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ITEM 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this filing.
Forward-Looking Statements
Statements and information included in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. When used in this report, the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “evaluate,” “opinion,” “may,” “could,” “future,” “potential,” “probable,” “if,” “will” and similar expressions generally identify forward-looking statements.
Forward-looking statements in this Annual Report on Form 10-K represent our beliefs, projections and predictions about future events. These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievement described in or implied by such statements. Actual results may differ materially from the expected results described in our forward-looking statements, including with respect to the correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of publicly available information relating to the factors upon which our business strategy is based, or the success of our business. The factors or uncertainties that could cause actual results, performance or achievement to differ materially from forward-looking statements contained in this report are described in Item 1A, Risk Factors, and elsewhere in this report.
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 and residential Internet access services in communities throughout the country. As of
December 31, 2012
, we offered our services in
88
markets in the United States covering an estimated
137.4 million
people, including an estimated
135.1 million
people covered by our 4G mobile broadband networks in
71
markets. Our 4G mobile broadband network provides a connection anywhere within our coverage area.
In our current 4G mobile broadband markets in the United States, we offer our services through retail channels and through our wholesale partners. Sprint accounts for substantially all of our wholesale sales to date, and offers services in each of our 4G markets. In addition to Sprint and our other existing wholesale partners, we have also recently entered into wholesale agreements with CBeyond, NetZero/United Online, Simplexity, Earthlink, Freedom POP, Leap (dba Cricket Communications), Kajeet and Locus Telecomminications. We ended 2012 with approximately
1.4 million
retail and
8.2 million
wholesale subscribers. The 4G MVNO Agreement provides for unlimited WiMAX service to Sprint retail customers in exchange for fixed payments in 2012 and 2013, so fluctuations in the wholesale subscriber base will not necessarily correlate to wholesale revenue. We are currently focused on growing our revenue by continuing to build our wholesale business and leveraging our retail business, reducing expenses, and seeking additional strategic opportunities for our current business.
As of December 31, 2012, we completed the sale of our international operations in Belgium, Germany and Spain. The results of operations of these international entities prior to their sale are separately disclosed as discontinued operations.
We need to greatly expand our revenue base by increasing sales to our existing wholesale partners and bringing on other significant wholesale partners. In addition, to be successful, we believe it is necessary that we deploy LTE technology which is currently being adopted by most wireless operators globally as their next generation wireless technology.
We believe that, as the demand for mobile broadband services continues its rapid growth, Sprint and other service providers will find it difficult, if not impossible, to satisfy their customers' demands with their existing spectrum holdings. By deploying LTE, we believe that we will be able to take advantage of our leading spectrum position to offer substantial additional data capacity to Sprint and other existing and future mobile broadband service providers for resale to their customers on a cost effective basis.
Initially, we plan to overlay 2,000 of our existing mobile WiMAX sites with TDD-LTE, over 20 MHz-wide channels by June 30, 2013, and a total of approximately 5,000 sites by the end of the year. We refer to this plan as our current LTE build plan. We are focusing primarily on sites in densely populated urban areas where we currently experience the highest
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
concentration of usage of our mobile WiMAX services, although we will also consider sites in other areas where Sprint and other current and future wholesale partners express a need for excess data capacity and where we believe we will be most likely to generate sufficient revenues. We have begun deployment of our LTE network and have 1,000 sites on air as of December 31, 2012. Currently, we plan to operate LTE on approximately 8,000 sites by the end of 2014. Our planned deployment of the initial 2,000 sites by June 30, 2013 will satisfy the initial LTE prepayment milestone under the terms of the 4G MVNO Agreement.
If our Proposed Merger with Sprint does not close, the success of our current plans will depend to a large extent on whether we succeed in the following areas: adding new wholesale partners with
substantial requirements for additional data capacity to supplement their own services
and generating or exceeding the revenue levels we currently expect for that portion of our business; maintaining our retail base and revenues while continuing to realize the benefits from cost savings initiatives; deploying LTE technology on our network; and raising additional capital. Our ability to satisfy the requirements of our current plans in each of these areas remains uncertain. Given this uncertainty, we regularly review our current plans and other strategic options, and we may elect to pursue new or alternative strategies which we believe would be beneficial to our business and maximize shareholder value.
Merger Agreement
On December 17, 2012, we entered into the Merger Agreement, pursuant to which Sprint agreed to acquire all of the outstanding shares of Class A Common Stock and Class B Common Stock, not currently owned by Sprint, SoftBank or their affiliates. At the closing, the outstanding shares of common stock will be canceled and converted automatically into the right to receive $2.97 per share in cash, without interest. Our stockholders will be asked to vote on the adoption of the Merger Agreement at a special meeting that will be held on a date to be announced. Consummation of the transactions under the Merger Agreement are subject to a number of conditions precedent, including, among others: (i) Clearwire Stockholder Approval, (ii) the receipt of the FCC approvals required to consummate the Proposed Merger, (iii) the absence of any order enjoining the consummation of, or prohibiting, the Proposed Merger; (iv) the non-occurrence of any event having a material adverse effect from the date of the Merger Agreement to the closing of the Proposed Merger, and (v) the consummation by Sprint of the SoftBank Transaction, or an alternate transaction thereto.
The Merger Agreement contains termination rights for the benefit of Sprint and Clearwire and further provides that Sprint will be required to pay us a termination fee of $120.0 million under certain specified circumstances of termination of the Merger Agreement. Any obligation to pay such termination fee will be satisfied by the cancellation of $120.0 million of Notes, which are described below. In the event we are entitled to receive the termination fee, in certain instances, we may also be entitled to receive from Sprint a supplemental prepayment for LTE services on January 15, 2014 in the amount of $100.0 million, conditioned upon the completion of site build-out targets pursuant to a commercial agreement currently in effect between Sprint and Clearwire. Any such prepayment will be credited against certain of Sprint's obligations under such agreement.
Note Purchase Agreement
In connection with the Merger Agreement, on December 17, 2012, we and the Issuers also entered into the Note Purchase Agreement in which Sprint agreed to purchase from us at our election up to an aggregate principal amount of $800.0 million of 1.00% Notes due 2018 in ten monthly installments of $80.0 million each. The Notes accrue interest at 1.00% per annum and are exchangeable into shares of Class A Common Stock at an exchange rate of 666.67 shares per $1,000 aggregate principal amount of the Notes, which is equivalent to a price of $1.50 per share, subject to anti-dilution protections. We can draw on the Note Purchase Agreement monthly beginning in January 2013. Additionally, on the last three draw dates (in August, September and October 2013), we can only request that Sprint purchase notes if (i) the Build-Out Agreement is reached by February 28, 2013, (ii) the Build-Out Agreement is in full force and effect and (iii) we have not breached any of our obligations under the Build-Out Agreement.
If the Merger Agreement is terminated under circumstances where we would receive, and do not reject, the Sprint Termination Fee, then $120.0 million principal amount of the Notes will be automatically canceled. In addition, if the Merger Agreement is terminated because the SoftBank Transaction is not consummated, we will have the option to exchange the Notes that remain outstanding at the Exchange Rate for 15 business days following the termination of the SoftBank Transaction.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
Unlike the terms of the Existing Indenture, the terms of the New Indenture do not include an option to call or redeem the Notes, and Sprint does not have the right to put the Notes at specified dates.
The Note Purchase Agreement can be terminated, among other things, by mutual consent, automatically if the required vote to approve the Proposed Merger is not obtained at our stockholders meeting, or if the Merger Agreement is terminated due to a failure of the SoftBank Transaction or a breach of Sprint's representations, warranties, covenants or agreements thereunder (subject to certain conditions), provided that if the Note Purchase Agreement is terminated due to the Merger Agreement being terminated by reason of a failure of the SoftBank Transaction or because of a breach of any representation, warranty, covenant or agreement by Sprint, then the Note Purchase Agreement will terminate upon the earlier of (i) our exercising our option to exchange the Notes upon such termination and (ii) July 2, 2013; however the Note Purchase Agreement will not terminate on July 2, 2013 if the Build-Out Agreement was reached by February 28, 2013, the Build-Out Agreement is in full force and effect and we have not breached any of our obligations under the Build-Out Agreement.
On December 26, 2012, we notified Sprint of our intention to take the first draw in January 2013 under the Note Purchase Agreement. Following receipt of the DISH Proposal, the Special Committee elected on December 28, 2012, to revoke our draw notice prior to receiving any proceeds from the draw to allow us to evaluate the DISH Proposal. Sprint subsequently asserted that it believes that the draw notice is irrevocable and has reserved its rights with respect thereto. The Special Committee also decided to forego the second draw for February 2013 as the Special Committee continues to evaluate DISH's proposal. Our election to forego the first two draws under the Note Purchase Agreement has reduced the aggregate principal amount available to $640.0 million. The Special Committee has not made any determination with respect to whether we will take any future draws under the Note Purchase Agreement.
DISH Proposal
After signing the Merger Agreement, we received the DISH Proposal. The DISH Proposal provides for DISH to purchase certain spectrum assets from us, enter into a commercial agreement with us and acquire up to all of our common stock for $3.30 per share (subject to minimum ownership of at least 25% and granting of certain governance rights) and provide us with financing on specified terms. The DISH Proposal is only a preliminary indication of interest and is subject to numerous, material uncertainties and conditions, including the negotiation of multiple contractual arrangements being requested by DISH as well as regulatory approvals. The DISH Proposal provides that it would be withdrawn if we draw any of the funds available under the Note Purchase Agreement. Some of the terms in the DISH Proposal, as currently proposed, may not be permitted under the terms of our current legal and contractual obligations. Additionally, our ability to enter into strategic transactions is significantly limited by our current contractual arrangements, including the Sprint Agreement and our existing Equityholders’ Agreement.
The Special Committee is currently evaluating the DISH Proposal and engaging in discussions with each of DISH and Sprint, as appropriate. The Special Committee has not made any determination to change its recommendation regarding the current Sprint transaction. Consistent with our obligations under the Sprint Agreement, we provided Sprint with notice, and the material terms, of the DISH Proposal, and received a response from Sprint that stated, among other things, that Sprint has reviewed the DISH Proposal and believes that it is illusory, inferior to the Sprint transaction and not viable because it cannot be implemented in light of our current legal and contractual obligations. Sprint has stated that the Sprint Agreement would prohibit us from entering into agreements for much of the DISH Proposal.
Liquidity and Capital Resource Requirements
During the year ended December 31, 2012, we incurred
$1.74 billion
of net losses from continuing operations. We utilized
$451.5 million
of cash from operating activities of continuing operations and spent
$113.0 million
of cash on capital expenditures in the improvement and maintenance of our existing networks and for the deployment of our LTE network.
On January 27, 2012, we announced the completion of an offering by our operating subsidiary, Clearwire Communications, of $300.0 million aggregate principal amount of 14.75% first-priority senior secured notes due 2016, which we refer to as the 2016 Senior Secured Notes, at an issue price of 100%. On March 15, 2012, we entered into securities purchase agreements with certain institutional investors, pursuant to which we issued shares of Class A Common Stock for an aggregate price of $83.5 million, which we refer to as the Purchase Price, and in connection with the issuance, Clearwire Communications repurchased
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
$100.0 million in aggregate principal amount of our 8.25% exchangeable notes due 2040, which we refer to as Exchangeable Notes, for a total price equal to the Purchase Price.
On May 4, 2012, we entered into a sales agreement with Cantor Fitzgerald & Co., which we refer to as CF&Co, pursuant to which we offered and sold shares of our Class A Common Stock having an aggregate offering price of up to $300.0 million from time to time through CF&Co, as sales agent. We received net proceeds of approximately $58.5 million related to this agreement. On July 26, 2012, we announced that we elected to cease further sales under this sales agreement.
We expanded our wholesale agreement with Sprint in 2011 and 2012. Under the 4G MVNO Agreement, Sprint is paying us $925.9 million for unlimited 4G mobile WiMAX services for resale to its retail subscribers in 2012 and 2013. In 2012, we received approximately $600.0 million from Sprint; $450.0 million of which was paid under the 4G MVNO Agreement for services we provided to Sprint in 2012 and $150 million pursuant to a promissory note. The remainder of the amounts owed by Sprint under the 4G MVNO Agreement is payable to us by Sprint for services to be provided in 2013. Of the $925.9 million payable by Sprint under the 4G MVNO Agreement, $175.9 million will be paid as an offset to principal and interest due under the $150.0 million promissory note issued by us to Sprint in 2012. On January 2, 2013, we offset $83.6 million to principal and related accrued interest to reduce the principal amount we owe to Sprint under the promissory note to $75 million. Additionally, in the 4G MVNO Agreement, Sprint agreed to pay us additional usage-based fees for mobile WiMAX services provided to Sprint's retail customers in 2014 and beyond and for LTE services provided to Sprint's wholesale customers in 2013 and beyond.
To date, we have invested heavily in building and maintaining our networks. We have a history of operating losses, and we expect to have significant losses in the future. We do not expect our operations to generate positive cash flows during the next twelve months.
As of December 31, 2012, we had available cash and short-term investments of approximately $868.6 million. Our current LTE build plan is to have approximately 2,000 LTE sites on air by the end of June 2013, which will satisfy the initial LTE prepayment milestone under the terms of the 4G MVNO Agreement with Sprint. Under the 4G MVNO Agreement with Sprint, we are required to expand our LTE network to 5,000 sites by June 30, 2014. Subject to the availability of funding under the Note Purchase Agreement, our current LTE build plan is to expand our LTE network to 5,000 sites by the end of 2013.
Under our current LTE build plan, we currently expect to satisfy our operating, financing and capital spending needs for the next twelve months using the available cash and short-term investments on hand together with a portion of the remaining borrowing capacity available under the Note Purchase Agreement and with the proceeds of additional vendor financing. As discussed previously, our election to forego the first two draws under the Note Purchase Agreement has reduced the aggregate principal amount available to $640.0 million and our ability to draw a portion of the funds under the Note Purchase Agreement is subject to certain conditions. Additionally, on the last three Draw Dates (in August, September and October 2013), we can only request that Sprint purchase notes if (i) an agreement has been reached between the parties on the Build-Out Agreement, by February 28, 2013, (ii) the Build-Out Agreement is in full force and effect and (iii) we have not breached any of our obligations under the Build-Out Agreement.
By electing to draw on at least three months of borrowing capacity under the Note Purchase Agreement, we would have sufficient cash and borrowing capacity to build 2,000 LTE sites by June 30, 2013 and satisfy the initial LTE prepayment milestone with Sprint, and meet our operating and financing needs for the next twelve months. If the Merger Agreement were to terminate and funding beyond three draws under the Note Purchase Agreement would no longer be available to the Company, without alternative sources of additional capital, we would have to significantly curtail our LTE network build plan as currently contemplated to conserve cash and meet our operating and financing obligations during 2013. If we do not draw on at least three months of borrowing capacity under the Note Purchase Agreement and do not obtain a similar amount of additional financing from alternative sources, we forecast that our cash and short-term investments would be depleted sometime in the fourth quarter 2013.
Further, if the Proposed Merger fails to close for any reason or the closing takes longer than we expect, we will need to raise substantial additional capital and to secure commitments from additional wholesale partners with significant data capacity needs that generate substantial revenues for us in a timely manner to fully implement our business plans and to be able to continue to operate.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
The amount of additional capital needed by us if the Proposed Merger fails to close will depend on a number of factors, many of which are outside of our control and subject to a number of uncertainties. Our capital requirements will largely be predicated on the amount of cash we receive from Sprint for our services beyond the minimum commitments specified in our amended wholesale agreement and whether we secure commitments from new wholesale partners with significant data capacity needs. Each will partially depend on whether our construction of an LTE network is successful and completed according to the design architecture and deployment requirements of these parties, the extent to which the parties' customers utilize that network, and the level of Sprint's usage of our mobile WiMAX network beyond 2013. Other factors significantly affecting our capital needs include the amount of cash generated by our retail business, our ability to maintain reduced operating expenses and the accuracy of our other projections of future financial performance.
Any delays in the deployment of our planned LTE network, delays in the rollout of LTE services that rely on our network by Sprint or our other wholesale partners or unexpected increases in the costs we incur in deploying our LTE network would materially increase the additional capital we require for our business. Additionally, if we are unable to secure commitments from additional wholesale partners with significant data capacity needs, our need for additional capital will increase substantially to a level that we may find difficult to obtain.
Whether we would be able to successfully fulfill our additional capital needs in a timely manner is uncertain. If the Merger Agreement terminates, we will likely pursue various alternatives for securing additional capital. These alternatives include, among other things, obtaining additional equity and debt financing from a number of possible sources such as new and existing strategic investors, private or public offerings and vendors. However, we face a number of challenges. Our recent equity financings were dilutive to our shareholders and, with the current trading price of our Class A Common Stock, any additional equity financings could result in significant additional dilution for our stockholders and may not generate the proceeds we need. Further, unless we are able to secure the required shareholder approvals to increase the number of authorized shares under our Certificate of Incorporation, we may not have enough authorized, but unissued shares available to raise sufficient additional capital through an equity financing. With our existing level of indebtedness, including the amount of any financing drawn by us under the Note Purchase Agreement, if any, and our inability to issue additional secured indebtedness under our existing indentures, additional debt financings may not be available on acceptable terms or at all. Even if additional debt financings are available, they could increase our future financial commitments, including aggregate interest payments on our existing and new indebtedness, to levels that we find difficult to support. Other sources of additional capital could include, among other things, a sale of certain of our assets that we believe are not essential for our business, such as excess spectrum. However, our ability to consummate a sale of assets that would generate sufficient proceeds to meet our capital needs on acceptable terms in a timely manner or at all is uncertain.
Additionally, as previously stated, we regularly evaluate our plans and other strategic options, and, if the Merger Agreement terminates, we may elect to pursue new or alternative strategies which we believe would be beneficial to our business. Such changes to our plans could also substantially change our capital requirements in the near and/or long term.
If the Merger Agreement terminates and we are unable to raise sufficient additional capital to fulfill our funding needs in a timely manner, or we fail to generate sufficient additional revenue from our wholesale and retail businesses to meet our obligations beyond the next twelve months, our business prospects, financial condition and results of operations will likely be materially and adversely affected, substantial doubt may arise about our ability to continue as a going concern and we will be forced to consider all available alternatives, including financial restructuring, which could include seeking protection under the provisions of the United States Bankruptcy Code.
Business Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, which we refer to as the CODM, in deciding how to allocate resources and in assessing performance. We define the CODM as our Chief Executive Officer. As our business continues to mature, we assess how we view and operate our business. We market a service that is basically the same service across the United States and as such we operate as a single reportable segment as a provider of wireless broadband services in the United States.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, which we refer to as U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates used, including those related to long-lived assets and intangible assets, including spectrum, derivatives, and deferred tax asset valuation allowance.
Our accounting policies require management to make complex and subjective judgments. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, observance of trends in the industry, or information provided by outside sources, as appropriate. Additionally, changes in accounting estimates are reasonably likely to occur from period to period. These factors could have a material impact on our financial statements, the presentation of our financial condition, changes in financial condition or results of operations.
We have identified the following accounting policies and estimates that involve a higher degree of judgment or complexity and that we believe are key to an understanding of our financial statements:
Spectrum Licenses
We have two types of arrangements for spectrum licenses: owned spectrum licenses with indefinite lives and spectrum leases. While owned spectrum licenses are issued for a fixed time, renewals of these licenses have occurred routinely and at nominal cost. Moreover, management has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our owned spectrum licenses and therefore, the licenses are accounted for as intangible assets with indefinite lives. Changes in these factors may have a significant effect on our assessment of the useful lives of our owned spectrum licenses.
We assess the impairment of intangible assets with indefinite useful lives, consisting of spectrum licenses, at least annually, or whenever an event or change in circumstances indicates that the carrying value of such asset or group of assets may be impaired. Our annual impairment testing is performed as of each October 1st and we perform a review of the existence of events or changes in circumstances related to the impairment of our intangible assets with indefinite useful lives on a quarterly basis. Factors we consider important, any of which could trigger an impairment review, include:
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a significant decrease in the market price of the asset;
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significant underperformance relative to expected historical or projected future operating results;
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significant changes in our use of the assets or the strategy for our overall business; and
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significant negative industry or economic trends.
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The impairment test for intangible assets with indefinite useful lives consists of a comparison of the fair value of the intangible asset with its carrying amount. We calculate the fair value of spectrum primarily using a discounted cash flow model (the Greenfield Approach), which approximates value by assuming a company is started owning only the spectrum licenses, and then makes investments required to build a network utilizing the spectrum for its highest and best use. We utilize a 10 year discrete period to isolate cash flows attributable to the licenses including modeling the hypothetical build out of a nationwide network. Assumptions key in estimating fair value under this method include, but are 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 inputs of the discounted cash flow model were based on a combination of average marketplace participant data and our historical results and business plans to the extent we believe they are representative of those of a marketplace participant. The discount rate used in the model represents a weighted average cost of capital taking into account the cost of debt and equity financing weighted by the percentage of debt and equity in a target capital structure and the perceived risk
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
associated with an intangible asset such as our spectrum licenses. The terminal value growth rate represents our estimate of the marketplace's long term growth rate. We also consider the market indications related to completed spectrum auctions and transactions. Giving consideration to when the transactions occurred and the similarities between the spectrum sold in those transactions to our spectrum licenses, we weight the fair value indications with those obtained from application of the Greenfield Approach. We also validate the fair value obtained from the Greenfield Approach against market data of pending transactions, when available.
We had no impairment of our indefinite lived intangible assets in any of the periods presented as the fair value of our indefinite lived intangible assets computed using the methodology described above was in excess of its carrying value. Holding all other assumptions constant, while the following changes in assumptions would result in the fair value of the licenses that is less than currently projected, the fair value would still be higher than their book values: if the projected operating cost or capital expenditures were to increase by 1% as a percentage of revenue; if buildout to the target population coverage was delayed by one year; or the discount rate was increased by 50 basis points. However, if there is a substantial adverse decline in the operating profitability of the wireless service industry, we could have material impairment charges in future years which could adversely affect our results of operations and financial condition.
Impairments of Long-lived Assets
We review our long-lived assets to be held and used, including property, plant and equipment, which we refer to as PP&E, and intangible assets with definite useful lives, which consists primarily of favorable spectrum leases and subscriber relationships, for recoverability whenever an event or change in circumstances indicates that the carrying amount of such long-lived asset or group of long-lived assets may not be recoverable. Such circumstances include, but are not limited to the following:
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a significant decrease in the market price of the asset;
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a significant change in the extent or manner in which the asset is being used;
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a significant change in the business climate that could affect the value of the asset;
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a current period loss combined with projections of continuing losses associated with use of the asset;
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a significant change in our business or technology strategy;
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a significant change in our management's views of growth rates for our business; and
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a significant change in the anticipated future economic and regulatory conditions and expected technological availability.
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We evaluate quarterly, or as needed, whether such events and circumstances have occurred. A significant amount of judgment is involved in determining the occurrence of an indicator of impairment that requires an evaluation of the recoverability of our long-lived assets. When such events or circumstances exist, we determine the recoverability of the assets' carrying value by estimating the undiscounted future net cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use of the assets. Recoverability analyses, when performed, are based on probability-weighted forecasted cash flows that consider our business and technology strategy, management's views of growth rates for the business, anticipated future economic and regulatory conditions and expected technological availability. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the assets, an impairment, if any, is recognized for the difference between the fair value of the assets and their carrying value.
Our long-lived assets, consisting of PP&E and definite-lived intangible assets such as subscriber relationships and our spectrum licenses in the United States, are combined into a single asset group for purposes of testing impairment because management believes that utilizing these assets as a group represents the highest and best use of the assets and is consistent with the management's strategy of utilizing our spectrum licenses on an integrated basis as part of our nationwide network.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
Property, Plant & Equipment
A significant portion of our total assets is PP&E. PP&E represented
$2.26 billion
of our
$7.67 billion
in total assets as of
December 31, 2012
. We calculate depreciation on these assets using the straight-line method based on estimated economic useful lives. The estimated useful life of equipment is determined based on historical usage of identical or similar equipment, with consideration given to technological changes and industry trends that could impact the network architecture and asset utilization. Since changes in technology or in our intended use of these assets, as well as changes in broad economic or industry factors, may cause the estimated period of use of these assets to change, we periodically review these factors to assess the remaining life of our asset base. When these factors indicate that an asset's useful life is different from the previous assessment, we depreciate the remaining book values prospectively over the adjusted remaining estimated useful life.
During the third quarter of 2012, based on the LTE equipment vendor selection process and compatibility of existing network equipment, we identified a portion of WiMAX network equipment that we are planning to change or upgrade during our deployment of LTE technology. We concluded that the useful lives of certain WiMAX equipment should be accelerated beginning in the third quarter of 2012. This resulted in the weighted-average remaining useful life of WiMAX network assets to decrease from approximately four years to approximately three years based on the expected date of equipment removal. We will continue to monitor the estimated useful lives of our network assets as our plans evolve.
We capitalize certain direct costs, including certain salary and benefit costs and overhead costs, incurred to prepare the asset for its intended use. We also capitalize interest associated with certain acquisition or construction costs of network-related assets. Capitalized interest and direct costs are reported as part of the cost of the network-related assets and as a reduction in the related expense in the statement of operations.
On a quarterly basis we assess our network assets related to projects that have not yet been completed and deployed in our networks, including network equipment and cell site development costs. This assessment includes the write-off of network equipment and cell site development costs whenever events or changes in circumstances cause us to conclude that such assets are no longer needed to meet our strategic network plans and will not be deployed. As we continue to revise our build plans in response to changes in our strategy, funding availability, technology and industry trends, additional projects could be identified for abandonment, for which the associated write-downs could be material.
Derivative Valuation
Derivative financial instruments are recorded as either assets or liabilities on our consolidated balance sheet at their fair value on the date of issuance and are remeasured to fair value on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as Gain (loss) on derivative instruments. At
December 31, 2012
, derivative financial instruments requiring revaluation are composed primarily of the exchange options, which we refer to as Exchange Options, embedded in our Exchangeable Notes issued in December 2010 that were required to be accounted for separately from the debt host contract.
Valuation of the Exchange Options requires assumptions involving judgment as they are embedded derivatives within host contracts and consequently are not traded on an exchange. We estimate the fair value using a trinomial option pricing model based on the individual characteristics of the exchange feature, observable market-based inputs for stock price and risk-free interest rate, and an assumption for volatility. Estimated volatility is a measure of risk or variability of our stock price over the life 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 performance of the company. Our stock's volatility is an input assumption requiring significant judgment. Holding all other pricing assumptions constant, an increase or decrease of 10% in our estimated stock volatility could result in a loss of
$13.3 million
, or a gain of
$5.3 million
, respectively.
In addition, in the event of an issuance of new equity securities or securities exchangeable or convertible into capital stock, which we refer to as New Securities, the pre-emptive rights contained in the Original Equityholders' Agreement allow certain equityholders to purchase their pro-rata share of the New Securities at the issuance price less any underwriting discounts. This right is considered a derivative that is required to be recorded at fair value. The fair value of this derivative is
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
determined by, among other things, the probability of a New Securities issuance, the probability that existing equityholders will participate in any new issuance and the extent of their participation, if any.
Deferred Tax Asset Valuation Allowance
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit, or that future deductibility is uncertain. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. Deferred tax asset valuations require significant management judgment in making such determination. In doing so, we consider all available positive and negative evidence, including our limited operating history, scheduled reversals of deferred tax liabilities, projected future taxable income/loss, tax planning strategies and recent financial performance. We believe that our estimates are reasonable; however, actual results could differ from these estimates.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
Results of Operations
The following table sets forth operating data for the periods presented (in thousands, except per share data).
