Clearwire 2010 Annual Report Download

Download and view the complete annual report

Please find the complete 2010 Clearwire annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 137

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137

Table of contents

  • Page 1

  • Page 2

  • Page 3
    ... 4G wireless network, tripled our coverage, quintupled our customer base, and more than doubled our revenue. We continue to believe that Clearwire is in the right place at the right time with the right assets to capitalize on the unprecedented opportunity in the mobile broadband space. We expect...

  • Page 4
    ...-term success. With a rich spectrum position, 4G network covering nearly 130 million people, a growing customer and revenue base, and a talented leadership team, this company can do great things. On behalf of everyone at Clearwire, we thank you for your continued support. We look forward to sharing...

  • Page 5
    ...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, 2010 as reported on the NASDAQ Global Select Market was $1,274,554,547. As of February 16, 2011, there were 244,037,133 shares of Class...

  • Page 6
    ..., 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 Disclosures about Market Risk ...Item 8. Financial Statements and Supplementary...

  • Page 7
    ... noted, references to "we", "us", or "our" refer to Clearwire Corporation and its subsidiaries. ITEM 1. Overview We are a leading provider of fourth generation, or 4G, wireless broadband services. We build and operate next generation mobile broadband networks that provide high-speed mobile Internet...

  • Page 8
    ... and our 4G mobile broadband network technology provides us with a competitive advantage in the delivery of wireless broadband services as we are able to offer our subscribers significantly higher mobile data bandwidth than is currently available from other wireless carriers in the United States. In...

  • Page 9
    ... 2010. Sprint and the Investors, other than Google, own shares of our Class B Common Stock. Sprint and the Investors other than Google hold the economic rights associated with their shares of Class B Common Stock through ownership of Clearwire Communications Class B Common Units. Each share of Class...

  • Page 10
    ... and international subsidiaries. Clearwire Communications has one primary domestic operating subsidiary: Clear Wireless LLC, which operates all of our 4G mobile markets. Our spectrum leases and licenses in the United States are primarily held by separate holding companies. Internationally, our...

  • Page 11
    ...: • Offering high speed mobile Internet services at competitive prices: We expect to continue to offer our retail and wholesale subscribers a fast and mobile broadband connection that enables enhanced access to information, applications and online entertainment, while also creating new ways for...

  • Page 12
    ... or mobile high-speed Internet connection for a mobile phone, portable computer or other devices; • 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...

  • Page 13
    ... services are primarily sold in connection with multi-mode devices. For example, Sprint currently offers 4G mobile broadband connection plans with its two new 4G-branded smartphones. For 2010, the vast majority of our wholesale subscribers and wholesale revenues came from Sprint and we expect that...

  • Page 14
    ... subscribers to make cash payments, and we expect that we may offer additional forms of payment in the future as we target new subscriber segments. ClearwireTM Pre-4G Mobile Broadband Services As of December 31, 2010, we offered our Clearwire-branded Pre-4G service in 17 markets in the United States...

  • Page 15
    ...wireless broadband services over our network to their end user subscribers. Currently all of our Initial Wholesale Partners have begun offering, or have announced plans to offer, our 4G mobile broadband services. Sprint offers our services in all 71 of our 4G markets, including among others New York...

  • Page 16
    ... the United States, which are staffed with our own employees. In addition, we provide support services utilizing service contracts with vendors. Our Networks Overview Our 4G mobile broadband network is a telecommunications system designed to support fixed, portable and mobile service offerings over...

  • Page 17
    ... United States and 2 of our markets in Europe. We believe that both our Pre-4G network and our 4G mobile broadband network have certain key advantages over 2G/3G technologies that are currently available, such as: • simple self-installation by subscribers and provisioning of modems; • supports...

  • Page 18
    ... 2010 and making them available for sale in major retail stores like Best Buy as well as online. The laptop subscribers can in turn sign up for 4G services on our network. Starting in mid-2010, one of our wholesale partners also started offering multi-mode 3G/4G smartphones on our network. The base...

  • Page 19
    ... largest markets in the United States. Our deep spectrum position in most of our markets is expected to enable us to offer our subscribers significant mobile data bandwidth, with potentially higher capacity than is currently available from other carriers. In the United States, licensed spectrum is...

