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Clearwire Annual Report 2008
8

Table of contents

  • Page 1
    8 Clearwire Annual Report 2008

  • Page 2
    Our mission is CLEAR: To provide the simplest way for people to enjoy all that the Internet has to offer, anytime and anywhere.

  • Page 3
    ... 4G communications through one of the fastest, most capable and most cost effective wireless networks ever built. We are committed to providing our customers with a differentiated true broadband experience that satisfies the ever growing demand for access to Internet content and services whenever...

  • Page 4
    ... wireless devices and advanced, bandwidth-intensive Internet services and applications requires the kind of wireless network capacity that can only be delivered through a combination of deep spectrum holdings, an all-IP core network, and next-generation 4G wireless technology. Clearwire now holds...

  • Page 5
    ... strategic value to Clearwire. Moreover, Sprint Nextel and our cable partners - with the former's approximately 50 million subscribers, and the latter's combined service to more than 60 million homes - collectively represent a larger potential customer base for our services than any other wireless...

  • Page 6
    ... to stay connected. From social networking applications like Facebook® to entertainment applications like YouTube®, the Internet is much more relevant and in demand when it is available whenever and wherever a person happens to be. This phenomenon has created a tremendous business opportunity for...

  • Page 7
    ... to create long-term value for our shareholders. The wireless industry is truly on the cusp of a major shift in how we meet our customers' needs. The demand for mobile Internet access is already beginning to outpace what current 3G networks can deliver, and home broadband usage continues to grow...

  • Page 8
    ... against our significant growth plans for 2009 and beyond. THE CLEAR™ NETWORK - NEW MARKETS, NEW DEVICES We began 2009 with the launch of our mobile WiMAX services in Portland, Oregon, under our CLEAR™ brand. I'm pleased to report that our initial network performance has exceeded the targets...

  • Page 9
    ... 100 mobile WiMAX devices - such as laptops, netbooks, handhelds, USBs and modems - available by the end of 2009. We believe that Clearwire is well positioned to capitalize on these opportunities due to our next-generation technology, all-IP network, deep spectrum holdings, and our unique business...

  • Page 10
    ...defined as service revenue, less legacy businesses revenue (businesses that were acquired through the acquisition of entities by Old Clearwire) and CPE (Customer Premise Equipment) and PC Card revenue, divided by the average number of subscribers in the period divided by the number of months in the...

  • Page 11
    ...the Exchange Act). Yes n No ¥ The Class A common stock of Clearwire Corporation began listing on the NASDAQ National Market System on December 1, 2008. There was no public market for the Company's common stock prior to that date. As of March 18, 2009, there were 195,006,706 shares of Class A common...

  • Page 12

  • Page 13
    ...44 45 46 PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ...Item 6. Selected Financial Data ...Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...Item 7A. Quantitative and Qualitative...

  • Page 14
    ... mobile Internet access services and residential voice services. Our wireless broadband networks not only create a new communications path into the home or office, but also provide a broadband connection anytime and anywhere within our coverage area. As of December 31, 2008, we operated our networks...

  • Page 15
    ... our remaining 50 markets, we currently operate networks based on pre-WiMAX technology. We intend to deploy mobile WiMAX technology in all of the markets we currently have under development and to upgrade most of our existing pre-WiMAX markets in the United States to mobile WiMAX technology over the...

  • Page 16
    ... converted into one option or warrant, as applicable, to purchase the same number of shares of Clearwire Class A Common Stock on substantially the same terms. • Following the merger, Sprint contributed the Sprint WiMAX Business to Clearwire Communications in exchange for Class B non-voting common...

  • Page 17
    ..., Oregon; Clear Wireless Broadband LLC, which operates our mobile WiMAX market in Baltimore, Maryland; and Clear Wireless LLC, which will operate all of our planned future mobile WiMAX markets. Our spectrum leases and licenses in the United States are primarily held by separate holding companies...