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Percentage Change 2012 Versus 2011
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Percentage Change 2011 Versus 2010
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Year Ended December 31,
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2012
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2011
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2010
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Revenues:
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|
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|
|
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|
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Retail revenues
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$
|
795,632
|
|
|
$
|
758,254
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|
|
$
|
480,761
|
|
|
4.9%
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|
57.7%
|
Wholesale revenues
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|
468,469
|
|
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493,661
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|
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50,593
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(5.1)%
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|
875.7%
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Other revenues
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|
593
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|
|
1,551
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|
|
3,749
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|
(61.8)%
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(58.6)%
|
Total revenues
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1,264,694
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|
|
1,253,466
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535,103
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0.9%
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134.2%
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Operating expenses:
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Cost of goods and services and network costs (exclusive of items shown separately below)
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908,078
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1,249,966
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912,776
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(27.4)%
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36.9%
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Selling, general and administrative expense
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558,202
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698,067
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870,980
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(20.0)%
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|
(19.9)%
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Depreciation and amortization
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768,193
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687,636
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|
454,003
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|
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11.7%
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|
51.5%
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Spectrum lease expense
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326,798
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308,693
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279,993
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5.9%
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10.3%
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Loss from abandonment of network and other assets
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82,206
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700,341
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180,001
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(88.3)%
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289.1%
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Total operating expenses
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2,643,477
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3,644,703
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2,697,753
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(27.5)%
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35.1%
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Operating loss
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(1,378,783
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)
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(2,391,237
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)
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(2,162,650
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)
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42.3%
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(10.6)%
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Other income (expense):
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Interest income
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1,895
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|
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2,335
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4,950
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(18.8)%
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(52.8)%
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Interest expense
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(553,459
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)
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(505,992
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)
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(152,868
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)
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(9.4)%
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(231.0)%
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Gain on derivative instruments
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1,356
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145,308
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63,255
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(99.1)%
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|
129.7%
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Other income (expense), net
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(12,153
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)
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|
681
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(2,671
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)
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N/M
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|
125.5%
|
Total other expense, net
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|
(562,361
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)
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(357,668
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)
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(87,334
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)
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(57.2)%
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(309.5)%
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Loss from continuing operations before income taxes
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(1,941,144
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)
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(2,748,905
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)
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(2,249,984
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)
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29.4%
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(22.2)%
|
Income tax benefit (provision)
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197,399
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|
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(106,828
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)
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(1,218
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)
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284.8%
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N/M
|
Net loss from continuing operations
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(1,743,745
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)
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(2,855,733
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)
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(2,251,202
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)
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38.9%
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(26.9)%
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Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries
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1,182,183
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2,158,831
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1,775,840
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(45.2)%
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21.6%
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Net loss from continuing operations attributable to Clearwire Corporation
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(561,562
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)
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(696,902
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)
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(475,362
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)
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19.4%
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(46.6)%
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Net loss from discontinued operations attributable to Clearwire Corporation, net of tax
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(167,005
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)
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(20,431
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)
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(12,075
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)
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N/M
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(69.2)%
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Net loss attributable to Clearwire Corporation
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$
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(728,567
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)
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$
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(717,333
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)
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$
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(487,437
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)
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(1.6)%
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(47.2)%
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Revenues
Retail revenues are primarily generated from subscription fees for our 4G and Pre-4G services, as well as from sales of 4G devices. Wholesale revenues are primarily generated from service fees for our 4G services.
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Year Ended December 31,
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Percentage Change 2012 Versus 2011
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Percentage Change 2011 Versus 2010
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(In thousands, except percentages)
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2012
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2011
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2010
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Population covered by services
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137,366
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134,159
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114,233
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2.4%
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17.4%
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Subscribers:
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Retail
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1,361
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1,292
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1,099
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5.3%
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17.6%
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Wholesale
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8,220
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9,123
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3,246
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(9.9)%
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181.1%
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CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
The increase in retail revenues for the year ended
December 31, 2012
of
$37.4 million
as compared to the same period in 2011 is due primarily to the growth in subscribers and an increase in equipment revenues as we have discontinued the option for our new retail customers to lease equipment in favor of a purchase only model under our new no-contract retail offering.
The increase in retail revenue for the year ended December 31, 2011 of
$277.5 million
as compared to the same period in 2010 is due primarily to the growth in subscribers resulting from the continued expansion of our retail subscriber base as we expanded our networks into new markets throughout 2010.
Recognition of wholesale revenue during the year ended
December 31, 2012
compared to the same period in the prior year in 2011 changed from usage-based pricing to fixed pricing. Under the 4G MVNO Agreement, Sprint is paying us $925.9 million for unlimited 4G mobile WiMAX services for resale to its retail subscribers in 2012 and 2013, approximately $600.0 million of which was paid for service provided in 2012, and the remainder for service provided in 2013. Of the $925.9 million, $175.9 million will be paid as an offset to principal and interest due under a $150.0 million promissory note issued by us to Sprint. Of the amount due, $900.0 million will be recognized on a straight-line basis over 2012 and 2013 and the remaining $25.9 million will be recorded as an offset to the interest cost associated with the promissory note. As a result, the amount of wholesale revenue from Sprint that was recognized during the year ended
December 31, 2012
was not impacted by either the number of Sprint's retail customers or by their usage during the year. Wholesale revenue of
$468.5 million
during the year ended
December 31, 2012
primarily represents the current period straight-line recognition of the $900.0 million due from Sprint.
On April 18, 2011, we signed an amendment to the 4G MVNO Agreement with Sprint, which we refer to as the April 2011 4G MVNO Agreement, that resulted in a new usage-based pricing structure that applies to most 4G wireless services provided by us to Sprint effective beginning January 1, 2011. Application of the usage-based pricing structure to usage generated during 2011 as well as the increase in the number of wholesale subscribers contributed to the increase in wholesale revenues in that period as compared to the same period in the prior year. In addition, wholesale revenue for the year ended December 31, 2011 also includes $17.7 million of a $28.2 million settlement payment. Because each of the agreements in the April 2011 4G MVNO Agreement were explicitly linked to one another, the settlement amount was treated as partial consideration for a revenue arrangement with multiple deliverables and was allocated to separate units of accounting based on the deliverables' relative fair values. The settlement payment was allocated, in part, to the settlement of 2010 pricing disputes. The remainder was recorded as deferred revenue and will be recognized over the remaining term of the agreements. The amount recognized in the year ended December 31, 2011 represents the portion allocated to the settlement of 2010 pricing disputes and the current amortization of the portion deferred.
Sprint is a significant wholesale customer of our 4G wireless broadband services. During the years ended
December 31, 2012
,
2011
and
2010
, wholesale revenue recorded attributable to Sprint comprised approximately
36%
,
39%
and
9%
of total revenues, respectively, and substantially all of our wholesale revenues.
Cost of Goods and Services and Network Costs (exclusive of depreciation and amortization)
Cost of goods and services and network costs primarily includes tower and network costs, provision for excessive and obsolete equipment, cost of goods sold and cost of services. Tower costs include rents, utilities, and backhaul, which is the transporting of data traffic between distributed sites and a central point in the market or Point of Presence, which we refer to as POP. Network costs primarily consist of network repair and maintenance costs, rent for POP facilities and costs to transport data traffic between POP sites. Cost of goods sold include the cost of CPE, sold to subscribers, and cost of services include costs incurred to provide 3G wireless services to our dual-mode customers.
The change in Cost of goods and services and network costs during the year ended December 31, 2012 as compared to the same period in 2011 resulted primarily from a decrease in the charges for excessive and obsolete equipment. The charges related to the provision for excessive and obsolete equipment were
$75.6 million
and
$266.1 million
for the years ended December 31, 2012 and 2011, respectively. The change was driven primarily by a decrease in the charges for network equipment to support our network deployment plans or sparing requirements which were identified as we solidified our LTE network architecture.
In addition, tower and network costs decreased approximately
$147.7 million
for the year ended December 31, 2012 as compared to 2011 primarily related to lease termination costs and recognition of cease-to-use liabilities for unused backhaul circuits and tower leases where we provided notice to our landlords of our intention not to renew during 2011. For additional discussion
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
about these costs, see Note 3, Charges Resulting from Cost Saving Initiatives, in the notes to the consolidated financial statements. Some of the decreases were offset by an increase in CPE cost. We incurred approximately $61.0 million in CPE costs for the year ended December 31, 2012 as compared to $28.4 million for the same period in 2011. The increase in volume of sold CPE is due to our no contract business model, which requires new retail customers to purchase the equipment.
The change in Cost of goods and services and network costs during the year ended December 31, 2011 as compared to the prior year resulted primarily from an increase in tower and network costs and an increase in the provision for excessive and obsolete equipment. For the year ended December 31, 2011, we incurred approximately $824.3 million in tower and networks costs, compared to $604.3 million in the prior year. Tower and network costs during the year ended December 31, 2011 include $155.6 million of charges related to lease termination costs and recognition of cease-to-use liabilities for unused backhaul circuits and tower leases where we have provided notice to our landlords of our intention not to renew. The remaining increase is primarily due to an increase in the number of tower leases and an increase in related backhaul and network expenses resulting from the operation of our network, which was significantly expanded in the second half of 2010.
The provision for excessive and obsolete equipment was $266.1 million for the year ended December 31, 2011 compared to $165.7 million in the prior year driven primarily by the uncertainty around the extent and timing of future expansion of the network, as well as our intent to deploy LTE in areas with expected high usage concentration and the write-down of obsolete CPE.
In 2013, we expect tower and network costs to increase with our build plan to have 2,000 LTE sites on air by the end of June 2013 and the anticipated expansion of our LTE network to 5,000 sites by the end of the year in accordance with the 4G MVNO Agreement. In addition, we expect our tower related costs to continue to increase in the coming year as we assume responsibility for the full lease and related costs associated with certain iDEN sites on which we were previously co-located with Sprint.
Selling, General and Administrative Expense
Selling, general and administrative, which we refer to as SG&A, expenses include all of the following: costs associated with advertising, public relations, promotions and other market development programs; facilities costs; third-party professional service fees; customer care; sales commissions; bad debt expense; property and other operating taxes; and administrative support activities, including executive, finance and accounting, information technology, which we refer to as IT, legal, human resources, treasury and other shared services.
The decrease in SG&A expenses for the year ended December 31, 2012 as compared to the same period in 2011 is primarily due to lower general and administrative expenses resulting from workforce reductions and the impact of our outsourcing arrangement with Teletech, as well as lower sales and marketing expenses and rent expense due to our cost containment efforts. Additionally, our recent shift to a no contract retail offering and the resulting revision of our existing commission arrangements resulted in lower commission expense. During the year ended December 31, 2012 as compared to the same period in 2011, employee expenses decreased
$70.1 million
, or
32.05%
, commission expenses decreased
$11.1 million
, or
15.98%
, marketing and advertising expenses decreased
$6.7 million
, or
8.77%
and building rent decreased
$22.0 million
or
57.98%
.
The decrease in SG&A expenses for the year ended December 31, 2011 as compared to the same period in 2010 is primarily due to the curtailment of advertising expenses due to our cost containment efforts, which led to slower growth in retail sales activity, resulting in lower commission expense and reductions in our sales and marketing workforce due to our outsourcing arrangements with Teletech. Marketing and advertising costs decreased $130.1 million, or 63.5%, in 2011 from 2010, commissions costs decreased $21.3 million, or 23.4% and sales and marketing related employee costs decreased $28.5 million, or 34.0%, in 2011 compared to 2010 primarily due to a 75.5% reduction in sales and marketing headcount at December 31, 2011 compared to the same date in 2010.
Depreciation and Amortization
Depreciation and amortization expense primarily represents depreciation recorded on PP&E and amortization of intangible assets. The increase during year ended December 31, 2012 as compared to the same period in 2011 is primarily a result of an increase in depreciation beginning in July 2012 resulting from a change in estimated useful lives for a portion of WiMAX network equipment that we are planning to change or upgrade during our deployment of LTE technology. See further discussion above in "Critical Accounting Policies and Estimates." This increase was partially offset by a decrease in depreciation and amortization as
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
the amount of leased CPE subject to depreciation continues to decline because we have discontinued the option for our new retail customers to lease equipment in favor of a purchase-only model.
The increase during the year ended December 31, 2011 as compared to the same period in 2010 is primarily a result of new network assets placed into service to support our launched markets during 2010.
We expect depreciation and amortization in 2013 to increase slightly as compared with 2012 due to the change in estimated useful lives of certain Network and base station equipment as described above and as we add new PP&E assets during 2013 with the deployment of LTE network, partially offset by a decrease in the amount of leased CPE subject to depreciation.
Spectrum Lease Expense
Total spectrum lease expense recorded was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Spectrum lease payments
|
$
|
181,949
|
|
|
$
|
169,353
|
|
|
$
|
179,741
|
|
Non-cash spectrum lease expense
|
90,521
|
|
|
85,666
|
|
|
42,819
|
|
Amortization of spectrum leases
|
54,328
|
|
|
53,674
|
|
|
57,433
|
|
Total spectrum lease expense
|
$
|
326,798
|
|
|
$
|
308,693
|
|
|
$
|
279,993
|
|
Total spectrum lease expense increased
$18.1 million
in 2012 compared to 2011 and increased
$28.7 million
in 2011 as compared to 2010 as a result of the renewal of spectrum leases held by us at higher rates.
While we do not expect to add a significant number of new spectrum leases in 2013, we do expect our spectrum lease expense to increase. As we renew the existing leases, they are replaced with new leases, usually at a higher lease cost per month, but with longer terms.
Loss from Abandonment of Network and Other Assets
We periodically assess assets that have not yet been deployed in our networks, including equipment and cell site development costs, classified as construction in progress. During the first quarter of 2012, we solidified our LTE network architecture, including identifying the sites at which we expect to overlay LTE technology in the first phase of our deployment. As a result, we evaluated the costs included in construction in progress in conjunction with those network deployment plans. Any projects that are not required to deploy LTE technology at those sites, or that are no longer viable due to the development of the LTE network architecture were abandoned and the related costs written down. This assessment resulted in write-downs of network equipment and cell site development costs of
$81.6 million
during the year ended December 31, 2012.
During 2010, we invested heavily in building, deploying and augmenting our network. With the substantial completion of our prior build plans in early 2011 and due to the uncertainty of the extent and timing of future expansion of the network, as well as our intent to deploy LTE alongside mobile WiMAX in areas of expected high usage concentration, we decided to abandon certain projects that no longer fit within management's strategic network plans. During the year ended December 31, 2011, we incurred approximately
$397.2 million
for the abandonment of network projects that no longer met management's strategic network. For the same periods in 2010 we incurred approximately
$180.0 million
for the abandonment of network projects that no longer met management's strategic network plans.
Additionally, in connection with our cost savings initiatives, during 2011 we identified, evaluated and terminated certain unutilized tower leases, or when early termination was not available under the terms of the lease, we advised our landlords of our intention not to renew. The costs for projects classified as construction in progress related to leases for which we have initiated such termination actions were written down, resulting in a charge of approximately
$233.5 million
for the year ended December 31, 2011.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
In addition, during the second quarter of 2011, we completed an assessment of certain internally-developed software projects that had not yet been placed in service. Those projects are no longer expected to be completed, and were thus written down to fair value, resulting in a charge of approximately $62.0 million for the year ended December 31, 2011.
As we continue to revise our business plans in response to changes in our strategy, our commitment under the 4G MVNO Agreement and funding availability, additional assets could be identified for abandonment, for which there could be associated write-downs.
Interest Expense
Interest expense recorded was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Senior secured notes
|
$
|
412,776
|
|
|
$
|
369,197
|
|
|
$
|
347,646
|
|
Second-priority secured notes
|
61,059
|
|
|
62,055
|
|
|
3,881
|
|
Exchangeable notes
|
76,000
|
|
|
82,535
|
|
|
5,317
|
|
Vendor financing notes
|
2,332
|
|
|
3,464
|
|
|
1,655
|
|
Capital lease obligations
|
7,890
|
|
|
7,564
|
|
|
2,964
|
|
Total interest expense on debt
|
560,057
|
|
|
524,815
|
|
|
361,463
|
|
Less: capitalized interest
|
(6,598
|
)
|
|
(18,823
|
)
|
|
(208,595
|
)
|
Total interest expense
|
$
|
553,459
|
|
|
$
|
505,992
|
|
|
$
|
152,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Interest coupon
(1)
|
$
|
518,671
|
|
|
$
|
484,599
|
|
|
$
|
346,984
|
|
Accretion of debt discount and amortization of debt premium, net
|
41,386
|
|
|
40,216
|
|
|
14,479
|
|
Capitalized interest
|
(6,598
|
)
|
|
(18,823
|
)
|
|
(208,595
|
)
|
Total interest expense
|
$
|
553,459
|
|
|
$
|
505,992
|
|
|
$
|
152,868
|
|
|
|
(1)
|
Y
ear ended December 31, 2012, includes
$2.5 million
of coupon interest relating to the Exchangeable Notes, which was settled in the non-cash exchange transaction.
|
The increase in interest expense and interest coupon for the year ended December 31, 2012 as compared to the same period in 2011 is due to the addition of $300.0 million of 2016 Senior Secured Notes in January 2012. In addition, the amount of interest capitalized during 2012 declined due to the substantial completion of our WiMAX network build in early 2011.
The increase in interest expense and interest coupon for the year ended December 31, 2011 as compared to the same period in 2010 is due to a full year of interest cost incurred related to the issuance of an additional $175.0 million of senior secured notes, together with the issuances of $500.0 million of second-priority secured notes and $729.3 million of exchangeable notes in December 2010. Interest expense also includes adjustments to accrete our debt to par value. The increase in the non-cash charge in 2011 is due to the net accretion of the debt discount resulting from the separation of the Exchange Options from the exchangeable notes issued in December 2010.
We expect interest costs in 2013 to remain relatively stable as compared to 2012 as the cost of additional borrowings will be offset by an increase in the amount of interest capitalized as we begin to deploy LTE technology on our network.
Gain on Derivative Instruments
In connection with the issuance of the Exchangeable Notes, we recognized derivative liabilities relating to the Exchange Options embedded in those notes. The change in estimated fair value of the Exchange Options is required to be recognized in
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
earnings during the period. For the years ended December 31, 2012, 2011 and 2010 we recorded a gain of
$1.4 million
,
$159.7 million
and
$63.6 million
, respectively, for the change in estimated fair value of the Exchange Options.
In addition, in the event of an issuance of New Securities, certain existing equityholders are entitled to pre-emptive rights which allow them to purchase their pro-rata share of the New Securities at the issuance price less any underwriting discounts. This right is considered a derivative that is required to be recorded at fair value and we recorded a charge of $15.9 million for the year ended December 31, 2011 representing the value of the derivative upon the exercise by Sprint of its pre-emptive rights under the Original Equityholders Agreement during the fourth quarter of 2011.
We expect the gain (loss) on derivative instruments to fluctuate in 2013 due to the sensitivity of the estimated fair value of the Exchange Options to valuation inputs such as stock price and volatility. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk - Stock Price Risk.
Other Income (Expense), Net
Other income (expense), net for the year ended December 31, 2012 is primarily composed of the loss of $10.1 million recorded in connection with the repurchase of $100.0 million in aggregate principal amount of our Exchangeable Notes in March 2012 using the proceeds from the sale of an equivalent amount of Class A Common Stock.
Income Tax Benefit (Provision)
The resulting income tax benefit for the year ended December 31, 2012 as compared to the income tax provision for the same period in 2011 is primarily due to a change in the valuation of our deferred tax assets recorded to reflect the effect of the increase in reversing temporary differences which are estimated to reverse within the NOL carryforward period. This increase was a result of Time Warner Cable's exchange of 46.4 million Clearwire Communications Class B Common Units, and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock, and which we refer to as the Time Warner Exchange, as well as the Comcast Exchange, as well as Bright House Network's exchange of 8.5 million Clearwire Communications Class B Common Units, and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock, and which we refer to as the Bright House Exchange. Therefore, management determined that it was appropriate to reduce the valuation allowance recorded against our deferred tax assets, along with recording a corresponding deferred tax benefit for our continuing operations.
We believe that the Comcast Exchange, which occurred on September 27, 2012, combined with other issuances of our Class A Common Stock and certain third party investor transactions involving our Class A Common Stock since December 13, 2011, resulted in a change in control under Section 382 of the Internal Revenue Code. As a result of this change in control and the change in control that occurred on December 13, 2011, we believe that we permanently will be unable to use a significant portion of our NOLs that arose before the change in control to offset future taxable income.
The resulting increase in the income tax provision for discontinued operations for the year ended December 31, 2012 as compared to the income tax provision for the year ended December 31, 2011 is primarily due to the effects of an insolvency filing that we completed with respect to our operations in Spain followed by its disposition in a sale. As a result, certain intercompany loans related to our international operations were considered to be uncollectible for federal income tax purposes and, as a result, there was an increase to the deferred tax liability of our discontinued operations of approximately
$167.2 million
along with a corresponding deferred tax expense for our discontinued operations.
The increase in the income tax provision for the year ended December 31, 2011 as compared to the same period in 2010 is due to deferred tax expense recorded to reflect the effect of the limitation on our NOLs under Section 382 of the Internal Revenue Code due to the public issuance of Class A Common Stock on December 13, 2011 and the increased deferred tax liability associated with the gain on derivative instruments recorded for the year ended December 31, 2011. The limitation of our NOLs caused an increase to the valuation allowance recorded against the deferred tax asset of our continuing operations, resulting in an increase in the net deferred liability for our continuing operations.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
Non-controlling Interests in Net Loss from Continuing Operations of Consolidated Subsidiaries
The non-controlling interests in net loss from continuing operations represent the allocation of a portion of the consolidated net loss from continuing operations to the non-controlling interests in consolidated subsidiaries based on the ownership by Sprint, Comcast, Time Warner Cable, Intel and Bright House Networks of Clearwire Communications Class B Common Units. During the second half of 2012, Comcast, Time Warner Cable and Bright House Networks converted their Class B Common Units and a corresponding number of Class B Common Stock for an equal number of Class A Common Stock, which decreased the non-controlling interests' percentage ownership share in net loss from continuing operations for the year ended December 31, 2012.
Net Loss from Discontinued Operations Attributable to Clearwire Corporation
The net loss from discontinued operations attributable to Clearwire Corporation represents our portion of the total Net loss from discontinued operations. The increase in Net loss from discontinued operations attributable to Clearwire Corporation for year ended December 31, 2012 as compared to the same period in 2011 is due primarily to deferred tax expenses related to an insolvency filing we completed during the third quarter of 2012 with respect to our operations in Spain, which we subsequently sold during the fourth quarter of 2012, as discussed above in Results of Operations -
Income Tax Benefit (Provision)
.
The increase in Net loss from discontinued operations attributable to Clearwire Corporation for the year ended December 31, 2011 as compared to the same period in 2010 is due primarily to Clearwire Corporation's share of impairment charges recorded to assets held by our international subsidiaries and charges to adjust the carrying value of the disposal group to their fair value less cost to sell. Clearwire Corporation's share of these charges, which was included as discontinued operations, was approximately $15.0 million for the year ended December 31, 2011.
Cash Flow Analysis
The following table presents a summary of our cash flows and beginning and ending cash balances for the years ended
December 31, 2012
,
2011
and
2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Net cash used in operating activities
|
|
$
|
(454,508
|
)
|
|
$
|
(930,789
|
)
|
|
$
|
(1,168,713
|
)
|
Net cash used in investing activities
|
|
(571,176
|
)
|
|
(92,019
|
)
|
|
(1,013,218
|
)
|
Net cash provided by financing activities
|
|
325,278
|
|
|
687,563
|
|
|
1,718,001
|
|
Effect of foreign currency exchange rates on cash and cash equivalents
|
|
107
|
|
|
(4,573
|
)
|
|
(525
|
)
|
Total net decrease in cash and cash equivalents
|
|
(700,299
|
)
|
|
(339,818
|
)
|
|
(464,455
|
)
|
Cash and cash equivalents at beginning of period
|
|
893,744
|
|
|
1,233,562
|
|
|
1,698,017
|
|
Cash and cash equivalents at end of period
|
|
193,445
|
|
|
893,744
|
|
|
1,233,562
|
|
Less: cash and cash equivalents of discontinued operations at end of period
|
|
—
|
|
|
1,815
|
|
|
3,320
|
|
Cash and cash equivalents of continuing operations at end of period
|
|
$
|
193,445
|
|
|
$
|
891,929
|
|
|
$
|
1,230,242
|
|
Operating Activities
Net cash used in operating activities decrease
$476.3 million
for the year ended December 31, 2012 as compared to the same period in 2011 primarily due to higher cash collections of approximately $286.4 million from our retail operations and from our primary wholesale partner, Sprint, including receipt of $150.0 million under a promissory note issued by us to Sprint. In addition, cash used in operations declined primarily due to a decline of approximately $45.4 million in sales and marketing costs and approximately $30.8 million in tower costs due to our cost containment efforts, approximately $24.9 million in commission costs due to our recent shift to a no contract retail offering and the resulting revision of our existing commission arrangements, and approximately $33.8 million in net payroll costs resulting from workforce reductions and the impact of our outsourcing arrangements with Teletech and Ericsson.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
Net cash used in operating activities decreased $237.9 million for the year ended December 31, 2011 as compared to the same period in 2010 primarily due to higher cash collections from subscribers as overall revenues from retail subscribers increased approximately $277.5 million from the prior year. In addition, during the year ended December 31, 2011, we received a total of $415.7 million from Sprint pursuant to the April 2011 4G MVNO Amendment comprised of $300.0 million relating to the minimum commitment provided in the April 2011 4G MVNO Amendment, $87.5 million in prepayment for future services beyond the minimum commitment and $28.2 million payment to settle outstanding disputes related to prior usage. The higher collections were partially offset by an increase of $138.5 million in payments for interest on long-term debt obligations and an increase in operating expenses due to our overall network growth throughout 2010.
Investing Activities
During the year ended December 31, 2012, net cash used in investing activities increased
$479.2 million
as compared to the same period in 2011. This change is due primarily to a
$756.0 million
increase in net purchases, year over year, of available-for-sale securities which are invested in short-term investments consisting principally of United States Government and Agency Issues, which was partially offset by a decrease of approximately
$292.7 million
in cash paid for PP&E.
During the year ended December 31, 2011, net cash used in investing activities decreased $921.2 million as compared to the same period in 2010. This change is due primarily to a decrease of approximately $2.24 billion in cash paid for PP&E which was partially offset by a $1.38 billion reduction in net maturities, year over year, of available-for-sale securities which are invested in short-term investments consisting principally of United States Government and Agency Issues. During 2010, our focus was on the build out of our 4G mobile broadband network, while during 2011 our focus has been on maintenance and operational performance of the networks.
Financing Activities
Net cash provided by financing activities decreased
$362.3 million
for the year ended December 31, 2012 as compared to the same period in 2011 due primarily to the receipt of proceeds of approximately $715.5 million from an equity offering and Sprint's equity purchase during December 2011, as described below. During the year ended December 31, 2012, we received proceeds of $294.8 million from the issuance of the 2016 Senior Secured Notes in January 2012 and net proceeds of approximately $58.5 million from the issuance of 48.4 million shares of Class A Common Stock.
Net cash provided by financing activities decreased $1.03 billion for the year ended December 31, 2011 as compared to the same period in 2010 due primarily to proceeds from issuance of long-term debt of $1.41 billion, a rights offering of $290.3 million and cash contributions of $66.5 million, net of $11.7 million of transactions costs, from Sprint, Comcast, Intel, Time Warner Cable, Bright House and Eagle River during the year ended December 31, 2010. During the year ended December 31, 2011, we received proceeds of $402.5 million, net of $18.4 million of transaction costs, from the public issuance of Class A Common Stock and a cash contribution of $331.4 million from Sprint for the exercise of their pre-emptive rights under the Original Equityholders' Agreement resulting in the issuance of Class B Common Stock and Clearwire Communications Class B Common Units during December 2011.
Our payment obligations under the senior secured notes and second priority notes are guaranteed by certain domestic subsidiaries on a senior basis and secured by certain assets of such subsidiaries on a first-priority lien. The senior secured notes and second priority notes contain limitations on our activities, which among other things include incurring additional indebtedness and guaranteeing indebtedness; making distributions or payment of dividends or certain other restricted payments or investments; making certain payments on indebtedness; entering into agreements that restrict distributions from restricted subsidiaries; selling or otherwise disposing of assets; merger, consolidation or sales of substantially all of our assets; entering transactions with affiliates; creating liens; issuing certain preferred stock or similar equity securities and making investments and acquiring assets. At December 31, 2012, we were in compliance with our debt covenants.
