Clearwire 2009 Annual Report Download

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ANNUAL REPORT 2009

Table of contents

  • Page 1
    ANNUAL REPORT 2009

  • Page 2
    Our mission is clear: Empower a smarter, more connected world with the fastest, most cost-efficient, and highest capacity 4G network - enabling people everywhere to have the magic of the Internet with them all of the time. Senior Management Team

  • Page 3
    ...place at the right time. The demand for mobile data and in particular mobile video is exploding, and we believe Clearwire is best positioned to service this demand. Significant Market Opportunity U.S. Mobile Broadband Subscribers 2009-2013 (MM) U.S. Mobile Broadband Revenue 2009-2013 ($MM) Source...

  • Page 4
    ..., our 4G mobile broadband service is faster, cheaper and simpler. During 2010, we expect to emerge as the low cost provider of high usage, high quality mobile broadband service. Strong 2009 Accomplishments In 2009, we launched CLEAR 4G service in 27 markets across the United States covering...

  • Page 5
    ... fourth quarter 2009, our 4G subscriber base more than doubled sequentially when compared with the previous quarter. Our 4G "network of networks" strategy became a reality in 2009 with the wholesale service launches from Sprint, Comcast, and Time Warner Cable. Clearwire ended 2009 with approximately...

  • Page 6
    ... of this company, we hope that you share our pride in this recognition. Network of Networks Clearwire currently has wholesale relationships with Sprint, Comcast and Time Warner Cable, who collectively have over 100 million customers. Going forward, we expect to attract other parties interested in...

  • Page 7
    ... for mobile broadband services, Clearwire is uniquely positioned to serve that demand. Today our average mobile subscriber uses over 7 GigaBytes of data per month. That is at least four times greater than data usage on our competitors' 3G networks. Clearwire 4G Customer Usage (1) Q3 2009 ComScore...

  • Page 8
    ...in us. And I look forward to sharing with you our progress in the mobile broadband space. Warmest regards, William (Bill) T. Morrow Notes: (1) On November 28, 2008, Clearwire, Sprint Nextel Corporation, Comcast Corporation, Time Warner Cable, Inc., Bright House Networks, LLC, Google Inc. and Intel...

  • Page 9
    ... The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter, based on the closing sale price of the registrant's Class A common stock on June 30, 2009 as reported on the NASDAQ...

  • Page 10

  • Page 11
    ...with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Report of Management on Internal Control over Financial Reporting ...Item 9B. Other Information ...Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. PART III Directors, Executive Officers and Corporate...

  • Page 12
    ...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...

  • Page 13
    ... 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...

  • Page 14
    ... 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...

  • Page 15
    ...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...

  • Page 16
    ... 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...

  • Page 17
    ..., Time Warner Cable, Bright House, Intel and Google who serve more than 100 million customers in their markets. • 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...

  • Page 18
    ... connection; • subscribers who value the flexibility of a portable or mobile wireless broadband service; • subscribers who desire a simple way to obtain and use high-speed Internet access at a reasonable price; and • subscribers who are dissatisfied fixed or mobile with other service offerings...

  • Page 19
    ...in our CLEAR RTM 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...

  • Page 20
    ...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...

  • Page 21
    ..., 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...

  • Page 22
    ...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...

  • Page 23
    ... 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...

  • Page 24
    ...; • controlling IP addresses and connecting to the Internet; and • offering value-added services such as live video, location-based services, and music broadcast programming. Network Management and Operational Support Systems We also use a network management system that incorporates a complete...

  • Page 25
    ..., 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...

  • Page 26
    ..., 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 27
    ... 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...

  • Page 28
    .... 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...

  • Page 29
    ..., 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...

  • Page 30
    ... 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...

  • Page 31
    ... 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...

  • Page 32
    ... and costs involved in deploying our service. In certain international markets, our subsidiaries are subject to rules that provide that if the subsidiary's wireless service is discontinued or impaired for a specified period of time, the spectrum rights may be revoked. Clearwire/Sprint Transaction...