  • Page 18
    ...: Comcast Time Warner Cable Bright House Networks Intel1 Google Other 2 Stockholders Clearwire Class A Common Stock Sprint 3 Clearwire Class A Common Stock Clearwire Class B Common Stock (voting) Clearwire Corporation Clearwire Class B Common Stock (voting) Clearwire Communications Voting...

  • Page 19
    .... We plan to deliver a robust, rich and consistent communications experience to next generation devices capable of operating on our networks. We expect to offer our consumers and business customers a fast and mobile broadband connection that enables enhanced access to information, applications and...

  • Page 20
    ...other wireless and wireline broadband service providers. 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...

  • Page 21
    .... In our pre-WiMAX markets in the United States and internationally, our subscribers generally make their payments through an automatic charge to a credit or debit card or bank account. In the future, we expect to offer additional forms of payment as we target new customer segments. For example...

  • Page 22
    ...The business services we currently offer also include faster upload speeds for a fixed Internet access service and plans that bundle multiple mobile subscriptions. We are working with equipment vendors to develop dual mode devices that will enable subscribers to access both our mobile WiMAX networks...

  • Page 23
    ... broadband networks to new markets throughout the United States. We also plan to upgrade most of our existing pre-WiMAX markets in the United States to mobile WiMAX over the next two years, but will continue to operate our pre-WiMAX network until it has been fully upgraded. During 2009, we expect...

  • Page 24
    ... devices will enable those who purchase these devices to immediately activate services within our mobile WiMAX market coverage areas without the need for an external WiMAX module, professional installation or a separate visit to a Clearwire retail or other location. Wholesale Distribution We expect...

  • Page 25
    ... a lower cost than building a new network. Technology Our pre-WiMAX networks, in both our domestic and international markets, rely on Expedience technology that supports delivery of any IP-compatible broadband applications, including high-speed Internet access and fixed VoIP telephony services. The...

  • Page 26
    ... pre-WiMAX 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 need...

  • Page 27
    ... network operates over licensed spectrum in our United States 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...

  • Page 28
    ... 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 planned wireless broadband services. As of December 31, 2008...

  • Page 29
    ..., 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...

  • Page 30
    ... than the mobile WiMAX technology we are currently committed to deploy. Although we do not expect LTE networks to be in commercial operation in the near term, Verizon Wireless has stated that, starting in 2009 and beyond, it plans to deploy LTE on its network. If one or more of these providers can...

  • Page 31
    ... 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...

  • Page 32
    ... to Title II obligations, on broadband Internet access providers, including DSL, cable modem and wireless broadband providers. These requirements may include obligations related to truth-in-billing, slamming, discontinuing service, customer proprietary network information and federal USF mechanisms...

  • Page 33
    ...-related requirements on interconnected VoIP service providers as a condition of offering such service to consumers. The FCC defined "interconnected VoIP service" as voice service that: (1) enables real-time, two-way voice communications; (2) requires a broadband connection from the user's location...

  • Page 34
    ... 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 so as to facilitate the provision of high-speed data and voice services accessible to mobile and fixed users on...

  • Page 35
    ..., unlicensed devices were permitted to operate in the 2500 to 2655 MHz band, but not in the 2655 to 2690 MHz band. Finally, the FCC 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...

  • Page 36
    ...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...

  • Page 37
    ... our next generation wireless broadband network relies on mobile WiMAX technology that is new and has not been widely deployed; and • 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...

  • Page 38
    ... and retire existing loans and secured notes. The remainder of the proceeds was used for network expansion, spectrum acquisitions and for general working capital. In connection with the Closing, we amended and restated our senior credit agreement pertaining to the senior term loan facility. Under...

  • Page 39
    ... produce mobile WiMAX equipment and subscriber devices in the long term, which may require us to deploy alternative technologies. Other competing technologies, such as LTE and Ultra Mobile Broadband, will be developed that may have advantages over mobile WiMAX, and operators of other networks based...

  • Page 40
    ... pre-WiMAX 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 mobile WiMAX networks. As mobile WiMAX is a new and highly sophisticated technology...

  • Page 41
    ...' 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. Sprint...