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
Contractual Obligations
The contractual obligations of our continuing operations presented in the table below represent our estimates of future cash payments under fixed contractual obligations and commitments as of December 31, 2012. Changes in our business needs or interest rates, as well as actions by third parties and other factors, may cause these estimates to change. Because these estimates are complex and necessarily subjective, our actual cash payments in future periods are likely to vary from those presented in the table. The following table summarizes our contractual obligations including principal and interest payments under our debt obligations, payments under our spectrum lease obligations assuming renewals, and other contractual obligations as of December 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
Less Than
1 Year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
Over 5 Years
|
Long-term debt obligations
(1)
|
|
$
|
4,408,800
|
|
|
$
|
21,710
|
|
|
$
|
2,957,840
|
|
|
$
|
800,000
|
|
|
$
|
629,250
|
|
Interest payments on long-term debt obligations
(1)
|
|
2,993,616
|
|
|
511,353
|
|
|
1,020,185
|
|
|
268,076
|
|
|
1,194,002
|
|
Operating lease obligations
(2)
|
|
1,608,258
|
|
|
359,897
|
|
|
634,804
|
|
|
307,332
|
|
|
306,225
|
|
Operating lease payments for assumed renewal periods
(2)(3)
|
|
7,873,690
|
|
|
2,414
|
|
|
141,653
|
|
|
461,283
|
|
|
7,268,340
|
|
Spectrum lease obligations
|
|
6,630,476
|
|
|
178,796
|
|
|
363,101
|
|
|
392,180
|
|
|
5,696,399
|
|
Spectrum service credits and signed spectrum agreements
|
|
102,799
|
|
|
4,853
|
|
|
7,792
|
|
|
7,792
|
|
|
82,362
|
|
Capital lease obligations
(4)
|
|
135,874
|
|
|
24,771
|
|
|
48,036
|
|
|
20,657
|
|
|
42,410
|
|
Purchase agreements
(5)
|
|
148,116
|
|
|
115,292
|
|
|
24,172
|
|
|
3,783
|
|
|
4,869
|
|
Total
|
|
$
|
23,901,629
|
|
|
$
|
1,219,086
|
|
|
$
|
5,197,583
|
|
|
$
|
2,261,103
|
|
|
$
|
15,223,857
|
|
____________________________________
|
|
(1)
|
Includes principal and
$1.19 billion
relating to contractual interest payments on the Exchangeable Notes beyond the expected repayment in 2017.
|
|
|
(2)
|
Includes executory costs of
$51.5 million
. Amounts include all lease payments for the contractual lease term including any remaining future lease payments for leases where notice of intent not to renew has been sent as a result of the lease termination initiatives.
|
|
|
(3)
|
Amounts include lease payments for assumed renewal periods where renewal is likely.
|
|
|
(4)
|
Payments include
$44.2 million
representing interest.
|
|
|
(5)
|
Purchase agreements include purchase commitments with take-or-pay obligations and/or volume commitments for equipment that are non-cancelable and minimum purchases we have committed to purchase from suppliers over time for goods and services regardless of whether suppliers fully deliver them. They include, among other things, agreements for backhaul, subscriber devices and IT related and other services. The amounts actually paid under some of these “other” agreements will likely be higher than the minimum commitments due to variable components of these agreements.
|
In addition, we are party to various arrangements that are conditional in nature and create an obligation to make payments only upon the occurrence of certain events, such as the actual delivery and acceptance of products or services. Because it is not possible to predict the timing or amount that may be due under these conditional arrangements, no such amounts have been included in the table above. The table above also excludes blanket purchase order amounts where the orders are subject to cancellation or termination at our discretion or where the quantity of goods and services to be purchased or the payment terms are unknown because such purchase orders are not firm commitments.
We do not have any obligations that meet the definition of an off-balance-sheet arrangement that have or are reasonably likely to have a material effect on our financial statements.
Recent Accounting Pronouncements
The following accounting pronouncements were adopted during the year ended December 31, 2012:
In May 2011, the Financial Accounting Standards Board, which we refer to as the FASB, issued new accounting guidance amending fair value measurement to achieve common fair value measurement and disclosure requirements in accordance with accounting principles generally accepted in the United States of America, which we refer to as U.S. GAAP and International Financial Reporting Standards. We adopted the new accounting guidance on January 1, 2012. As the new accounting guidance
CLEARWIRE CORPORATION AND SUBSIDIARIES (Continued)
primarily amended the disclosure requirements related to fair value measurement, the adoption did not have any impact on our financial condition or results of operations.
In June 2011, the FASB issued new accounting guidance on the presentation of other comprehensive income, which was subsequently revised in December 2011. The new guidance eliminates the current option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. Instead, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We adopted the new accounting guidance on January 1, 2012 which resulted in reporting the components of comprehensive loss in the Consolidated Statements of Comprehensive Loss, rather than in the Consolidated Statements of Stockholders' Equity, as previously reported.
In July 2012, the FASB issued new accounting guidance amending impairment testing for indefinite-lived intangible assets. The objective of these amendments is to reduce the cost and complexity of performing impairment tests for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The new accounting guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We elected early adoption of the new accounting guidance as permitted and it had no impact on our financial condition or results of operations.
The following accounting pronouncements were issued by the FASB during the year ended December 31, 2012:
In October 2012, the FASB issued accounting guidance containing technical corrections and improvements to the Accounting Standards Codification, which we refer to as the Codification. The technical corrections are relatively minor corrections and clarifications. These corrections, which affect various Codification topics and apply to all reporting entities within the scope of those topics, are divided into three main categories: (1) Source literature amendments which carry forward the original intent of certain pre-Codification authoritative literature that was inadvertently altered during the Codification process; (2) Guidance clarification and reference corrections which resulted in changes to wording and references to avoid misapplication or misinterpretation of guidance; and (3) Relocated guidance which moved guidance from one part of the Codification to another to correct instances in which the scope of pre-Codification guidance may have been unintentionally narrowed or broadened during the Codification process. The guidance also made conforming changes for the use of the term "fair value" in certain pre-Codification standards. The FASB did not provide transition guidance for Codification amendments that are not expected to change current practice. However, it did for those amendments that are more substantive and these will be effective for fiscal periods beginning after December 15, 2012. We are still evaluating the impact these technical corrections will have, if any, on our financial condition or results of operations.
|
|
ITEM 8.
|
Financial Statements and Supplementary Data
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Clearwire Corporation
Bellevue, Washington
We have audited the accompanying consolidated balance sheets of Clearwire Corporation and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Clearwire Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, on December 17, 2012, the Company entered into a merger agreement with Sprint Nextel Corporation (“Sprint”), pursuant to which Sprint agreed to acquire all of the outstanding shares of the Company's common stock not currently owned by Sprint. In connection with the merger agreement, on December 17, 2012, the Company entered into a financing arrangement with Sprint. See Note 1 to the consolidated financial statements for a summary of the terms and conditions of the merger agreement and financing arrangement with Sprint, the uncertainties associated with the funding available under the financing arrangement, and the related potential impact of such uncertainties on the Company's need for liquidity in the next twelve months.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2012, based on the criteria established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2013, expressed an unqualified opinion on the Company's internal control over financial reporting.
|
|
/s/ Deloitte & Touche LLP
|
Seattle, Washington
February 13, 2013
CLEARWIRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
December 31,
2011
|
|
(In thousands, except par value)
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
193,445
|
|
|
$
|
891,929
|
|
Short-term investments
|
675,112
|
|
|
215,655
|
|
Restricted cash
|
1,653
|
|
|
1,000
|
|
Accounts receivable, net of allowance of $3,145 and $5,542
|
22,769
|
|
|
83,660
|
|
Inventory
|
10,940
|
|
|
23,832
|
|
Prepaids and other assets
|
83,769
|
|
|
71,083
|
|
Total current assets
|
987,688
|
|
|
1,287,159
|
|
Property, plant and equipment, net
|
2,259,004
|
|
|
3,014,277
|
|
Restricted cash
|
3,709
|
|
|
7,619
|
|
Spectrum licenses, net
|
4,249,621
|
|
|
4,298,254
|
|
Other intangible assets, net
|
24,660
|
|
|
40,850
|
|
Other assets
|
141,107
|
|
|
157,797
|
|
Assets of discontinued operations (Note 18)
|
—
|
|
|
36,696
|
|
Total assets
|
$
|
7,665,789
|
|
|
$
|
8,842,652
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
177,855
|
|
|
$
|
157,172
|
|
Other current liabilities
|
227,610
|
|
|
122,756
|
|
Total current liabilities
|
405,465
|
|
|
279,928
|
|
Long-term debt, net
|
4,271,357
|
|
|
4,019,605
|
|
Deferred tax liabilities, net
|
143,992
|
|
|
152,182
|
|
Other long-term liabilities
|
963,353
|
|
|
719,703
|
|
Liabilities of discontinued operations (Note 18)
|
—
|
|
|
25,196
|
|
Total liabilities
|
5,784,167
|
|
|
5,196,614
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Class A common stock, par value $0.0001, 2,000,000 shares authorized; 691,315 and 452,215 shares outstanding
|
69
|
|
|
45
|
|
Class B common stock, par value $0.0001, 1,400,000 shares authorized; 773,733 and 839,703 shares outstanding
|
77
|
|
|
83
|
|
Additional paid-in capital
|
3,158,244
|
|
|
2,714,634
|
|
Accumulated other comprehensive (loss) income
|
(6
|
)
|
|
2,793
|
|
Accumulated deficit
|
(2,346,393
|
)
|
|
(1,617,826
|
)
|
Total Clearwire Corporation stockholders’ equity
|
811,991
|
|
|
1,099,729
|
|
Non-controlling interests
|
1,069,631
|
|
|
2,546,309
|
|
Total stockholders’ equity
|
1,881,622
|
|
|
3,646,038
|
|
Total liabilities and stockholders’ equity
|
$
|
7,665,789
|
|
|
$
|
8,842,652
|
|
See notes to consolidated financial statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
(In thousands, except per share data)
|
Revenues
|
$
|
1,264,694
|
|
|
$
|
1,253,466
|
|
|
$
|
535,103
|
|
Operating expenses:
|
|
|
|
|
|
Cost of goods and services and network costs (exclusive of items shown separately below)
|
908,078
|
|
|
1,249,966
|
|
|
912,776
|
|
Selling, general and administrative expense
|
558,202
|
|
|
698,067
|
|
|
870,980
|
|
Depreciation and amortization
|
768,193
|
|
|
687,636
|
|
|
454,003
|
|
Spectrum lease expense
|
326,798
|
|
|
308,693
|
|
|
279,993
|
|
Loss from abandonment of network and other assets
|
82,206
|
|
|
700,341
|
|
|
180,001
|
|
Total operating expenses
|
2,643,477
|
|
|
3,644,703
|
|
|
2,697,753
|
|
Operating loss
|
(1,378,783
|
)
|
|
(2,391,237
|
)
|
|
(2,162,650
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest income
|
1,895
|
|
|
2,335
|
|
|
4,950
|
|
Interest expense
|
(553,459
|
)
|
|
(505,992
|
)
|
|
(152,868
|
)
|
Gain on derivative instruments
|
1,356
|
|
|
145,308
|
|
|
63,255
|
|
Other income (expense), net
|
(12,153
|
)
|
|
681
|
|
|
(2,671
|
)
|
Total other expense, net
|
(562,361
|
)
|
|
(357,668
|
)
|
|
(87,334
|
)
|
Loss from continuing operations before income taxes
|
(1,941,144
|
)
|
|
(2,748,905
|
)
|
|
(2,249,984
|
)
|
Income tax benefit (provision)
|
197,399
|
|
|
(106,828
|
)
|
|
(1,218
|
)
|
Net loss from continuing operations
|
(1,743,745
|
)
|
|
(2,855,733
|
)
|
|
(2,251,202
|
)
|
Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries
|
1,182,183
|
|
|
2,158,831
|
|
|
1,775,840
|
|
Net loss from continuing operations attributable to Clearwire Corporation
|
(561,562
|
)
|
|
(696,902
|
)
|
|
(475,362
|
)
|
Net loss from discontinued operations attributable to Clearwire Corporation, net of tax (Note 18)
|
(167,005
|
)
|
|
(20,431
|
)
|
|
(12,075
|
)
|
Net loss attributable to Clearwire Corporation
|
$
|
(728,567
|
)
|
|
$
|
(717,333
|
)
|
|
$
|
(487,437
|
)
|
Net loss from continuing operations attributable to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.01
|
)
|
|
$
|
(2.70
|
)
|
|
$
|
(2.14
|
)
|
Diluted
|
$
|
(1.27
|
)
|
|
$
|
(2.99
|
)
|
|
$
|
(2.41
|
)
|
Net loss attributable to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.31
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(2.19
|
)
|
Diluted
|
$
|
(1.39
|
)
|
|
$
|
(3.07
|
)
|
|
$
|
(2.46
|
)
|
See notes to consolidated financial statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
(In thousands)
|
Net loss:
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(1,743,745
|
)
|
|
$
|
(2,855,733
|
)
|
|
$
|
(2,251,202
|
)
|
Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries
|
1,182,183
|
|
|
2,158,831
|
|
|
1,775,840
|
|
Net loss from continuing operations attributable to Clearwire Corporation
|
(561,562
|
)
|
|
(696,902
|
)
|
|
(475,362
|
)
|
Net loss from discontinued operations
|
(168,361
|
)
|
|
(81,810
|
)
|
|
(51,892
|
)
|
Less: non-controlling interests in net loss from discontinued operations of consolidated subsidiaries
|
1,356
|
|
|
61,379
|
|
|
39,817
|
|
Net loss from discontinued operations attributable to Clearwire Corporation, net of tax
|
(167,005
|
)
|
|
(20,431
|
)
|
|
(12,075
|
)
|
Net loss attributable to Clearwire Corporation
|
(728,567
|
)
|
|
(717,333
|
)
|
|
(487,437
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
Unrealized foreign currency gains (losses) during the period
|
(699
|
)
|
|
3,913
|
|
|
(7,047
|
)
|
Less: reclassification adjustment of cumulative foreign currency (gains) losses to net loss from continuing operations
|
(8,739
|
)
|
|
—
|
|
|
825
|
|
Unrealized investment holding gains (losses) during the period
|
56
|
|
|
(1,185
|
)
|
|
2,354
|
|
Less: reclassification adjustment of investment holding gains to net loss
|
—
|
|
|
(4,945
|
)
|
|
—
|
|
Other comprehensive loss
|
(9,382
|
)
|
|
(2,217
|
)
|
|
(3,868
|
)
|
Less: non-controlling interests in other comprehensive loss of consolidated subsidiaries
|
6,056
|
|
|
1,851
|
|
|
3,125
|
|
Other comprehensive loss attributable to Clearwire Corporation
|
(3,326
|
)
|
|
(366
|
)
|
|
(743
|
)
|
Comprehensive loss:
|
|
|
|
|
|
Comprehensive loss
|
(1,921,488
|
)
|
|
(2,939,760
|
)
|
|
(2,306,962
|
)
|
Less: non-controlling interests in comprehensive loss of consolidated subsidiaries
|
1,189,595
|
|
|
2,222,061
|
|
|
1,818,782
|
|
Comprehensive loss attributable to Clearwire Corporation
|
$
|
(731,893
|
)
|
|
$
|
(717,699
|
)
|
|
$
|
(488,180
|
)
|
See notes to consolidated financial statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(1,743,745
|
)
|
|
$
|
(2,855,733
|
)
|
|
$
|
(2,251,202
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Deferred income taxes
|
(199,199
|
)
|
|
105,308
|
|
|
—
|
|
Non-cash gain on derivative instruments
|
(1,356
|
)
|
|
(145,308
|
)
|
|
(63,255
|
)
|
Accretion of discount on debt
|
41,386
|
|
|
40,216
|
|
|
6,113
|
|
Depreciation and amortization
|
768,193
|
|
|
687,636
|
|
|
454,003
|
|
Amortization of spectrum leases
|
54,328
|
|
|
53,674
|
|
|
57,433
|
|
Non-cash rent expense
|
197,169
|
|
|
342,962
|
|
|
200,901
|
|
Loss on property, plant and equipment (Note 5)
|
171,780
|
|
|
966,441
|
|
|
345,727
|
|
Other operating activities
|
42,740
|
|
|
27,745
|
|
|
49,506
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Inventory
|
11,200
|
|
|
15,697
|
|
|
(11,697
|
)
|
Accounts receivable
|
50,401
|
|
|
(54,212
|
)
|
|
(20,550
|
)
|
Prepaids and other assets
|
326
|
|
|
22,447
|
|
|
(73,767
|
)
|
Prepaid spectrum licenses
|
1,904
|
|
|
(4,360
|
)
|
|
(3,294
|
)
|
Deferred revenue
|
170,455
|
|
|
16,497
|
|
|
8,447
|
|
Accounts payable and other liabilities
|
(17,090
|
)
|
|
(152,180
|
)
|
|
136,233
|
|
Net cash used in operating activities of continuing operations
|
(451,508
|
)
|
|
(933,170
|
)
|
|
(1,165,402
|
)
|
Net cash provided by (used in) operating activities of discontinued operations
|
(3,000
|
)
|
|
2,381
|
|
|
(3,311
|
)
|
Net cash used in operating activities
|
(454,508
|
)
|
|
(930,789
|
)
|
|
(1,168,713
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(112,997
|
)
|
|
(405,655
|
)
|
|
(2,646,365
|
)
|
Purchases of available-for-sale investments
|
(1,797,787
|
)
|
|
(957,883
|
)
|
|
(2,098,705
|
)
|
Disposition of available-for-sale investments
|
1,339,078
|
|
|
1,255,176
|
|
|
3,776,805
|
|
Other investing activities
|
(655
|
)
|
|
20,229
|
|
|
(44,119
|
)
|
Net cash used in investing activities of continuing operations
|
(572,361
|
)
|
|
(88,133
|
)
|
|
(1,012,384
|
)
|
Net cash provided by (used in) investing activities of discontinued operations
|
1,185
|
|
|
(3,886
|
)
|
|
(834
|
)
|
Net cash used in investing activities
|
(571,176
|
)
|
|
(92,019
|
)
|
|
(1,013,218
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
(26,985
|
)
|
|
(29,957
|
)
|
|
(876
|
)
|
Proceeds from issuance of long-term debt
|
300,000
|
|
|
—
|
|
|
1,413,319
|
|
Debt financing fees
|
(6,205
|
)
|
|
(1,159
|
)
|
|
(53,285
|
)
|
Equity investment by strategic investors
|
8
|
|
|
331,400
|
|
|
54,828
|
|
Proceeds from issuance of common stock
|
58,460
|
|
|
387,279
|
|
|
304,015
|
|
Net cash provided by financing activities of continuing operations
|
325,278
|
|
|
687,563
|
|
|
1,718,001
|
|
Net cash provided by financing activities of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
Net cash provided by financing activities
|
325,278
|
|
|
687,563
|
|
|
1,718,001
|
|
Effect of foreign currency exchange rates on cash and cash equivalents
|
107
|
|
|
(4,573
|
)
|
|
(525
|
)
|
Net decrease in cash and cash equivalents
|
(700,299
|
)
|
|
(339,818
|
)
|
|
(464,455
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
Beginning of period
|
893,744
|
|
|
1,233,562
|
|
|
1,698,017
|
|
End of period
|
193,445
|
|
|
893,744
|
|
|
1,233,562
|
|
Less: cash and cash equivalents of discontinued operations at end of period
|
—
|
|
|
1,815
|
|
|
3,320
|
|
Cash and cash equivalents of continuing operations at end of period
|
$
|
193,445
|
|
|
$
|
891,929
|
|
|
$
|
1,230,242
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest including capitalized interest paid
|
$
|
505,913
|
|
|
$
|
474,849
|
|
|
$
|
336,314
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
Fixed asset purchases in accounts payable and accrued expenses
|
$
|
20,795
|
|
|
$
|
14,144
|
|
|
$
|
120,025
|
|
Fixed asset purchases financed by long-term debt
|
$
|
36,229
|
|
|
$
|
11,514
|
|
|
$
|
133,288
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
Vendor financing obligations
|
$
|
(4,644
|
)
|
|
$
|
(3,332
|
)
|
|
$
|
(60,251
|
)
|
Capital lease obligations
|
$
|
(31,585
|
)
|
|
$
|
(8,182
|
)
|
|
$
|
(73,037
|
)
|
Class A common stock issued for repayment of long-term debt
|
$
|
88,456
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Repayment of long-term debt through issuances of Class A common stock
|
$
|
(88,456
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
See notes to consolidated financial statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended
December 31, 2012
,
2011
and
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amounts
|
|
Shares
|
|
Amounts
|
|
Additional Paid In Capital
|
|
Accumulated
Other
Comprehensive Income (Loss)
|
|
Accumulated Deficit
|
|
Non-controlling Interests
|
|
Total
Stockholders’
Equity
|
|
(In thousands)
|
Balances at December 31, 2009
|
196,767
|
|
|
$
|
20
|
|
|
734,239
|
|
|
$
|
73
|
|
|
$
|
2,000,061
|
|
|
$
|
3,745
|
|
|
$
|
(413,056
|
)
|
|
$
|
6,181,525
|
|
|
$
|
7,772,368
|
|
Net loss from continuing operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(475,362
|
)
|
|
(1,775,840
|
)
|
|
(2,251,202
|
)
|
Net loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,075
|
)
|
|
(39,817
|
)
|
|
(51,892
|
)
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,180
|
)
|
|
—
|
|
|
(5,042
|
)
|
|
(6,222
|
)
|
Unrealized gain on investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
437
|
|
|
—
|
|
|
1,917
|
|
|
2,354
|
|
Issuance of common stock, net of issuance costs, and other capital transactions
|
46,777
|
|
|
4
|
|
|
9,242
|
|
|
1
|
|
|
208,385
|
|
|
(507
|
)
|
|
—
|
|
|
150,123
|
|
|
358,006
|
|
Share-based compensation and other transactions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,664
|
|
|
—
|
|
|
—
|
|
|
33,922
|
|
|
46,586
|
|
Balances at December 31, 2010
|
243,544
|
|
|
24
|
|
|
743,481
|
|
|
74
|
|
|
2,221,110
|
|
|
2,495
|
|
|
(900,493
|
)
|
|
4,546,788
|
|
|
5,869,998
|
|
Net loss from continuing operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(696,902
|
)
|
|
(2,158,831
|
)
|
|
(2,855,733
|
)
|
Net loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,431
|
)
|
|
(61,379
|
)
|
|
(81,810
|
)
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,149
|
|
|
—
|
|
|
2,764
|
|
|
3,913
|
|
Unrealized gain on investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,515
|
)
|
|
—
|
|
|
(4,615
|
)
|
|
(6,130
|
)
|
Issuance of common stock, net of issuance costs, and other capital transactions
|
208,671
|
|
|
21
|
|
|
96,222
|
|
|
9
|
|
|
478,394
|
|
|
664
|
|
|
—
|
|
|
210,088
|
|
|
689,176
|
|
Share-based compensation and other transactions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,130
|
|
|
—
|
|
|
—
|
|
|
11,494
|
|
|
26,624
|
|
Balances at December 31, 2011
|
452,215
|
|
|
45
|
|
|
839,703
|
|
|
83
|
|
|
2,714,634
|
|
|
2,793
|
|
|
(1,617,826
|
)
|
|
2,546,309
|
|
|
3,646,038
|
|
Net loss from continuing operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(561,562
|
)
|
|
(1,182,183
|
)
|
|
(1,743,745
|
)
|
Net loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(167,005
|
)
|
|
(1,356
|
)
|
|
(168,361
|
)
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,354
|
)
|
|
—
|
|
|
(6,084
|
)
|
|
(9,438
|
)
|
Unrealized loss on investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
|
56
|
|
Issuance of common stock, net of issuance costs, and other capital transactions (Note 15)
|
239,100
|
|
|
24
|
|
|
(65,970
|
)
|
|
(6
|
)
|
|
415,467
|
|
|
527
|
|
|
—
|
|
|
(287,806
|
)
|
|
128,206
|
|
Share-based compensation and other transactions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,143
|
|
|
—
|
|
|
—
|
|
|
723
|
|
|
28,866
|
|
Balances at December 31, 2012
|
691,315
|
|
|
$
|
69
|
|
|
773,733
|
|
|
$
|
77
|
|
|
$
|
3,158,244
|
|
|
$
|
(6
|
)
|
|
$
|
(2,346,393
|
)
|
|
$
|
1,069,631
|
|
|
$
|
1,881,622
|
|
See notes to consolidated financial statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Description of Business
|
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 and residential Internet access services in communities throughout the country. Our current 4G mobile broadband network operates on the Worldwide Interoperability of Microwave Access technology 802.16e standard, which we refer to as mobile WiMAX. In our current 4G mobile broadband markets in the United States, we offer our services through retail channels and through our wholesale partners. Sprint Nextel Corporation, which we refer to as Sprint, accounts for substantially all of our wholesale sales to date, and offers services in each of our 4G markets.
As of December 31, 2012, we offered our services in
88
markets in the United States. Internationally, as of December 31, 2012, we completed the sale of our operations in Belgium, Germany and Spain. The results of operations of these international entities prior to their sale are separately disclosed as discontinued operations.
We need to greatly expand our revenue base by increasing sales to our existing wholesale partners, primarily Sprint, and bring on additional wholesale partners with
substantial requirements for additional data capacity to supplement their own services
. To be successful with either, we believe it is necessary that we deploy Long Term Evolution, or LTE, technology, which is currently being adopted by most wireless operators globally including Sprint, as their next generation wireless technology, on our network.
We have begun deployment of our LTE network and have
1,000
sites on air as of December 31, 2012. We expect to have approximately
2,000
LTE sites on air by the end of June 2013, which will satisfy the initial LTE prepayment milestone under the terms of our recently amended wholesale agreements with Sprint. Subject to the availability of funding, including proceeds of the interim financing arrangement provided by Sprint (see below), we plan to have approximately
5,000
sites on air by the end of the year. Under the amended wholesale agreements with Sprint, we are required to expand our LTE network to
5,000
sites by no later than June 30, 2014 and
8,000
by the end of 2014.
Proposed Sprint Merger
Merger Agreement
On December 17, 2012, we entered into an agreement and plan of merger with Sprint, which we refer to as the Merger Agreement, pursuant to which Sprint agreed to acquire all of the outstanding shares of Clearwire Corporation Class A and Class B common stock, which we refer to as Class A Common Stock and Class B Common Stock, respectively, not currently owned by Sprint, SOFTBANK CORP., which we refer to as Softbank, or their affiliates. At the closing, the outstanding shares of common stock will be canceled and converted automatically into the right to receive
$2.97
per share in cash, without interest. Our stockholders will be asked to vote on the adoption of the Merger Agreement at a special meeting that will be held on a date to be announced. Consummation of the transactions under the Merger Agreement, which we refer to as the Proposed Merger, is subject to a number of conditions precedent, including, among others: (i) the adoption of the Merger Agreement by the holders of at least
75%
of the outstanding shares of our common stock entitled to vote on the Proposed Merger, voting as a single class, and at least a majority of the outstanding shares of our common stock not held by Sprint, SoftBank and their respective affiliates, voting as a single class, at a duly called stockholders' meeting, which we refer to as the Clearwire Stockholder Approval, (ii) the receipt of the Federal Communications Commission, which we refer to as the FCC, approvals required to consummate the Proposed Merger, (iii) the absence of any order enjoining the consummation of, or prohibiting, the Proposed Merger; (iv) the non-occurrence of any event having a material adverse effect from the date of the Merger Agreement to the closing of the Proposed Merger, and (v) the consummation by Sprint of the pending merger between Sprint and SoftBank and certain affiliates thereof, which we refer to as the SoftBank Transaction, or an alternate transaction thereto.
The Merger Agreement contains termination rights for the benefit of Sprint and Clearwire and further provides that Sprint will be required to pay us a termination fee of
$120.0 million
under certain specified circumstances of termination of the Merger Agreement. Any obligation to pay such termination fee will be satisfied by the cancellation of
$120.0 million
of Notes, which we refer to as the Sprint Termination Fee, which are described below. In the event we are entitled to receive the termination fee, in certain instances, we may also be entitled to receive from Sprint a supplemental prepayment for LTE services on January 15, 2014 in the amount of
$100.0 million
, conditioned upon the completion of site build-out targets
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
pursuant to a commercial agreement currently in effect between Sprint and Clearwire. Any such prepayment will be credited against certain of Sprint's obligations under such agreement.
