.02
|
|
|
1,380,101
|
|
|
|
5.46
|
|
|
|
14.62
|
|
|
|
1,069,318
|
|
|
|
14.85
|
|
$17.11
|
|
|
2,177,899
|
|
|
|
4.72
|
|
|
|
17.11
|
|
|
|
1,233,065
|
|
|
|
17.11
|
|
$18.00 $23.30
|
|
|
3,386,451
|
|
|
|
6.60
|
|
|
|
20.35
|
|
|
|
2,884,805
|
|
|
|
20.07
|
|
$23.52 $25.01
|
|
|
1,847,233
|
|
|
|
6.33
|
|
|
|
24.99
|
|
|
|
1,602,581
|
|
|
|
24.99
|
|
$25.33
|
|
|
5,000
|
|
|
|
7.54
|
|
|
|
25.33
|
|
|
|
2,500
|
|
|
|
25.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21,537,731
|
|
|
|
6.39
|
|
|
$
|
11.09
|
|
|
|
12,066,459
|
|
|
$
|
13.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model using the
following assumptions for the years ended December 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
|
Expected volatility
|
|
63.35%-67.65%
|
|
|
66.52
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
Expected life (in years)
|
|
4.75 - 6.25
|
|
|
4.75
|
|
Risk-free interest rate
|
|
1.36% - 2.98%
|
|
|
1.93
|
%
|
Weighted average fair value per option at grant date
|
|
$2.63
|
|
$
|
2.24
|
|
The fair value of option grants in 2009 was $18.6 million.
In addition to options issued in exchange as part of the
Transactions, the fair value of option grants during 2008 was
$954,000. The total fair value of options vested during the
years ended December 31, 2009 and 2008 was
$5.8 million and $815,000, respectively. The total
unrecognized share-based compensation costs related to
non-vested stock options outstanding at December 31, 2009
was approximately $11.5 million and is expected to be
recognized over a weighted average period of approximately
1.7 years.
For the years ended December 31, 2009 and 2008, our
forfeiture rate used in the calculation of stock option expense
is 12.66%.
Restricted
Stock Units
In connection with the Transactions, all Old Clearwire
restricted stock units, which we refer to as RSUs, issued and
outstanding at the Closing were exchanged on a
one-for-one
basis for RSUs with equivalent terms. Following the Closing, we
granted RSUs to certain officers and employees under the 2008
Plan. All RSUs vest over a four-year period. The fair value of
our RSUs is based on the grant-date fair market value of the
common stock, which equals the grant date market price.
A summary of the RSU activity for the years ended
December 31, 2009 and 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
RSUs
|
|
|
Grant Price
|
|
|
Restricted stock units outstanding January 1,
2007
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding December 31,
2007
|
|
|
|
|
|
|
|
|
Restricted stock units acquired in purchase
accounting November 28, 2008
|
|
|
3,216,500
|
|
|
$
|
13.19
|
|
Granted
|
|
|
716,000
|
|
|
|
4.10
|
|
Forfeited
|
|
|
(43,000
|
)
|
|
|
|
|
Released
|
|
|
(508,098
|
)
|
|
|
5.18
|
|
Cancelled
|
|
|
(108,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding December 31,
2008
|
|
|
3,272,625
|
|
|
$
|
13.19
|
|
Granted
|
|
|
10,938,677
|
|
|
|
4.39
|
|
Forfeited
|
|
|
(1,217,857
|
)
|
|
|
5.17
|
|
Released
|
|
|
(1,140,251
|
)
|
|
|
6.95
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding December 31,
2009
|
|
|
11,853,194
|
|
|
$
|
4.60
|
|
|
|
|
|
|
|
|
|
|
110
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total fair value of grants during 2009 and 2008 was
$48.0 million and $2.9 million, respectively. The
intrinsic value of RSUs released during the years ended
December 31, 2009 and 2008 was $7.9 million and
$3.2 million, respectively. As of December 31, 2009,
there were 11,853,194 units outstanding and total
unrecognized compensation cost of approximately
$30.9 million, which is expected to be recognized over a
weighted-average period of approximately 1.8 years.
For the years ended December 31, 2009 and 2008, we used a
forfeiture rate of 7.75% and 7.50%, respectively, in determining
compensation expense for our RSUs.
Sprint
Equity Compensation Plans
In connection with the Transactions, certain of the Sprint WiMAX
Business employees became employees of Clearwire and currently
hold unvested Sprint stock options and RSUs in Sprints
equity compensation plans, which we refer to collectively as the
Sprint Plans. The underlying share for awards issued under the
Sprint Plans is Sprint common stock. The Sprint Plans allow for
continued plan participation as long as the employee remains
employed by a Sprint subsidiary or affiliate. Under the Sprint
Plans, options are generally granted with an exercise price
equal to the market value of the underlying shares on the grant
date, generally vest over a period of up to four years and have
a contractual term of ten years. RSUs generally have both
performance and service requirements with vesting periods
ranging from one to three years. RSUs granted after the second
quarter 2008 included quarterly performance targets but were not
granted until performance targets were met. Therefore, at the
grant date these awards only had a remaining service requirement
and vesting period of six months following the last day of the
applicable quarter. Employees who were granted RSUs were not
required to pay for the shares but generally must remain
employed with Sprint or a subsidiary, until the restrictions
lapse, which was typically three years or less. At
December 31, 2009, there were 722,954 unvested options and
213,127 unvested RSUs outstanding.
The share-based compensation associated with these employees is
incurred by Sprint on our behalf. Sprint provided us with the
fair value of the options and RSUs for each reporting period,
which must be remeasured based on the fair value of the equity
instruments at each reporting period until the instruments are
vested. Total unrecognized share-based compensation costs
related to unvested stock options and RSUs outstanding as of
December 31, 2009 was $70,250 and $186,100, respectively,
and is expected to be recognized over approximately one year.
Share-based compensation expense recognized for all plans for
the years ended December 31, 2009, 2008 and 2007 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Options
|
|
$
|
6,386
|
|
|
$
|
2,371
|
|
|
$
|
|
|
RSUs
|
|
|
20,091
|
|
|
|
1,292
|
|
|
|
|
|
Sprint Equity Compensation Plans
|
|
|
1,035
|
|
|
|
2,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,512
|
|
|
$
|
6,465
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
The Class A Common Stock represents the common equity of
Clearwire. The holders of the Class A Common Stock are
entitled to one vote per share and, as a class, are entitled to
100% of any dividends or distributions made by Clearwire, with
the exception of certain minimal liquidation rights provided to
the Class B Common Stockholders, which are described below.
Each share of Class A Common Stock participates ratably in
proportion to the total number of shares of Class A Common
Stock issued by Clearwire. Holders of Class A Common Stock
have 100% of the economic interest in Clearwire and are
considered the controlling interest for the purposes of
financial reporting.
111
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Upon liquidation, dissolution or winding up, the Class A
Common Stock will be entitled to any assets remaining after
payment of all debts and liabilities of Clearwire, with the
exception of certain minimal liquidation rights provided to the
Class B Common Stockholders, which are described below.
Class B
Common Stock
The Class B Common Stock represents non-economic voting
interests in Clearwire and holders of this stock are considered
the non-controlling interests for the purposes of financial
reporting. Identical to the Class A Common Stock, the
holders of Class B Common Stock are entitled to one vote
per share, however they do not have any rights to receive
distributions other than stock dividends paid proportionally to
each outstanding Class A and Class B Common
Stockholder or upon liquidation of Clearwire, an amount equal to
the par value per share, which is $0.0001 per share.
Each holder of Class B Common Stock holds an equivalent
number of Clearwire Communications Class B Common
Interests, which in substance reflects their economic stake in
Clearwire. This is accomplished through an exchange feature that
provides the holder the right, at any time, to exchange one
share of Class B Common Stock plus one Clearwire
Communications Class B Common Interest for one share of
Class A Common Stock.