  • Page 42
    ...stockholder, which could adversely affect our results of operations and the trading price of Clearwire Class A Common Stock. Clearwire and its subsidiaries may be considered subsidiaries of Sprint under certain of Sprint's agreements relating to its indebtedness. Sprint owns approximately 51% of the...

  • Page 43
    ... 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...

  • Page 44
    ... three-year period in the Transaction Agreement, our business, prospects, operating results and financial condition may be adversely affected. The integration of Old Clearwire's business and the Sprint WiMAX Business will present significant challenges that may result in a decline in the anticipated...

  • Page 45
    ... or the stock of our subsidiaries, including on the exercise of outstanding warrants and options, or the incurrence of additional debt; • changes in our board or management; • adoption of new accounting standards; • Sprint's performance may have an effect on the market price of Clearwire Class...

  • Page 46
    ...services over their existing wide, metropolitan and local area networks; • wireline operators offering high-speed Internet connectivity services and voice communications over cable or fiber optic networks; • satellite and fixed wireless service providers offering or developing broadband Internet...

  • Page 47
    ...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...

  • Page 48
    ... 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. Old Clearwire has experienced service interruptions in some markets...

  • Page 49
    ..., 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...

  • Page 50
    ...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...

  • Page 51
    ... 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 integrating the brands of the Sprint WiMAX Business with those of Old Clearwire...

  • Page 52
    ... 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...

  • Page 53
    ...sales and support personnel in those markets, which may lead to difficulties in growing our subscriber base. The tax allocation methods to be adopted by Clearwire Communications are likely to result in disproportionate allocations of taxable income. Clearwire and Sprint have contributed to Clearwire...

  • Page 54
    ... 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 effect an exchange of Clearwire Communications Class B Common Interests and Clearwire Class B Common Stock...

  • Page 55
    ... Clearwire 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...

  • Page 56
    ...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...

  • Page 57
    ... patent. Adaptix alleges that by offering mobile WiMAX services to customers in compliance with the 802.16 and 802.16e WiMAX standards, and by making, using and/or selling the supporting WiMAX network used to provide such WiMAX services, we and Sprint infringed the seven patents. Adaptix is seeking...

  • Page 58
    ... not publicly listed. The following table sets forth the high and low sales prices of Clearwire Class A Common Stock as reported on the NASDAQ Global Select Market for the trading period of December 1, 2008 through December 31, 2008, following the closing of the Transactions (the date at which we...

  • Page 59
    ...approved by Old Clearwire's stockholders. We do not have any equity compensation plans that have not been approved by stockholders. Number of Securities To Be Issued Upon Exercise of Outstanding Options Vesting of Restricted Stock Units(1) Number of Securities Remaining Available for Future Issuance...

  • Page 60
    ...Financial Condition and Results of Operations," included elsewhere in this report. Year Ended December 31, 2008(1) 2007 (In thousands, except per share data) Statements of Operations Data: Revenues ...Cost of goods and services and network costs (exclusive of items shown separately below)...Selling...

  • Page 61
    2008 2007 (In thousands) Operating Data: Subscribers:(1) United States...International ... 424 51 - - (1) Represents the number of households and business or governmental entities receiving wireless broadband connectivity through our network. 2008 2007 (In thousands) Balance Sheet Data: Current...

  • Page 62
    ... to the combined company. In connection with the Closing, we entered into various commercial agreements with Sprint and the Investors. The Closing occurred on November 28, 2008. As a result of the Transactions, each share of Old Clearwire, which we refer to as Old Clearwire Class A Common Stock was...

  • Page 63
    ... CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Common Stock. Sprint and the Investors, other than Google, hold their economic rights through ownership of Clearwire Communications Class B Common Interests. In exchange...

  • Page 64
    CLEARWIRE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) assets; impairments of intangible assets with indefinite useful lives; business combinations; share-based compensation; accounting for spectrum licenses and ...

  • Page 65
    ... to mobile WiMAX wireless broadband network; • a significant change in our management's 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...