Note Purchase Agreement
In connection with the Merger Agreement, on December 17, 2012, we entered into a Note Purchase Agreement, which we refer to as the Note Purchase Agreement, with Clearwire Communications LLC, which we refer to as Clearwire Communications, Clearwire Finance Inc., which we refer to as Clearwire Finance, and together with Clearwire Communications, which we refer to as the Issuers, and Sprint, in which Sprint agreed to purchase from us at our election up to an aggregate principal amount of
$800.0 million
of
1.00%
Exchangeable Notes due
2018
, which we refer to as the Notes, in
ten
monthly installments of
$80.0 million
each on the first business day of each month, which we refer to as the Draw Date, beginning January 2013 and through the pendency of the Proposed Merger. The Notes accrue interest at
1.00%
per annum and are exchangeable into shares of Class A Common Stock at an exchange rate of
666.67
shares per
$1,000
aggregate principal amount of the Notes, which is equivalent to a price of
$1.50
per share, subject to anti-dilution protections. Additionally, on the
last three
Draw Dates (in August, September and October 2013), we can only request that Sprint purchase notes if (i) an agreement has been reached between the parties on the accelerated build out of our wireless broadband network, which we refer to as the Build-Out Agreement, by February 28, 2013, (ii) the Build-Out Agreement is in full force and effect and (iii) we have not breached any of our obligations under the Build-Out Agreement.
Under the terms of the Note Purchase Agreement, the terms of the Notes will be governed by an indenture, which the Issuers expect to enter into on the first Draw Date, which we refer to as the New Indenture. The terms of the New Indenture are substantially similar to the indenture dated as of December 8, 2010, by and among the Issuers, the guarantors named therein and the trustee named therein, governing the Issuers' existing
8.25%
Exchangeable Notes due
2040
, which we refer to as the Existing Indenture, which were issued in December 2010. However, under the New Indenture, the Notes will be exchangeable by Sprint and certain of our other equityholders into either our Class A Common Stock, or Class B Common Stock, and Class B units of Clearwire Communications LLC (such Class B units together with the corresponding Class B Common Stock, which we refer to as the Class B Interests) at their election. The Notes will become exchangeable if (a) the Merger Agreement is terminated for any reason (except under circumstances where we would receive, and do not reject, the Sprint Termination Fee), or (b) the Proposed Merger is consummated, at an exchange rate of
666.67
shares per
$1,000
aggregate principal amount of Notes (equivalent to a price of
$1.50
per share), subject to anti-dilution protections, which we refer to as the Exchange Rate.If the Merger Agreement is terminated under circumstances where we would receive, and do not reject, the Sprint Termination Fee, then
$120.0 million
principal amount of the Notes will be automatically canceled. In addition, if the Merger Agreement is terminated because the SoftBank Transaction is not consummated, we will have the option to exchange the Notes that remain outstanding at the Exchange Rate for
15
business days following the termination of the SoftBank Transaction. Unlike the terms of the Existing Indenture, the terms of the New Indenture do not include an option to call or redeem the Notes, and Sprint does not have the right to put Notes at specified dates.
The Note Purchase Agreement can be terminated, among other things, by mutual consent, automatically if the required vote to approve the Proposed Merger is not obtained at our stockholders meeting, or if the Merger Agreement is terminated due to a failure of the SoftBank Transaction or a breach of Sprint's representations, warranties, covenants or agreements thereunder (subject to certain conditions), provided that if the Note Purchase Agreement is terminated due to the Merger Agreement being terminated by reason of a failure of the SoftBank Transaction or because of a breach of any representation, warranty, covenant or agreement by Sprint, then the Note Purchase Agreement will terminate upon the earlier of (i) our exercising our option to exchange the Notes upon such termination and (ii) July 2, 2013; however the Note Purchase Agreement will not terminate on July 2, 2013 if the Build-Out Agreement was reached by February 28, 2013, the Build-Out Agreement is in full force and effect and we have not breached any of our obligations under the Build-Out Agreement.
On December 26, 2012, we notified Sprint of our intention to take the first draw for January 2013 under the Note Purchase Agreement. Following receipt of a proposal from DISH Network Corporation, which we refer to as DISH, we elected on December 28, 2012, to revoke our draw notice prior to receiving any proceeds from the draw to allow us to evaluate DISH's proposal. Sprint subsequently asserted that it believes that the draw notice is irrevocable and has reserved its rights with respect thereto. We also decided to forego the second draw for February 2013 as the Special Committee continues to evaluate DISH's proposal. Our election to forego the first
two
draws under the Note Purchase Agreement has reduced the aggregate principal amount available to
$640 million
. The Special Committee has not made any determination with respect to any future draws under the Note Purchase Agreement.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DISH Proposal
After signing the Merger Agreement, Clearwire received an unsolicited, non-binding proposal, which we refer to as the DISH Proposal, from DISH. The DISH Proposal provides for DISH to purchase certain spectrum assets from Clearwire, enter into a commercial agreement with Clearwire and acquire up to all of Clearwire's common stock for
$3.30
per share (subject to minimum ownership of at least
25%
and granting of certain governance rights) and provide Clearwire with financing on specified terms. The DISH Proposal is only a preliminary indication of interest and is subject to numerous, material uncertainties and conditions, including the negotiation of multiple contractual arrangements being requested by DISH as well as regulatory approvals. The DISH Proposal provides that it would be withdrawn if we draw any of funds available under the Note Purchase Agreement. Some of the terms in the DISH Proposal, as currently proposed, may not be permitted under the terms of Clearwire's current legal and contractual obligations. Additionally, our ability to enter into strategic transactions is significantly limited by our current contractual arrangements, including the agreements with Sprint executed on December 17, 2012, which we refer to as the Sprint Agreement, and our existing equityholders' agreement dated November 28, 2008 as amended on December 8, 2010, which we refer to as the Equityholders’ Agreement.
The Special Committee is currently evaluating the DISH Proposal and engaging in discussions with each of DISH and Sprint, as appropriate. The Special Committee has not made any determination to change its recommendation of the current Sprint transaction. Consistent with our obligations under the Sprint Agreement, we provided Sprint with notice, and the material terms, of the DISH Proposal, and received a response from Sprint that stated, among other things, that Sprint has reviewed the DISH Proposal and believes that it is illusory, inferior to the Sprint transaction and not viable because it cannot be implemented in light of our current legal and contractual obligations. Sprint has stated that the Sprint Agreement would prohibit us from entering into agreements for much of the DISH Proposal.
Liquidity
To date, we have invested heavily in building and maintaining our networks. We have a history of operating losses, and we expect to have significant losses in the future. We do not expect our operations to generate cumulative positive cash flows during the next
twelve
months.
As of December 31, 2012, we had available cash and short-term investments of approximately
$868.6 million
. Our current LTE build plan is to have approximately
2,000
LTE sites on air by the end of June 2013, which will satisfy the initial LTE prepayment milestone under the terms of our recently amended agreements with Sprint. Under the amended wholesale agreements with Sprint, we are required to expand our LTE network to
5,000
sites by June 30, 2014. Subject to the availability of funding under the Note Purchase Agreement, our current LTE build plans is to expand our LTE network to
5,000
sites by the end of 2013.
Under our current LTE build plan, we currently expect to satisfy our operating, financing and capital spending needs for the next twelve months using the available cash and short-term investments on hand together with a portion of the remaining borrowing capacity available under the Note Purchase Agreement and with the proceeds of additional vendor financing. As discussed previously, our election to forego the first
two
draws under the Note Purchase Agreement has reduced the aggregate principal amount available to
$640 million
and our ability to draw a portion of the funds under the Note Purchase Agreement is subject to certain conditions. Additionally, on the
last three
Draw Dates (in August, September and October 2013), we can only request that Sprint purchase notes if (i) the Build-Out Agreement has been reached by February 28, 2013, (ii) the Build-Out Agreement is in full force and effect and (iii) we have not breached any of our obligations under the Build-Out Agreement.
By electing to draw on at least
three
months of borrowing capacity under the Note Purchase Agreement, we would have sufficient cash and borrowing capacity to satisfy the initial LTE prepayment milestone and meet out operating and financing needs for the next twelve months. If the Merger Agreement were to terminate and funding beyond
three
draws under the Note Purchase Agreement would no longer be available to the Company, without alternative sources of additional capital, we would have to significantly curtail our LTE network build plan as currently contemplated to conserve cash and meet our operating and financing obligations during 2013. If we do not draw on at least
three
months of borrowing capacity under the Note Purchase Agreement and do not obtain a similar amount of additional financing from alternative sources, we forecast that our cash and short-term investments would be depleted sometime in the fourth quarter of 2013.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Further, if the Proposed Merger fails to close for any reason or the closing takes longer than we expect, we will need to raise substantial additional capital and to secure commitments from additional wholesale partners with significant data capacity needs that generate substantial revenues for us in a timely manner to fully implement our business plans and to be able to meet our financial obligations and continue to operate beyond the next
twelve
months. The amount of additional capital needed by us if the Proposed Merger fails to close will depend on a number of factors, many of which are outside of our control and subject to a number of uncertainties.
Whether we would be able to successfully fulfill our additional capital needs in a timely manner is uncertain. If the Merger Agreement terminates, we will likely pursue various alternatives for securing additional capital. These alternatives include, among other things, obtaining additional equity and debt financing from a number of possible sources such as new and existing strategic investors, private or public offerings and vendors. However, we face a number of challenges. Our recent equity financings were dilutive to our shareholders and, with the current trading price of our Class A Common Stock, any additional equity financings could result in significant additional dilution for our stockholders and may not generate the proceeds we need. Further, unless we are able to secure the required shareholder approvals to increase the number of authorized shares under our Certificate of Incorporation, we may not have enough authorized, but unissued shares available to raise sufficient additional capital through an equity financing. With our existing level of indebtedness, including the amount of any financing drawn by us under the Note Purchase Agreement, if any, and our inability to issue additional secured indebtedness under our existing indentures, additional debt financings may not be available on acceptable terms or at all. Even if additional debt financings are available, they could increase our future financial commitments, including aggregate interest payments on our existing and new indebtedness, to levels that we find difficult to support. Other sources of additional capital could include, among other things, a sale of certain of our assets that we believe are not essential for our business, such as excess spectrum. However, our ability to consummate a sale of assets that would generate sufficient proceeds to meet our capital needs on acceptable terms in a timely manner or at all is uncertain.
If the Merger Agreement terminates and we are unable to raise sufficient additional capital to fulfill our funding needs in a timely manner, or we fail to generate sufficient additional revenue from our wholesale and retail businesses to meet our obligations beyond the next twelve months, our business prospects, financial condition and results of operations will likely be materially and adversely affected, substantial doubt may arise about our ability to continue as a going concern and we will be forced to consider all available alternatives, including a financial restructuring, which could include seeking protection under the provisions of the United States Bankruptcy Code.
|
|
2.
|
Summary of Significant Accounting Policies
|
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which we refer to as U.S. GAAP, and pursuant to the rules and regulations of the Securities and Exchange Commission, which we refer to as the SEC. The following is a summary of our significant accounting policies:
Principles of Consolidation
— The consolidated financial statements include all of the assets, liabilities and results of operations of our wholly-owned subsidiaries, and subsidiaries we control or in which we have a controlling financial interest. Investments in entities that we do not control and are not the primary beneficiary, but for which we have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. All intercompany transactions are eliminated in consolidation.
Non-controlling interests on the consolidated balance sheets include third-party investments in entities that we consolidate, but do not wholly own. We classify our non-controlling interests as part of equity and we allocate net loss, other comprehensive income (loss) and other equity transactions to our non-controlling interests in accordance with their applicable ownership percentages. We also continue to attribute our non-controlling interests their share of losses even if that attribution results in a deficit non-controlling interest balance. See Note 15, Stockholders' Equity, for further information.
Financial Statement Presentation
—
We have reclassified certain prior period amounts to conform with the current period presentation.
Information about operating segments is based on our internal organization and reporting of revenue and operating loss based upon internal accounting methods. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer.
We operate with a single reportable segment as a provider of 4G wireless broadband services in the United States.
As of December 31, 2012, the dispositions of the assets and liabilities related to our discontinued operations had been completed. See Note 18, Discontinued Operations, for further discussion. Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations.
Use of Estimates
— Preparing financial statements in conformity with U.S. GAAP requires management to make complex and subjective judgments. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, observance of trends in the industry, information provided by our subscribers and information available from other outside sources, as appropriate. Additionally, changes in accounting estimates are reasonably likely to occur from period to period. These factors could have a material impact on our financial statements, the presentation of our financial condition, changes in financial condition or results of operations.
Significant estimates inherent in the preparation of the accompanying financial statements include: impairment analysis of spectrum licenses with indefinite lives, including judgments about when an impairment indicator may or may not have occurred and estimates of the fair value of our spectrum licenses, the recoverability and determination of useful lives for long-lived assets, which include property, plant and equipment and other intangible assets, tax valuation allowances and valuation of derivatives.
Cash and Cash Equivalents
— Cash equivalents consist of money market mutual funds and highly liquid short-term investments, with original maturities of three months or less. Cash equivalents are stated at cost, which approximates market value. Cash and cash equivalents exclude cash that is contractually restricted for operational purposes. We maintain cash and cash equivalent balances with financial institutions that exceed federally insured limits. We have not experienced any losses related to these balances, and management believes the credit risk related to these balances to be minimal.
Restricted Cash
— Restricted cash consists primarily of amounts we have set aside to satisfy certain contractual obligations and is classified as a current or non-current asset based on its designated purpose. The majority of this restricted cash has been designated to satisfy certain lease obligations.
Investments
— We have an investment portfolio comprised primarily of U.S. Government and Agency marketable debt securities. We classify marketable debt securities as available-for-sale investments and these securities are stated at their estimated fair value. Our investments are recorded as short-term investments when the original maturities are greater than three months but remaining maturities are less than one year. Our investments with maturities of more than one year are recorded as long-term investments. Unrealized gains and losses are recorded within accumulated other comprehensive income (loss). Realized gains and losses are measured and reclassified from accumulated other comprehensive income (loss) on the basis of the specific identification method.
We account for certain of our investments using the equity method based on our ownership interest and our ability to exercise significant influence. Accordingly, we record our investment initially at cost and we adjust the carrying amount of the investment to recognize our share of the earnings or losses of the investee each reporting period. We cease to recognize investee losses when our investment basis is zero. At December 31, 2012 and 2011, our balance in equity method investees was
$0
and
$8.3 million
, respectively, and was recorded in Other assets on the consolidated balance sheets.
We recognize realized losses when declines in the fair value of our investments below their cost basis are judged to be other-than-temporary. In determining whether a decline in fair value is other-than-temporary, we consider various factors including market price, investment ratings, the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value has been less than the cost basis, and our intent and ability to hold the investment until maturity or for a period of time sufficient to allow for any anticipated recovery in market value. If it is judged that a decline in fair value is other-than-temporary, a realized loss equal to the decline is reflected in the consolidated statement of operations, and a new cost basis in the investment is established.
Fair Value Measurements
— Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we consider the principal or most advantageous market in which the asset or liability would transact, and if necessary, consider assumptions that market participants would use when pricing the asset or liability.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. Financial assets and financial liabilities are classified in the hierarchy based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
|
|
Level 1:
|
Quoted market prices in active markets for identical assets or liabilities.
|
|
|
Level 2:
|
Inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in less active markets; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
|
|
|
Level 3:
|
Unobservable inputs that are significant to the fair value measurement and cannot be corroborated by market data.
|
If listed prices or quotes are not available, fair value is based upon internally developed or other available models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to interest rate curves, volatilities, equity prices, and credit curves. We use judgment in determining certain assumptions that market participants would use in pricing the financial instrument, including assumptions about discount rates and credit spreads. The degree of management judgment involved in determining fair value is dependent upon the availability of observable market parameters. For assets or liabilities that trade actively and have quoted market prices or observable market parameters, there is minimal judgment involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability and reliability of quoted prices or observable data. See Note 12, Fair Value, for further information.
Accounts Receivable
— Accounts receivables are stated at amounts due from subscribers and our wholesale partners net of an allowance for doubtful accounts. See Note 17, Related Party Transactions, for further information regarding accounts receivable balances with related parties.
Inventory
— Inventory primarily consists of customer premise equipment, which we refer to as CPE, and other accessories sold to retail subscribers and is stated at the lower of cost or net realizable value. Cost is determined under the average cost method. We record inventory write-downs for obsolete and slow-moving items based on inventory turnover trends and historical experience.
Property, Plant and Equipment
— Property, plant and equipment, excluding construction in progress, is stated at cost, net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets once the assets are placed in service. Our network construction expenditures are recorded as construction in progress until the network or other asset is placed in service, at which time the asset is transferred to the appropriate property, plant and equipment, which we refer to as PP&E, category. We capitalize costs of additions and improvements, including salaries, benefits and related overhead costs associated with constructing PP&E and interest costs related to construction. The estimated useful life of PP&E is determined based on historical usage of identical or similar equipment, with consideration given to technological changes and industry trends that could impact the network architecture and asset utilization. Leasehold improvements are recorded at cost and amortized over the lesser of their estimated useful lives or the related lease term, including renewals that are reasonably assured. Included within Network and base station equipment is equipment recorded under capital leases which is generally being amortized over the lease term. Maintenance and repairs are expensed as incurred.
PP&E is assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or circumstances exist, we determine the recoverability of the asset's carrying value by estimating the expected undiscounted future cash flows that are directly associated with and that are expected to arise as a direct result of the use and disposal of the asset. If the expected undiscounted future cash flows are less than the carrying amount of the asset, a loss is recognized for the difference between the fair value of the asset and its carrying value. For purposes of testing impairment, our long-lived assets, including PP&E and intangible assets with definite useful lives, and our spectrum license assets are combined into a single asset group. This represents the lowest level for which there are identifiable
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
cash flows which are largely independent of other assets and liabilities, and management believes that utilizing these assets as a group represents the highest and best use of the assets and is consistent with management's strategy of utilizing our spectrum licenses on an integrated basis as part of our nationwide network. For PP&E, there were
no
impairment losses recorded in the years ended
December 31, 2012
,
2011
and
2010
.
In addition to the analyses described above, we periodically assess certain assets that have not yet been deployed in our networks, including equipment and cell site development costs, classified as construction in progress. This assessment includes the provision for differences between recorded amounts and the results of physical counts and the provision for excessive and obsolete equipment. See Note 5, Property, Plant and Equipment, for further information.
Internally Developed Software
— We capitalize costs related to computer software developed or obtained for internal use, and interest costs incurred during the period of development. Software obtained for internal use has generally been enterprise-level business and finance software customized to meet specific operational needs. Costs incurred in the application development phase are capitalized and amortized over the useful life of the software once the software has been placed in service, which is generally
three
years. We periodically assess capitalized software costs that have not been placed in service to determine whether any projects are no longer expected to be completed. The capitalized cost associated with any projects that are not expected to be completed are written down. Costs recognized in the preliminary project phase and the post-implementation phase, as well as maintenance and training costs, are expensed as incurred.
Spectrum Licenses
—
Spectrum licenses primarily include owned spectrum licenses with indefinite lives and favorable spectrum leases. Indefinite lived spectrum licenses acquired are stated at cost and are not amortized. While owned spectrum licenses in the United States are issued for a fixed time, renewals of these licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our owned spectrum licenses and therefore, the licenses are accounted for as intangible assets with indefinite lives. The impairment test for intangible assets with indefinite useful lives consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. The fair value is determined by estimating the discounted future cash flows that are directly associated with, and that are expected to arise as a direct result of the use and eventual disposition of, the asset. Spectrum licenses with indefinite useful lives are assessed for impairment annually, or more frequently, if an event indicates that the asset might be impaired. We had no impairments for any of the periods presented for indefinite lived intangible assets.
Favorable spectrum leases are stated at cost, net of accumulated amortization, and are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying value of spectrum leases are amortized on a straight-line basis over their estimated useful lives or lease term, including expected renewal periods, as applicable. There were
no
impairment losses for favorable spectrum leases in the years ended
December 31, 2012
,
2011
and
2010
.
Other Intangible Assets
— Other intangible assets consist of subscriber relationships, trademarks, patents and other, and are stated at cost net of accumulated amortization. Amortization is calculated using either the straight-line method or an accelerated method over the assets' estimated remaining useful lives. Other intangible assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. There were
no
impairment losses for our other intangible assets in the years ended
December 31, 2012
,
2011
and
2010
.
Derivative Instruments and Hedging Activities
— It is our policy that hedging activities are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. We record all derivatives on the balance sheet at fair value as either assets or liabilities. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and whether it qualifies for hedge accounting.
During 2010, we issued exchangeable notes that included embedded exchange options, which we refer to as the Exchange Options, which qualified as derivative instruments and are required to be accounted for separately from the host debt instruments and recorded as derivative financial instruments at fair value. The embedded Exchange Options do not qualify 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 Exchange Options are exercised or expire. See Note 11, Derivative Instruments, for further information.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition, in the event of an issuance of new equity securities or securities exchangeable or convertible into capital stock, which we refer to as New Securities, certain existing equityholders are entitled to pre-emptive rights which allow them to purchase their pro-rata share of the New Securities at the issuance price less any underwriting discounts. This right is considered a derivative that is required to be recorded at fair value. See Note 11, Derivative Instruments, for further information.
Debt Issuance Costs
— Debt issuance costs are initially capitalized as a deferred cost and amortized to interest expense under the effective interest method over the expected term of the related debt. Unamortized debt issuance costs related to extinguishment of debt are expensed at the time the debt is extinguished and recorded in other income (expenses), net in the consolidated statements of operations. Unamortized debt issuance costs are considered long-term and recorded in Other assets in the consolidated balance sheets.
Interest Capitalization
— We capitalize interest related to the construction of our network infrastructure assets, as well as the development of software for internal use. Capitalization of interest commences with pre-construction period administrative and technical activities, which includes obtaining leases, zoning approvals and building permits, and ceases when the construction is substantially complete and available for use or when we suspend substantially all construction activity. Interest is capitalized on construction in progress and software under development. Interest capitalization is based on rates applicable to borrowings outstanding during the period and the balance of qualified assets under construction during the period. Capitalized interest is reported as a cost of the network assets or software assets and depreciated over the useful lives of those assets. See Note 5, Property, Plant and Equipment.
Income Taxes
— We record deferred income taxes based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities using the tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are also recorded for net operating loss, capital loss, and tax credit carryforwards. Valuation allowances, if any, are recorded to reduce deferred tax assets to the amount considered more likely than not to be realized. We also apply a recognition threshold that a tax position is required to meet before being recognized in the financial statements. Our policy is to recognize any interest related to unrecognized tax benefits in interest expense or interest income. We recognize penalties as additional income tax expense.
Revenue Recognition
— We primarily earn revenue by providing access to our high-speed wireless networks. Also included in revenue are sales of CPE and additional add-on services. In our 4G mobile broadband markets, we offer our services through retail channels and through our wholesale partners. We believe that the geographic diversity of our retail subscriber base minimizes the risk of incurring material losses due to concentration of credit risk. Sprint, our major wholesale customer, accounts for substantially all of our wholesale revenues to date, and comprise approximately
36%
of total revenues during the year ended
December 31, 2012
.
Revenue consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Retail revenue
|
$
|
795,632
|
|
|
$
|
758,254
|
|
|
$
|
480,761
|
|
Wholesale revenue
|
468,469
|
|
|
493,661
|
|
|
50,593
|
|
Other revenue
|
593
|
|
|
1,551
|
|
|
3,749
|
|
Total revenues
|
$
|
1,264,694
|
|
|
$
|
1,253,466
|
|
|
$
|
535,103
|
|
Revenue from retail subscribers is billed one month in advance and recognized ratably over the service period. Revenues associated with the sale of CPE and other equipment is recognized when title and risk of loss is transferred. Billed shipping and handling costs are classified as revenue.
Revenue arrangements with multiple deliverables are divided into separate units and, where available, revenue is allocated using vendor-specific objective evidence or third-party evidence of the selling prices; otherwise estimated selling prices are utilized. Any revenue attributable to the delivered elements is recognized currently in revenue and any revenue attributable to the undelivered elements is deferred and will be recognized as the undelivered elements are expected to be delivered over the remaining term of the agreements.
With the exception of the Universal Service Fee, which we refer to as USF, a regulatory surcharge, taxes and other fees collected from customers are excluded from revenues. USF is recorded on a gross basis and included in revenues when billed to
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
customers. USF recorded to revenue for the years ended December 31, 2012, 2011 and 2010 were
$2.8 million
,
$3.9 million
and
$2.7 million
, respectively.
For 2012, substantially all of our wholesale revenues were derived from our agreements with Sprint. In November 2011, we entered into the November 2011 4G MVNO Amendment. As a result, the minimum payments under the previous amendment to the 4G MVNO agreement entered into with Sprint in April 2011 were replaced with the provisions of the November 2011 4G MVNO Amendment. Under the November 2011 4G MVNO Amendment, Sprint is paying us
$925.9 million
for unlimited 4G mobile WiMAX services for resale to its retail subscribers in 2012 and 2013, approximately
two-thirds
of which was paid for service provided in 2012, and the remainder will be paid for service provided in 2013. Of the
$925.9 million
,
$175.9 million
will be paid as an offset to principal and interest due under a
$150.0 million
promissory note (see Note 17, Related Party Transactions) issued by us to Sprint. Of the amount due,
$900.0 million
will be recognized on a straight-line basis over 2012 and 2013 and the remaining
$25.9 million
will be recorded as an offset to the interest cost associated with the promissory note. As part of the November 2011 4G MVNO Amendment, we also agreed to: the elimination of device minimum fees after 2011; and usage based pricing for WiMAX services after 2013 and for LTE service beginning in 2012.
In 2011, revenues from wholesale subscribers were billed one month in arrears and were generally recognized as they are earned, based on terms defined in our commercial agreements with our wholesale partners. For 2011, substantially all of our wholesale revenues were derived from our agreement with Sprint. Under that agreement, revenues were earned as Sprint utilized our network, with usage-based pricing that included volume discounts.
Advertising Costs
—Advertising costs are expensed as incurred or the first time the advertising occurs. Advertising expense was
$69.7 million
,
$76.4 million
and
$213.9 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively.
Net Loss per Share
— Basic net loss per Class A common share is computed by dividing Net loss attributable to Clearwire Corporation by the weighted-average number of Class A Common Stock outstanding during the period. Diluted net loss per Class A common share is computed by dividing Net loss attributable to Clearwire Corporation by the weighted-average number of Class A Common Stock and dilutive Class A Common Stock equivalents outstanding during the period. Class A Common Stock equivalents generally consist of the Class A Common Stock issuable upon the exercise of outstanding stock options, warrants and restricted stock using the treasury stock method. The effects of potentially dilutive Class A Common Stock equivalents are excluded from the calculation of Diluted net loss per Class A common share if their effect is antidilutive. We have two classes of common stock, Class A and Class B. The potential exchange of Clearwire Communications LLC Class B common interests, which we refer to as Class B Common Interests, together with Class B Common Stock, for Class A Common Stock may have a dilutive effect due to certain tax effects. On an “if converted” basis, shares issuable upon the conversion of the exchangeable notes may also have a dilutive effect. See Note 16, 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, which we refer to as EBS, spectrum licenses granted by the FCC. EBS licenses authorize the provision of certain communications services on the EBS channels in certain markets throughout the United States. We account for these spectrum leases as executory contracts which are similar to operating leases. Signed leases which have unmet conditions required to become effective are not amortized until such conditions are met and are included in spectrum licenses in the accompanying consolidated balance sheets, if such leases require upfront payments. For leases containing scheduled rent escalation clauses, we record minimum rental payments on a straight-line basis over the term of the lease, including the expected renewal periods as appropriate. For leases containing tenant improvement allowances and rent incentives, we record deferred rent, which is a liability, and that deferred rent is amortized over the term of the lease, including the expected renewal periods as appropriate, as a reduction to rent expense.