  • Page 20
    ... the 2.5 GHz band will be optimal for delivering our 4G mobile broadband services. As of December 31, 2010, we believe we were the largest holder of licensed wireless spectrum in the United States. As of December 31, 2010, we owned or leased, or had entered into agreements to acquire or lease, over...

  • Page 21
    ... to provide sufficient channel width to enable the data throughput that 4G mobile broadband services will demand. Our current spectrum holdings in most of our planned markets in the United States and in most of our international markets satisfy these standards. Research and Development Our research...

  • Page 22
    ...4G technology. The mobility and coverage offered by these carriers under their existing networks, combined with their new 4G networks, will provide even greater competition than we currently face. Cable Modem and DSL Services We compete with companies that provide Internet connectivity through cable...

  • Page 23
    ... telecommunications companies that provide their own wireless broadband or VoIP telephony services, as well as from other companies that provide Internet connectivity services. Although in certain European countries, incumbent telecommunications companies may have a dominant market share based on...

  • Page 24
    ... the United States have access to broadband capability and to establish benchmarks for meeting that goal. In conjunction with its development of the National Broadband Plan, the FCC has initiated a series of wide-ranging inquiries into issues including whether there is enough spectrum available for...

  • Page 25
    ... interconnected VoIP providers, including Clearwire. The CPNI rules govern the manner in which carriers handle and protect call detail information about a customer gained by the service provider as a result of providing the service, and include such information as telephone numbers called, duration...

  • Page 26
    ... 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 27
    ... add to the regulatory burdens already facing wireless carriers. This proceeding remains pending. The FCC reaffirmed its decision to permit mobile satellite service providers to operate in the 2496 to 2500 MHz band on a shared, co-primary basis with BRS licensees. It also concluded that spectrum...

  • Page 28
    .... These issues remain unresolved by the FCC. 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 29
    ... which may adversely affect the value of an investment in Class A Common Stock; • we may be unable to maintain our next generation 4G mobile broadband network, expand our services, meet the objectives we have established for our business strategy or grow our business profitably, if at all; • our...

  • Page 30
    ... to mobile WiMAX, such as LTE, on our network either together with, or in place of, mobile WiMAX if we determine it is necessary to cause the 4G mobile broadband services we offer to remain competitive or to expand the number and types of devices that may be used to access our services. Additionally...

  • Page 31
    ... United States as of December 31, 2010, we cannot assure you that vendors will continue to develop and produce new mobile WiMAX subscriber devices in the long term, which may require us to consider deploying alternative technologies. Additionally, as we continue to build our subscriber base, mobile...

  • Page 32
    ... for new 4G mobile broadband network components and subscriber devices may be lengthy, has been subject to some short-term delays and may still encounter more significant delays. The lack of WiMAX deployments in the United States by other companies has also hampered development of mobile WiMAX...

  • Page 33
    ... operating our 4G network. These challenges could include ensuring the availability of subscriber devices that are compatible with our network and managing sales, advertising, subscriber support, and billing and collection functions of our business while providing reliable network service that meets...

  • Page 34
    ...including securities issuances) in the ordinary course of business; • take any action that could cause Clearwire Communications or any of its material subsidiaries to be taxed as a corporation for federal income tax purposes; and • subject to certain exceptions, issue any Class B Common Stock or...

  • Page 35
    ... terms of certain service agreements, collective development of new 4G services, creation of desktop and mobile applications on our network, the embedding of 4G mobile WiMAX chips into various of our network devices and the development of Internet services and protocols. Except for the agreements...

  • Page 36
    ...with that of Clearwire, do business with Clearwire competitors, subscribers and suppliers, and employ Clearwire's employees or officers. The Founding Stockholders or their affiliates may deploy competing wireless broadband networks or purchase broadband services from other providers. Further, we may...

  • Page 37
    ... or planning to offer broadband Internet connectivity over power lines; and • resellers, mobile virtual network operators, which we refer to as MVNOs, or wholesalers providing wireless Internet or other wireless services using infrastructure developed and operated by others, including Sprint and...

  • Page 38
    ... network depends in part on the continued development and delivery of new subscriber devices based on the 4G mobile WiMAX standard from third-party suppliers. We believe that our success depends on our ability to anticipate and adapt to these and other challenges and to offer competitive services...