  • Page 66
    ... number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense may be required in future periods. Accounting for Spectrum Licenses and Leases We have three types of arrangements for spectrum licenses in the United States: owned spectrum...

  • Page 67
    CLEARWIRE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) The owned licenses in the United States and internationally that have a track record of renewal are accounted for as intangible assets with indefinite lives in ...

  • Page 68
    CLEARWIRE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) In determining fair value, we use quoted prices in active markets where such prices are available, or we use models to estimate fair value using various methods ...

  • Page 69
    CLEARWIRE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) value of a financial instrument is dependent on the availability of quoted market prices or observable market parameters. For financial instruments that trade ...

  • Page 70
    ... 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...

  • Page 71
    ... other shared services that were provided by Sprint prior to the Closing; salaries and benefits, sales commissions, travel expenses and related facilities costs for the following personnel: sales, marketing, network deployment, executive, finance and accounting, information technology, customer care...

  • Page 72
    ... launch our mobile WiMAX services, especially the higher sales and marketing and customer care expenses in support of the launch of the Baltimore market. The increase in employee compensation and related costs, which includes facilities costs, is primarily due to the acquisition of Old Clearwire and...

  • Page 73
    ... non-controlling interests in net loss represent the allocation of a portion of the net loss to the noncontrolling interests in consolidated subsidiaries based on the ownership by Sprint and the Investors, other than Google, of Clearwire Communications Class B Common Interests upon the Closing. 61

  • Page 74
    ... forma operating data for Clearwire adjusted for the related purchase accounting adjustments and other non-recurring charges, for the periods presented (in thousands): UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS 2008 2007 (In thousands) REVENUES: ...$ OPERATING EXPENSES: Cost of goods and...

  • Page 75
    ... other shared services that were provided by Sprint prior to the Closing; salaries and benefits, sales commissions, travel expenses and related facilities costs for the following personnel: sales, marketing, network deployment, executive, finance and accounting, information technology, customer care...

  • Page 76
    ...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. Many of the leases acquired as part of the Transactions were entered into before 2007 and the periodic payments...

  • Page 77
    ... 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 Historical 12 Month Period Clearwire Corporation(1) 11 Month Period Old...

  • Page 78
    ...the Sprint WiMAX Business deemed to be the accounting acquirer. On the Closing, the Investors made an aggregate $3.2 billion capital contribution to Clearwire and its subsidiary Clearwire Communications. In exchange for their investment, Google initially received 25,000,000 shares of Clearwire Class...

  • Page 79
    ... value of property, plant and equipment as a result of the allocation of the excess of the estimated fair value of net assets acquired over the purchase price. (c) Represents the adjustments to record amortization on a pro forma basis related to the new basis of the Old Clearwire spectrum lease...

  • Page 80
    ... as we deploy new mobile WiMAX markets, general economic conditions and the state of the capital markets, our future creditworthiness and restrictions contained in existing or future debt agreements. We regularly evaluate our plans and strategy, and these evaluations often result in changes, some...

  • Page 81
    ... to make material changes to our current plans and strategy. Cash Flow Analysis The following analysis 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 operations for Clearwire subsequent...

  • Page 82
    ...Our interest payment obligations are estimated for all years using an interest rate of approximately 14.73%, based on our expected interest rate through the term of the loan. (2) Includes agreements to purchase equipment and installation services, backhaul and other goods and services from suppliers...

  • Page 83
    ...of the Sprint Pre-Closing Financing Amount. We have a total outstanding principal balance of $1.41 billion, with a carrying value and an approximate fair market value of $1.36 billion at December 31, 2008. The rate of interest for borrowings under the Senior Term Loan Facility is the LIBOR base rate...

  • Page 84
    ... operations. We believe that the fluctuation of foreign currency exchange rates did not have a material impact on our consolidated financial statements. Investment Risk At December 31, 2008, we held available-for-sale short-term and long-term investments with a fair value of $1.92 billion and a cost...

  • Page 85
    ... and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2008 and 2007 ...Consolidated Statements of Operations for the...

  • Page 86
    ... 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...