We periodically terminate unutilized tower leases, or when early termination is not available under the terms of the lease, we advise our landlords of our intention not to renew. At the time we notify our landlords of our intention not to renew, we recognize a cease-to-use tower lease liability based on the remaining lease rentals adjusted for any prepaid or deferred rent recognized under the lease, reduced by estimated sublease rentals, if any, that could be reasonably obtained for the property. See Note 3, Charges Related to Cost Savings Initiatives, for further discussion.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recent Accounting Pronouncements
The following accounting pronouncements were adopted during the year ended December 31, 2012:
In May 2011, the Financial Accounting Standards Board, which we refer to as the FASB, issued new accounting guidance amending fair value measurement to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. We adopted the new accounting guidance on January 1, 2012. As the new accounting guidance primarily amended the disclosure requirements related to fair value measurement, the adoption did not have any impact on our financial condition or results of operations.
In June 2011, the FASB issued new accounting guidance on the presentation of other comprehensive income, which was subsequently revised in December 2011. The new guidance eliminates the current option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. Instead, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We adopted the new accounting guidance on January 1, 2012 which resulted in reporting the components of comprehensive loss in the consolidated statements of comprehensive loss, rather than in the consolidated statements of stockholders' equity, as previously reported, including retrospective presentation for all periods presented.
In July 2012, the FASB issued new accounting guidance amending impairment testing for indefinite-lived intangible assets. The objective of these amendments is to reduce the cost and complexity of performing impairment tests for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The new accounting guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We elected early adoption of the new accounting guidance as permitted and it had no impact on our financial condition or results of operations.
The following accounting pronouncements were issued by the FASB during the year ended December 31, 2012:
In October 2012, the FASB issued accounting guidance containing technical corrections and improvements to the Accounting Standards Codification, which we refer to as the Codification. The technical corrections are relatively minor corrections and clarifications. These corrections, which affect various Codification topics and apply to all reporting entities within the scope of those topics, are divided into three main categories: (1) Source literature amendments which carry forward the original intent of certain pre-Codification authoritative literature that was inadvertently altered during the Codification process; (2) Guidance clarification and reference corrections which resulted in changes to wording and references to avoid misapplication or misinterpretation of guidance; and (3) Relocated guidance which moved guidance from one part of the Codification to another to correct instances in which the scope of pre-Codification guidance may have been unintentionally narrowed or broadened during the Codification process. The guidance also made conforming changes for the use of the term "fair value" in certain pre-Codification standards. The FASB did not provide transition guidance for Codification amendments that are not expected to change current practice. However, it did for those amendments that are more substantive and these will be effective for fiscal periods beginning after December 15, 2012. We are still evaluating the impact these technical corrections will have, if any, on our financial condition or results of operations.
|
|
3.
|
Charges Resulting from Cost Savings Initiatives
|
In connection with our cost savings initiatives, since the beginning of 2011, a total of approximately
5,800
unutilized tower leases have either been terminated or when early termination was not available under the terms of the lease, we advised our landlords of our intention not to renew. In connection with this lease termination initiative, we incurred lease termination costs and recognized a cease-to-use tower lease liability based on the remaining lease rentals (including contractual rent escalations) for leases subject to termination actions, reduced by estimated sublease rentals, if any. The charge for lease termination activities is net of previously recorded deferred rent liabilities associated with these leases and includes cancellation fees. In addition, where our current contract requires us to continue payments for certain executory costs for the remaining terms of these leases, we have accrued a liability for such costs. See Note 5, Property, Plant and Equipment for a description of the write down of costs for projects classified as construction in progress related to the above leases.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Charges by type of cost and reconciliation of the associated accrued liability were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and Other Contract Termination Costs
(1)
|
|
Employee Termination Costs
|
|
Other Exit Costs
|
|
Total
|
Costs incurred and charged to expense during:
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
$
|
1,209
|
|
|
$
|
10,494
|
|
|
$
|
—
|
|
|
$
|
11,703
|
|
Year ended December 31, 2011
|
155,643
|
|
|
9,404
|
|
|
420
|
|
|
165,467
|
|
Year ended December 31, 2012
|
59,874
|
|
|
505
|
|
|
—
|
|
|
60,379
|
|
Cumulative cost incurred to date
(2)
|
$
|
216,726
|
|
|
$
|
20,403
|
|
|
$
|
420
|
|
|
$
|
237,549
|
|
|
|
|
|
|
|
|
|
Accrued liability as of December 31, 2011
|
$
|
164,403
|
|
|
$
|
1,597
|
|
|
$
|
—
|
|
|
$
|
166,000
|
|
Costs incurred, excluding non-cash credits
|
59,874
|
|
|
505
|
|
|
—
|
|
|
60,379
|
|
Cash and share payments
|
(59,885
|
)
|
|
(2,043
|
)
|
|
—
|
|
|
(61,928
|
)
|
Accrued liability as of December 31, 2012
(3)
|
$
|
164,392
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
164,451
|
|
|
|
(1)
|
Lease and other contract termination costs for the year ended December 31, 2011 include non-cash credits of
$43.2 million
representing the reversal of deferred rent balances at the cease-use date and
$37.8 million
of accrued executory costs relating to unused tower sites where our current contract requires us to continue payments for the remaining term. The costs for the year ended December 31, 2012 include accrued executory costs of
$5.5 million
. Costs for the year ended December 31, 2012 also included
$25.0 million
for the elimination of the remaining estimated sublease rental income from the liability computation and fully incorporated contractual rent escalations.
|
|
|
(2)
|
Total costs for these activities are not expected to be significantly different from those incurred to date.
|
|
|
(3)
|
$1.7 million
is recorded within Accounts payable and accrued expenses,
$48.4 million
is recorded as Other current liabilities and
$114.3 million
is recorded as Other long-term liabilities on the consolidated balance sheets. With the exception of the elimination of remaining estimated sublease rental income from the liability computation and fully incorporating contractual rent escalations, there were no other significant adjustments to the liability during the year.
|
For the year ended December 31, 2012,
$55.2 million
was recorded as Cost of goods and services and network costs and
$5.2 million
was recorded as Selling, general and administrative expenses. For the year ended December 31, 2011,
$145.9 million
was recorded as Cost of goods and services and network costs and
$19.6 million
was recorded as Selling, general and administrative expenses. For the year ended December 31, 2010, the entire expense of
$11.7 million
was recorded as Selling, general and administrative expenses.
Investments as of
December 31, 2012
and
2011
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Agency Issues
|
$
|
675,024
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
675,112
|
|
|
$
|
215,627
|
|
|
$
|
36
|
|
|
$
|
(8
|
)
|
|
$
|
215,655
|
|
We owned Auction Market Preferred securities issued by a monoline insurance company which were perpetual and did not have a final stated maturity. Our Auction Market Preferred securities were fully written down and had
no
carrying value at December 31, 2011. During the first quarter of 2012, we sold the Auction Market Preferred securities and recorded a gain of
$3.3 million
to Other income (expense), net on the consolidated statements of operations representing the total proceeds received. We no longer own any collateralized debt obligations or Auction Market Preferred securities.
No
other-than-temporary impairment losses were recorded for the years ended
December 31, 2012
,
2011
or
2010
.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
5.
|
Property, Plant and Equipment
|
Property, plant and equipment as of
December 31, 2012
and
2011
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
December 31,
|
|
Lives (Years)
|
|
2012
|
|
2011
|
Network and base station equipment
|
5-15
|
|
$
|
3,396,376
|
|
|
$
|
3,350,696
|
|
Customer premise equipment
|
2
|
|
45,376
|
|
|
82,545
|
|
Furniture, fixtures and equipment
|
3-5
|
|
480,160
|
|
|
450,254
|
|
Leasehold improvements
|
Lesser of useful life or lease term
|
|
30,142
|
|
|
46,435
|
|
Construction in progress
|
N/A
|
|
156,630
|
|
|
262,761
|
|
|
|
|
4,108,684
|
|
|
4,192,691
|
|
Less: accumulated depreciation and amortization
|
|
|
(1,849,680
|
)
|
|
(1,178,414
|
)
|
|
|
|
$
|
2,259,004
|
|
|
$
|
3,014,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Supplemental information (in thousands):
|
|
|
|
|
|
|
|
|
Capitalized interest
|
$
|
6,598
|
|
|
$
|
18,823
|
|
|
$
|
208,595
|
|
Depreciation expense
|
$
|
749,765
|
|
|
$
|
665,344
|
|
|
$
|
427,850
|
|
We have entered into lease arrangements related to our network construction and equipment that meet the criteria for capital leases. At
December 31, 2012
and
2011
, we have recorded capital lease assets with an original cost of
$112.8 million
and
$81.2 million
, respectively, within network and base station equipment.
Construction in progress is primarily composed of costs incurred during the process of completing network projects not yet placed in service. The balance at
December 31, 2012
included
$93.3 million
of costs related to completing network projects not yet place in service,
$60.8 million
of network and base station equipment not yet assigned to a project and
$2.5 million
of costs related to information technology, which we refer to as IT, and other corporate projects.
Charges associated with Property, plant and equipment
We periodically assess assets that have not yet been deployed in our networks, including equipment and cell site development costs, classified as construction in progress. We evaluate for losses related to (1) shortage, or loss incurred in deploying such equipment, (2) reserve for excessive and obsolete equipment not yet deployed in the network, and (3) abandonment of network and corporate projects no longer expected to be deployed. In addition to charges incurred in the normal course of business, this assessment includes evaluating the impact of changes in our business plans and strategic network plans on those assets.
During the year ended
December 31, 2012
, we solidified our LTE network architecture, including identifying the sites at which we expect to overlay LTE technology in the first phase of our deployment. Any projects that are not required to deploy LTE technology at those sites, or that are no longer viable due to the development of the LTE network architecture, were abandoned and the related costs written down. In addition, any network equipment not required to support our network deployment plans or sparing requirements were written down to estimated salvage value.
During the year ended December 31, 2011, in connection with our plan to deploy LTE alongside our existing WiMAX network and the shift in management's strategic network deployment plans to focus on areas with high usage concentration, any projects that no longer fit within the deployment plans were abandoned and the related costs were written down to salvage value. Additionally, in connection with our savings initiatives, we continually review our tower leases and evaluate whether such towers fit within management's deployment plans. In connection therewith, certain tower leases have been terminated, and when early termination was not available under the terms of the lease, we advised our landlords of our intention not to renew.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The costs for projects included in construction in progress related to leases for which we have initiated such terminations were written down. See Note 3, Charges Resulting from Cost Savings Initiatives, for a discussion of the costs associated with lease terminations.
We incurred the following charges associated with PP&E for the years ended
December 31, 2012
,
2011
and
2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Abandonment of network projects no longer meeting strategic network plans
|
$
|
81,642
|
|
|
$
|
397,204
|
|
|
$
|
180,001
|
|
Abandonment of network projects associated with terminated leases
|
—
|
|
|
233,468
|
|
|
—
|
|
Abandonment of corporate projects
|
564
|
|
|
69,669
|
|
|
—
|
|
Total loss from abandonment of network and other assets
|
82,206
|
|
|
700,341
|
|
|
180,001
|
|
Charges for disposal and differences between recorded amounts and results of physical counts
(1)(2)
|
30,961
|
|
|
56,188
|
|
|
100,110
|
|
Charges for excessive and obsolete equipment
(1)
|
58,613
|
|
|
209,912
|
|
|
65,616
|
|
Total losses on property, plant and equipment
|
$
|
171,780
|
|
|
$
|
966,441
|
|
|
$
|
345,727
|
|
(1)
Included in Cost of goods and services and network costs on the consolidated statements of operations.
|
|
(2)
|
For the year ended
December 31, 2012
,
$14.0 million
related to retail operations is included in Selling, general and administrative expense on the consolidated statements of operations.
|
During the third quarter of 2012, based on the LTE equipment vendor selection process and compatibility of existing network equipment, we identified a portion of WiMAX network equipment that we are planning to change or upgrade during our deployment of LTE technology. We concluded that the useful lives of certain WiMAX equipment should be accelerated beginning in the third quarter of 2012. This resulted in the weighted-average remaining useful life of WiMAX network assets to decrease from approximately
four years
to approximately
three years
based on the expected date of equipment removal. We will continue to monitor the estimated useful lives of our network assets as our plans evolve.
Owned and leased spectrum licenses as of
December 31, 2012
and
2011
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
|
Gross Carrying
Value
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
|
Gross Carrying
Value
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
Indefinite-lived owned spectrum
|
|
$
|
3,104,129
|
|
|
$
|
—
|
|
|
$
|
3,104,129
|
|
|
$
|
3,098,983
|
|
|
$
|
—
|
|
|
$
|
3,098,983
|
|
Spectrum leases and prepaid spectrum
|
|
1,370,317
|
|
|
(237,317
|
)
|
|
1,133,000
|
|
|
1,364,907
|
|
|
(181,033
|
)
|
|
1,183,874
|
|
Pending spectrum and transition costs
|
|
12,492
|
|
|
—
|
|
|
12,492
|
|
|
15,397
|
|
|
—
|
|
|
15,397
|
|
Total spectrum licenses
|
|
$
|
4,486,938
|
|
|
$
|
(237,317
|
)
|
|
$
|
4,249,621
|
|
|
$
|
4,479,287
|
|
|
$
|
(181,033
|
)
|
|
$
|
4,298,254
|
|
Indefinite-lived Owned Spectrum Licenses
— Spectrum licenses, which are issued on both a site-specific and a wide-area basis, authorize wireless carriers to use radio frequency spectrum to provide service to certain geographical areas in the United States. These licenses are generally acquired as an asset purchase or through a business combination. In some cases, we acquire licenses directly from the governmental authority.
Spectrum Leases and Prepaid Spectrum
— We also lease spectrum from third parties who hold the spectrum licenses. These leases are accounted for as executory contracts, which are treated like operating leases. Upfront consideration paid to third-party holders of these leased licenses at the inception of a lease agreement is capitalized as prepaid spectrum lease costs and is expensed over the term of the lease agreement, including expected renewal terms, as applicable. Favorable spectrum leases of
$1.0 billion
were recorded as an asset as a result of purchase accounting in November 2008 and are amortized over the lease term.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Supplemental Information (in thousands):
|
|
|
|
|
|
|
|
Amortization of prepaid and other spectrum licenses
|
$
|
56,554
|
|
|
$
|
55,870
|
|
|
$
|
59,653
|
|
As of
December 31, 2012
, future amortization of spectrum licenses, spectrum leases and prepaid lease costs (excluding pending spectrum and spectrum transition costs) is expected to be as follows (in thousands):
|
|
|
|
|
|
Total
|
2013
|
$
|
54,401
|
|
2014
|
54,108
|
|
2015
|
53,351
|
|
2016
|
52,805
|
|
2017
|
51,385
|
|
Thereafter
|
866,950
|
|
Total
|
$
|
1,133,000
|
|
|
|
7.
|
Other Intangible Assets
|
Other intangible assets as of
December 31, 2012
and
2011
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
Useful lives
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
Subscriber relationships
|
7 years
|
|
$
|
108,275
|
|
|
$
|
(86,040
|
)
|
|
$
|
22,235
|
|
|
$
|
108,275
|
|
|
$
|
(70,894
|
)
|
|
$
|
37,381
|
|
Trade names and trademarks
|
5 years
|
|
3,804
|
|
|
(3,106
|
)
|
|
698
|
|
|
3,804
|
|
|
(2,346
|
)
|
|
1,458
|
|
Patents and other
|
10 years
|
|
3,270
|
|
|
(1,543
|
)
|
|
1,727
|
|
|
3,228
|
|
|
(1,217
|
)
|
|
2,011
|
|
Total other intangibles
|
|
|
$
|
115,349
|
|
|
$
|
(90,689
|
)
|
|
$
|
24,660
|
|
|
$
|
115,307
|
|
|
$
|
(74,457
|
)
|
|
$
|
40,850
|
|
As of
December 31, 2012
, the future amortization of other intangible assets is expected to be as follows (in thousands):
|
|
|
|
|
2013
|
$
|
12,302
|
|
2014
|
7,737
|
|
2015
|
3,871
|
|
2016
|
326
|
|
2017
|
326
|
|
Thereafter
|
98
|
|
Total
|
$
|
24,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Supplemental Information (in thousands):
|
|
|
|
|
|
|
|
|
Amortization expense
|
$
|
16,232
|
|
|
$
|
20,096
|
|
|
$
|
23,933
|
|
We evaluate all of our patent renewals on a case by case basis, based on renewal costs.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
8.
|
Supplemental Information on Liabilities
|
Current liabilities
Current liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Accounts payable and accrued expenses:
|
|
|
|
|
|
Accounts payable
|
$
|
83,701
|
|
|
$
|
65,285
|
|
Accrued interest
|
42,786
|
|
|
39,980
|
|
Salaries and benefits
|
22,010
|
|
|
29,075
|
|
Business and income taxes payable
|
20,363
|
|
|
15,304
|
|
Other accrued expenses
|
8,995
|
|
|
7,528
|
|
Total accounts payable and accrued expenses
|
177,855
|
|
|
157,172
|
|
Other current liabilities:
|
|
|
|
|
|
Derivative instruments
|
5,333
|
|
|
8,240
|
|
Deferred revenues
(1)
|
124,466
|
|
|
36,691
|
|
Current portion of long-term debt
|
36,080
|
|
|
26,474
|
|
Cease-to-use lease liability
(1)(2)
|
48,425
|
|
|
45,645
|
|
Other
(1)
|
13,306
|
|
|
5,706
|
|
Total other current liabilities
|
227,610
|
|
|
122,756
|
|
Total
|
$
|
405,465
|
|
|
$
|
279,928
|
|
Other long-term liabilities
Other long-term liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Deferred rents associated with tower and spectrum leases
(1)
|
$
|
717,741
|
|
|
$
|
555,838
|
|
Cease-to-use liability
(1)(2)
|
114,284
|
|
|
117,000
|
|
Deferred revenue
(1)
|
83,887
|
|
|
1,207
|
|
Other
(1)
|
47,441
|
|
|
45,658
|
|
Total
|
$
|
963,353
|
|
|
$
|
719,703
|
|
(1)
See Note 17, Related Party Transactions, for further detail regarding balances with related parties.
(2)
See Note 3, Charges Resulting from Cost Savings Initiatives, for further information.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The income tax provision consists of the following for the years ended
December 31, 2012
,
2011
and
2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Current taxes:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
International
|
—
|
|
|
(59
|
)
|
|
161
|
|
State
|
1,800
|
|
|
1,579
|
|
|
700
|
|
Total current taxes
|
1,800
|
|
|
1,520
|
|
|
861
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
Federal
|
(182,520
|
)
|
|
96,292
|
|
|
—
|
|
International
|
—
|
|
|
—
|
|
|
357
|
|
State
|
(16,679
|
)
|
|
9,016
|
|
|
—
|
|
Total deferred taxes
|
(199,199
|
)
|
|
105,308
|
|
|
357
|
|
Income tax (benefit) provision
|
$
|
(197,399
|
)
|
|
$
|
106,828
|
|
|
$
|
1,218
|
|
The income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Federal statutory income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes (net of federal benefit)
|
0.7
|
|
|
0.7
|
|
|
1.0
|
|
Non-controlling interest
|
(21.3
|
)
|
|
(27.5
|
)
|
|
(27.6
|
)
|
Other, net
|
0.1
|
|
|
(1.4
|
)
|
|
0.1
|
|
Allocation to items of equity other than other comprehensive income
|
(1.2
|
)
|
|
1.7
|
|
|
—
|
|
Valuation allowance
|
(3.1
|
)
|
|
(12.4
|
)
|
|
(8.6
|
)
|
Effective income tax rate
|
10.2
|
%
|
|
(3.9
|
)%
|
|
(0.1
|
)%
|
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Components of deferred tax assets and liabilities as of
December 31, 2012
and
2011
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
Net operating loss carryforward
|
$
|
553,195
|
|
|
$
|
1,157,983
|
|
Capital loss carryforward
|
221,453
|
|
|
5,818
|
|
Other assets
|
625
|
|
|
2,381
|
|
Total deferred tax assets
|
775,273
|
|
|
1,166,182
|
|
Valuation allowance
|
(458,935
|
)
|
|
(1,003,633
|
)
|
Net deferred tax assets
|
316,338
|
|
|
162,549
|
|
Noncurrent deferred tax liabilities:
|
|
|
|
|
|
Investment in Clearwire Communications
|
460,834
|
|
|
314,609
|
|
Other
|
(504
|
)
|
|
122
|
|
Total deferred tax liabilities
|
460,330
|
|
|
314,731
|
|
Net deferred tax liabilities
|
$
|
143,992
|
|
|
$
|
152,182
|
|
We determine deferred income taxes based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities using the tax rates expected to be in effect when any temporary differences reverse or when the net operating loss, which we refer to as NOL, capital loss or tax credit carry-forwards are utilized.
As of
December 31, 2012
, excluding NOL carry-forwards that we permanently will be unable to use (as discussed below), we had United States federal tax NOL carry-forwards of approximately
$1.26 billion
of which
$1.12 billion
is subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. The NOL carry-forwards begin to expire in
2021
. We had
$255.2 million
of tax NOL carry-forwards in foreign jurisdictions;
$243.9 million
have no statutory expiration date, and
$11.3 million
begins to expire in
2015
. We also have federal capital loss carry-forwards of
$583.5 million
which is also subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. The capital loss carry-forwards begin to expire between
2015
and
2017
. Our U.S. federal NOL carry-forwards and capital loss carry-forwards in total are subject to the annual limitations imposed under Section 382 of the Internal Revenue Code. We currently do not project that the Company will generate capital gain income to utilize the capital loss carry-forwards. However, if the Company generates sufficient capital gain income to enable utilization of capital loss carry-forwards in excess of
$382.4 million
, then NOL carry-forwards of up to
$201.1 million
may no longer be available to offset future taxable income.
We have recorded a valuation allowance against our deferred tax assets to the extent that we determined that it is more likely than not that these items will either expire before we are able to realize their benefits or that future deductibility is uncertain. As it relates to the United States tax jurisdiction, we determined that our temporary taxable difference associated with our investment in Clearwire Communications LLC, which we refer to as Clearwire Communications, will not fully reverse within the carry-forward period of the NOLs and accordingly does not represent relevant future taxable income.
Time Warner Cable Inc., which we refer to as Time Warner Cable, exchanged
46.4 million
Class B Common Interests, and a corresponding number of shares of Class B Common Stock, for an equal number of shares of Class A Common Stock, and which we refer to as the Time Warner Exchange, on September 13, 2012. Comcast Corporation, which we refer to as Comcast, exchanged
88.5 million
Class B Common Interests and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock, which we refer to as the Comcast Exchange, on September 27, 2012, BHN Spectrum Investments, LLC, which we refer to as Bright House, exchanged
8.5 million
Class B Common Interests and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock, which we refer to as the Bright House Exchange, on October 17, 2012. The Time Warner Exchange, Comcast Exchange and Bright House Exchange resulted in significant changes to the financial statement and tax basis, respectively, that Clearwire has in its interest in Clearwire Communications, as well as, an increase in the amount of temporary differences which will reverse within the NOL carryforward period (see discussion below).
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Our deferred tax assets primarily represent NOL carry-forwards associated with Clearwire's operations prior to the formation of the Company on November 28, 2008 and the portion of the partnership losses allocated to Clearwire after the formation of the Company. The Company is subject to a change in control test under Section 382 of the Internal Revenue Code, that if met, would limit the annual utilization of any pre-change in control NOL carryforward as well as the ability to use certain unrealized built in losses as future tax deductions. We believe that the Comcast Exchange, which occurred on September 27, 2012, when combined with other issuances of our Class A Common Stock and certain third party investor transactions involving our Class A Common Stock since December 13, 2011, resulted in a change in control under Section 382 of the Internal Revenue Code. As a result of this change in control and the change in control that occurred on December 13, 2011, we believe that we permanently will be unable to use a significant portion of our NOL carry-forwards and credit carry-forwards, which are collectively referred to as tax attributes, that arose before the change in control to offset future taxable income. As a result of the annual limitations under Sections 382 and 383 of the Internal Revenue Code on the utilization of tax attributes following an ownership change, it was determined that approximately
$2.11 billion
of United States NOL carry-forwards will expire unutilized. The United States tax attributes are presented net of these limitations. In addition, subsequent changes of ownership for purposes of Sections 382 and 383 of the Internal Revenue Code could further diminish our use of remaining United States tax attributes.
We have recognized a deferred tax liability for the difference between the financial statement carrying value and the tax basis of the partnership interest. As it relates to the United States tax jurisdiction, we determined that our temporary taxable difference associated with our investment in the partnership will not completely reverse within the carry-forward period of the NOLs. The portion of such temporary difference that will reverse within the carry-forward period of the NOLs represents relevant future taxable income. Management has reviewed the facts and circumstances, including the history of NOLs, projected future tax losses, and determined that it is appropriate to record a valuation allowance against the portion of our deferred tax assets that are not deemed realizable. As a result of the Time Warner Exchange, the Comcast Exchange and the Bright House Exchange, there was an increase in the amount of temporary difference which will reverse within the NOL carry-forward period. Therefore, management determined that it was appropriate to reduce the valuation allowance recorded against our deferred tax assets, along with recording a corresponding deferred tax benefit for our continuing operations. The income tax benefit reflected in our condensed consolidated statements of operations for continuing operations primarily reflects United States deferred taxes net of certain state taxes.
We file income tax returns for Clearwire and our subsidiaries in the United States federal jurisdiction and various state and foreign jurisdictions. As of
December 31, 2012
, the tax returns for Clearwire for the years 2003 through 2011 remain open to examination by the Internal Revenue Service and various state tax authorities.
During 2012, we completed the sale of our operations in Spain, Germany and Belgium (See Note 18, Discontinued Operations, for further information). As a result, certain intercompany loans related to our international operations are considered uncollectible for United States federal income tax purposes and, as a result, there was an increase to our deferred tax liability of approximately
$167.2 million
along with a corresponding deferred tax expense for our discontinued operations. The increase to deferred tax assets as a result of the additional tax losses was fully offset by a corresponding increase to the valuation allowance recorded against our deferred tax assets.