  • Page 39
    ... FCC to make additional spectrum available from time to time. Additionally, other companies hold spectrum rights that could be made available for lease or sale. The availability of additional spectrum in the marketplace could change the market value of spectrum rights generally and, as a result, may...

  • Page 40
    ... to or failure of our current or future information technology and communications systems could result in interruptions in our service. Interruptions in our service could reduce our revenues and profits, and our brand could be damaged if people believe our network is unreliable. Our systems are...

  • Page 41
    ... of 4G mobile networks by other operators; • our ability to develop and market new and enhanced products on a timely basis; • seasonal or other variations in our subscriber base; • commencement of, or our involvement in, litigation; • availability of additional spectrum; • dilutive...

  • Page 42
    .... We intend to continue to offer residential VoIP telephony as a value added service with our wireless broadband Internet service. Our residential VoIP telephony services differ from traditional phone service in several respects, including: • our subscribers may experience lower call quality than...

  • Page 43
    ..., also affects our business indirectly. In order to provide "interconnected" VoIP service, we need to obtain, on behalf of our subscribers, 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 44
    ...to deploy and operate our network, whether based on legacy or 4G 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...

  • Page 45
    ... funds, issue equity or sell assets on terms that are unfavorable to Clearwire Communications. Sales of assets in order to enable Clearwire Communications to make the necessary distributions could further increase the tax liability of Clearwire, resulting in the need to make additional distributions...

  • Page 46
    ...to Sprint in connection with the sale of certain former Sprint built-in gain assets may deprive Clearwire Communications of funds that are required to operate its business. Under the Operating Agreement, if Clearwire Communications or any of its subsidiaries enters into a transaction that results in...

  • Page 47
    ... in its business" and "Certain Relationships and Related Transactions, and Director Independence" . Sales of certain former Clearwire assets by Clearwire Communications may trigger taxable gain to Clearwire. If Clearwire Communications sells, in a taxable transaction, an Old Clearwire asset that had...

  • Page 48
    ...business-day period, Clearwire Communications will be precluded from entering into any binding contract for the taxable sale of the former Sprint assets, and Sprint will have the right to transfer Clearwire Communications Class B Common Units and Class B Common Stock to one or more holding companies...

  • Page 49
    ... the Clearwire Corporation stock price and the stock price of other comparable companies, which have a direct impact on our valuation, future changes in the estimated fair value of the exchange features of the Exchangeable Notes may have a material impact on our results of operations. As a result of...

  • Page 50
    ... by Sprint and Sprint's subscribers over our 4G network. In particular, the parties are disputing the proper interpretation and enforceability of the 4G MVNO Agreement with respect to the options for such smartphone pricing. We filed our Statement of Claim against Sprint on December 14, 2010. On...

  • Page 51
    ... are expected to have a material adverse effect on our business, financial condition or results of operations. PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Prices of Common Stock Our Class A Common Stock is...

  • Page 52
    ... 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 And Vesting of Restricted Stock Units Number of Securities Remaining Available for Future Issuance Under...

  • Page 53
    ... The graph shows the value as of December 31, 2010, of $100 invested on December 1, 2008, the day our stock was first publicly traded, in Class A Common Stock, the NASDAQ Composite Index and the NASDAQ Telecom Index. Comparison of Cumulative Total Returns Among Clearwire, NASDAQ Composite Index, and...

  • Page 54
    ...and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this report. 2010 Year Ended December 31, 2009 2008(1) (In thousands, except per share data) 2007(1) Statements of Operations Data: Revenues ...$ Cost of goods and services and network...

  • Page 55
    ...Data: Subscribers: United States: Retail(1) ...1,099 Wholesale(2) ...3,246 International - Retail ...40 595 46 47 424 - 51 - - - (1) Represents the number of household individuals and business or governmental entities receiving wireless broadband connectivity through our networks. (2) Represents...

  • Page 56
    ... expired on June 21, 2010 and. rights to purchase 39.6 million shares of Class A Common Stock were exercised for an aggregate purchase price of $290.3 million. During the fourth quarter of 2009, Clearwire Communications completed offerings of $2.52 billion 12% senior secured notes due 2015, which we...