  • Page 33
    ...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 34
    ..., 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...

  • Page 35
    ... 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...

  • Page 36
    ... 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...

  • Page 37
    ... 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...

  • Page 38
    ...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...

  • Page 39
    ... 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...

  • Page 40
    ...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...

  • Page 41
    ..., 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 connectivity and VoIP and other...

  • Page 42
    ... 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...

  • Page 43
    ...to assets recorded for such spectrum. 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...

  • Page 44
    ...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. Restrictive covenants in the Indenture governing the Senior Secured Notes may limit our current and future...

  • Page 45
    ... 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...

  • Page 46
    ..., 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 47
    ... 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...

  • Page 48
    ...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...

  • Page 49
    ... 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...

  • Page 50
    ... 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...

  • Page 51
    ...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...

  • Page 52
    ... 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...

  • Page 53
    ...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...

  • Page 54
    ... 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...

  • Page 55
    ...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...

  • Page 56
    ... and Analysis of Financial Condition and Results of Operations," included elsewhere in this report. Year Ended December 31, 2007(1) 2009 2008(1) (In thousands, except per share data) Statements of Operations Data: Revenues ...$ Cost of goods and services and network costs (exclusive of items...

  • Page 57
    ... the number of households and business or governmental entities receiving wireless broadband connectivity through our network. 2009 2008 (In thousands) 2007 Balance Sheet Data: Cash and cash equivalents ...Investments (short- and long-term) ...Property, plant and equipment, net ...Spectrum licenses...

  • Page 58
    ... 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 CLEAR...

  • Page 59
    CLEARWIRE CORPORATION AND SUBSIDIARIES MANAGEMENT'S 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,...

  • Page 60
    ... 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...

  • Page 61
    ...-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 management's strategic network plans and will not be deployed. Share-Based Compensation We account for our share-based compensation...

  • Page 62
    CLEARWIRE CORPORATION AND SUBSIDIARIES MANAGEMENT'S 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 ...

  • Page 63
    ..., 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 ...Operating expenses: Cost of goods and services and network costs (exclusive of...

  • Page 64
    ... 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...

  • Page 65
    ... 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...

  • Page 66
    ... 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...

  • Page 67
    ... 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...

  • Page 68
    ...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...

  • Page 69
    ...,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...

  • Page 70
    ...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...

  • Page 71
    ... 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...

  • Page 72
    ... 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...

  • Page 73
    ...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...

  • Page 74
    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 ...

  • Page 75
    ... 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...

  • Page 76
    ...to the non-controlling interests in consolidated subsidiaries based on Sprint's 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...

  • Page 77
    ...of November 28, 2008 Stock options ...Warrants ...Restricted stock units ... 18,431 17,806 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...

  • Page 78
    ... 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...

  • Page 79
    ... 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...

  • Page 80
    ...- 5 Years Over 5 Years Long-term debt obligations ...Interest payments(1) ...Operating lease obligations ...Spectrum lease obligations ...Spectrum service credits ...Signed spectrum agreements . . Network equipment purchase obligations(2) ...Other purchase obligations(3) . . . $ 2,772,494 .. 1,997...

  • Page 81
    ... 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...

  • Page 82
    ... 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...

  • Page 83
    ... INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...Report of Independent Registered Public Accounting Firm ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2009 and 2008 ...Consolidated...

  • Page 84
    ... 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...

  • Page 85
    ... 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...

  • Page 86
    ...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...

  • 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
    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 ...Short-term investments ...Restricted cash...Accounts receivable, net of allowance of $1,956 and ...

  • Page 89
    CLEARWIRE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2009 2008 2007 (In thousands, except per share data) Revenues ...$ Operating expenses: Cost of goods and services and network costs (exclusive of items shown separately below) ...Selling, general ...