Our policy is to recognize any interest related to unrecognized tax benefits in interest expense or interest income. We recognize penalties as additional income tax expense. As of
December 31, 2012
, we had
no
material uncertain tax positions and therefore accrued no interest or penalties related to uncertain tax positions.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-term debt at
December 31, 2012
and
2011
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Interest
Rates
|
|
Effective
Rate
(1)
|
|
Maturities
|
|
Par
Amount
|
|
Net
Discount
|
|
Carrying
Value
|
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Senior Secured Notes
|
12.00%
|
|
12.92%
|
|
2015
|
|
$
|
2,947,494
|
|
|
$
|
(27,900
|
)
|
|
$
|
2,919,594
|
|
2016 Senior Secured Notes
|
14.75%
|
|
15.36%
|
|
2016
|
|
300,000
|
|
|
—
|
|
|
300,000
|
|
Second-Priority Secured Notes
|
12.00%
|
|
12.42%
|
|
2017
|
|
500,000
|
|
|
—
|
|
|
500,000
|
|
Exchangeable Notes
|
8.25%
|
|
16.93%
|
|
2040
|
|
629,250
|
|
|
(165,050
|
)
|
|
464,200
|
|
Vendor Financing Notes
(3)
|
LIBOR based
(2)
|
|
6.37%
|
|
2014/2015
|
|
32,056
|
|
|
(51
|
)
|
|
32,005
|
|
Capital lease obligations and other
(3)
|
|
|
|
|
|
|
91,638
|
|
|
—
|
|
|
91,638
|
|
Total debt, net
|
|
|
|
|
|
|
$
|
4,500,438
|
|
|
$
|
(193,001
|
)
|
|
4,307,437
|
|
Less: Current portion of Vendor Financing Notes and capital lease obligations and other
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,080
|
)
|
Total long-term debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,271,357
|
|
_______________________________________
|
|
(1)
|
Represents weighted average effective interest rate based on year-end balances.
|
|
|
(2)
|
Coupon rate based on
3-month
LIBOR plus a spread of
5.50%
(secured) and
7.00%
(unsecured). Included in the balance are unsecured notes with par amount of
$4.6 million
at
December 31, 2012
.
|
|
|
(3)
|
As of
December 31, 2012
, par amount of approximately
$118.8 million
is secured by assets classified as Network and base station equipment. The remaining par amount is unsecured.
|
|
|
(4)
|
Included in Other current liabilities on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Interest
Rates
|
|
Effective
Rate
(1)
|
|
Maturities
|
|
Par
Amount
|
|
Net
Discount
|
|
Carrying
Value
|
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
2015 Senior Secured Notes
|
12.00%
|
|
12.92%
|
|
2015
|
|
$
|
2,947,494
|
|
|
$
|
(35,272
|
)
|
|
$
|
2,912,222
|
|
Second-Priority Secured Notes
|
12.00%
|
|
12.42%
|
|
2017
|
|
500,000
|
|
|
—
|
|
|
500,000
|
|
Exchangeable Notes
|
8.25%
|
|
16.66%
|
|
2040
|
|
729,250
|
|
|
(209,259
|
)
|
|
519,991
|
|
Vendor Financing Notes
(3)
|
LIBOR based
(2)
|
|
6.19%
|
|
2014/2015
|
|
48,379
|
|
|
(103
|
)
|
|
48,276
|
|
Capital lease obligations
(3)
|
|
|
|
|
|
|
65,590
|
|
|
—
|
|
|
65,590
|
|
Total debt, net
|
|
|
|
|
|
|
$
|
4,290,713
|
|
|
$
|
(244,634
|
)
|
|
4,046,079
|
|
Less: Current portion of Vendor Financing Notes and capital lease obligations
(4)
|
|
|
|
|
|
|
|
|
|
|
(26,474
|
)
|
Total long-term debt, net
|
|
|
|
|
|
|
|
|
|
|
$
|
4,019,605
|
|
_______________________________________
|
|
(1)
|
Represents weighted average effective interest rate based on year-end balances.
|
|
|
(2)
|
Coupon rate based on
3-month
LIBOR plus a spread of
5.50%
.
|
|
|
(3)
|
As of
December 31, 2011
, par amount of approximately
$114.0 million
is secured by assets classified as Network and base station equipment.
|
|
|
(4)
|
Included in Other current liabilities on the consolidated balance sheet.
|
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Notes
2015 Senior Secured Notes
— During the fourth quarter of 2009, Clearwire Communications completed offerings of
$2.52 billion
12%
senior secured notes due
2015
, which we refer to as the 2015 Senior Secured Notes. The 2015 Senior Secured Notes provide for bi-annual payments of interest in June and December. In connection with the issuance of the 2015 Senior Secured Notes, we also issued
$252.5 million
of notes to Sprint and Comcast with identical terms as the 2015 Senior Secured Notes in replacement of equal amounts of indebtedness under the senior term loan facility.
During December 2010, Clearwire Communications issued an additional
$175.0 million
of 2015 Senior Secured Notes with substantially the same terms.
The holders of the 2015 Senior Secured Notes have the right to require us to repurchase all of the notes upon the occurrence of certain change of control events or a sale of certain assets, at a price of
101%
of the principal amount or
100%
of the principal amount, respectively, plus any unpaid accrued interest to the repurchase date. Change of control excludes a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. As of December 1, 2012, we may redeem all or a part of the 2015 Senior Secured Notes by paying a make-whole premium as stated in the terms, plus any unpaid accrued interest to the repurchase date.
Our payment obligations under the 2015 Senior Secured Notes are guaranteed by certain domestic subsidiaries on a senior basis and secured by certain assets of such subsidiaries on a first-priority lien basis. The 2015 Senior Secured Notes contain limitations on our activities, which among other things include incurring additional indebtedness and guarantee indebtedness; making distributions or payment of dividends or certain other restricted payments or investments; making certain payments on indebtedness; entering into agreements that restrict distributions from restricted subsidiaries; selling or otherwise disposing of assets; merger, consolidation or sales of substantially all of our assets; entering transactions with affiliates; creating liens; issuing certain preferred stock or similar equity securities and making investments and acquiring assets.
2016 Senior Secured Notes
— In January 2012, Clearwire Communications completed an offering of senior secured notes with a par value of
$300.0 million
, due
2016
and bearing interest at
14.75%
, which we refer to as the 2016 Senior Secured Notes. Clearwire Communications received proceeds of
$293.8 million
, net of debt issuance costs, from the offering. The 2016 Senior Secured Notes provide for bi-annual payments of interest in June and December.
The holders of the 2016 Senior Secured Notes have the right to require us to repurchase all of the notes upon the occurrence of specific kinds of changes of control at a price of
101%
of the principal plus any unpaid accrued interest to the repurchase date. Change of control excludes a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. Under certain circumstances, Clearwire Communications will be required to use the net proceeds from the sale of assets to make an offer to purchase the 2016 Senior Secured Notes at an offer price equal to
100%
of the principal amount plus any unpaid accrued interest.
Our payment obligations under the 2016 Senior Secured Notes are guaranteed by certain domestic subsidiaries on a senior basis and secured by certain assets of such subsidiaries on a first-priority lien basis. The 2016 Senior Secured Notes contain the same limitations on our activities as those of the 2015 Senior Secured Notes.
Second-Priority Secured Notes
— During December 2010, Clearwire Communications completed an offering of
$500.0 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 of interest in June and December.
The holders of the Second-Priority Secured Notes have the right to require us to repurchase all of the notes upon the occurrence of certain change of control events or a sale of certain assets at a price of
101%
of the principal amount or
100%
of the principal amount, respectively, plus any unpaid accrued interest to the repurchase date. Change of control excludes a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. Prior to December 1, 2013, we may redeem up to
35%
of the aggregate principal amount of the Second-Priority Secured Notes at a redemption price of
112%
of the aggregate principal amount, plus any unpaid accrued interest to the repurchase date. After December 1, 2014, we may redeem all or a part of the Second-Priority Secured Notes by paying a make-whole premium as stated in the terms, plus any unpaid accrued interest to the repurchase date.
Our payment obligations under the Second-Priority Secured Notes are guaranteed by certain domestic subsidiaries on a senior basis and secured by certain assets of such subsidiaries on a second-priority lien basis. The Second-Priority Secured Notes contain the same limitations on our activities as those of the 2015 Senior Secured Notes.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Exchangeable Notes
— During December 2010, Clearwire Communications completed offerings of
$729.2 million
8.25%
exchangeable notes due
2040
, which we refer to as the Exchangeable Notes. The Exchangeable Notes provide for bi-annual payments of interest in June and December. The Exchangeable Notes are subordinated to the 2015 Senior Secured Notes and 2016 Senior Secured Notes and rank equally in right of payment with the Second-Priority Secured Notes.
The holders of the Exchangeable Notes have the right to exchange their notes for Class A Common Stock, at any time, prior to the maturity date. We have the right to settle the exchange by delivering cash or shares of Class A Common Stock, subject to certain conditions. The initial exchange rate for each note is
141.2429
shares per
$1,000
note, equivalent to an initial exchange price of approximately
$7.08
per share, subject to adjustments upon the occurrence of certain corporate events, which we refer to as the Exchangeable Notes Exchange Rate. Upon exchange, we will not make additional cash payment or provide additional shares for accrued or unpaid interest, make-whole premium or additional interest.
The holders of the Exchangeable Notes have the right to require us to repurchase all of the notes upon the occurrence of a fundamental change, including a change of control, event at a price of
100%
of the principal amount plus any unpaid accrued interest to the repurchase date. The holders who elect to exchange the Exchangeable Notes in connection with the occurrence of a fundamental change will be entitled to additional shares that are specified based on the date on which such event occurs and the price paid per share of Class A Common Stock in the fundamental change, with a maximum number of shares issuable per note not to exceed
169.4915
shares per
$1,000
note. If our stock price is less than
$5.90
per share, subject to certain adjustments, no additional shares shall be added to the exchange rate. In the event the Proposed Merger is consummated, in accordance with the Merger Agreement the right to exchange each $1,000 note shall be changed to the right to exchange such principal amount of Exchangeable Notes into cash equal to the product of the $2.97 per share, which we refer to as the Merger Consideration, multiplied by the Exchangeable Notes Exchange Rate.
The holders of the Exchangeable Notes have the option to require us to repurchase for cash the Exchangeable Notes on
December 1, 2017, 2025, 2030 and 2035
at a price equal to 100% of the principal amount of the notes plus any unpaid accrued interest to the repurchase date. On or after December 1, 2017, we may, at our option, redeem all or part of the Exchangeable Notes at a price equal to
100%
of the principal amount of the notes plus any unpaid accrued interest to the redemption date.
Our payment obligations under the Exchangeable Notes are guaranteed by certain domestic subsidiaries in the same priority as the Second-Priority Secured Notes.
Upon issuance of the Exchangeable Notes, we recognized a derivative liability representing the embedded exchange feature with an estimated fair value of
$231.5 million
and an associated debt discount on the Exchangeable Notes. The discount is accreted over the expected life, approximately
7
years, of the Exchangeable Notes using the effective interest rate method. See Note 11, Derivative Instruments, for additional discussion of the derivative liability.
During the first quarter of 2012, Clearwire and Clearwire Communications entered into securities purchase agreements with certain institutional investors, which we refer to as the Exchange Transaction, pursuant to which Clearwire issued
38.0 million
shares of Class A Common Stock for an aggregate price of
$83.5 million
, which we refer to as the Purchase Price, and Clearwire Communications repurchased
$100.0 million
in aggregate principal amount, plus accrued but unpaid interest, of its Exchangeable Notes for a total price equal to the Purchase Price. Due to the significant discount resulting from the recognition of the exchange options as a separate derivative liability upon the issuance of the Exchange Notes, extinguishment of the Exchangeable Notes in the Exchange Transaction resulted in a loss of
$10.1 million
recorded in Other income (expense), net of the consolidated statements of operations.
At December 31, 2012, we were in compliance with our debt covenants.
Vendor Financing Notes
We have a vendor financing facility, which we refer to as the Vendor Financing Facility, which allows us to obtain financing by entering into notes, which we refer to as Vendor Financing Notes. The Vendor Financing Notes mature during
2014
and
2015
and the coupon rates are based on
3-month
LIBOR plus a spread of
5.50%
and
7.00%
for secured and unsecured notes, respectively.
Capital Lease Obligations
Certain of our network equipment have been acquired under capital lease facilities. At the inception of the capital lease, the lower of either the present value of the minimum lease payments required by the lease or the fair value of the equipment, is
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
recorded as a capital lease obligation. The initial non-cancelable term of these capital leases are
three
to
twelve
years and may include one or more renewal options at the end of the initial lease term that may be exercised at our discretion. Lease payments for the initial lease term and any fixed renewal periods are established at the inception of the lease and interest expense is recognized using the effective interest rate method based on the rate imputed using the contractual terms of the lease.
Our lease agreements may contain change of control provisions. In certain agreements, a change of control may exclude a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. Other agreements may reference circumstances involving a change of control resulting in Clearwire's credit rating falling below “Caa1” as rated by Moody's Investors Service. Upon the occurrence of a change of control, the lessor may require payment of a predetermined casualty value of the leased equipment
Future Payments
— For future payments on our long-term debt see Note 13, Commitments and Contingencies.
Interest Expense
— Interest expense included in our consolidated statements of operations for the years ended
December 31, 2012
,
2011
and
2010
, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Interest coupon
(1)
|
$
|
518,671
|
|
|
$
|
484,599
|
|
|
$
|
346,984
|
|
Accretion of debt discount and amortization of debt premium, net
(2)
|
41,386
|
|
|
40,216
|
|
|
14,479
|
|
Capitalized interest
|
(6,598
|
)
|
|
(18,823
|
)
|
|
(208,595
|
)
|
Total interest expense
|
$
|
553,459
|
|
|
$
|
505,992
|
|
|
$
|
152,868
|
|
_______________________________________
|
|
(1)
|
The year ended
December 31, 2012
included
$2.5 million
of coupon interest relating to the Exchangeable Notes, which was settled in the non-cash Exchange Transaction.
|
|
|
(2)
|
Includes non-cash amortization of deferred financing fees which are classified as Other assets on the consolidated balance sheets.
|
|
|
11.
|
Derivative Instruments
|
The holders’ exchange rights contained in the Exchangeable Notes constitute embedded derivative instruments that are required to be accounted for separately from the debt host instrument at fair value. As a result, upon the issuance of the Exchangeable Notes, we recognized Exchange Options, with an estimated fair value of
$231.5 million
as a derivative liability. As a result of the Exchange Transaction,
$100.0 million
in par value of the Exchangeable Notes were retired and the related Exchange Options, with a notional amount of
14.1 million
shares, were settled at fair value. The Exchange Options are indexed to Class A Common Stock, have a notional amount of
88.9 million
and
103.0 million
shares at
December 31, 2012
and
2011
, respectively, 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, 2012
and
2011
, the Exchange Options’ estimated fair value of
$5.3 million
and
$8.2 million
, respectively, was reported in Other current liabilities on our consolidated balance sheets. For the years ended
December 31, 2012
,
2011
and
2010
, we recognized gains of
$1.4 million
,
$159.7 million
and
$63.6 million
, respectively, from the changes in the estimated fair value in Gains on derivative instruments in our consolidated statements of operations. See Note 12, Fair Value, for information regarding valuation of the Exchange Options.
In addition, in the event of an issuance of New Securities, certain existing equityholders are entitled to the pre-emptive rights which allow them to purchase their pro-rata share of the New Securities at the issuance price less any underwriting discounts. This right is considered a derivative that is required to be recorded at fair value and has a payment provision based on the existing equityholders' pro-rata ownership interest in Clearwire. We do not apply hedge accounting to this derivative. A portion of the derivative was settled on December 13, 2011 with the issuance of Class B Common Stock and Class B Common Interests to Sprint and we recorded a charge of
$15.9 million
for the year ended December 31, 2011 in Gains on derivative instruments in our consolidated statements of operations representing the value of the derivative. The fair value of this derivative is determined by, among other things, the probability of a New Securities issuance, the probability that existing equityholders will participate in any new issuance and the extent of their participation, if any.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is a description of the valuation methodologies and pricing assumptions we used for financial instruments measured and recorded at fair value on a recurring basis in our financial statements and the classification of such instruments pursuant to the valuation hierarchy.
Cash Equivalents and Investments
Where quoted prices for identical securities are available in an active market, we use quoted market prices to determine the fair value of investment securities and cash equivalents, and they are classified in Level 1 of the valuation hierarchy. Level 1 securities include U.S. Government Treasury Bills, actively traded U.S. Government Treasury Notes and money market mutual funds for which there are quoted prices in active markets or quoted net asset values published by the money market mutual fund and supported in an active market.
Investments are classified in Level 2 of the valuation hierarchy for securities where quoted prices are available for similar investments in active markets or for identical or similar investments in markets that are not active and we use "consensus pricing" from independent external valuation sources. Level 2 securities include U.S. Government Agency Discount Notes and U.S. Government Agency Notes.
Derivatives
The Exchange Options are classified in Level 3 of the valuation hierarchy. To estimate the fair value of the Exchange Options, we use an income approach based on valuation models, including option pricing models and discounted cash flow models. We maximize the use of market-based observable inputs in the models and develop our own assumptions for unobservable inputs based on management estimates of market participants’ assumptions in pricing the instruments.
We use a trinomial option pricing model to estimate the fair value of the Exchange Options. The inputs include the contractual terms of the instrument and market-based parameters such as interest rate forward curves, stock price and dividend yield. A level of subjectivity is applied to estimate our stock price volatility input. The stock price volatility used in computing fair value of the Exchange Options at
December 31, 2012
of
25%
is based on our historical stock price volatility giving consideration to our estimates of market participant adjustments for general market conditions as well as company-specific factors such as market trading volume and our expected future performance. Holding all other pricing assumption constant, an increase or decrease of
10%
in our estimated stock volatility at
December 31, 2012
could result in a loss of
$13.3 million
, or a gain of
$5.3 million
, respectively.
The following table summarizes our financial assets and liabilities by level within the valuation hierarchy at
December 31, 2012
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Fair Value
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
193,455
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
193,455
|
|
Short-term investments
|
$
|
375,743
|
|
|
$
|
299,369
|
|
|
$
|
—
|
|
|
$
|
675,112
|
|
Other assets — derivative warrant assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
211
|
|
|
$
|
211
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Other current liabilities — derivative liabilities (Exchange Options)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5,333
|
)
|
|
$
|
(5,333
|
)
|
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, 2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Fair Value
|
Financial assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
891,929
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
891,929
|
|
Short-term investments
|
$
|
215,655
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
215,655
|
|
Other assets — derivative warrant assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
209
|
|
|
$
|
209
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Other current liabilities — derivative liabilities (Exchange Options)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8,240
|
)
|
|
$
|
(8,240
|
)
|
The following table presents the change in Level 3 financial assets and liabilities measured on a recurring basis for the year ended
December 31, 2012
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2012
|
|
Acquisitions,
Issuances and
Settlements
|
|
Net Realized/Unrealized
Gains
Included in
Earnings
|
|
Net Realized/Unrealized
Gains (Losses)
Included in
Accumulated
Other
Comprehensive
Income
|
|
December 31, 2012
|
|
Net Unrealized Gains (Losses) Included in 2012 Earnings Relating to Instruments Held at December 31, 2012
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
209
|
|
|
—
|
|
|
2
|
|
(1)
|
|
—
|
|
|
211
|
|
|
2
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
(8,240
|
)
|
|
1,553
|
|
|
1,354
|
|
(1)
|
|
—
|
|
|
(5,333
|
)
|
|
1,778
|
|
_____________________________________
|
|
(1)
|
Included in Gain on derivative instruments in the consolidated statements of operations.
|
The following table presents the change in Level 3 financial assets and liabilities measured on a recurring basis for the year ended
December 31, 2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
Acquisitions,
Issuances and
Settlements
|
|
Net Unrealized
Gains (Losses)
Included in
Earnings
|
|
Net Unrealized
Gains (Losses)
Included in
Accumulated
Other
Comprehensive
Income
|
|
December 31, 2011
|
|
Net Unrealized Gains (Losses) Included in 2011 Earnings Relating to Instruments Held at December 31, 2011
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities
|
$
|
15,251
|
|
|
$
|
(13,904
|
)
|
|
$
|
4,945
|
|
(1)
|
|
$
|
(6,292
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
292
|
|
|
(1,609
|
)
|
|
1,526
|
|
(2)
|
|
—
|
|
|
209
|
|
|
(84
|
)
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
(167,892
|
)
|
|
15,870
|
|
|
143,782
|
|
(2)
|
|
—
|
|
|
(8,240
|
)
|
|
159,652
|
|
______________________________________
|
|
(1)
|
Included in Other income (expense), net in the consolidated statements of operations.
|
|
|
(2)
|
Included in Gain on derivative instruments in the consolidated statements of operations.
|
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is the description of the fair value for financial instruments we hold that are not subject to fair value recognition.
Debt Instruments
The 2015 Senior Secured Notes, the 2016 Senior Secured Notes, the Second-Priority Secured Notes and the Exchangeable Notes are classified as Level 2 of the valuation hierarchy. To estimate the fair value of the 2015 Senior Secured Notes, the 2016 Senior Secured Notes, the Second-Priority Secured Notes and the Exchangeable Notes, we used the average indicative price from several market makers.
To estimate the fair value of the Vendor Financing Notes, we used an income approach based on the contractual terms of the notes and market-based parameters such as interest rates. As a result, they are classified as Level 3 of the valuation hierarchy. A level of subjectivity is applied to estimate the discount rate used to calculate the present value of the estimated cash flows.
The following table presents the carrying value and the approximate fair value of our outstanding debt instruments at
December 31, 2012
and
2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
2015 Senior Secured Notes
|
$
|
2,919,594
|
|
|
$
|
3,180,238
|
|
|
$
|
2,912,222
|
|
|
$
|
2,799,820
|
|
2016 Senior Secured Notes
|
$
|
300,000
|
|
|
$
|
414,375
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Second-Priority Secured Notes
|
$
|
500,000
|
|
|
$
|
591,565
|
|
|
$
|
500,000
|
|
|
$
|
425,000
|
|
Exchangeable Notes
(1)
|
$
|
464,200
|
|
|
$
|
689,598
|
|
|
$
|
519,991
|
|
|
$
|
446,134
|
|
Vendor Financing Notes
|
$
|
32,005
|
|
|
$
|
31,802
|
|
|
$
|
48,276
|
|
|
$
|
44,133
|
|
_______________________________________
|
|
(1)
|
Carrying value as of
December 31, 2012
and
2011
is net of
$165.1 million
and
$209.3 million
discount, respectively, arising from the separation of the Exchange Options from the debt host instrument. The fair value of the Exchangeable Notes incorporates the value of the exchange feature which we have recognized separately as a derivative on our consolidated balance sheets.
|
|
|
13.
|
Commitments and Contingencies
|
Future minimum cash payments under obligations for our continuing operations listed below (including all optional expected renewal periods on operating leases) as of
December 31, 2012
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
Thereafter,
including all
renewal periods
|
Long-term debt obligations
(1)
|
$
|
4,408,800
|
|
|
$
|
21,710
|
|
|
$
|
8,052
|
|
|
$
|
2,949,788
|
|
|
$
|
300,000
|
|
|
$
|
500,000
|
|
|
$
|
629,250
|
|
Interest payments on long-term debt obligations
(1)
|
2,993,616
|
|
|
511,353
|
|
|
510,234
|
|
|
509,951
|
|
|
156,163
|
|
|
111,913
|
|
|
1,194,002
|
|
Operating lease obligations
(2)
|
1,608,258
|
|
|
359,897
|
|
|
355,660
|
|
|
279,144
|
|
|
187,579
|
|
|
119,753
|
|
|
306,225
|
|
Operating lease payments for assumed renewal periods
(2)
|
7,873,690
|
|
|
2,414
|
|
|
31,521
|
|
|
110,132
|
|
|
197,886
|
|
|
263,397
|
|
|
7,268,340
|
|
Spectrum lease obligations
|
6,630,476
|
|
|
178,796
|
|
|
181,291
|
|
|
181,810
|
|
|
188,394
|
|
|
203,786
|
|
|
5,696,399
|
|
Spectrum service credits and signed spectrum agreements
|
102,799
|
|
|
4,853
|
|
|
3,896
|
|
|
3,896
|
|
|
3,896
|
|
|
3,896
|
|
|
82,362
|
|
Capital lease obligations
(3)
|
135,874
|
|
|
24,771
|
|
|
24,737
|
|
|
23,299
|
|
|
12,418
|
|
|
8,239
|
|
|
42,410
|
|
Purchase agreements
|
148,116
|
|
|
115,292
|
|
|
17,871
|
|
|
6,301
|
|
|
1,899
|
|
|
1,884
|
|
|
4,869
|
|
Total
|
$
|
23,901,629
|
|
|
$
|
1,219,086
|
|
|
$
|
1,133,262
|
|
|
$
|
4,064,321
|
|
|
$
|
1,048,235
|
|
|
$
|
1,212,868
|
|
|
$
|
15,223,857
|
|
_____________________________________
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
(1)
|
Principal and interest payments beyond 2017 represent potential principal and interest payments on the Exchangeable Notes beyond the expected repayment in 2017.
|
|
|
(2)
|
Includes executory costs of
$51.5 million
.
|
|
|
(3)
|
Payments include
$44.2 million
representing interest.
|
Expense recorded related to spectrum and operating leases was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Spectrum lease payments
|
$
|
181,949
|
|
|
$
|
169,353
|
|
|
$
|
179,741
|
|
Non-cash spectrum lease expense
|
90,521
|
|
|
85,666
|
|
|
42,819
|
|
Amortization of spectrum leases
|
54,328
|
|
|
53,674
|
|
|
57,433
|
|
Total spectrum lease expense
|
$
|
326,798
|
|
|
$
|
308,693
|
|
|
$
|
279,993
|
|
Operating lease expense
|
$
|
502,701
|
|
|
$
|
637,688
|
|
|
$
|
473,410
|
|
Operating lease obligations
— Our commitments for non-cancelable operating leases consist mainly of leased sites, including towers and rooftop locations, and office space. Certain of the leases provide for minimum lease payments, additional charges and escalation clauses. Operating leases generally have initial terms of
five
to
seven
years with multiple renewal options for additional
five
-year terms totaling between
20 and 25
years. Operating lease obligations in the table above include all lease payments for the contractual lease term including any remaining future lease payments for leases where notice of intent not to renew has been sent as a result of the lease termination initiatives describe in Note 3, Charges Resulting from Cost Savings Initiatives. Operating lease payments for assumed renewal periods include the expected renewal periods for those leases where renewal is likely. The effect of this change in estimate will be reflected in Cost of goods and services and network costs prospectively over the remaining expected term of the commitment.
Certain of the tower leases specify a minimum number of new leases to commence under a master agreement. Charges are incurred for the minimum commitment and are included in the table above.
Spectrum lease obligations
- Certain of the leases provide for minimum lease payments, additional charges and escalation clauses. Leased spectrum agreements have terms of up to
30
years and the weighted average remaining lease term at
December 31, 2012
was approximately
23
years, including renewal terms. We expect that all renewal periods in our spectrum leases will be renewed by us.
Spectrum service credits
- We have commitments to provide Clearwire services to certain lessors in launched markets, and to reimburse lessors for certain capital equipment and third-party service expenditures, over the term of the lease. We accrue a monthly obligation for the services and equipment based on the total estimated available service credits divided by the term of the lease. The obligation is reduced as actual invoices are presented and paid to the lessors. During the years ended
December 31, 2012
,
2011
and
2010
we satisfied
$3.3 million
,
$4.5 million
and
$1.0 million
, respectively, related to these commitments. The maximum remaining commitment at
December 31, 2012
is
$101.8 million
and is expected to be incurred over the term of the related lease agreements, which generally range from
15-30 years
.
Purchase agreements
- Included in the table above are purchase commitments with take-or-pay obligations and/or volume commitments for equipment that are non-cancelable. The table above also includes other obligations we have that include minimum purchase commitments with certain suppliers over time for goods and services regardless of whether suppliers fully deliver them. They include, among other things, agreements for backhaul, subscriber devices and IT related and other services.
In addition, we are party to various arrangements that are conditional in nature and create an obligation to make payments only upon the occurrence of certain events, such as the actual delivery and acceptance of products or services. Because it is not possible to predict the timing or amounts that may be due under these conditional arrangements, no such amounts have been included in the table above. The table above also excludes blanket purchase order amounts where the orders are subject to cancellation or termination at our discretion or where the quantity of goods or services to be purchased or the payment terms are unknown because such purchase orders are not firm commitments.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Legal proceedings
- As more fully described below, we are involved in a variety of lawsuits, claims, investigations and proceedings concerning intellectual property, business practices, commercial and other matters. We determine whether we should accrue an estimated loss for a contingency in a particular legal proceeding by assessing whether a loss is deemed probable and can be reasonably estimated. We reassess our views on estimated losses on a quarterly basis to reflect the impact of any developments in the matters in which we are involved. Legal proceedings are inherently unpredictable, and the matters in which we are involved often present complex legal and factual issues. We vigorously pursue defenses in legal proceedings and engage in discussions where possible to resolve these matters on terms favorable to us, including pursuing settlements where we believe it may be the most cost effective result for the Company. It is possible, however, that our business, financial condition and results of operations in future periods could be materially and adversely affected by increased litigation expense, significant settlement costs and/or unfavorable damage awards.
Consumer Purported Class Actions and Investigation(s)
In April 2009, a purported class action lawsuit was filed against Clearwire U.S. LLC in Superior Court in King County, Washington by a group of five plaintiffs (Chad Minnick, et al.). The lawsuit generally alleges that we disseminated false advertising about the quality and reliability of our services; imposed an unlawful early termination fee, which we refer to as ETF; and invoked allegedly unconscionable provisions of our Terms of Service to the detriment of subscribers. Among other things, the lawsuit seeks a determination that the alleged claims may be asserted on a class-wide basis; an order declaring certain provisions of our Terms of Service, including the ETF provision, void and unenforceable; an injunction prohibiting us from collecting ETFs and further false advertising; restitution of any ETFs paid by our subscribers; equitable relief; and an award of unspecified damages and attorneys' fees. Plaintiffs subsequently amended their complaint adding
seven
additional plaintiffs. We removed the case to the United States District Court for the Western District of Washington. On July 23, 2009, we filed a motion to dismiss the amended complaint. The Court stayed discovery pending its ruling on the motion, and on February 2, 2010, granted our motion to dismiss in its entirety. Plaintiffs appealed to the Ninth Circuit Court of Appeals. On March 29, 2011 the Court of Appeals entered an Order Certifying Question to the Supreme Court of Washington requesting guidance on a question of Washington state law. On May 23, 2012, the Washington Supreme Court issued a decision holding that an ETF is a permissible alternative performance provision. The Court of Appeals has stayed the matter. The parties have agreed to settle the lawsuit. On December 19, 2012, the Court granted final approval of the settlement and entered final judgment. On January 18, 2013, objectors appealed the Court's final judgment and settlement order to the Ninth Circuit Court of Appeals. We have accrued an estimated amount we anticipate to pay for the settlement in Other current liabilities. The amount accrued is considered immaterial to the financial statements.