Clearwire
Communications Interests
Clearwire is the sole holder of voting interests in Clearwire
Communications. As such, Clearwire controls 100% of the decision
making of Clearwire Communications and consolidates 100% of its
operations. Clearwire also holds all of the outstanding
Clearwire Communications Class A Common Interests
representing 21.1% of the economics of Clearwire Communications
as of December 31, 2009. The holders of the Class B
Common Interests own the remaining 78.9% of the economic
interests. The following shows the effects of the changes in
Clearwires ownership interests in Clearwire Communications
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
November 29,
|
|
|
|
Year Ended
|
|
|
2008 to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net loss attributable to Clearwire
|
|
$
|
(319,199
|
)
|
|
$
|
(29,621
|
)
|
Decrease in Clearwires additional paid-in capital for
issuance of Class A and B Common Stock related to the
post-closing adjustment
|
|
|
(33,632
|
)
|
|
|
|
|
Decrease in Clearwires additional paid-in capital for
issuance of Class B Common Stock
|
|
|
(140,253
|
)
|
|
|
|
|
Increase in Clearwires additional paid-in capital for
issuance of Class A Common Stock
|
|
|
17,957
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Change from net loss attributable to Clearwire and transfers to
non-controlling interests
|
|
$
|
(475,127
|
)
|
|
$
|
(29,460
|
)
|
|
|
|
|
|
|
|
|
|
The non-voting Clearwire Communication units are designated as
either Clearwire Communications Class A Common Interests,
which are 100% held by Clearwire, or Clearwire Communications
Class B Common Interests, which are held by Sprint and the
Investors, with the exception of Google. Both classes of
non-voting Clearwire Communication units participate in
distributions of Clearwire Communications on an equal and
proportionate basis.
Each holder of Clearwire Communications Class B Common
Interests holds an equivalent number of Class B Common
Stock and will be entitled at any time to exchange one share of
Class B Common Stock plus one Clearwire Communications
Class B Common Interest for one share of Class A
Common Stock.
112
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
It is intended that at all times, the number of Clearwire
Communications Class A Common Interests held by Clearwire
will equal the number of shares of Class A Common Stock
issued by Clearwire. Similarly, it is intended that, at all
times, Sprint and each Investor, except Google, will hold an
equal number of Class B Common Stock and Clearwire
Communications Class B Common Interests.
Dividend
Policy
We have not declared or paid any cash dividends on Class A
or Class B Common Stock since the Closing. We currently
expect to retain future earnings, if any, for use in the
operations and expansion of our business. We do not anticipate
paying any cash dividends in the foreseeable future. In
addition, covenants in the indenture governing our Senior
Secured Notes impose significant restrictions on our ability to
pay cash dividends to our stockholders. The distribution of
subscription rights as part of the Rights Offering represents a
dividend distribution.
Non-controlling
Interests in Clearwire Communications
Clearwire Communications is consolidated into Clearwire.
Therefore, the holders of the Clearwire Communications
Class B Common Interests represent non-controlling
interests in a consolidated subsidiary. As a result, the income
(loss) consolidated by Clearwire is decreased in proportion to
the outstanding non-controlling interests. Currently, at the
Clearwire level, non-controlling interests represent
approximately 79% of the non-economic voting interests.
Warrants
All Old Clearwire warrants issued and outstanding at the Closing
were exchanged on a
one-for-one
basis for warrants to purchase our Class A Common Stock
with equivalent terms. The fair value of the warrants exchanged
of $18.5 million is included in the calculation of purchase
consideration using the Black-Scholes option pricing model using
a share price of $6.62. Holders may exercise their warrants at
any time, with exercise prices ranging from $3.00 to $48.00. Old
Clearwire granted the holders of the warrants registration
rights covering the shares subject to issuance under the
warrants. The number of warrants outstanding at
December 31, 2009 was 17,806,220. The warrants expire on
August 5, 2010, but the term is subject to extension in
certain circumstances.
Basic
Net Loss Per Share
The net loss per share attributable to holders of Class A
Common Stock is calculated based on the following information
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
November 29,
|
|
|
|
Year Ended
|
|
|
2008 to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net loss
|
|
$
|
(1,253,846
|
)
|
|
$
|
(189,654
|
)
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
928,264
|
|
|
|
159,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325,582
|
)
|
|
|
(29,933
|
)
|
Distribution to warrant and restricted stock unit holders
|
|
|
(9,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Class A Common Stockholders
|
|
$
|
(335,073
|
)
|
|
$
|
(29,933
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares Class A Common Stock outstanding
|
|
|
194,696
|
|
|
|
189,921
|
|
Loss per share
|
|
$
|
(1.72
|
)
|
|
$
|
(0.16
|
)
|
113
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The subscription rights we distributed on December 21, 2009
to purchase shares of Class A Common Stock to Class A
Common Stockholders of record on December 17, 2009, warrant
holders, and certain holders of RSUs represent a dividend
distribution. Certain Participating Equityholders and Google,
who were Class A Common Stockholders of record holding
approximately 102 million shares and entitled to the
subscription rights, agreed not to exercise or transfer their
rights. The fair value of the rights distributed was
$57.5 million or $0.51 per share of Class A Common
Stock. Certain outstanding warrants meet the definition of
participating securities as their terms provide for
participation in distributions with Class A Common Stock
prior to exercise. Therefore, the two-class method is used to
compute the loss per share and as a result, the fair value of
the rights distributed to the warrant and RSU holders of
$9.5 million increased the net loss attributable to
Class A Common Stockholders.
Diluted
Loss Per Share
The potential exchange of Clearwire Communications Class B
Common Interests together with Class B Common Stock for
Class A Common Stock will have a dilutive effect on diluted
loss per share due to certain tax effects. That exchange would
result in both an increase in the number of Class A Common
Stock outstanding and a corresponding increase in the net loss
attributable to the Class A Common Stockholders through the
elimination of the non-controlling interests allocation.
Further, to the extent that all of the Clearwire Communications
Class B Common Interests and Class B Common Stock are
converted to Class A Common Stock, the Clearwire
Communications partnership structure would no longer exist and
Clearwire would be required to recognize a tax provision related
to indefinite lived intangible assets.
Net loss per share attributable to holders of Class A
Common Stock on a diluted basis, assuming conversion of the
Clearwire Communications Class B Common Interests and
Class B Common Stock, is calculated based on the following
information (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
November 29,
|
|
|
|
Year Ended
|
|
|
2008 to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net loss attributable to Class A Common Stockholders
|
|
$
|
(335,073
|
)
|
|
$
|
(29,933
|
)
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
(928,264
|
)
|
|
|
(159,721
|
)
|
Tax adjustment resulting from dissolution of Clearwire
Communications
|
|
|
(27,356
|
)
|
|
|
(4,158
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available to Class A Common Stockholders, assuming
the exchange of Class B to Class A Common Stock
|
|
$
|
(1,290,693
|
)
|
|
$
|
(193,812
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares Class A common stock outstanding
(diluted)
|
|
|
741,071
|
|
|
|
694,921
|
|
Loss per share
|
|
$
|
(1.74
|
)
|
|
$
|
(0.28
|
)
|
Higher loss per share on a diluted basis is due to the
hypothetical loss of partnership status for Clearwire
Communications upon conversion of all Clearwire Communications
Class B Common Interests and Class B Common Stock and
the conversion of the non-controlling interests discussed above.
114
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The diluted weighted average shares did not include the effects
of the following potential common shares as their inclusion
would have been antidilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
November 29,
|
|
|
|
Year Ended
|
|
|
2008 to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Stock options
|
|
|
22,154
|
|
|
|
19,317
|
|
Restricted stock units
|
|
|
9,488
|
|
|
|
3,054
|
|
Warrants
|
|
|
17,806
|
|
|
|
17,806
|
|
Contingent shares
|
|
|
12,747
|
|
|
|
28,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,196
|
|
|
|
69,001
|
|
|
|
|
|
|
|
|
|
|
The contingent shares for the year ended December 31, 2009,
primarily relate to Clearwire Communications Class B Common
Interests and Clearwire Communications Voting Interests that
will be issued to Participating Equityholders upon the Second
and Third Investment Closings as such interests, on a combined
basis, can be exchanged for Class A Common Stock. The
Second Investment Closing was December 21, 2009. We expect
the Third Investment Closing to occur during the first quarter
of 2010.