  • Page 90
    ...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 in...

  • Page 91
    ... stock ...588 Issuance of Clearwire Class A and B common stock related to post-closing adjustment . . 4,412 Issuance of Class B common stock, net of issuance costs ...- - Rights offering - dividend ...Share-based compensation and other capital transactions ...1,765 Balances at December 31, 2009...

  • Page 92
    ...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...

  • Page 93
    ... 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...

  • Page 94
    ... 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...

  • Page 95
    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 ...

  • Page 96
    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...

  • Page 97
    ... 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...

  • Page 98
    ... 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...

  • Page 99
    ... 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...

  • Page 100
    ... for an equal number of shares of Clearwire's 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...

  • Page 101
    ... 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 Clearwire's net assets and each share of...

  • Page 102
    ... 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...

  • Page 103
    ...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...

  • Page 104
    ... 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...

  • Page 105
    ...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 106
    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 ...

  • Page 107
    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 ...2011 ...2012 ...2013 ...2014 ...Thereafter ...$27,394 22...

  • Page 108
    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 ...

  • Page 109
    ... 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 110
    ... 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...

  • Page 111
    ... 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...

  • Page 112
    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...

  • Page 113
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 12. Fair Value 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 ...

  • Page 114
    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 Prices in Active Markets (Level 1) Significant Other...

  • Page 115
    ... 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...

  • Page 116
    ... 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...

  • Page 117
    ...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...

  • Page 118
    ... 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...

  • Page 119
    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: WeightedAverage Remaining Contractual Term (Years) Aggregate Intrinsic Value As of 12/31/2009 (In millions)...

  • Page 120
    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 ...

  • Page 121
    ... 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 Sprint's equity compensation plans, which we refer to collectively as the Sprint Plans. The underlying share for awards issued...

  • Page 122
    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 ...

  • Page 123
    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, ...

  • Page 124
    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 ...

  • Page 125
    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): Year Ended December 31, 2009 Period...

  • Page 126
    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 ...$ Cost of goods and services and network costs (exclusive of ...

  • Page 127
    ... 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...

  • Page 128
    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 ...

  • Page 129
    ... 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...

  • Page 130
    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...

  • Page 131
    ... 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...

  • Page 132
    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 ...Investments in equity method investees ...Total assets ... $ 4,577 1,597,585 $1,...

  • Page 133
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CLEARWIRE CORPORATION CONDENSED STATEMENTS OF OPERATIONS Period From November 29, 2008 to Year Ended December 31, December 31, 2008 2009 (In thousands) Revenues ...Operating expenses ...Operating loss ...

  • Page 134
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CLEARWIRE CORPORATION CONDENSED STATEMENTS OF CASH FLOWS Period From November 29, 2008 Year Ended to December 31, December 31, 2008 2009 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ......

  • Page 135
    ... 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...

  • Page 136
    ...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...

  • Page 137
    ... 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...

  • Page 138
    ... duly authorized, as of February 24, 2010. 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 registrant and in the...

  • Page 139
    ... Statement on Form S-1 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...

  • Page 140
    ... and American Stock Transfer & Trust Company, LLC (Incorporated herein by reference to Exhibit 4.4 to Clearwire Corporation's Registration Statement on Form S-3 filed December 21, 2009) Voting Agreement dated May 7, 2008, among Sprint Nextel Corporation, Comcast Corporation, Time Warner Cable Inc...

  • Page 141
    ... 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 Corporation's Form 10-K originally filed March 26, 2009). Market Development Agreement dated November 28, 2008, between Clearwire Communications LLC...

  • Page 142
    ... 10.1 to Clearwire Corporation's Form 8-K filed on September 3, 2009). 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...

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  • Page 145
    ... made with information that is currently available. Forward-looking statements may include, without limitation, management's expectations regarding: future financial and operating performance and financial condition; strategic plans and objectives; product development; industry conditions; the...

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