In September 2009, a purported class action lawsuit was filed against Clearwire in King County Superior Court, brought by representative plaintiff Rosa Kwan. The complaint alleges we placed unlawful telephone calls using automatic dialing and announcing devices and engaged in unlawful collection practices. It seeks declaratory, injunctive, and/or equitable relief and actual and statutory damages under federal and state law. On October 1, 2009, we removed the case to the United States District Court for the Western District of Washington. The parties stipulated to allow a Second Amended Complaint, which plaintiffs filed on December 23, 2009. We then filed a motion to dismiss the amended complaint. On February 22, 2010, the Court granted our motion to dismiss in part, dismissing certain claims with prejudice and granting plaintiff leave to further amend the complaint. Plaintiff filed a Third Amended Complaint adding additional state law claims and joining Bureau of Recovery, a purported collection agency, as a co-defendant. On January 27, 2011, the court granted the parties' stipulation allowing plaintiff to file a Fourth Amended Complaint adding
two
new class representatives. We then filed motions to compel the newly-added customer plaintiffs to arbitrate their individual claims. On January 3, 2012, the Court denied without prejudice our motions to compel arbitration because of factual issues to be resolved at an evidentiary hearing. The parties stipulated to allow a Fifth Amended Complaint. The parties agreed to settle the lawsuit. On December 27, 2012, the Court granted preliminary approval of the settlement. We have accrued an estimated amount we anticipate to pay for the settlement in Other current liabilities. The amount accrued is considered immaterial to the financial statements. If the Court does not grant final approval of the settlement, this case will remain in the early stages of litigation and its outcome is unknown.
In November 2010, a purported class action lawsuit was filed against Clearwire by Angelo Dennings in the U.S. District Court for the Western District of Washington. The complaint generally alleges we slow network speeds when network demand is highest and that such network management violates our agreements with subscribers and is contrary to the Company's advertising and marketing claims. Plaintiffs also allege that subscribers do not review the Terms of Service prior to subscribing, and when subscribers cancel service due to network management, we charge an ETF or restocking fee that they claim is unconscionable under the circumstances. The claims asserted include breach of contract, breach of the covenant of good faith
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and fair dealing and unjust enrichment. Plaintiffs seek class certification; unspecified damages and restitution; a declaratory judgment that Clearwire's ETF and restocking fee are unconscionable under the alleged circumstances; an injunction prohibiting Clearwire from engaging in alleged deceptive marketing and from charging ETFs; interest; and attorneys' fees and costs. On January 13, 2011, we filed concurrent motions to compel arbitration and in the alternative, to dismiss the complaint for failure to state a claim upon which relief may be granted. In response to Clearwire's motions, plaintiff abandoned its fraud claim and amended its complaint with
fourteen
additional plaintiffs in
eight
separate jurisdictions. Plaintiff further added new claims of violation of Consumer Protection statutes under various state laws. On March 31, 2011, Clearwire filed concurrent motions to (1) compel the newly-added plaintiffs to arbitrate their individual claims, (2) alternatively, to stay this case pending the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion, No. 09-893, which we refer to as Concepcion, and (3) to dismiss the complaint for failure to state a claim upon which relief may be granted. Plaintiffs did not oppose Clearwire's motion to stay the litigation pending Concepcion, and the parties stipulated to stay the litigation. The parties agreed to settle the lawsuit. On December 19, 2012, the Court granted final approval of the settlement and entered final judgment. On January 18, 2013, objectors appealed the Court's final judgment and settlement order to the Ninth Circuit Court of Appeals. We have accrued an estimated amount we anticipate to pay for the settlement in Other current liabilities. The amount accrued is considered immaterial to the financial statements.
In March 2011, a purported class action was filed against Clearwire in the U.S. District Court for the Eastern District of California. The case, Newton v. Clearwire, Inc. [sic], alleges Clearwire's network management and advertising practices constitute breach of contract, unjust enrichment, unfair competition under California's Business and Professions Code Sections 17200 et seq., and violation of California's Consumers' Legal Remedies Act. Plaintiff contends Clearwire's advertisements of “no speed cap” and “unlimited data” are false and misleading. Plaintiff alleges Clearwire has breached its contracts with customers by not delivering the Internet service as advertised. Plaintiff also claims slow data speeds are due to Clearwire's network management practices. Plaintiff seeks class certification; declaratory and injunctive relief; unspecified restitution and/or disgorgement of fees paid for Clearwire service; and unspecified damages, interest, fees and costs. On June 9, 2011, Clearwire filed a motion to compel arbitration. The parties agreed to settle the lawsuit. On December 19, 2012, the Court granted final approval of the settlement and entered final judgment. On January 18, 2013, objectors appealed the Court's final judgment and settlement order to the Ninth Circuit Court of Appeals. We have accrued an estimated amount we anticipate to pay for the settlement in Other current liabilities. The amount accrued is considered immaterial to the financial statements.
In August 2012, Richard Wuest filed a purported class action against Clearwire in the California Superior Court, San Francisco County. Plaintiff alleges that Clearwire violated California's Invasion of Privacy Act, Penal Code 630, notably §632.7, which prohibits the recording of communications made from a cellular or cordless telephone without the consent of all parties to the communication. Plaintiff seeks statutory damages and injunctive relief, costs, attorney fees, pre and post judgment interest. Clearwire removed the matter to federal court. On November 2, 2012, Clearwire filed an answer to the complaint. The litigation is in the early stages, its outcome is unknown and an estimate of any potential loss cannot be made at this time.
On September 6, 2012, the Washington State Attorney General's Office served on Clearwire Corporation a Civil Investigative Demand pursuant to RCW 19.86.110. The demand seeks information and documents in furtherance of the Attorney General Office's investigation of possible unfair trade practices, failure to properly disclose contractual terms, and misleading advertising. On October 22, 2012, Clearwire responded to the demand.
Purported Shareholder Class Actions: Delaware Actions
On December 12, 2012, stockholder Crest Financial Limited, which we refer to as Crest, filed a putative class action lawsuit in Delaware Court of Chancery against the Company, its directors, Sprint, Sprint Holdco LLC and Eagle River, purportedly brought on behalf of the public stockholders of the Company. On December 14, 2012, plaintiff filed an amended complaint, and on January 2, 2013, plaintiff filed a second amended complaint. Also, on December 12, 2012, the plaintiff filed a motion seeking an expedited trial. Following a hearing on January 10, 2013, the Court denied the motion to expedite without prejudice. The Court also directed the parties to consolidate this lawsuit with the other Delaware actions described below. The lawsuit alleges that the directors of the Company breached their fiduciary duties in connection with the proposed transaction between Sprint and the Company, that Sprint and Eagle River breached duties owed to the Company's public stockholders by virtue of their alleged status as controlling stockholders, including with respect to the SoftBank Transaction, and that the Company aided and abetted the alleged breaches of fiduciary duty by Sprint and Eagle River. The lawsuit also alleges that the Merger Consideration undervalues the Company, and that the controlling stockholders acted to enrich themselves at the expense of the minority stockholders. The lawsuit seeks to permanently enjoin the SoftBank Transaction, permanently enjoin the Proposed Merger, permanently enjoin Sprint from allegedly interfering with the Company's plans to raise capital or sell its
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
spectrum and to recover compensatory damages. This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
On December 20, 2012, stockholder Abraham Katsman filed a putative class action lawsuit in Delaware Court of Chancery against the Company, its directors, Sprint and SoftBank, purportedly bought on behalf of the public stockholders of the Company. The lawsuit alleges that the directors of the Company breached their fiduciary duties in connection with the Proposed Merger, that Sprint breached duties owed to the Company's public stockholders by virtue of its alleged status as controlling stockholder, and that SoftBank aided and abetted the alleged breaches of fiduciary duty by Sprint and the directors of the Company. The lawsuit also alleges that the Merger Consideration undervalues the Company and that the Proposed Merger was negotiated pursuant to an unfair process. The lawsuit seeks to enjoin the Proposed Merger and, should the Proposed Merger be consummated, rescission of the Proposed Merger, and to recover unspecified rescissory and compensatory damages. This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
On December 28, 2012, stockholder Kenneth L. Feigeles filed a putative class action lawsuit in Delaware Court of Chancery against the Company, its directors, Sprint, Merger Sub and Eagle River, purportedly brought on behalf of the public stockholders of the Company. The lawsuit alleges that the directors of the Company breached their fiduciary duties in connection with the Proposed Merger, that Sprint breached duties owed to the Company's public stockholders by virtue of its alleged status as controlling stockholder, and that the Company, Sprint, Merger Sub and Eagle River aided and abetted the alleged breaches of fiduciary duty by Sprint and the directors of the Company. The lawsuit also alleges that the Merger Consideration undervalues the Company, and that the Proposed Merger was negotiated pursuant to an unfair process. The lawsuit seeks to enjoin the Proposed Merger and, should the Proposed Merger be consummated, to rescind the Proposed Merger, and it seeks unspecified rescissory and compensatory damages. This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
On December 28, 2012, stockholder Joan Litwin filed a putative class action lawsuit in Delaware Court of Chancery against the Company, its directors, Sprint, Sprint Holdco and Eagle River, purportedly brought on behalf of the public stockholders of the Company. The lawsuit alleges that the directors of the Company breached their fiduciary duties in connection with the Proposed Merger, that Sprint and Eagle River breached duties owed to the Company's public stockholders by virtue of their alleged status as controlling stockholders, and that the Company aided and abetted the alleged breaches of fiduciary duty by Sprint, Eagle River and the directors of the Company. The lawsuit also alleges that the Merger Consideration undervalues the Company, that Sprint is using its position as controlling stockholder to obtain the Company's spectrum for itself to the detriment of the public stockholders, and that the directors of the Company allowed the Company to stagnate to benefit Sprint and Eagle River. The lawsuit seeks to enjoin the Proposed Merger and, should the Proposed Merger be consummated, to rescind the Proposed Merger. The lawsuit also seeks to enjoin Sprint from interfering with the Company's build-out plans or any future sale of spectrum, and seeks unspecified compensatory damages. This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
On or about January 3, 2013, stockholder David DeLeo filed a putative class action lawsuit in Delaware Court of Chancery against the Company, its directors, Sprint and Merger Sub, purportedly brought on behalf of our public stockholders of the Company. The lawsuit alleges that the directors of the Company breached their fiduciary duties in connection with the Proposed Merger, that Sprint breached duties owed to the Company's public stockholders by virtue of its alleged status as controlling stockholder, and that the Company and Merger Sub aided and abetted the alleged breaches of fiduciary duty by Sprint and the directors of the Company. The lawsuit also alleges that the Merger Consideration undervalues the Company, that Sprint and the directors of the Company misappropriated non-public information that was not disclosed to the plaintiffs, and that the Proposed Merger was negotiated pursuant to an unfair process. The lawsuit seeks a declaratory judgment that the proposed transaction between Sprint and the Company was entered into in breach of Sprint's fiduciary duties, an injunction preventing the proposed transaction between Sprint and the Company and, should the Proposed Merger be consummated, to rescind the Proposed Merger, and it seeks unspecified rescissory and compensatory damages. This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
Purported
Shareholder Class Actions: Washington Actions
On December 20, 2012 stockholder Joe Kuhnle filed a putative class action lawsuit in the Superior Court of Washington, King County, against the Company and its directors, purportedly brought on behalf of the public stockholders of the Company, which action we refer to as the Kuhnle Action. The Kuhnle Action alleges that the directors of the Company breached their
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
fiduciary duties in connection with the Proposed Merger, and that the Company aided and abetted the alleged breaches of fiduciary duty by the directors of the Company. The Kuhnle Action also alleges that the Merger Consideration undervalues the Company, that the Proposed Merger was negotiated pursuant to an unfair process, that the deal protection devices favor Sprint to the detriment of the public stockholders, and that the directors of the Company failed to make necessary disclosures in their public filings. The Kuhnle Action seeks a declaratory judgment that the Proposed Merger was entered into in breach of defendants' fiduciary duties, a preliminary injunction preventing the Proposed Merger and, should the Proposed Merger be consummated, rescission of the Proposed Merger, and to recover unspecified rescissory and compensatory damages. On January 18, 2013, we and the other defendants collectively filed a motion to dismiss or stay the Kuhnle Action in favor of the prior-filed Delaware Actions. On January 18, 2013, we and the other defendants opposed plaintiff's motion to expedite discovery. On February 11, 2013, the court granted the motion to stay. On January 22, 2013, the parties stipulated to consolidate the three King County lawsuits--the Kuhnle Action, along with both the Millen Action and the Rowe Action (each discussed further below)--into one matter:
In Re Clearwire Corporation Shareholder Litigation.
This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
On December 20, 2012, stockholder Doug Millen filed a putative class action lawsuit in the Superior Court of Washington, King County against the Company and its directors, purportedly brought on behalf of the public stockholders of the Company, which action we refer to as the Millen Action. The lawsuit alleges that the directors of the Company breached their fiduciary duties owed to the Company's public stockholders in connection with the Proposed Merger, and that the Company aided and abetted the alleged breaches of fiduciary duty by the directors of the Company. The lawsuit also alleges that the Merger Consideration undervalues the Company, that the Proposed Merger was negotiated pursuant to an unfair process, that the deal protection devices favor Sprint to the detriment of the public stockholders, and that the directors of the Company failed to make necessary disclosures in connection with the announcement of the transaction. The lawsuit seeks a declaratory judgment that the Proposed Merger was entered into in breach of defendants' fiduciary duties, an injunction preventing the Proposed Merger, and rescission of the Proposed Merger to the extent it has already been consummated. (See the related discussion above under the Kuhnle Action regarding the proposed consolidation of the Millen Action.) This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
On December 31, 2012, stockholder Clinton Rowe filed a putative class action lawsuit in the Superior Court of Washington, King County against the Company, its directors, Sprint and Merger Sub, purportedly brought on behalf of the public stockholders of the Company, which action we refer to as the Rowe Action. The lawsuit alleges that Sprint and the directors of the Company breached their fiduciary duties in connection with the Proposed Merger, and that the Company, Sprint and Merger Sub aided and abetted the alleged breaches of fiduciary duty by the directors of the Company. The lawsuit also alleges that the Merger Consideration undervalues the Company, that the Proposed Merger was negotiated pursuant to an unfair process, and that the directors of the Company did not protect the Company against numerous conflicts of interest. The lawsuit seeks a declaratory judgment that the Proposed Merger was entered into in breach of defendants' fiduciary duties, an injunction preventing the Proposed Merger, rescission of the transaction to the extent it has already been implemented, and the imposition of a constructive trust in favor of the plaintiff class upon any benefits improperly received by defendants. (See the related discussion above under the Kuhnle Action regarding the proposed consolidation of the Rowe Action.) This litigation is in the early stages, its outcome is unknown and an estimate of any potential losses cannot be made at this time.
In addition to the matters described above, we are often involved in certain other proceedings which seek monetary damages and other relief. Based upon information currently available to us, none of these other claims are expected to have a material effect on our business, financial condition or results of operations.
Indemnification agreements
- We are currently a party to indemnification agreements with certain officers and each of the members of our Board of Directors.
No
liabilities have been recorded in the condensed consolidated balance sheets for any indemnification agreements, because they are neither probable nor estimable.
As of
December 31, 2012
, there were
34,661,769
shares available for grant under the Clearwire Corporation 2008 Stock Compensation Plan, which we refer to as the 2008 Plan, which authorizes us to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, which we refer to as RSUs, performance based RSUs and other stock awards to our employees, directors and consultants. Grants to be awarded under the 2008 Plan will be made available at the discretion of the Compensation Committee of the Board of Directors from authorized but unissued shares, authorized and issued shares reacquired, or a combination thereof. With the adoption of the 2008 Plan, no additional share
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
grants will be granted under the Clearwire Corporation 2007 Stock Compensation Plan or the Clearwire Corporation 2003 Stock Option Plan.
Restricted Stock Units
We grant RSUs and performance based RSUs to certain officers and employees under the 2008 Plan. All RSUs generally have performance and service requirements or service requirements only, with vesting periods ranging from
two
to
four years
. The fair value of our RSUs is based on the grant-date fair market value of the common stock, which equals the grant date market price. Performance RSUs awarded in 2012 have
one
to
two years
performance periods and were granted once the performance objectives were established in the first quarter of 2012.
A summary of the RSU activity for the years ended
December 31, 2012
,
2011
and
2010
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Weighted-
Average
Grant Price
|
|
|
Fair Value (In Millions)
|
|
Future Performance and Service Required
|
|
Future Service Required
|
|
Future Performance and Service Required
|
|
Future Service Required
|
|
Future Performance and Service Required
|
|
Future Service Required
|
Restricted stock units outstanding — January 1, 2010
|
—
|
|
|
11,853,194
|
|
|
$
|
—
|
|
|
$
|
4.60
|
|
|
|
|
|
Granted
|
—
|
|
|
10,523,277
|
|
|
—
|
|
|
6.71
|
|
|
$
|
—
|
|
|
$
|
70.6
|
|
Forfeited
|
—
|
|
|
(3,613,124
|
)
|
|
—
|
|
|
5.55
|
|
|
|
|
|
Vested
|
—
|
|
|
(4,087,694
|
)
|
|
—
|
|
|
4.22
|
|
|
$
|
—
|
|
|
$
|
29.5
|
|
Restricted stock units outstanding — December 31, 2010
|
—
|
|
|
14,675,653
|
|
|
$
|
—
|
|
|
$
|
5.99
|
|
|
|
|
|
Granted
|
—
|
|
|
10,300,239
|
|
|
—
|
|
|
4.06
|
|
|
$
|
—
|
|
|
$
|
44.9
|
|
Forfeited
|
—
|
|
|
(7,985,495
|
)
|
|
—
|
|
|
5.46
|
|
|
|
|
|
Vested
|
—
|
|
|
(6,240,674
|
)
|
|
—
|
|
|
5.54
|
|
|
$
|
—
|
|
|
$
|
24.1
|
|
Restricted stock units outstanding — December 31, 2011
|
—
|
|
|
10,749,723
|
|
|
$
|
—
|
|
|
$
|
4.79
|
|
|
|
|
|
Granted
|
6,619,937
|
|
|
17,857,468
|
|
|
1.96
|
|
|
2.25
|
|
|
$
|
13.0
|
|
|
$
|
40.2
|
|
Forfeited
|
(208,102
|
)
|
|
(2,141,799
|
)
|
|
1.99
|
|
|
3.32
|
|
|
|
|
|
Vested
|
—
|
|
|
(4,501,785
|
)
|
|
—
|
|
|
4.45
|
|
|
$
|
—
|
|
|
$
|
8.4
|
|
Restricted stock units outstanding — December 31, 2012
|
6,411,835
|
|
|
21,963,607
|
|
|
$
|
1.96
|
|
|
$
|
2.83
|
|
|
|
|
|
As of
December 31, 2012
, there were
21,963,607
RSUs outstanding and total unrecognized compensation cost of approximately
$27.8 million
, which is expected to be recognized over a weighted-average period of approximately
1.1
years.
Stock Options
We granted options to certain officers and employees under the 2008 Plan. All options generally vest over a
four
-year period and expire no later than
ten years
after the date of grant. The fair value of option grants was estimated on the date of grant using the Black-Scholes option pricing model.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of option activity from January 1,
2010
through
December 31, 2012
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
(Years)
|
|
Options outstanding — January 1, 2010
|
21,537,731
|
|
|
$
|
11.09
|
|
|
6.39
|
|
Granted
|
996,648
|
|
|
7.37
|
|
|
|
|
Forfeited
|
(3,007,895
|
)
|
|
12.79
|
|
|
|
|
Exercised
|
(3,083,243
|
)
|
|
4.44
|
|
|
|
|
Options outstanding — December 31, 2010
|
16,443,241
|
|
|
$
|
11.80
|
|
|
5.69
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
Forfeited
|
(10,701,871
|
)
|
|
11.86
|
|
|
|
|
Exercised
|
(1,180,619
|
)
|
|
3.07
|
|
|
|
|
Options outstanding — December 31, 2011
|
4,560,751
|
|
|
$
|
13.98
|
|
|
4.24
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
Forfeited
|
(1,310,146
|
)
|
|
12.94
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
Options outstanding — December 31, 2012
|
3,250,605
|
|
|
$
|
14.39
|
|
|
4.36
|
|
Vested and expected to vest — December 31, 2012
|
3,239,887
|
|
|
$
|
14.42
|
|
|
4.35
|
|
Exercisable outstanding — December 31, 2012
|
3,012,166
|
|
|
$
|
15.14
|
|
|
4.18
|
|
The intrinsic value of options exercised during the years ended
December 31, 2011
and
2010
was
$2.3 million
and
$10.5 million
, respectively. There were
no
option exercises during the period ended December 31, 2012. At December 31, 2012, there was
no
aggregate intrinsic value for any options outstanding as the price of our Class A Common Stock was less than the option exercise prices.
Information regarding stock options outstanding and exercisable as of
December 31, 2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise Prices
|
|
Number of
Options
|
|
Weighted
Average
Contractual
Life
Remaining
(Years)
|
|
Weighted
Average
Exercise Price
|
|
Number of Options
|
|
Weighted
Average
Exercise
Price
|
$3.00
|
|
6,666
|
|
|
1.30
|
|
$
|
3.00
|
|
|
6,666
|
|
|
$
|
3.00
|
|
$3.03
|
|
673,250
|
|
|
6.19
|
|
3.03
|
|
|
573,250
|
|
|
3.03
|
|
3.53 - 6.77
|
|
402,867
|
|
|
5.44
|
|
5.90
|
|
|
283,178
|
|
|
5.74
|
|
7.41 - 7.87
|
|
62,000
|
|
|
6.45
|
|
7.56
|
|
|
43,250
|
|
|
7.52
|
|
$11.03
|
|
116,200
|
|
|
2.63
|
|
11.03
|
|
|
116,200
|
|
|
11.03
|
|
$15.00
|
|
200,665
|
|
|
3.03
|
|
15.00
|
|
|
200,665
|
|
|
15.00
|
|
$17.11
|
|
363,600
|
|
|
1.90
|
|
17.11
|
|
|
363,600
|
|
|
17.11
|
|
$18.00
|
|
526,229
|
|
|
3.56
|
|
18.00
|
|
|
526,229
|
|
|
18.00
|
|
$23.30
|
|
339,900
|
|
|
4.70
|
|
23.30
|
|
|
339,900
|
|
|
23.30
|
|
$25.00
|
|
559,228
|
|
|
4.16
|
|
25.00
|
|
|
559,228
|
|
|
25.00
|
|
Total
|
|
3,250,605
|
|
|
4.36
|
|
$
|
14.39
|
|
|
3,012,166
|
|
|
$
|
15.14
|
|
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, 2010:
|
|
|
|
Year Ended December 31,
|
|
2010
|
Expected volatility
|
58.80%-62.22%
|
Expected dividend yield
|
—
|
Expected life (in years)
|
6.25
|
Risk-free interest rate
|
2.00%-3.15%
|
Weighted average fair value per option at grant date
|
$4.27
|
The fair value of option grants in 2010 was
$4.3 million
. There were
no
options granted in 2012 and 2011. The total fair value of options vested during the years ended December 31, 2012, 2011 and 2010 was
$0.7 million
,
$6.6 million
and
$9.8 million
, respectively. The total unrecognized share-based compensation costs related to non-vested stock options outstanding at December 31, 2012 was approximately
$0.1 million
and is expected to be recognized over a weighted average period of approximately
four months
.
Share-based compensation expense is based on the estimated grant-date fair value of the award and is recognized net of estimated forfeitures on those shares expected to vest, over a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. Share-based compensation expense recognized for all plans for the years ended
December 31, 2012
,
2011
and
2010
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31.
|
|
2012
|
|
2011
|
|
2010
|
Options
|
$
|
250
|
|
|
$
|
1,016
|
|
|
$
|
16,749
|
|
RSUs
|
28,616
|
|
|
25,535
|
|
|
30,582
|
|
Sprint Equity Compensation Plans
|
—
|
|
|
73
|
|
|
204
|
|
Total
|
$
|
28,866
|
|
|
$
|
26,624
|
|
|
$
|
47,535
|
|
During the years ended
December 31, 2012
,
2011
and
2010
we reversed
$3.4 million
,
$23.9 million
, and
$9.8 million
, respectively, of share-based compensation expense related to the forfeiture of RSUs and options that had been recognized but not yet earned. During the year ended
December 31, 2012
we had
no
additional share-based compensation expense related to the acceleration of vesting or the extension of the exercise period for certain RSUs and options. During the years ended December 31,
2011
and
2010
, we recorded
$3.7 million
and
$10.9 million
, respectively, of additional share-based compensation expense related to the acceleration of vesting and the extension of the exercise period for certain RSUs and options.
Class A Common Stock
The Class A Common Stock represents the common equity of Clearwire. The holders of the Class A Common Stock are entitled to
one vote per share
and, as a class, are entitled to
100%
of any dividends or distributions made by Clearwire, with the exception of certain minimal liquidation rights provided to the Class B Common Stockholders, which are described below. Each share of Class A Common Stock participates ratably in proportion to the total number of shares of Class A Common Stock issued by Clearwire. Holders of Class A Common Stock have
100%
of the economic interest in Clearwire and are considered the controlling interest for the purposes of financial reporting.
Upon liquidation, dissolution or winding up, the Class A Common Stock will be entitled to any assets remaining after payment of all debts and liabilities of Clearwire, with the exception of certain minimal liquidation rights provided to the Class B Common Stockholders, which are described below.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During the fourth quarter 2012, Eagle River delivered a right of first offer notice pursuant to the Equityholders’ Agreement, to the other equityholders of its intent to sell
30.9 million
shares of Class A Common Stock and
2.7 million
shares of Class B Common Stock and a corresponding number of Class B Common Interests, which we refer to collectively as the Interests. On October 17, 2012, Sprint delivered a response to the notice notifying Eagle River that they intend to purchase
100%
of the Interests. On December 7, 2012, all of the conditions to the closing were met and on December 11, 2012, the transaction was completed. As a result, Eagle River no longer owns any shares of our Class A Common Stock, Class B Common Stock, or Class B Common Interests and is no longer a party to the Equityholders' Agreement.
During the second quarter of 2012 we also entered into a sales agreement, which we refer to as the Sales Agreement, with Cantor Fitzgerald & Co., which we refer to as CF&Co, pursuant to which we offered and sold shares of our Class A Common Stock having an aggregate offering price of up to
$300.0 million
from time to time through CF&Co, as sales agent. Subject to the terms and conditions of the Sales Agreement, CF&Co used its commercially reasonable efforts to sell shares of Class A Common Stock on our behalf on a daily basis or as otherwise agreed by us and CF&Co. We designated the parameters by which CF&Co would sell shares of Class A Common Stock on our behalf, including the total number of shares of Class A Common Stock to be issued, the time period during which sales were requested to be made, any limitation on the number of shares of Class A Common Stock that could be sold in any one trading day and any minimum price below which sales would not be made. We and CF&Co each had the right, by giving written notice as specified in the Sales Agreement, to terminate the Sales Agreement in each party's sole discretion at any time. We paid CF&Co a commission equal to
2.0%
of the gross sales price per share of Class A Common Stock sold under the Sales Agreement. We also agreed to reimburse CF&Co for certain of its expenses as set forth in the Sales Agreement and to indemnify CF&Co against certain liabilities. We sold
48.4 million
shares of Class A Common Stock under the Sales Agreement for net proceeds of
$58.5 million
. On July 26, 2012, we announced that we elected to cease further sales under the Sales Agreement.