The contingent shares for the year ended December 31, 2008,
relate to purchase price share adjustment of
28,235,294 million shares and equity issuance to CW
Investment Holdings of 588,235 shares, all of which were
issued in February of 2009.
The subscription rights to purchase in aggregate approximately
114 million shares of Class A Common Stock are not
included in the computation of diluted loss per share because
the rights subscription price of $7.33 per share was
greater than the average market price of Class A Common
Stock during the period such rights are outstanding in 2009
(out-of-the-money).
We have calculated and presented basic and diluted net loss per
share of Class A Common Stock. Class B Common Stock
loss per share is not calculated since it does not contractually
participate in distributions of Clearwire. Prior to the Closing,
we had no equity as we were a wholly-owned division of Sprint.
As such, we did not calculate or present net loss per share for
the period from January 1, 2008 to November 28, 2008
and the year ended December 31, 2007.
Information about operating segments is based on our internal
organization and reporting of revenue and operating income
(loss) based upon internal accounting methods. Operating
segments are defined as components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in
assessing performance. Our chief operating decision maker is our
Chief Executive Officer. As of December 31, 2009 and 2008,
we have identified two reportable segments: the United States
and the International businesses. In 2007 we only had one
reportable business segment: the United States, as we had no
international operations prior to the Closing.
115
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We report business segment information as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
|
Revenues
|
|
$
|
242,798
|
|
|
$
|
31,660
|
|
|
$
|
274,458
|
|
Cost of goods and services and network costs (exclusive of items
shown separately below)
|
|
|
407,572
|
|
|
|
14,544
|
|
|
|
422,116
|
|
Operating expenses
|
|
|
783,543
|
|
|
|
43,879
|
|
|
|
827,422
|
|
Depreciation and amortization
|
|
|
190,273
|
|
|
|
17,990
|
|
|
|
208,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,381,388
|
|
|
|
76,413
|
|
|
|
1,457,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(1,138,590
|
)
|
|
$
|
(44,753
|
)
|
|
|
(1,183,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
(69,791
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(1,253,846
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
928,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire
|
|
|
|
|
|
|
|
|
|
$
|
(325,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
|
Revenues
|
|
$
|
17,775
|
|
|
$
|
2,714
|
|
|
$
|
20,489
|
|
Cost of goods and services and network costs (exclusive of items
shown separately below)
|
|
|
130,317
|
|
|
|
1,172
|
|
|
|
131,489
|
|
Operating expenses
|
|
|
237,343
|
|
|
|
3,629
|
|
|
|
240,972
|
|
Transaction related expenses
|
|
|
82,960
|
|
|
|
|
|
|
|
82,960
|
|
Depreciation and amortization
|
|
|
56,074
|
|
|
|
2,072
|
|
|
|
58,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
506,694
|
|
|
|
6,873
|
|
|
|
513,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(488,919
|
)
|
|
$
|
(4,159
|
)
|
|
|
(493,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
(37,662
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
(61,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(592,347
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
159,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Clearwire
|
|
|
|
|
|
|
|
|
|
$
|
(432,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,533,918
|
|
|
$
|
573,537
|
|
International
|
|
|
6,112
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,540,030
|
|
|
$
|
574,957
|
|
|
|
|
|
|
|
|
|
|
116
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
11,115,815
|
|
|
$
|
8,901,988
|
|
International
|
|
|
152,038
|
|
|
|
222,179
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,267,853
|
|
|
$
|
9,124,167
|
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
Related
Party Transactions
|
We have a number of strategic and commercial relationships with
third parties that have had a significant impact on our
business, operations and financial results. These relationships
have been with Sprint, the Investors, Eagle River, Motorola,
Inc. and Bell Canada, all of which are or have been related
parties.
The following amounts for related party transactions are
included in our consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable and accrued expenses
|
|
$
|
22,521
|
|
|
$
|
33,872
|
|
Debt
|
|
$
|
246,494
|
|
|
$
|
178,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008(1)
|
|
|
2007
|
|
|
Revenue
|
|
$
|
2,230
|
|
|
$
|
|
|
|
$
|
|
|
Cost of goods and services and network costs (inclusive of
capitalized costs) (COGS)
|
|
$
|
75,283
|
|
|
$
|
118,331
|
|
|
$
|
41,554
|
|
Selling, general and administrative (SG&A)
|
|
$
|
10,773
|
|
|
$
|
95,840
|
|
|
$
|
75,554
|
|
Interest costs (inclusive of capitalized interest)
|
|
$
|
23,883
|
|
|
$
|
1,353
|
|
|
$
|
|
|
Total contributions and advances from Sprint
|
|
$
|
|
|
|
$
|
451,925
|
|
|
$
|
1,287,251
|
|
|
|
|
(1) |
|
The amounts presented for 2008 reflect the correction of a
classification error between COGS and SG&A in the amount of
$77.4 million that had been previously presented in
SG&A and has been reclassified to COGS to correct the
presentation. |
Rollover Notes In connection with the
issuance of the Senior Secured Notes, on November 24, 2009,
we also issued $252.5 million of notes to Sprint and
Comcast with identical terms as the Senior Secured Notes. The
proceeds from the Rollover Notes were used to retire the
principal amounts owed to Sprint and Comcast under our Senior
Term Loan Facility. From time to time, other related parties may
hold debt under our Senior Secured Notes, and as debtholders,
would be entitled to receive interest payments from us.
Sprint Pre-Closing Financing Amount and Amended Credit
Agreement As a result of the Transactions,
we assumed the liability to reimburse Sprint for the Sprint
Pre-Closing Financing Amount. We were required to pay
$213.0 million, plus related interest of $4.5 million,
to Sprint in cash on the first business day after the Closing,
with the remainder added as the Sprint Tranche under the Amended
Credit Agreement for our Senior Term Loan Facility in the amount
of $179.2 million. From time to time, other related parties
may have held debt under our Senior Term Loan Facility, and as
debtholders, would have been entitled to receive interest
payments from us under the Amended Credit Agreement. During
2009, we repaid our Senior Term Loan Facility with proceeds from
our Senior Secured Notes and Rollover Notes.
117
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sprint Sprint assigned, where
possible, certain costs to us based on our actual use of the
shared services, which included office facilities and management
services, including treasury services, human resources, supply
chain management and other shared services, up through the
Closing. Where direct assignment of costs was not possible or
practical, Sprint used indirect methods, including time studies,
to estimate the assignment of its costs to us, which were
allocated to us through a management fee. The allocations of
these costs were re-evaluated periodically. Sprint charged us
management fees for such services of $171.1 million in the
year ended December 31, 2008 and $115.0 million in the
year ended December 31, 2007. Additionally, we have entered
into lease agreements with Sprint for various switching
facilities and transmitter and receiver sites for which we
recorded rent expense of $28.2 million, $36.4 million
and $2.0 million in the years ended December 31, 2009,
2008 and 2007, respectively.
Relationships among Certain Stockholders, Directors, and
Officers of Clearwire Following the
completion of the Transactions and the post-closing adjustments,
Sprint, through a wholly-owned subsidiary Sprint HoldCo LLC,
owned the largest interest in Clearwire with an effective voting
and economic interest in Clearwire of approximately 56% and the
Investors collectively owned a 29% interest in Clearwire. See
Note 3, Stategic Transactions, for discussion regarding the
post-closing adjustment.
Eagle River is the holder of 35,922,958 shares of our
outstanding Class A Common Stock and 2,612,516 shares
of our Class B Common Stock, which represents an
approximate 4% ownership interest in Clearwire. Eagle River
Inc., which we refer to as ERI, is the manager of Eagle River.
Each entity is controlled by Craig McCaw, a director of
Clearwire. Mr. McCaw and his affiliates have significant
investments in other telecommunications businesses, some of
which may compete with us currently or in the future. It is
likely Mr. McCaw and his affiliates will continue to make
additional investments in telecommunications businesses.
As of December 31, 2009, Eagle River held warrants
entitling it to purchase 613,333 shares of Class A
Common Stock at an exercise price of $15.00 per share and
warrants to purchase 375,000 shares of Class A Common
Stock at an exercise price of $3.00 per share. As of
December 31, 2009, the remaining life of the warrants was
3.9 years.