  • Page 57
    ... to mobile WiMAX, such as LTE, on our networks either together with, or in place of, mobile WiMAX if we determine it is necessary to cause the 4G mobile broadband services we offer to remain competitive or to expand the number and types of devices that may be used to access our services. Business...

  • Page 58
    ..., 2010, 2009 and 2008, we have identified two reportable segments: the United States and the International business. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which...

  • Page 59
    ...not limited to, revenue and subscriber growth rates, operating expenditures, capital expenditures and timing of build out, market share achieved, terminal value growth rate, tax rates and discount rate. The assumptions which underlie the development of the network, subscriber base and other critical...

  • Page 60
    ...the write-down 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 our strategic network plans and will not be deployed. With the substantial completion of our prior build plans and due to...

  • Page 61
    ... of the option. The estimated volatility is based on our historical stock price volatility giving consideration to our estimates of market participant adjustments for the general conditions of the market as well as company-specific factors such as our market trading volume and the expected future...

  • Page 62
    Results of Operations The following table sets forth as reported operating data for the periods presented (in thousands, except per share data). CONSOLIDATED STATEMENTS OF OPERATIONS 2010 Year Ended December 31, 2009 2008(1) Revenues ...$ Operating expenses: Cost of goods and services and network ...

  • Page 63
    ... United States and 13% for international for the year ended December 31, 2008. We expect revenues to continue to increase in future periods primarily due to expected growth in wholesale subscribers and the full year benefit of subscribers acquired during 2010. Cost of Goods and Services and Network...

  • Page 64
    ...27 new 4G markets during 2009. We incurred twelve months of tower costs and related backhaul and network expenses during 2009, compared to one month for 2008 following the Closing on November 28, 2008, when we acquired all of the Old Clearwire tower leases and backhaul agreements. We expect costs of...

  • Page 65
    ...a result of new network assets placed into service to support our launches and continued network expansion. The increase is also due to 12 months depreciation and amortization expense recorded on assets acquired in connection with our acquisition of Old Clearwire, compared to approximately one month...

  • Page 66
    ... to reimburse Sprint for financing the Sprint WiMAX Business between April 1, 2008 and the Closing, which we refer to as the Sprint PreClosing Financing Amount, and one month of interest expense totaling $8.6 million on the long-term debt acquired from Old Clearwire. We expect interest expense...

  • 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. 62

  • Page 68
    ... heavily in building and augmenting our 4G mobile broadband network. During 2010, we continued to develop and launch our 4G mobile broadband network in large metropolitan areas in the United States, including the fourth quarter launches of New York, San Francisco and Los Angeles. In 2011, we plan to...

  • Page 69
    ... to mobile WiMAX, such as LTE, either in place of, or together with, mobile WiMAX if we determine it is necessary to cause the 4G mobile broadband services we offer to remain competitive or to expand the number and types of devices that may be used to access our services. The amount and timing of...

  • Page 70
    ... 31, 2009, resulting primarily from $1.48 billion of cash received from the Private Placement, $2.47 billion received from the issuance of the Senior Secured Notes and the Rollover Notes, $12.2 million in proceeds from the issuance of shares of Class A Common Stock to CW Investments Holdings LLC and...

  • Page 71
    ... liens; issuing certain preferred stock or similar equity securities and making investments and acquiring assets. At December 31, 2010, we were in compliance with our debt covenants. Net cash provided by financing activities was $3.86 billion for the year ended December 31, 2008, resulting primarily...

  • Page 72
    ...-term fixed-rate capital lease obligations outstanding at December 31, 2010. The fair value of the debt fluctuates as interest rates change, however, there is no impact to earnings and cash flows as we expect to hold the debt, with the exception of the Exchangeable Notes, to maturity unless market...

  • Page 73
    ... consolidated financial statements. Credit Risk At December 31, 2010, we held available-for-sale short-term and long-term investments with a fair value and carrying value of $517.6 million and a cost of $511.1 million, comprised of United States Government and Agency Issues and other debt securities...

  • Page 74
    ... INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2010 and 2009 ...Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 ...Consolidated Statements of Cash Flows...

  • Page 75
    ... with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations...

  • Page 76
    CLEARWIRE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2010 2009 (In thousands, except par value) ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Restricted cash ...Accounts receivable, net of allowance of $4,313 and $1,956 ......