  • Page 87
    ... of Sprint Nextel Corporation's 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...

  • Page 88
    ... 190,001,706 shares issued and outstanding as of December 31, 2008 ...Class B Common Stock, par value $0.0001, 750,000,000 shares authorized; 505,000,000 shares issued and outstanding as of December 31, 2008 ...Additional paid-in capital ...Business equity of the Sprint WiMAX Business ...Accumulated...

  • Page 89
    CLEARWIRE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2008 2007 (In thousands, except per share data) REVENUES ...$ 20,489 OPERATING EXPENSES: Cost of goods and services and network costs (exclusive of items shown separately below) ...131,489 Selling, ...

  • Page 90
    ... of Old Clearwire Class A shares into New Clearwire Class A shares Common stock of Sprint Nextel Corporation issued for spectrum licenses ...Fixed asset purchases in accounts payable ...Fixed asset purchases included in advances and contributions from Sprint Nextel Corporation ...Spectrum purchases...

  • Page 91
    ... 28, 2008. . Allocation of Sprint Nextel Corporation business equity at closing to Clearwire ...Recapitalization resulting from Strategic Transaction ...Net loss (a) ...Foreign currency translation adjustment ...Unrealized gain on investments ...Comprehensive loss (a) ...Share-based compensation and...

  • Page 92
    ...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...

  • Page 93
    ...mobile WiMAX 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 the mobile WiMAX technology, based on the IEEE 802.16e-2005 standard, in our planned markets...

  • Page 94
    ...provide guidance on accounting for investments and determining when an investment is other-than-temporarily impaired. We classify marketable debt and equity securities that are available for current operations as short-term availablefor-sale investments, and these securities are stated at fair value...

  • Page 95
    ... No. 98-1, Accounting for the Costs of 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...

  • Page 96
    ... assets acquired and liabilities assumed. The fair value estimates are based on future expectations and assumptions deemed reasonable by management. Our allocation of the purchase price to specific assets and liabilities is based upon valuation procedures and techniques using income, cost and market...

  • Page 97
    ... is reasonably assured. 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 in advance and...

  • Page 98
    ... 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...

  • Page 99
    ..., 2008. Accordingly, any business combinations we engage in will be recorded and disclosed following existing generally accepted accounting principles, which we refer to as GAAP, until January 1, 2009. We expect SFAS No. 141(R) will have an impact on our financial position and results of operations...

  • Page 100
    ... Our networks will cover entire communities, delivering a wireless high-speed Internet connection and enabling other services and features that create a new communications path into the home or office. After the Transactions, Sprint and the Investors, other than Google, own shares of Clearwire Class...

  • Page 101
    ...Stock issued to Intel Corporation on account of its shares of Old Clearwire Class A Common Stock exchanged in the merger. (2) The Investors hold an equivalent number of Clearwire Communications Class B Common Interests Purchase Consideration As a result of the Transactions, we acquired Old Clearwire...

  • Page 102
    ...the Closing. This number reflects the total issued and outstanding shares of Old Clearwire Class A Common Stock and Old Clearwire Class B Common Stock as of November 28, 2008. 2. In connection with the Transactions, all Old Clearwire stock options issued and outstanding at the Closing were exchanged...

  • Page 103
    ... 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 ...Property, plant and equipment ...Other non-current assets ...Spectrum licenses ...Intangible assets ...Term debt ...Deferred...

  • Page 104
    ...the resulting amount of the excess of fair value of net assets acquired over the purchase price. Transaction Related Expenses 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...

  • Page 105
    ... accelerated vesting of stock options for certain members of management upon the Closing resulted in a one-time charge of approximately $38.9 million recorded by Old Clearwire in its historical consolidated financial statements for the 11 months ended November 28, 2008; • Transaction costs of $48...

  • Page 106
    ... issued by a monoline insurance company. Following downgrades in credit ratings in November 2008, the insurance company exercised their "put option" in December 2008, forcing the exchange of our existing security for perpetual preferred equity of the insurance company. The cost and fair value...

  • Page 107
    ...are issued on both a sitespecific 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...