Certain of our officers and directors provide additional
services to Eagle River, ERI and their affiliates for which they
are separately compensated by such entities. Any compensation
paid to such individuals by Eagle River, ERI
and/or their
affiliates for their services is in addition to the compensation
paid by us.
Following the Closing, Clearwire, Sprint, Eagle River and the
Investors agreed to enter into an equityholders agreement,
which set forth certain rights and obligations of the
equityholders with respect to governance of Clearwire, transfer
restrictions on our common stock, rights of first refusal and
pre-emptive rights, among other things. In addition, we have
also entered into a number of commercial agreements with Sprint
and the Investors which are outlined below.
Additionally, the wife of Mr. Salemme, our Executive Vice
President, Strategy, Policy and External Affairs is a Group Vice
President at Time Warner Cable. She was not directly involved in
any of our transactions with Time Warner Cable.
Davis Wright Tremaine LLP The law firm
of Davis Wright Tremaine LLP serves as our primary outside
counsel, and handles a variety of corporate, transactional, tax
and litigation matters. Mr. Wolff, our former Chief
Executive Officer, is married to a partner at Davis Wright
Tremaine. As a partner, Mr. Wolffs spouse is entitled
to share in a portion of the firms total profits, although
she has not received any compensation directly from us. For the
years ended December 31, 2009 and 2008, we paid
$4.1 million and $907,000 to Davis Wright Tremaine for
legal services. This does not include fees paid by Old Clearwire.
Master Site Agreement We entered into
a master site agreement with Sprint, which we refer to as the
Master Site Agreement, pursuant to which Sprint and we will
establish the contractual framework and procedures for the
leasing of tower and antenna collocation sites to each other.
Leases for specific sites will be negotiated by Sprint and us on
request by the lessee. The leased premises may be used by the
lessee for any activity in connection
118
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
with the provision of wireless communications services,
including attachment of antennas to the towers at the sites. The
term of the Master Site Agreement will be ten years from the
Closing. The term of each lease for each specific site will be
five years, but the lessee has the right to extend the term for
up to an additional 20 years. The basic fee is $600 per
month per site. The monthly fee will increase 3% per year. The
lessee is also responsible for the utility costs and for certain
additional fees, such as an application fee of $1,000 per site.
Master Agreement for Network Services
We entered into a master agreement for network services,
which we refer to as the Master Agreement for Network Services,
with various Sprint affiliated entities, which we refer to as
the Sprint Entities, pursuant to which the Sprint Entities and
we will establish the contractual framework and procedures for
us to purchase network services from Sprint Entities. We may
order various services from the Sprint Entities, including IP
network transport services, data center co-location, toll-free
services and access to the following business platforms:
voicemail, instant messaging services, location-based systems
and media server services. The Sprint Entities will provide a
service level agreement that is consistent with the service
levels provided to similarly situated customers. Pricing is
specified in separate product attachments for each type of
service; in general, the pricing is based on the mid-point
between fair market value of the service and the Sprint
Entities fully allocated cost for providing the service.
The term of the Master Agreement for Network Services will be
five years, but the lessee will have the right to extend the
term for an additional five years. Additionally, in accordance
with the Master Agreement for Network Services with the Sprint
Entities, we assumed certain agreements for backhaul services
with certain of the Investors that contain commitments that
extend up to five years.
IT Master Services Agreement We
entered into an IT master services agreement with the Sprint
Entities, which we refer to as the IT Master Services Agreement,
pursuant to which the Sprint Entities and us will establish the
contractual framework and procedures for us to purchase
information technology, which we refer to as IT, application
services from the Sprint Entities. We may order various
information technology application services from the Sprint
Entities, including human resources applications, supply chain
and finance applications, device management services, data
warehouse services, credit/address check, IT help desk services,
repair services applications, customer trouble management,
coverage map applications, network operations support
applications, and other services. The specific services
requested by us will be identified in Statements of Work to be
completed by the Sprint Entities and us. The Sprint Entities
will provide service levels consistent with the service levels
the Sprint Entities provide to their affiliates for the same
services. Pricing will be specified in each separate Statement
of Work for each type of service. The term of the IT Master
Services Agreement will be five years, but we will have the
right to extend the term for an additional five years.
4G MVNO Agreement We entered into a
non-exclusive 4G MVNO agreement at the Closing with Comcast MVNO
II, LLC, TWC Wireless, LLC, BHN Spectrum Investments, LLC and
Sprint Spectrum L.P., which we refer to as the 4G MVNO
Agreement. We will sell wireless broadband services to the other
parties to the 4G MVNO Agreement for the purposes of the
purchasers marketing and reselling the wireless broadband
services to each of their respective end user customers. The
wireless broadband services to be provided under the 4G MVNO
Agreement include standard network services, and, at the request
of any of the parties, certain non-standard network services. We
will sell these services at our retail prices less agreed upon
discounts.
Intel Market Development Agreement We
entered into a market development agreement with Intel, which we
refer to as the Intel Market Development Agreement, pursuant to
which we committed to deploy mobile WiMAX on our network and to
promote the use of certain notebook computers and mobile
Internet devices on our network, and Intel would develop,
market, sell and support WiMAX embedded chipsets for use in
certain notebook computers and mobile Internet devices that may
be used on our network. The Intel Market Development Agreement
will last for a term of seven years from the date of the
agreement, with Intel having the option to renew the agreement
for successive one year terms up to a maximum of 13 additional
years provided that Intel meets certain requirements. If Intel
elects to renew the agreement for the maximum
20-year
term, the agreement will thereafter automatically renew for
successive one year renewal periods until either party
terminates the agreement. Under the Intel Market Development
Agreement, Clearwire Communications will pay to Intel a portion
of the revenues
119
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
received from certain retail customers using certain Intel-based
notebook computers, or other mutually agreed on devices on the
its network, for a certain period of time. Subject to certain
qualifications, Clearwire Communications will also pay to Intel
activation fees for each qualifying Intel-based device activated
on its network during the initial term.
Google Products and Services Agreement
We entered into a products and services agreement with
Google, which we refer to as the Google Products and Services
Agreement, pursuant to which Google and we will collaborate on a
variety of products and services. Google will provide
advertising services to us for use with certain websites and
devices, and we will utilize these Google advertising services
on an exclusive basis for its retail customers. Google will pay
us a percentage of the revenue that Google generates from these
advertising services. Google will also provide a suite of hosted
communications services, including email, instant messaging and
calendar functionality, to us for integration into our desktop
portal offering. Furthermore, we will support the open-source
Android platform, will work with Google to offer certain other
Google applications, and will explore working with Google on a
variety of other potential products and services. The Google
Products and Services Agreement will have a term of three years.
Google Spectrum Agreement We entered
into a spectrum agreement with Google, which we refer to as the
Google Spectrum Agreement, pursuant to which we will make
available to Google certain of our excess 2.5 GHz spectrum
in various markets for experimental usage by Google, and for
development of alternative applications by third-parties
operating under the direction and approval of Google and us. The
third-party use of our spectrum beyond that used for WiMAX
technology cannot be utilized in a manner that will interfere
with our use of our spectrum for WiMAX technology, and will be
subject to availability. The revenue generated from the spectrum
usage other than for WiMAX technology will be shared by Google
and us. In addition, both parties will agree to form a joint
technology team to manage the activities outlined in the Google
Spectrum Agreement. The Google Spectrum Agreement provides for
an initial term of five years from the date of the agreement.