  • Page 77
    CLEARWIRE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2010 2009 2008 (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 and ...

  • Page 78
    ... expenses ...Fixed asset purchases financed by long-term debt ...Spectrum purchases in accounts payable ...Common stock of Sprint Nextel Corporation issued for spectrum licenses Non-cash financing activities: Conversion of Old Clearwire Class A shares into New Clearwire Class A Vendor financing...

  • Page 79
    CLEARWIRE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS For the Years Ended December 31, 2010, 2009 and 2008 Accumulated Class A Class B Business Equity of Other Total Common Stock Common Stock Additional Paid In Sprint WiMAX Comprehensive ...

  • Page 80
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business We are a leading provider of 4G wireless broadband services. We build and operate next generation mobile broadband networks that provide high-speed mobile Internet and residential access ...

  • Page 81
    ... financial reporting purposes, the Sprint WiMAX Business was determined to be the accounting acquirer and accounting predecessor. The assets acquired and liabilities assumed of Old Clearwire have been accounted for at fair value in accordance with the purchase method of accounting, and its results...

  • Page 82
    ... further information. Reclassifications - During 2010 we reclassified losses from abandonment and impairment of network and other assets from Cost of goods and services and network costs to a separate line item in the consolidated statements of operations. We also reclassified costs associated with...

  • Page 83
    ... a market participant would use in pricing the security. These internally derived values are compared with non-binding values received from brokers or other independent sources, as available. See Note 11, Fair Value, for further information. Accounts Receivable - Accounts receivables are stated at...

  • Page 84
    ...-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. With the substantial completion of our prior build plans and due...

  • Page 85
    ...for hedge accounting, and as such, all future changes in the fair value of these derivative instruments will be recognized currently in earnings until such time as the embedded exchange options are exercised or expire. See Note 10, Derivative Instruments, for further information. Debt Issuance Costs...

  • Page 86
    ... in the financial statements. Revenue Recognition - We primarily earn revenue by providing access to our high-speed wireless networks. Also included in revenue are leases of CPE and additional add-on services, including personal and business email and static Internet Protocol. Revenue from retail...

  • Page 87
    .... See Note 15, Net Loss Per Share, for further information. Operating Leases - We have operating leases for spectrum licenses, towers and certain facilities, and equipment for use in our operations. Certain of our spectrum licenses are leased from third-party holders of Educational Broadband Service...

  • Page 88
    ... to $0. 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 89
    ...-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. With the substantial completion of our prior build plans and due...

  • Page 90
    ...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 91
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2010 2009 2008 Supplemental Information (in thousands): Amortization of prepaid spectrum licenses ...Amortization of definite-lived owned spectrum ... $57,433 $ 4,171 $57,898 $ ...

  • Page 92
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2010 2009 2008 Supplemental Information (in thousands): Amortization expense ... $26,705 $32,443 $2,888 We evaluate all of our patent renewals on a case by case basis, based on...

  • Page 93
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 8. Income Taxes The income tax provision consists of the following for the years ended December 31, 2010, 2009 and 2008 (in thousands): Year Ended December 31, 2010 2009 2008 Current taxes: ...

  • Page 94
    ... for Clearwire after the Closing is the basis difference associated with our investment in the partnership. Consequently, we recorded a deferred tax liability for the difference between the financial statement carrying value and the tax basis we hold in our interest in Clearwire Communications as...

  • Page 95
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) addition, Old Clearwire acquired United States and foreign entities which operated prior to 2003. Most of the acquired entities generated losses for income tax purposes and certain tax returns remain open...

  • Page 96
    ... acquiring assets. Second-Priority Secured Notes - During December 2010, Clearwire Communications completed an offering of $500 million 12% second-priority secured notes due 2017, which we refer to as the Second-Priority Secured Notes. The Second-Priority Secured Notes provide for bi-annual payments...

  • Page 97
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The holders of the Exchangeable Notes have the right to exchange their notes for Clearwire Corporation's Class A common stock, which we refer to as Class A Common Stock, at any time, prior to the maturity...

  • Page 98
    ... indexed to Class A Common Stock, have a notional amount of 103.0 million shares and mature in 2040. We do not apply hedge accounting to the Exchange Options. Therefore, gains and losses due to changes in fair value are reported in our consolidated statements of operations. At December 31, 2010, the...