  • Page 108
    ... statements of operations. Based on the definite-lived spectrum licenses and favorable spectrum leases as of December 31, 2008, future amortization of spectrum licenses, spectrum leases and prepaid spectrum lease costs (excluding pending spectrum and spectrum transition costs) is expected to be...

  • Page 109
    ... entities representing the Sprint WiMAX Business were included in the filing of Sprint's consolidated federal and certain state income tax returns. Income tax expense and related income tax balances were accounted for in accordance with SFAS No. 109 and presented in the financial statements, as if...

  • Page 110
    ... 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 associated with the Sprint WiMAX Business prior to the Closing were not transferred to either...

  • Page 111
    ... 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...

  • Page 112
    ... jurisdictions. As of December 31, 2008, the tax returns for Old Clearwire for the years 2003 through 2007 remain open to examination by the Internal Revenue Service and various state tax authorities. In addition, Old Clearwire acquired U.S. and foreign entities which operated prior to 2003. Most of...

  • Page 113
    ... Instruments As a result of the closing of the Transactions, we assumed two interest rate swap contracts with two year and three year terms, which are based on 3-month LIBOR with a combined notional value of $600 million. These were economic hedges for Old Clearwire LIBOR based debt. However...

  • Page 114
    ... 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...

  • Page 115
    ... spread. The Amended Credit Agreement was renegotiated and restated on November 21, 2008 by Old Clearwire prior to the Closing, with changes to the economic terms that management believes are consistent with expectations of investors as market participants in the current market environment. 103

  • Page 116
    ...of our network equipment situated on leased sites, including land, towers and rooftop locations. Certain of the leases provide for minimum lease payments, additional charges and escalation clauses. Leased spectrum agreements have initial terms of up to 30 years. Other operating leases generally have...

  • Page 117
    ... lease agreements, which generally range from 15-30 years. As of December 31, 2008, we have signed agreements to acquire approximately $47.8 million in new spectrum, subject to closing conditions. These transactions are expected to be completed within the next twelve months. WiMAX equipment purchase...

  • Page 118
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Purchase obligations - As part of the Closing, we assumed certain agreements and the obligations thereunder, including a number of arrangements for the sourcing of equipment, supplies and services with ...

  • Page 119
    ... to purchase 375,000 shares of Clearwire Class A Common Stock at an exercise price of $3.00 per share. As of December 31, 2008, the remaining life of the warrants was 4.9 years. 14. Share-Based Payments In connection with the Closing, we assumed the Old Clearwire 2008 Stock Compensation Plan, which...

  • Page 120
    ... Value As of 12/31/2008 (In millions) Number of Options Options outstanding - January 1, 2007 ...Options outstanding - December 31, 2007 ...Exercisable outstanding - December 31, 2007... - - - $14.38 13.44 4.10 11.64 3.00 $14.21 $13.44 6.36 6.09 $4.33 $3.97 Options acquired in purchase accounting...

  • Page 121
    ... addition to options issued in exchange as part of the Transactions, the fair value of option grants during 2008 was $954,000. The total unrecognized share-based compensation costs related to non-vested stock options outstanding at December 31, 2008 was approximately $9.0 million and is expected to...

  • Page 122
    ... Investee. Sprint provided us with the fair value of the options and RSUs for each reporting period, calculated in accordance with EITF Issue No. 96-18, Accounting for Equity Investments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, which...

  • Page 123
    ... held by Clearwire will equal the number of shares of Clearwire 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 Clearwire Class B Common Stock and Clearwire Communications Class B Common...

  • Page 124
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Reconciliation of Changes in Business Equity The following is a reconciliation of changes in business equity for the Sprint WiMAX Business (in thousands): Opening business equity, January 1, 2007 ......

  • Page 125
    ... the weighted average outstanding shares from November 29, 2008 through December 31, 2008. At the Closing, Sprint and the Investors, other than Google, were issued Clearwire Communications Class B Common Interests and an equal number of Clearwire Class B Common Stock. (2) Clearwire Class B Common...