The Google Spectrum Agreement will be terminable by either party
on default of the other party.
|
|
19.
|
Quarterly
Financial Information (unaudited)
|
Summarized quarterly financial information for the years ended
December 31, 2009 and 2008 is as follows (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
2009 quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
62,137
|
|
|
$
|
63,594
|
|
|
$
|
68,812
|
|
|
$
|
79,915
|
|
|
$
|
274,458
|
|
Operating loss
|
|
$
|
(232,949
|
)
|
|
$
|
(241,404
|
)
|
|
$
|
(291,326
|
)
|
|
$
|
(417,664
|
)
|
|
$
|
(1,183,343
|
)
|
Net loss
|
|
$
|
(260,492
|
)
|
|
$
|
(264,044
|
)
|
|
$
|
(305,389
|
)
|
|
$
|
(423,921
|
)
|
|
$
|
(1,253,846
|
)
|
Net loss attributable to Clearwire Corporation
|
|
$
|
(71,055
|
)
|
|
$
|
(73,374
|
)
|
|
$
|
(82,427
|
)
|
|
$
|
(98,726
|
)
|
|
$
|
(325,582
|
)
|
Net loss to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.37
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(1.72
|
)
|
Diluted
|
|
$
|
(0.38
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(1.74
|
)
|
2008 quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,489
|
|
|
$
|
20,489
|
|
Operating loss(1)
|
|
$
|
(95,101
|
)
|
|
$
|
(73,679
|
)
|
|
$
|
(90,864
|
)
|
|
$
|
(233,434
|
)
|
|
$
|
(493,078
|
)
|
Net loss
|
|
$
|
(97,437
|
)
|
|
$
|
(79,566
|
)
|
|
$
|
(137,603
|
)
|
|
$
|
(277,741
|
)
|
|
$
|
(592,347
|
)
|
Net loss attributable to Clearwire Corporation(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(118,020
|
)
|
|
$
|
(432,626
|
)
|
Net loss to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.16
|
)
|
|
$
|
(0.16
|
)
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.28
|
)
|
120
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
Fourth quarter operating loss includes a non-recurring charge of
approximately $80.6 million related to the settlement of
spectrum lease contracts. |
|
(2) |
|
Clearwire Corporation was formed on November 28, 2008;
therefore net loss attributable to Clearwire Corporation was not
applicable for the first three quarters of 2008. |
|
|
20.
|
Parent
Company Only Condensed Financial Statements
|
Under the terms of agreements governing the indebtedness of
Clearwire Communications, a subsidiary of Clearwire, such
subsidiary is significantly restricted from making dividend
payments, loans or advances to Clearwire. The restrictions have
resulted in the restricted net assets (as defined in Securities
and Exchange Commission
Rule 4-08(e)(3)
of
Regulation S-X)
of Clearwires subsidiary exceeding 25% of the consolidated
net assets of Clearwire and its subsidiaries.
The following condensed parent-only financial statements of
Clearwire account for the investment in Clearwire Communications
under the equity method of accounting. The financial statements
should be read in conjunction with the consolidated financial
statements of Clearwire and subsidiaries and notes thereto. As
described in Note 1 Description of Business,
Clearwire was formed November 28, 2008 and therefore, the
condensed statement of operation and the condensed statement of
cash flow for 2008 only included activity from November 29,
2008 to December 31, 2008.
121
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CLEARWIRE
CORPORATION
CONDENSED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Other assets
|
|
$
|
4,577
|
|
|
$
|
|
|
Investments in equity method investees
|
|
|
1,597,585
|
|
|
|
2,066,338
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,602,162
|
|
|
$
|
2,066,338
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Other liabilities
|
|
$
|
11,183
|
|
|
$
|
312
|
|
Stockholders equity
|
|
|
1,590,979
|
|
|
|
2,066,026
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,602,162
|
|
|
$
|
2,066,338
|
|
|
|
|
|
|
|
|
|
|
122
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CLEARWIRE
CORPORATION
CONDENSED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
November 29,
|
|
|
|
Year Ended
|
|
|
2008 to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
Operating expenses
|
|
|
6,390
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,390
|
)
|
|
|
(312
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Other income
|
|
|
7
|
|
|
|
|
|
Loss from equity investees
|
|
|
(319,199
|
)
|
|
|
(29,621
|
)
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(319,192
|
)
|
|
|
(29,621
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(325,582
|
)
|
|
$
|
(29,933
|
)
|
|
|
|
|
|
|
|
|
|
123
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CLEARWIRE
CORPORATION
CONDENSED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
November 29,
|
|
|
|
Year Ended
|
|
|
2008
|
|
|
|
December 31,
|
|
|
to December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(325,582
|
)
|
|
$
|
(29,933
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Loss from equity investees
|
|
|
319,199
|
|
|
|
29,621
|
|
Changes in assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Prepaids and other assets
|
|
|
(3,980
|
)
|
|
|
150
|
|
Other liabilities
|
|
|
543
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(9,820
|
)
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Investment in equity investees
|
|
|
(12,196
|
)
|
|
|
(500,000
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net advances from Clearwire Communications
|
|
|
9,820
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
12,196
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
22,016
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
ITEM 9.
|
Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
|
KPMG LLP is the independent auditor for Sprint Nextel
Corporation and its subsidiaries, which included the WiMAX
Operations of Sprint Nextel Corporation, our accounting
predecessor. KPMG LLP audited the financial statements of the
WiMAX Operations of Sprint Nextel Corporation as of
December 31, 2007 and for the year then ended.
Deloitte & Touche LLP was the independent auditor for
Clearwire Corporation and subsidiaries (which prior to its
merger with the WiMAX Operations of Sprint Nextel Corporation on
November 28, 2008 is referred to as Old Clearwire).
Deloitte & Touche LLP audited the consolidated
financial statements of Old Clearwire as of December 31,
2007 and for the year ended December 31, 2007.
Deloitte & Touche LLP was retained as the independent
auditor for Clearwire Corporation and subsidiaries, the company
resulting from the merger of Old Clearwire and the WiMAX
Operations of Sprint Nextel Corporation on November 28,
2008. Deloitte & Touche LLP has audited the
consolidated financial statements of Clearwire Corporation as of
December 31, 2009 and 2008 and for the years then ended.
In connection with the audit of the year ended December 31,
2007, there were no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements
if not resolved to their satisfaction would have caused them to
make references in connection with their opinion to the subject
matter of the disagreement.
The audit report of KPMG LLP on the financial statements of the
WiMAX Operations of Sprint Nextel Corporation for the year ended
December 31, 2007 did not contain any adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
|
|
ITEM 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms. Disclosure controls and procedures
include controls and procedures designed to ensure that such
information is accumulated and communicated to our management,
including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), as appropriate, to allow timely decisions
regarding required financial disclosure.
Our management, under the supervision and with the participation
of our CEO and CFO, has evaluated the effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in
Rule 13a-15(e)
under the Exchange Act) as of December 31, 2009. Based on
this evaluation, our CEO and CFO concluded that, as of
December 31, 2009, our disclosure controls and procedures
were ineffective, due to the material weakness in our internal
controls described below in Managements Report on
Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as that term
is defined under
Rule 13a-15(e)
and 15(d) -15(f) promulgated under the Exchange Act. Internal
control over financial reporting refers to the process designed
by, or under the supervision of, our CEO and CFO and effected by
our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles in the United States, and includes those
policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and disposition
of our assets;
|
125
|
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures are being made only in accordance
with authorization of our management and directors; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
|
Due to its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
Our management, under the supervision and with the participation
of our CEO and CFO, assessed the effectiveness of our internal
control over financial reporting as of December 31, 2009.
In making this assessment, our management used the criteria
described in the Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.
Based on this assessment, our management concluded that our
internal control over financial reporting was ineffective as of
December 31, 2009, due to a material weakness described
below. A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis.
Management identified a material weakness during its assessment
of internal control over financial reporting related to control
deficiencies in procedures we implemented for recording and
monitoring the movement of network infrastructure equipment.
During the third quarter of 2009, we implemented new procedures
related to the assembly, shipment, and storage of network
infrastructure equipment to improve flexibility in deploying
network infrastructure equipment in markets under development.
We believed that these new procedures would improve our ability
to manage the substantial increases in the volume of network
infrastructure equipment shipments necessary to meet our network
deployment targets. These new procedures included increasing the
number of warehouses utilized for receiving, storing and
shipping equipment and outsourcing the management of equipment
inventory movements to third party vendors. However, the new
procedures implemented did not adequately provide for the timely
updating and maintaining of accounting records for the network
infrastructure equipment. As a result, movements of this
equipment were not properly recorded in our accounting system.
Accordingly, it is reasonably possible that a material
misstatement of our interim or annual financial statements may
not be prevented or detected on a timely basis due to these
control deficiencies.