  • Page 99
    ... market conditions as well as company-specific factors such as market trading volume and our expected future performance. The following table summarizes our financial assets and liabilities by level within the valuation hierarchy at December 31, 2010 (in thousands): Quoted Prices in Active Markets...

  • Page 100
    ... value for financial instruments we hold that are not subject to fair value recognition. Debt Instruments To estimate the fair value of the Senior Secured Notes and Rollover Notes, the Second-Priority Secured Notes and the Exchangeable Notes, we used the average indicative price from several market...

  • Page 101
    ... 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 102
    .... As of December 31, 2010, we have signed agreements to acquire approximately $9.9 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 103
    ... by Sprint and Sprint's subscribers over our 4G network. In particular, the parties are disputing the proper interpretation and enforceability of the 4G MVNO Agreement with respect to the options for such smartphone pricing. We filed our Statement of Claim against Sprint on December 14, 2010. On...

  • Page 104
    ... 31, 2010, there were 55,324,492 shares available for grant under the 2008 Plan, which authorizes us to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock awards to our employees, directors and consultants...

  • Page 105
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the Closing, we granted RSUs to certain officers and employees under the 2008 Plan. All RSUs generally vest over a four-year period. The fair value of our RSUs is based on the grant-date fair market value...

  • Page 106
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of option activity from January 1, 2008 through December 31, 2010 is presented below: WeightedAverage Exercise Price WeightedAverage Remaining Contractual Term (Years) Aggregate Intrinsic Value ...

  • Page 107
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Information regarding stock options outstanding and exercisable as of December 31, 2010 is as follows: Options Outstanding Weighted Average Weighted Contractual Average Life Exercise Remaining Number of ...

  • Page 108
    ... 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 109
    ... of Class B Common Stock holds an equivalent number of Clearwire Communications Class B Common Interests, which, in substance, reflects their economic stake in Clearwire. This is accomplished through an exchange feature that provides the holder the right, at any time, to exchange one share of Class...

  • Page 110
    ...for an equal number of shares of Clearwire's Class B Common Stock, par value $0.0001 per share. Under the Investment Agreement, in exchange for the purchase by Sprint, Comcast, Time Warner Cable and Bright House of Clearwire Communications Class B Common Interests and Clearwire Communications Voting...

  • Page 111
    ... to shares of Class A Common Stock they each hold as of the applicable record date. In connection with the Rights Offering, rights to purchase 39.6 million shares of Class A Common Stock were exercised for an aggregate purchase price of $290.3 million. Clearwire Communications Interests Clearwire is...

  • Page 112
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Each holder of Clearwire Communications Class B Common Interests holds an equivalent number of shares of Clearwire's Class B Common Stock and will be entitled at any time to exchange one share of Class B ...

  • Page 113
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 15. Net Loss Per Share Basic Net Loss Per Share The net loss per share attributable to holders of Class A Common Stock is calculated based on the following information (in thousands, except per share ...

  • Page 114
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Net loss per share attributable to holders of Class A Common Stock on a diluted basis, assuming conversion of the Clearwire Communications Class B Common Interests and Class B Common Stock and conversion ...

  • Page 115
    ... international businesses. We report business segment information as follows (in thousands): Year Ended December 31, 2010 United States International Total Revenues: Retail revenue ...$ Wholesale revenue ...Other revenue ...Total revenues ...Cost of goods and services and network costs (exclusive...

  • Page 116
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2009 United States International Total Revenues: Retail revenue ...$ Wholesale revenue ...Other revenue ...Total revenues ...Cost of goods and services and network costs (...

  • Page 117
    ...their respective end user subscribers. We sell these services at terms defined in our contractual agreements. The following amounts for related party transactions are included in our consolidated financial statements (in thousands): December 31, 2010 2009 Accounts receivable ...Accounts payable and...

  • Page 118
    ... FINANCIAL STATEMENTS - (Continued) the amount of $179.2 million. During 2009, we repaid our senior term loan facility with proceeds from our Senior Secured Notes and Rollover Notes. Sprint - Sprint assigned, where possible, certain costs to us based on our actual use of the shared services...