  • Page 126
    ... subsidiaries ...Tax adjustment resulting from dissolution of Clearwire Communications ...Net loss available to Clearwire Class A Common Stockholders, assuming the exchange of Clearwire Class B to Class A Common Stock ... $ (29,933) (159,721) (4,158) $(193,812) Weighted average shares outstanding...

  • Page 127
    ... operations. We report business segment information as follows (in thousands): Year Ended December 31, 2008 United States International Total Revenues ...Cost of goods and services and network costs (exclusive of items shown separately below) ...Operating expenses ...Transaction related...

  • Page 128
    ...financial statements (in thousands): December 31, 2008 December 31, 2007 Notes receivable ...Accounts payable and accrued expenses ...Pre-closing financing ... $ 4,837 $ 33,872 $178,748 $ $ $ - - - Year Ended December 31, 2008 2007 Cost of good and services and network costs ...Selling, general...

  • Page 129
    ... used by the lessee for any activity in connection 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...

  • Page 130
    ... 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...

  • Page 131
    ...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...

  • Page 132
    ..., as applicable. The number of additional shares issued to the Investors on February 26, 2009 was as follows: Investor Class A Common Stock Class B Common Stock Class B Common Interests Comcast Corporation ...Time Warner Cable Inc...Bright House Networks, LLC ...Intel Corporation ...Google ...Total...

  • Page 133
    ... 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, 2008 and...

  • Page 134
    ... be included in the Proxy Statement under the heading "Information About Our Directors and Executive Officers - Related Party Transactions," 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...

  • Page 135
    ...the undersigned; thereunto duly authorized, as of March 25, 2009. CLEARWIRE CORPORATION /s/ WILLIAM T. MORROW 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...

  • Page 136
    ... filed December 19, 2006). 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...

  • Page 137
    ... (Incorporated herein by reference to Exhibit 4.2 of Clearwire Corporation's Registration Statement on Form S-8 filed December 2, 2008). 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...

  • Page 138
    ... LLC and Sprint Spectrum L.P. d/b/a Sprint. Market Development Agreement dated November 28, 2008, between Clearwire Communications LLC and Intel Corporation. Google Products and Services Agreement dated November 28, 2008, between Google Inc. and Clearwire Communications LLC. Spectrum Agreement dated...

  • Page 139
    ... Corporation financial statements and footnotes. * 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...

  • Page 140
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  • Page 141
    ...the Exchange Act). Yes n No ¥ The Class A common stock of Clearwire Corporation began listing on the NASDAQ National Market System on December 1, 2008. There was no public market for the Company's common stock prior to that date. As of March 18, 2009, there were 195,006,706 shares of Class A common...

  • Page 142
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  • Page 143
    ... of this Amendment No. 1 to Clearwire Corporation's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 26, 2009 (the...of the Securities and Exchange Commission, and to amend the cover page of the Original Filing to correct the date of the Annual Meeting of Shareholders. ...

  • Page 144
    PART IV Item 15. Exhibits and Financial Statement Schedules...Signatures...1 2

  • Page 145
    ... statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. (b) Exhibit Listing See the Exhibit Index immediately following the signature...

  • Page 146
    ... 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 April 13, 2009. CLEARWIRE CORPORATION /s/ WILLIAM T. MORROW William T. Morrow Chief Executive Officer...

  • Page 147
    ... filed December 19, 2006). 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...

  • Page 148
    ... (Incorporated herein by reference to Exhibit 4.2 of Clearwire Corporation's Registration Statement on Form S-8 filed December 2, 2008). 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...

  • Page 149
    ... August 22, 2008). Intellectual Property Agreement dated November 28, 2008, between Sprint Nextel Corporation and Clearwire Communications LLC. 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...

  • Page 150
    ... 26, 2009). * 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...

  • Page 151
    ... Registered Public Accountants Deloitte & Touche LLP This Annual Report contains forward-looking statements which are based on management's current expectations and beliefs, as well as on a number of assumptions concerning future events made with information that is currently available. Forward...

  • Page 152
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