To provide reasonable assurance regarding the reliability of the
financial statements included in this Annual Report on
Form 10-K,
our management performed a physical count of our network
infrastructure equipment near the end of the period along with
additional analysis and other procedures. To remedy the material
weakness, we expect to modify our procedures for recording and
monitoring the movement of network infrastructure equipment.
These changes may include adding resources focused on
transaction processing and enhancing transaction processing
systems. Finally, our management plans to perform additional
physical counts of equipment during the first quarter of 2010.
The assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2009 has been
audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their
attestation report, which is included in this Annual Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
Other than that described above under Managements
Report on Internal Control over Financial Reporting, there
have been no significant changes in our internal controls over
financial reporting during the year ended December 31, 2009
that have materially affected, or are reasonably likely to
materially effect, our internal control over financial reporting.
126
We are in the process of remediating the material weakness
described above. However, these efforts were insufficient as of
December 31, 2009. Thus, we will likely implement further
changes to such controls.
Any changes that materially affect, or is reasonably likely to
materially affect our internal controls over financial reporting
will be reported in our quarterly report for the period in which
such change occurs (or annual report, if the change occurs in
the fourth quarter).
|
|
ITEM 9B.
|
Other
Information
|
None.
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by Item 10 will be included in our
2010 Proxy Statement for the Annual Meeting of Stockholders,
which we refer to as the Proxy Statement, under the headings
Proposal 1 Election of Directors,
Corporate Governance Compensation of Board of
Directors, Corporate Governance
Executive Officers and Key Employees, and Corporate
Governance Section 16(a) Beneficial Ownership
Reporting Compliance and is incorporated herein by
reference. The Proxy Statement will be filed with the SEC
pursuant to Regulation 14A within 120 days of the end
of our 2009 fiscal year.
|
|
ITEM 11.
|
Executive
Compensation
|
The information required by Item 11 will be included in the
Proxy Statement under the headings Corporate
Governance Compensation of the Board of
Directors, Compensation of Executive
Officers Compensation Discussion and Analysis,
and Report of the Compensation Committee on Executive
Compensation, and is incorporated herein by reference.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by Item 12 will be included in the
Proxy Statement under the headings Equity Compensation
Plan Information and Beneficial Ownership of Common
Stock, and is incorporated herein by reference.
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by Item 13 will be included in the
Proxy Statement under the headings Related Party
Transactions, and Corporate Governance
Executive Officers and Key Employees and is incorporated
herein by reference.
|
|
ITEM 14.
|
Principal
Accountant Fees and Services
|
The information required by Item 14 will be included in the
Proxy Statement under the heading Independent Registered
Public Accountants, and is incorporated by reference
herein.
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Financial Statements
The consolidated financial statements are set forth under
Item 8 of this Annual Report on
Form 10-K.
(b) Exhibit Listing
See the Exhibit Index immediately following the signature
page of this Annual Report on
Form 10-K.
127
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of February 24, 2010.
CLEARWIRE CORPORATION
William T. Morrow
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as
of February 24, 2010.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ William
T. Morrow
William
T. Morrow
|
|
Chief Executive Officer
(Principal Executive Officer)
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Erik
E. Prusch
Erik
E. Prusch
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Craig
O. McCaw
Craig
O. McCaw
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Peter
L. S. Currie
Peter
L. S. Currie
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Jose
A. Collazo
Jose
A. Collazo
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Keith
O. Cowan
Keith
O. Cowan
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Steve
L. Elfman
Steve
L. Elfman
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Dennis
S. Hersch
Dennis
S. Hersch
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Daniel
R. Hesse
Daniel
R. Hesse
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Frank
Ianna
Frank
Ianna
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
Sean
Maloney
|
|
Director
|
|
|
|
|
|
|
|
/s/ Theodore
H. Schell
Theodore
H. Schell
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ John
W. Stanton
John
W. Stanton
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Brian
P. McAndrews
Brian
P. McAndrews
|
|
Director
|
|
February 24, 2010
|
128
EXHIBIT INDEX
|
|
|
2.1
|
|
Transaction Agreement and Plan of Merger dated May 7, 2008,
among Clearwire Corporation, Sprint Nextel Corporation, Comcast
Corporation, Time Warner Cable Inc., Bright House Networks, LLC,
Google Inc. and Intel Corporation (Incorporated herein by
reference to Exhibit 2.1 to Clearwire Corporations
Registration Statement on
Form S-4
originally filed August 22, 2008).
|
2.2
|
|
Amendment No. 1 to the Transaction Agreement and Plan of
Merger, dated November 21, 2008, as amended, among
Clearwire Corporation, Sprint Nextel Corporation, Intel
Corporation, Google Inc., Comcast Corporation, Time Warner Cable
Inc. and Bright House Networks, LLC (Incorporated herein by
reference to Exhibit 2.1 to Clearwire Corporations
Form 8-K
filed December 1, 2008).
|
3.1
|
|
Restated Certificate of Incorporation of Clearwire Corporation
(Incorporated herein by reference to Exhibit 3.1 to
Clearwire Corporations
Form 8-K
filed December 1, 2008).
|
3.2
|
|
Certificate of Amendment of Certificate of Incorporation of
Clearwire Corporation (Incorporated herein by reference to
Exhibit 3.1 to Clearwire Corporations Form 8-K filed
November 10, 2009).
|
3.3
|
|
Bylaws of Clearwire Corporation, effective as of
November 28, 2008 (Incorporated herein by reference to
Exhibit 3.2 to Clearwire Corporations
Form 8-K
filed December 1, 2008).
|
4.1
|
|
Equityholders Agreement, dated November 28, 2008,
among Clearwire Corporation, Sprint HoldCo, LLC, Eagle River
Holdings, LLC, Intel Capital Wireless Investment Corporation
2009A, Intel Capital Wireless Investment Corporation 2008B,
Intel Capital Wireless Investment Corporation 2008C, Intel
Capital Corporation, Intel Capital (Cayman) Corporation,
Middlefield Ventures, Inc., Comcast Wireless Investment I,
Inc., Comcast Wireless Investment II, Inc., Comcast Wireless
Investment III, Inc., Comcast Wireless Investment IV, Inc.,
Comcast Wireless Investment V, Inc., Google Inc., TWC
Wireless Holdings I LLC, TWC Wireless Holdings II LLC, TWC
Wireless Holdings III LLC, BHN Spectrum Investments, LLC
(Incorporated herein by reference to Exhibit 4.1 to
Clearwire Corporations
Form 8-K
filed December 1, 2008).
|
4.2
|
|
Stock certificate for Clearwire Corporation Class A Common
Stock (Incorporated herein by reference to Exhibit 4.2 to
Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
4.3
|
|
Registration Rights Agreement dated August 5, 2005, among
Clearwire Corporation and certain buyers of the Senior Secured
Notes (Incorporated herein by reference to Exhibit 4.4 to
Clearwire Corporations Registration Statement on
Form S-1
filed March 27, 2009).
|
4.4
|
|
Form of Warrant (Incorporated herein by reference to
Exhibit 4.10 to Clearwire Corporations Registration
Statement on
Form S-1
filed December 19, 2006).
|
4.5
|
|
Registration Rights Agreement, dated November 28, 2008,
among Clearwire Corporation, Sprint Nextel Corporation, Eagle
River Holdings, LLC, Intel Corporation, Comcast Corporation,
Google Inc., Time Warner Cable Inc. and BHN Spectrum Investments
LLC (Incorporated herein by reference to Exhibit 4.2 to
Clearwire Corporations
Form 8-K
filed December 1, 2008).
|
4.6
|
|
Indenture dated as of November 24, 2009 by and among Clearwire
Communications LLC and Clearwire Finance, Inc., as Issuers, the
subsidiaries of Clearwire Communications named therein, and
Wilmington Trust FSB as Trustee and Collateral Agent
(Incorporated herein by reference to Exhibit 4.1 to Clearwire
Corporations Form 8-K filed December 1, 2009).
|
4.7
|
|
Form of 12% Senior Secured Note due 2015 (Incorporated
herein by reference to Exhibit A of Exhibit 4.1 to Clearwire
Corporations Form 8-K filed December 1, 2009).