  • Page 119
    ... and Sprint Spectrum L.P., which we refer to as the 4G MVNO Agreement. We sell wireless broadband services to the other parties to the 4G MVNO Agreement for the purposes of the purchasers marketing and reselling our wireless broadband services to their respective end user subscribers. The wireless...

  • Page 120
    ... would develop, market, sell and support WiMAX embedded chipsets for use in certain notebook computers and mobile Internet devices that may be used on our networks. The Intel Market Development Agreement will last for a term of seven years from the date of the agreement, with Intel having the option...

  • Page 121
    ... 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 122
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CLEARWIRE CORPORATION CONDENSED BALANCE SHEETS December 31, December 31, 2010 2009 (In thousands) ASSETS Cash and cash equivalent ...Other assets ...Investments in equity method investees ...Total assets...

  • Page 123
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CLEARWIRE CORPORATION CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 2010 Year Ended December 31, 2009 (In thousands) Period From November 29, 2008 to December 31, 2008 Revenues ...Operating ...

  • Page 124
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CLEARWIRE CORPORATION CONDENSED STATEMENTS OF CASH FLOWS Period From November 29, 2008 to December 31, 2008 Year Ended December 31, 2010 Year Ended December 31, 2009 (In thousands) CASH FLOWS FROM ...

  • Page 125
    ... REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Clearwire Corporation Kirkland, Washington We have audited the internal control over financial reporting of Clearwire Corporation and subsidiaries (the "Company") as of December 31, 2010, based...

  • Page 126
    ...by our board of directors, management or other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America...

  • Page 127
    ... independent source information, reconcile the information to accounting records, and resolve exceptions. • We have implemented processes to improve the tracking of network equipment in our distribution centers and local market warehouses. During the fourth quarter of 2010, management performed an...

  • Page 128
    ...13 will be included in the Proxy Statement under the headings "Related Party Transactions," and "Corporate Governance - Executive Officers and Key Employees" and is incorporated herein by reference. ITEM 14. Principal Accountant Fees and Services The information required by Item 14 will be included...

  • Page 129
    ... undersigned; thereunto duly authorized, as of February 22, 2011. 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 130
    ... 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 131
    ...Exhibit A to the Exchangeable Notes Indenture filed as Exhibit 4.13 hereto). Registration Rights Agreement, dated as of December 8, 2010, by and among Clearwire Corporation, the Issuers, the Guarantors and J.P. Morgan Securities LLC as representative of the initial purchasers (Incorporated herein by...

  • Page 132
    ... Agreement dated May 7, 2008, among Sprint Nextel Corporation, Comcast Corporation, Time Warner Cable Inc., Bright House Networks, LLC, Google Inc., Intel Corporation and Eagle River Holdings, LLC (Incorporated herein by reference to Exhibit 9.1 to Clearwire Corporation's Registration Statement...

  • Page 133
    ...Sprint Nextel Corporation and Clearwire Communications LLC (Incorporated herein by reference to Exhibit 10.24 to Clearwire Corporation's Form 10-K/A originally filed April 13, 2009). MVNO Support Agreement dated May 7, 2008, among Sprint Spectrum L.P. d/b/a Sprint, Comcast MVNO II, LLC, TWC Wireless...

  • Page 134
    ... Clearwire Communications LLC, Sprint Nextel Corporation, Comcast Corporation, Time Warner Cable, Inc., Bright House Networks, LLC, Eagle River Holdings, LLC and Intel Corporation (Incorporated herein by reference to Exhibit 10.1 to Clearwire Corporation's Form 8-K filed November 10, 2009). Customer...

  • Page 135
    10.45 Clearwire Corporation 2010 Executive Continuity Plan (Incorporated herein by reference to Exhibit 10.1 to Clearwire Corporation's Form 8-K filed on April 30, 2010). 10.46** Amendment of Market Development Agreement between Clearwire Communications and Intel Corporation (Incorporated herein by...

  • Page 136
    ... Information Corporate Address 4400 Carillon Point Kirkland, Washington 98033 Phone: 425-216-7600 Investor Relations Phone: 425-636-5828 E-Mail: [email protected] Website: http://investors.clearwire.com Company Website www.clearwire.com Stock Listing NASDAQ Global Select Market...

  • Page 137