|
4.8
|
|
Collateral Agreement dated as of November 24, 2009 by and among
Clearwire Communications LLC, Clearwire Finance, Inc., the
subsidiaries of Clearwire Communications named therein, and
Wilmington Trust FSB as Collateral Agent (Incorporated herein by
reference to Exhibit 4.3 to Clearwire Corporations Form
8-K filed December 1, 2009).
|
4.9
|
|
Indenture dated as of December 9, 2009 by and among Clearwire
Escrow Corporation as Issuer and Wilmington Trust FSB as Trustee
and Collateral Agent (Incorporated herein by reference to
Exhibit 4.1 to Clearwire Corporations Form 8-K filed
December 15, 2009).
|
4.10
|
|
Assumption Supplemental Indenture dated as of December 21, 2009
by and among Clearwire Communications LLC and Clearwire Finance,
Inc. as Assuming Issuers, the subsidiaries of Clearwire
Communications named therein, Clearwire Escrow Corporation as
the Escrow Issuer and Wilmington Trust FSB as the Trustee and
Collateral Agent (Incorporated herein by reference to Exhibit
4.1 to Clearwire Corporations Form 8-K filed December 21,
2009).
|
129
|
|
|
4.11
|
|
Form of Subscription Rights Certificate (Incorporated herein by
reference to Exhibit 4.2 to Clearwire Corporations
Registration Statement on Form S-3 filed December 21, 2009).
|
4.12
|
|
Subscription Agent Agreement dated December 16, 2009 between
Clearwire Corporaton and American Stock Transfer & Trust
Company, LLC (Incorporated herein by reference to Exhibit 4.4 to
Clearwire Corporations Registration Statement on Form S-3
filed December 21, 2009)
|
9.1
|
|
Voting Agreement dated May 7, 2008, among Sprint Nextel
Corporation, Comcast Corporation, Time Warner Cable Inc., Bright
House Networks, LLC, Google Inc., Intel Corporation and Eagle
River Holdings, LLC (Incorporated herein by reference to
Exhibit 9.1 to Clearwire Corporations Registration
Statement on
Form S-4
originally filed August 22, 2008).
|
9.2
|
|
Voting Agreement dated May 7, 2008, among Sprint Nextel
Corporation, Comcast Corporation, Time Warner Cable Inc., Bright
House Networks, LLC, Google Inc., Intel Corporation, Intel
Capital Corporation and Intel Capital (Cayman) Corporation
(Incorporated herein by reference to Exhibit 9.2 to
Clearwire Corporations Registration Statement on
Form S-4
originally filed August 22, 2008).
|
10.1
|
|
Indemnification Agreement dated November 13, 2003, among
Flux Fixed Wireless, LLC and Flux United States Corporation
(Incorporated herein by reference to Exhibit 10.2 to
Clearwire Corporations Registration Statement on
Form S-1
filed December 19, 2006).
|
10.2
|
|
Form of Indemnification Agreement (Incorporated herein by
reference to Exhibit 10.3 to Clearwire Corporations
Registration Statement on
Form S-1
filed December 19, 2006).
|
10.3
|
|
Letter Agreement dated April 26, 2004, between Clearwire
Corporation and Nicolas Kauser (Incorporated herein by reference
to Exhibit 10.5 to Clearwire Corporations
Registration Statement on
Form S-1
filed December 19, 2006).
|
10.4
|
|
Letter Agreement dated April 27, 2004, between Clearwire
Corporation and R. Gerard Salemme (Incorporated herein by
reference to Exhibit 10.6 to Clearwire Corporations
Registration Statement on
Form S-1
filed December 19, 2006).
|
10.5
|
|
Employment Agreement dated June 28, 2004, between Clearwire
Corporation and Perry Satterlee (Incorporated herein by
reference to Exhibit 10.7 to Clearwire Corporations
Registration Statement on
Form S-1
filed December 19, 2006).
|
10.6
|
|
Letter Agreement dated March 2, 2005, between Clearwire
Corporation and John Butler (Incorporated herein by reference to
Exhibit 10.8 to Clearwire Corporations Registration
Statement on
Form S-1
filed December 19, 2006).
|
10.7
|
|
Clearwire Corporation 2003 Stock Option Plan, as amended
November 26, 2008 (Incorporated herein by reference to
Exhibit 4.1 to Clearwire Corporations Registration
Statement on
Form S-8
filed December 2, 2008).
|
10.8
|
|
Amended and Restated Limited Liability Company Agreement dated
July 12, 2006, between Clearwire US LLC and Shichinin LLC
(Incorporated herein by reference to Exhibit 10.48 of
Amendment No. 1 to Clearwire Corporations
Registration Statement on
Form S-1
filed January 8, 2007).
|
10.9
|
|
Clearwire Corporation 2007 Annual Performance Bonus Plan
(Incorporated herein by reference to Exhibit 10.54 of
Amendment No. 2 to Clearwire Corporations
Registration Statement on
Form S-1
filed January 30, 2007).
|
10.10
|
|
Wireless Broadband System Services Agreement dated
August 29, 2006, between Motorola, Inc. and Clearwire US
LLC (Incorporated herein by reference to Exhibit 10.55 of
Amendment No. 5 to Clearwire Corporations
Registration Statement on
Form S-1
filed March 7, 2007).
|
10.11
|
|
Wireless Broadband System Infrastructure Agreement dated
August 29, 2006, between Motorola, Inc. and Clearwire US
LLC (Incorporated herein by reference to Exhibit 10.56 of
Amendment No. 5 to Clearwire Corporations
Registration Statement on
Form S-1
filed March 7, 2007).
|
10.12
|
|
Wireless Broadband CPE Supply Agreement dated August 29,
2006, between Motorola, Inc. and Clearwire US LLC (Incorporated
herein by reference to Exhibit 10.57 of Amendment
No. 5 to Clearwire Corporations Registration
Statement on
Form S-1
filed March 7, 2007).
|
10.13
|
|
Clearwire Corporation 2007 Stock Compensation Plan (Incorporated
herein by reference to Exhibit 4.2 of Clearwire
Corporations Registration Statement on
Form S-8
filed December 2, 2008).
|
130
|
|
|
10.14
|
|
Stock and Asset Purchase Agreement by and among BellSouth
Corporation, Clearwire Spectrum Holdings II LLC, Clearwire
Corporation and AT&T Inc. dated as of February 15,
2007 Plan (Incorporated herein by reference to
Exhibit 10.71 of Amendment No. 4 to Clearwire
Corporations Registration Statement on
Form S-1
filed February 20, 2007).
|
10.15
|
|
Credit Agreement dated as of July 3, 2007, among Clearwire
Corporation, the several lenders from time to time parties
thereto, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Citigroup Global Markets, Inc., as
Co-Documentation Agents, JPMorgan Chase Bank, N.A., as
Syndication Agent and Morgan Stanley Senior Funding, Inc., as
Administrative Agent (Incorporated herein by reference to
Exhibit 10.1 to Clearwire Corporations
Form 8-K
filed July 5, 2007).
|
10.16
|
|
Incremental Facility Amendment dated November 2, 2007,
among Clearwire Corporation, Morgan Stanley Senior Funding,
Inc., as administrative agent, Wachovia Bank N.A., as a
Tranche C Term Lender, and Morgan Stanley Senior Funding,
Inc. and Wachovia Capital Markets, LLC, as lead arrangers
(Incorporated herein by reference to Exhibit 10.1 to
Clearwire Corporations
Form 8-K
filed November 2, 2007).
|
10.17
|
|
Sprint Incremental Term Loan Amendment dated December 1,
2008, by and among Clearwire Legacy LLC (formerly known as
Clearwire Sub LLC), Clearwire XOHM LLC (formerly known as Sprint
Sub, LLC), Clearwire Communications LLC, Morgan Stanley Senior
Funding, Inc., as administrative agent and Sprint Nextel
Corporation (Incorporated herein by reference to
Exhibit 10.2 to Clearwire Corporations
Form 8-K
filed December 1, 2008).
|
10.18
|
|
Amended and Restated Credit Agreement dated November 21,
2008, by and among Clearwire Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Citigroup Global
Markets Inc. as co-documentation agents, JP Morgan Chase Bank,
N.A. as syndication agent, Morgan Stanley & Co., Inc.
as collateral agent, Morgan Stanley Senior Funding, Inc. as
administrative agent and the other lenders party thereto
(Incorporated herein by reference to Exhibit 10.1 to
Clearwire Corporations
Form 8-K
filed November 24, 2008).
|
10.19
|
|
Form of Stock Option Agreement (Incorporated herein by reference
to Exhibit 10.19 to Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.20
|
|
Form of Restricted Stock Unit Award Agreement (Incorporated
herein by reference to Exhibit 10.20 to Clearwire
Corporations
Form 10-K
originally filed March 26, 2009).
|
10.21
|
|
Clearwire Corporation Change in Control Severance Plan, as
amended (Incorporated herein by reference to Exhibit 10.1
to Clearwire Corporations
Form 10-Q
filed May 12, 2008 and Exhibit 10.1 to Clearwire
Corporations
Form 10-Q
filed August 8, 2008).
|
10.22
|
|
Amended and Restated Operating Agreement of Clearwire
Communications LLC dated November 28, 2008 (Incorporated
herein by reference to Exhibit 10.1 to Clearwire
Corporations
Form 8-K
filed December 1, 2008).
|
10.23
|
|
Subscription Agreement dated May 7, 2008, between CW
Investment Holdings, LLC and Clearwire Corporation (Incorporated
herein by reference to Exhibit 10.56 to Clearwire
Corporations Registration Statement on
Form S-4
originally filed August 22, 2008).
|
10.24**
|
|
Intellectual Property Agreement dated November 28, 2008,
between Sprint Nextel Corporation and Clearwire Communications
LLC (Incorporated herein by reference to Exhibit 10.24 to
Clearwire Corporations
Form 10-K/A
originally filed April 13, 2009).
|
10.25**
|
|
MVNO Support Agreement dated May 7, 2008, among Sprint
Spectrum L.P. d/b/a Sprint, Comcast MVNO II, LLC, TWC Wireless,
LLC and BHN Spectrum Investments, LLC (Incorporated herein by
reference to Exhibit 10.58 to Clearwire Corporations
Registration Statement on
Form S-4
originally filed August 22, 2008).
|
10.26**
|
|
4G MVNO Agreement dated November 28, 2008, among Clearwire
Communications LLC, Comcast MVNO II, LLC, TWC Wireless, LLC, BHN
Spectrum Investments, LLC and Sprint Spectrum L.P. d/b/a Sprint
(Incorporated herein by reference to Exhibit 10.26 to
Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.27**
|
|
Market Development Agreement dated November 28, 2008,
between Clearwire Communications LLC and Intel Corporation
(Incorporated herein by reference to Exhibit 10.27 to
Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
131
|
|
|
10.28**
|
|
Google Products and Services Agreement dated November 28,
2008, between Google Inc. and Clearwire Communications LLC
(Incorporated herein by reference to Exhibit 10.28 to
Clearwire Corporations
Form 10-K/A
originally filed April 13, 2009).
|
10.29**
|
|
Spectrum Agreement dated November 28, 2008, between Google
Inc. and Clearwire Communications LLC (Incorporated herein by
reference to Exhibit 10.29 to Clearwire Corporations
Form 10-K/A
originally filed April 13, 2009).
|
10.30**
|
|
Master Site Agreement dated November 28, 2008, between
Clearwire Communications LLC and Sprint Nextel Spectrum LP
(Incorporated herein by reference to Exhibit 10.30 to
Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.31**
|
|
Master Agreement for Network Services dated November 28,
2008, between Clearwire Communications LLC and Sprint Solutions,
Inc. (Incorporated herein by reference to Exhibit 10.31 to
Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.32**
|
|
Authorized Sales Representative Agreement dated
November 28, 2008, between Clearwire Communications LLC and
Sprint Solutions, Inc (Incorporated herein by reference to
Exhibit 10.32 to Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.33**
|
|
National Retailer Agreement dated November 28, 2008,
between Sprint Solutions, Inc. and Clearwire Communications LLC
(Incorporated herein by reference to Exhibit 10.33 to
Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.34**
|
|
IT Master Services Agreement dated November 28, 2008,
between Clearwire Communications LLC and Sprint Solutions, Inc
(Incorporated herein by reference to Exhibit 10.34 to
Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.35
|
|
Form of Clearwire Employee Confidentiality and Intellectual
Property Agreement (Incorporated herein by reference to
Exhibit 10.69 to Clearwire Corporations Registration
Statement on
Form S-4
originally filed August 22, 2008).
|
10.36
|
|
Clearwire Corporation 2008 Stock Compensation Plan (Incorporated
herein by reference to Exhibit 10.68 to Clearwire
Corporations Registration Statement on
Form S-4
originally filed August 22, 2008).
|
10.37
|
|
Clearwire Corporation 2007 Stock Compensation Plan, as amended
November 26, 2008 (Incorporated herein by reference to
Exhibit 4.2 to Clearwire Corporations Registration
Statement on
Form S-8
filed December 2, 2008).
|
10.38
|
|
Form of Indemnification Agreement (Incorporated herein by
reference to Exhibit 10.1 to Clearwire Corporations
Form 8-K
filed December 8, 2008).
|
10.39
|
|
Offer Letter Agreement dated January 21, 2009 between
Clearwire Corporation and David J. Sach (Incorporated herein by
reference to Exhibit 10.39 to Clearwire Corporations
Form 10-K
originally filed March 26, 2009).
|
10.40
|
|
Offer Letter Agreement dated March 9, 2009 between
Clearwire Corporation and Benjamin G. Wolff (Incorporated herein
by reference to Exhibit 10.40 to Clearwire
Corporations
Form 10-K
originally filed March 26, 2009).
|
10.41
|
|
Offer Letter Agreement dated March 9, 2009 between
Clearwire Corporation and William T. Morrow (Incorporated herein
by reference to Exhibit 10.41 to Clearwire
Corporations
Form 10-K
originally filed March 26, 2009).
|
10.42
|
|
Offer Letter Agreement dated August 24, 2009 between Clearwire
Corporation and Erik E. Prusch (Incorporated herein by reference
to Exhibit 10.1 to Clearwire Corporations Form 8-K filed
on September 3, 2009).
|
10.43
|
|
Investment Agreement dated November 9, 2009 among Clearwire
Corporation, Clearwire Communications LLC, Sprint Nextel
Corporation, Comcast Corporation, Time Warner Cable, Inc.,
Bright House Networks, LLC, Eagle River Holdings, LLC and Intel
Corporation (Incorporated herein by reference to Exhibit 10.1 to
Clearwire Corporations Form 8-K filed November 10, 2009).
|
10.44**
|
|
Customer Care and Billing Services Agreement dated March 31,
2009 between Clearwire US LLC and Amdocs Software Systems
Limited (Incorporated herein by reference to Exhibit 10.42 to
Clearwire Corporations Registration Statement on Form
S-1/A filed May 19, 2009).
|
21.1
|
|
List of subsidiaries.
|
132
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP.
|
23.2
|
|
Consent of KPMG LLP.
|
31.1
|
|
Certification of Chief Executive Officer required by
Section 302 of the Sarbanes Oxley Act of 2002.
|
31.2
|
|
Certification of Chief Financial Officer required by
Section 302 of the Sarbanes Oxley Act of 2002.
|
32.1
|
|
Certification of Chief Executive Officer required by
Section 906 of the Sarbanes Oxley Act of 2002.
|
32.2
|
|
Certification of Chief Financial Officer required by
Section 906 of the Sarbanes Oxley Act of 2002.
|
99.1
|
|
Consolidated Balance Sheets of Clearwire Corporation and
Subsidiaries as of December 31, 2007 and 2006, and the
related Consolidated Statements of Operations,
Stockholders Equity, and Cash Flows for each of the three
years in the period ended December 31, 2007.
|
|
|
|
* |
|
Flux United States Corporation changed its name to Clearwire
Corporation effective February 24, 2004, and as a result
all references to Flux United States Corporation in this index
are now to Clearwire Corporation. |
|
** |
|
The Securities and Exchange Commission has granted confidential
treatment of certain provisions of these exhibits. Omitted
material for which confidential treatment has been granted has
been filed separately with the Securities and Exchange
Commission. |
133