During the first quarter of 2012, Clearwire and Clearwire Communications entered into securities purchase agreements with certain institutional investors, pursuant to which Clearwire issued shares of Class A Common Stock for an aggregate price of
$83.5 million
, the proceeds of which was used to repurchase
$100.0 million
in aggregate principal amount of its Exchangeable Notes, plus accrued but unpaid interest held by the institutional investors. The price per share was determined based upon the daily volume weighted average price of our Class A Common Stock on the NASDAQ Global Select Market for the
five
trading days commencing March 15, 2012, subject to a minimum price and a maximum price per share. The total number of shares issued was equal to the quotient obtained by dividing the Purchase Price by the price per share, and was
38.0 million
shares.
During the first quarter of 2012, Google Inc., which we refer to as Google, sold
29.4 million
shares of Class A Common Stock.
Class B Common Stock
The Class B Common Stock represents non-economic voting interests in Clearwire. Identical to the Class A Common Stock, the holders of Class B Common Stock are entitled to
one vote per share
. However, they do not have any rights to receive distributions other than stock dividends paid proportionally to each outstanding Class A and Class B Common Stockholder or upon liquidation of Clearwire, an amount equal to the par value per share, which is
$0.0001
per share.
The holders, which include Intel Corporation, which we refer to as Intel, who, along with Sprint, we collectively refer to as the Participating Equityholders, of Class B Common Stock hold, or are entitled to hold, an equivalent number of Class B Common Interests, which, in substance, reflects their economic stake in Clearwire. This is accomplished through an exchange feature that provides the holder the right, at any time, to exchange one share of Class B Common Stock plus one Class B Common Interest for one share of Class A Common Stock.
On October 11, 2012, Bright House, provided us with notice of its intent to exchange
8.5 million
shares of Class B Common Stock together with all of the Class B Common Interests held by Bright House into an equal number of shares of Class A Common Stock. The exchange was completed on October 18, 2012.
On September 4, 2012, Time Warner Cable provided us with notice of its intent to exchange
46.4 million
Class B Common Interests and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock pursuant to the Amended and Restated Operating Agreement dated as of November 28, 2008 governing Clearwire Communications, which we refer to as the Operating Agreement. The exchange was completed on September 13, 2012.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On September 27, 2012, we entered into an underwriting agreement, which we refer to as the Underwriting Agreement, with Credit Suisse Securities (USA) LLC, which we refer to as the Underwriter and Time Warner Cable. On October 3, 2012, under the terms and subject to the conditions contained in the Underwriting Agreement, Time Warner Cable sold to the Underwriter all of its
46.4 million
shares of our Class A Common Stock. We did not receive any proceeds from the sale of our Class A Common Stock by Time Warner Cable.
On September 24, 2012, Comcast provided us with notice of its intent to exchange
88.5 million
Class B Common Interests and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock pursuant to the Operating Agreement. The exchange was completed on September 27, 2012.
During the second quarter of 2011, Sprint surrendered
77.4 million
shares of Class B Common Stock to reduce its voting interest in Clearwire. Subsequently, during the second quarter of 2012, Sprint exercised its right to revoke the surrender of the
77.4 million
shares of Class B Common Stock relinquished in June 2011. The Class B Common Stock was reissued to Sprint on
June 8, 2012
. This transaction did not impact Sprint's economic interest in the Company, which it holds through its ownership of Class B Common Interests. At
December 31, 2012
, Sprint's economic interest in Clearwire and its subsidiaries is equal to its voting interest and was approximately
50.4%
.
The following table lists the voting interests in Clearwire as of
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Class A Common Stock
|
|
Class A Common
Stock Voting % Outstanding
|
|
Class B Common Stock
(1)
|
|
Class B Common
Stock % Voting Outstanding
|
|
Total
|
|
Total % Voting Outstanding
|
Sprint
|
|
30,922,958
|
|
|
4.5
|
%
|
|
708,087,860
|
|
|
91.5
|
%
|
|
739,010,818
|
|
|
50.4
|
%
|
Comcast
|
|
88,504,132
|
|
|
12.8
|
%
|
|
—
|
|
|
—
|
%
|
|
88,504,132
|
|
|
6.0
|
%
|
Bright House
|
|
8,474,440
|
|
|
1.2
|
%
|
|
—
|
|
|
—
|
%
|
|
8,474,440
|
|
|
0.6
|
%
|
Intel
|
|
28,432,066
|
|
|
4.1
|
%
|
|
65,644,812
|
|
|
8.5
|
%
|
|
94,076,878
|
|
|
6.4
|
%
|
Other Shareholders
|
|
534,980,999
|
|
|
77.4
|
%
|
|
—
|
|
|
—
|
|
|
534,980,999
|
|
|
36.5
|
%
|
|
|
691,314,595
|
|
|
100
|
%
|
|
773,732,672
|
|
|
100
|
%
|
|
1,465,047,267
|
|
|
100
|
%
|
_______________________________________
|
|
(1)
|
The holders of Class B Common Stock hold an equivalent number of Class B Common Interests.
|
Clearwire Communications Interests
Clearwire is the sole holder of voting interests in Clearwire Communications. As such, Clearwire controls
100%
of the decision making of Clearwire Communications and consolidates
100%
of its operations. Clearwire also holds all of the outstanding Clearwire Communications Class A common interests representing
47.2%
of the economics of Clearwire Communications as of
December 31, 2012
. The holders of the Class B Common Interests own the remaining
52.8%
of the economic interests. 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.
The non-voting Clearwire Communication units are designated as either Clearwire Communications Class A common interests, all of which are held by Clearwire, or Class B Common Interests, which are held by Sprint and Intel. Both classes of non-voting Clearwire Communication units participate in distributions of Clearwire Communications on an equal and proportionate basis.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following shows the effects of the changes in Clearwire’s ownership interests in Clearwire Communications (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Clearwire's loss from equity investees (note 20)
|
|
$
|
(758,705
|
)
|
|
$
|
(612,214
|
)
|
|
$
|
(496,875
|
)
|
Increase/(decrease) in Clearwire’s additional paid-in capital for issuance or conversion of Class B Common Stock
|
|
379,048
|
|
|
137,353
|
|
|
(64,569
|
)
|
Increase in Clearwire’s additional paid-in capital for issuance of Class A Common Stock
|
|
58,460
|
|
|
384,106
|
|
|
301,849
|
|
Other effects of changes in Clearwire’s additional paid-in capital for issuance of Class A and Class B Common Stock
|
|
28,143
|
|
|
18,870
|
|
|
145,785
|
|
Net transfers from non-controlling interests
|
|
465,651
|
|
|
540,329
|
|
|
383,065
|
|
Change from net loss attributable to Clearwire and transfers to non-controlling interests
|
|
$
|
(293,054
|
)
|
|
$
|
(71,885
|
)
|
|
$
|
(113,810
|
)
|
Dividend Policy
We have not declared or paid any cash dividends on Class A or Class B Common Stock. We currently expect to retain future earnings, if any, for use in the operations and expansion of our business. We do not anticipate paying any cash dividends in the foreseeable future. In addition, covenants in the indentures governing our Senior Secured Notes impose significant restrictions on our ability to pay cash dividends to our stockholders.
Non-controlling Interests in Clearwire Communications
Clearwire Communications is consolidated into Clearwire because we hold
100%
of the voting interest in Clearwire Communications. Therefore, the holders of the Class B Common Interests represent non-controlling interests in a consolidated subsidiary. As a result, the income (loss) consolidated by Clearwire is decreased in proportion to the outstanding non-controlling interests. The conversion of Class B Common Interests and the corresponding number of Class B Common Stock to Class A Common Stock is recorded in Issuance of common stock, net of issuance costs, and other capital transactions on our consolidated statement of stockholders' equity.
Warrants
As of
December 31, 2012
, there were
375,000
warrants outstanding with an expiration date of
November 13, 2013
. Holders may exercise their warrants at any time, with an exercise price of
$3.00
.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Basic Net Loss Per Share
The net loss per share attributable to holders of Class A Common Stock is calculated based on the following information (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Net loss from continuing operations
|
$
|
(1,743,745
|
)
|
|
$
|
(2,855,733
|
)
|
|
$
|
(2,251,202
|
)
|
Non-controlling interests in net loss from continuing operations of consolidated subsidiaries
|
1,182,183
|
|
|
2,158,831
|
|
|
1,775,840
|
|
Net loss from continuing operations attributable to Class A Common Stockholders
|
(561,562
|
)
|
|
(696,902
|
)
|
|
(475,362
|
)
|
Net loss from discontinued operations attributable to Class A Common Stockholders
|
(167,005
|
)
|
|
(20,431
|
)
|
|
(12,075
|
)
|
Net loss attributable to Class A Common Stockholders
|
$
|
(728,567
|
)
|
|
$
|
(717,333
|
)
|
|
$
|
(487,437
|
)
|
Weighted average shares Class A Common Stock outstanding
|
554,015
|
|
|
257,967
|
|
|
222,527
|
|
Net loss per share from continuing operations
|
$
|
(1.01
|
)
|
|
$
|
(2.70
|
)
|
|
$
|
(2.14
|
)
|
Net loss per share from discontinued operations
|
(0.30
|
)
|
|
(0.08
|
)
|
|
(0.05
|
)
|
Net loss per share
|
$
|
(1.31
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(2.19
|
)
|
Diluted Net Loss Per Share
The potential exchange of Class B Common Interests together with Class B Common Stock for Class A Common Stock will have a dilutive effect on diluted net loss per share due to certain tax effects. That exchange would result in both an increase in the number of Class A Common Stock outstanding and a corresponding increase in the net loss attributable to the Class A Common Stockholders through the elimination of the non-controlling interests’ allocation. Further, to the extent that all of the Class B Common Interests and Class B Common Stock are converted to Class A Common Stock, the Clearwire Communications partnership structure would no longer exist and Clearwire would be required to recognize a tax provision related to indefinite lived intangible assets.
Shares issuable upon the conversion of the Exchangeable Notes were included in the computation of diluted net loss per share for the year ended
December 31, 2010
on an “if converted” basis since the result was dilutive. For purpose of this computation, the change in fair value of the Exchange Options and interest expense on the Exchangeable Notes were reversed for the period. For the years ended
December 31, 2012
and
2011
, shares issuable upon the conversion of the Exchangeable Notes were excluded in the computation of diluted net loss per share as their inclusion would have been antidilutive.
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 Class B Common Interests and Class B Common Stock and, where applicable, conversion of the Exchangeable Notes, is calculated based on the following information (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Net loss from continuing operations attributable to Class A Common Stockholders
|
$
|
(561,562
|
)
|
|
$
|
(696,902
|
)
|
|
$
|
(475,362
|
)
|
Non-controlling interests in net loss from continuing operations of consolidated subsidiaries
|
(1,182,183
|
)
|
|
(2,158,831
|
)
|
|
(1,775,840
|
)
|
Tax adjustment resulting from dissolution of Clearwire Communications
|
(27,611
|
)
|
|
(27,945
|
)
|
|
(27,117
|
)
|
Reversal of gain on Exchange Options and Exchangeable Notes interest expense, upon exchange of notes
|
—
|
|
|
—
|
|
|
(58,296
|
)
|
Net loss from continuing operations available to Class A Common Stockholders, assuming the exchange of Class B to Class A Common Stock and conversion of the Exchangeable Notes
|
(1,771,356
|
)
|
|
(2,883,678
|
)
|
|
(2,336,615
|
)
|
Net loss from discontinued operations available to Class A Common Stockholders
|
(167,005
|
)
|
|
(20,431
|
)
|
|
(12,075
|
)
|
Non-controlling interest in net loss from discontinued operations of consolidated subsidiaries
|
(1,356
|
)
|
|
(61,379
|
)
|
|
(39,817
|
)
|
Net loss from discontinued operations available to Class A Common Stockholders, assuming the exchange of Class B to Class A Common Stock
|
(168,361
|
)
|
|
(81,810
|
)
|
|
(51,892
|
)
|
Net loss available to Class A Common Stockholders, assuming the exchange of Class B to Class A Common Stock and conversion of the Exchangeable Notes
|
$
|
(1,939,717
|
)
|
|
$
|
(2,965,488
|
)
|
|
$
|
(2,388,507
|
)
|
Weighted average shares Class A Common Stock outstanding
|
554,015
|
|
|
257,967
|
|
|
222,527
|
|
Weighted average shares converted from Class B Common Stock outstanding
|
844,588
|
|
|
707,132
|
|
|
741,962
|
|
Weighted average shares converted from the Exchangeable Notes
|
—
|
|
|
—
|
|
|
6,276
|
|
Total weighted average shares Class A Common Stock outstanding (diluted)
|
1,398,603
|
|
|
965,099
|
|
|
970,765
|
|
Net loss per share from continuing operations
|
$
|
(1.27
|
)
|
|
$
|
(2.99
|
)
|
|
$
|
(2.41
|
)
|
Net loss per share from discontinued operations
|
(0.12
|
)
|
|
(0.08
|
)
|
|
(0.05
|
)
|
Net loss per share
|
$
|
(1.39
|
)
|
|
$
|
(3.07
|
)
|
|
$
|
(2.46
|
)
|
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,
|
|
2012
|
|
2011
|
|
2010
|
Exchangeable Notes conversion shares
|
91,733
|
|
|
103,001
|
|
|
—
|
|
Stock options
|
4,214
|
|
|
8,920
|
|
|
18,380
|
|
Restricted stock units
|
26,905
|
|
|
13,820
|
|
|
12,414
|
|
Warrants
|
647
|
|
|
7,748
|
|
|
17,806
|
|
Subscription rights
|
—
|
|
|
—
|
|
|
22,657
|
|
Contingent shares
|
—
|
|
|
—
|
|
|
1,519
|
|
|
123,499
|
|
|
133,489
|
|
|
72,776
|
|
We have calculated and presented basic and diluted net loss per share of Class A Common Stock. Class B Common Stock net loss per share is not calculated since it does not contractually participate in distributions of Clearwire.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
17.
|
Related Party Transactions
|
We have a number of strategic and commercial relationships with third parties that have had a significant impact on our business, operations and financial results. These relationships have been with Sprint, Intel, Comcast, Time Warner Cable, Bright House, Google, Eagle River, and Ericsson, all of which are or have been related parties. Some of these relationships include agreements pursuant to which we sell wireless broadband services to certain of these related parties on a wholesale basis, which such related parties then resell to each of 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,
|
|
2012
|
|
2011
|
Accounts receivable
|
$
|
17,227
|
|
|
$
|
78,282
|
|
Prepaid assets and other assets
|
$
|
5,943
|
|
|
$
|
2,229
|
|
Accounts payable and accrued expenses
|
$
|
8,223
|
|
|
$
|
4,736
|
|
Other current liabilities:
|
|
|
|
Cease-to-use
|
$
|
5,497
|
|
|
$
|
4,652
|
|
Deferred revenue
|
$
|
96,161
|
|
|
$
|
9,301
|
|
Other
|
$
|
5,642
|
|
|
$
|
—
|
|
Other long-term liabilities:
|
|
|
|
|
|
Cease-to-use
|
$
|
36,793
|
|
|
$
|
33,940
|
|
Deferred revenue
|
$
|
83,887
|
|
|
$
|
1,207
|
|
Deferred rent
|
$
|
32,213
|
|
|
$
|
52,663
|
|
Other
|
$
|
2,821
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Revenue
|
$
|
465,295
|
|
|
$
|
493,350
|
|
|
$
|
50,808
|
|
Cost of goods and services and network costs (inclusive of capitalized costs)
(1)
|
$
|
152,669
|
|
|
$
|
182,671
|
|
|
$
|
104,883
|
|
Selling, general and administrative (inclusive of capitalized costs)
|
$
|
50,193
|
|
|
$
|
31,453
|
|
|
$
|
7,150
|
|
|
|
(1)
|
The amounts presented for the year ended December 31, 2011 have been adjusted to reflect the inclusion of
$20.0 million
of non-cash rents related to leases with Sprint.
|
Proposed Sprint Merger Agreement
—
On December 17, 2012, we entered into a Merger Agreement, pursuant to which Sprint agreed to acquire all of the outstanding shares of Class A and Class B Common Stock not currently owned by Sprint. See Note 1, Description of Business for further information.
Note Purchase Agreement
—In connection with the Merger Agreement, on December 17, 2012, we and certain of our subsidiaries also entered into the Note Purchase Agreement, in which Sprint agreed to purchase from us at our election up to an aggregate principal amount of
$800.0 million
of
1.00%
Exchangeable Notes due
2018
, in
ten
monthly installments of
$80.0 million
each. See Note 1, Description of Business for further information.
Rollover Notes
— In connection with the issuance of the 2015 Senior Secured Notes, on November 24, 2009, we issued notes to Sprint and Comcast with identical terms as the 2015 Senior Secured Notes. From time to time, other related parties may hold portions of our long-term debts, and as debtholders, would be entitled to receive interest payments from us.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Relationships among Certain Stockholders, Directors, and Officers of Clearwire
— Sprint, through two wholly-owned subsidiaries, Sprint HoldCo and SN UHC 1, Inc., owns the largest interest in Clearwire with an effective voting and economic interest of approximately
50.44%
and Intel owns voting and economic interest in Clearwire of
6.4%
. After the conversion of their Class B Common Interests and corresponding number of Class B Common Stock into Class A Common Stock, Comcast and Bright House together own voting interest in Clearwire of approximately
6.6%
at December 31, 2012.
As of December 31, 2012, Eagle River held warrants to purchase
375,000
shares of Class A Common Stock at an exercise price of
$3.00
per share with an expiration date of
November 13, 2013
.
Clearwire, Sprint, Intel, Comcast and Bright House are party to the Equityholders’ Agreement, which sets forth certain rights and obligations of the equityholders with respect to governance of Clearwire, transfer restrictions on our common stock, rights of first refusal and pre-emptive rights, among other things. In addition, we have also entered into a number of commercial agreements with Sprint, Google and Intel, which are outlined below.
4G MVNO Agreement —
We have a non-exclusive 4G MVNO agreement, which we refer to as the 4G MVNO Agreement, with Comcast MVNO II, LLC, TWC Wireless, LLC, Bright House and Sprint Spectrum L.P.,which we refer to as Sprint Spectrum. 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 broadband services to be provided under the 4G MVNO Agreement include standard network services, and, at the request of any of the parties, certain non-standard network services. We sell these services at prices defined in the 4G MVNO Agreement.
S
print Wholesale relationship
In November 2011 we entered into the November 2011 4G MVNO Amendment. As a result, the minimum payments under the amendment to the 4G MVNO agreement entered into with Sprint in April 2011 were replaced with the provisions of the November 2011 4G MVNO Amendment. Under the November 2011 4G MVNO Amendment, Sprint Spectrum is paying us
$925.9 million
for unlimited 4G mobile WiMAX services for resale to its retail subscribers in 2012 and 2013, approximately
two-thirds
of which was paid for service provided in 2012, and the remainder will be paid for service provided in 2013. Of the
$925.9 million
,
$175.9 million
will be paid as an offset to principal and interest due under a
$150.0 million
promissory note (as described in the Sprint Commitment Agreement section below) issued by us to Sprint. As part of the November 2011 4G MVNO Amendment, we also agreed to: the elimination of device minimum fees after 2011; and usage based pricing for WiMAX services after 2013 and for LTE service beginning in 2012. We also agreed that Sprint Spectrum may re-wholesale wireless broadband services, subject to certain conditions and we agreed to operate our WiMAX network through calendar year 2015.
Subject to the satisfaction of certain network build-out conditions, Sprint agreed to prepay us up to another
$350.0 million
in installments once certain milestones are achieved for future services to be provided to Sprint over our LTE network. The amount and nature of the prepayment is subject to reduction in certain circumstances, including in the event that we fail to meet initial LTE deployment build targets by June 30, 2013, or if we fail to meet certain network specifications. We also agreed to collaborate with Sprint on LTE network design, architecture and deployment, including site selection, and Sprint committed to use commercially reasonable efforts to support certain specified chipset ecosystems and to launch devices to roam on our LTE network, including laptop cards and smartphones, in 2013. The November 2011 4G MVNO Amendment also provides for additional conditions on any sale of core spectrum assets necessary to operate our WiMAX and LTE networks, including agreeing to allow Sprint Spectrum an opportunity to make offers to purchase our excess spectrum in the event that we propose to sell such spectrum.
In addition to the
$150.0 million
received from Sprint relating to the Sprint Promissory Note in January 2012, for the twelve months ended December 31, 2012 and 2011, we received
$537.3 million
and
$434.3 million
respectively from Sprint for 4G broadband wireless services. The amounts received from Sprint for 4G broadband wireless services for the year ended December 31, 2012 includes
$76.6 million
for services provided in 2011 and
$10.8 million
representing the final portion of the prepayment for future services beyond the minimum commitment provided for in the amendment to the 4G MVNO Agreement entered into in April 2011.
During the twelve months ended December 31, 2012, wholesale revenue recorded attributable to Sprint comprised approximately
36%
of total revenues and substantially all of our wholesale revenues.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Sprint Commitment Agreement -
In November 2011, we entered into a commitment agreement with Sprint and Sprint HoldCo, which we refer to as the Commitment Agreement. As part of the agreement, should we consummate an equity offering which generates gross proceeds of at least
$400.0 million
, Sprint HoldCo agreed to exercise its pre-emptive rights under the Equityholders' Agreement to purchase securities representing Sprint HoldCo's pro rata share of the securities issued in such an offering up to
$700.0 million
. On December 13, 2011, we closed an offering of
201,250,000
shares of Class A Common Stock for
$402.5 million
in an underwritten public offering. Pursuant to the Commitment Agreement, on December 13, 2011, Sprint Holdco exercised its pre-emptive rights and purchased
173,635,000
shares of Class B Common Stock and a corresponding number of Class B Common Interests for proceeds of approximately
$331.4 million
.
Under the terms of the Commitment Agreement, Sprint provided us an aggregate principal amount of
$150.0 million
on January 3, 2012, pursuant to a promissory note issued by Clearwire Communications, which we refer to as the Sprint Promissory Note. The Sprint Promissory Note bears interest of
11.5%
per annum with an aggregate principal amount of
$75.0 million
maturing on
January 2, 2013
, and the remaining
$75.0 million
principal amount maturing on
January 2, 2014
. If not previously paid, Sprint may offset the amounts payable by us under the Sprint Promissory Note, including interest, against payments then due by Sprint to Clearwire Communications under the November 2011 4G MVNO Amendment. Because the Sprint Promissory Note was entered into in conjunction with the November 2011 4G MVNO Amendment, and amounts due may be offset against payments due under the November 2011 4G MVNO Amendment, it will be treated as deferred revenue for accounting purposes, and associated interest costs will be recorded as a reduction to the
$925.9 million
payable by Sprint for unlimited WiMAX service in calendar years 2012 and 2013. On January 2, 2013, we offset
$83.6 million
to principal and related accrued interest to reduce the principal amount we owe to Sprint under the promissory note to
$75.0 million
. The Sprint Promissory Note provides for certain events of default including, among other things, default in the payment of principal or interest; any material breach by Clearwire Communications in respect of its obligations to Sprint Spectrum under the November 2011 4G MVNO Amendment; termination or cancellation of the November 2011 4G MVNO Amendment at any time prior to January 2, 2014; and certain customary bankruptcy-related events. Upon the occurrence of any event of default, Sprint may offset and apply the Sprint Promissory Note against any and all deposits and any other credits, indebtedness payment obligations, property, or claims owing to Clearwire Communications or affiliates by Sprint.
In addition, under the terms of the Commitment Agreement, if we successfully consummated an equity offering, we agreed to use commercially reasonable best efforts to consummate an offering of first-priority senior secured debt in an amount equal to approximately
50%
of the net cash proceeds of any such equity offering, at the earliest practicable time thereafter. In January 2012, Clearwire Communications completed an offering of 2016 Senior Secured Notes with a par value of
$300.0 million
. See Note 10, Long-term Debt, Net, for a discussion of the issuance of debt.
3G MVNO Agreement —
We entered into a non-exclusive 3G MVNO agreement with Sprint Spectrum, which we refer to as the 3G MVNO Agreement, whereby Sprint agrees to sell its code division multiple access and mobile voice and data communications service for the purpose of resale to our retail customers. The data communications service includes Sprint’s existing core network services, other network elements and information that enable a third party to provide services over the network, or core network enablers, and subject to certain limitations and exceptions, new core network services, core network enablers and certain customized services. For the years ended December 31, 2012, 2011 and 2010, we paid
$4.4 million
,
$17.8 million
, and
$9.7 million
, respectively to Sprint for 3G wireless services provided by Sprint to us.
Sprint Master Site Agreement —
In November 2008, we entered into a master site agreement with Sprint, which we refer to as the Master Site Agreement, pursuant to which Sprint and we established the contractual framework and procedures for the leasing of tower and antenna collocation sites to each other. Leases for specific sites will be negotiated by Sprint and us on request by the lessee. The leased premises may be used by the lessee for any activity in connection with the provision of wireless communications services, including attachment of antennas to the towers at the sites. The term of the Master Site Agreement is
ten years
from the date the agreement was signed. The term of each lease for each specific site will be
five years
, but the lessee has the right to extend the term for up to an additional
20 years
. The monthly fee will increase
3%
per year. The lessee is also responsible for the utility costs and for certain additional fees. During the years ended December 31, 2012, 2011 and 2010, we made rent payments under this agreement of
$59.6 million
,
$55.8 million
and
$53.1 million
, respectively.
Master Agreement for Network Services —
In November 2008, we entered into a master agreement for network services, which we refer to as the Master Agreement for Network Services, with various Sprint affiliated entities, which we refer to as the Sprint Entities, pursuant to which the Sprint Entities and we established the contractual framework and procedures for us to purchase network services from Sprint Entities. We may order various services from the Sprint Entities, including IP network transport services, data center co-location, toll-free services and access to the following business
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
platforms: voicemail, instant messaging services, location-based systems and media server services. The Sprint Entities will provide a service level agreement that is consistent with the service levels provided to similarly situated subscribers. Pricing is specified in separate product attachments for each type of service; in general, the pricing is based on the mid-point between fair market value of the service and the Sprint Entities’ fully allocated cost for providing the service. The term of the Master Agreement for Network Services is
five years
, but we will have the right to extend the term for an additional
five years
. Additionally, in accordance with the Master Agreement for Network Services with the Sprint Entities, we assumed certain agreements for backhaul services that contain commitments that extend up to
five years
.
Ericsson, Inc
— Ericsson, provides network deployment services to us, including site acquisition and construction management services. In addition, during the second quarter of 2011, we entered into a managed services agreement with Ericsson to operate, maintain and support our network. Dr. Hossein Eslambolchi, who currently sits on our board of directors, had a consulting agreement with Ericsson. As part of his consulting agreement, Dr. Eslambolchi received payments for his services from Ericsson. He has not received any compensation directly from us related to his relationship with Ericsson. For the years ended December 31, 2012 and 2011, we paid
$76.9 million
and
$41.1 million
, respectively to Ericsson for network management services.
IT Master Services Agreement —
In November 2008, we entered into an IT master services agreement with the Sprint Entities pursuant to which the Sprint Entities and we established the contractual framework and procedures for us to purchase IT application services from the Sprint Entities. The term of the IT master services agreement is
five years
, but we have the right to extend the term for an additional
five years
.
Intel Market Development Agreement —
We entered into a market development agreement with Intel, which we refer to as the Intel Market Development Agreement, pursuant to which we committed to deploy mobile WiMAX on our networks and to promote the use of certain notebook computers and mobile Internet devices on our networks, and Intel would develop, market, sell and support WiMAX embedded chipsets for use in certain notebook computers and mobile Internet devices that may be used on our 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 to renew the agreement for successive
one year
terms up to a maximum of
13
additional years provided that Intel meets certain requirements.
|
|
18.
|
Discontinued Operations
|
As a result of a strategic decision to focus investment in the United States market, during the second quarter of 2011, we committed to sell our operations in Belgium, Germany and Spain. These businesses comprised substantially all of the remaining operations previously reported in our International segment. Associated results of operations and financial position are separately reported as discontinued operations for all periods presented. Results of operations and financial position presented for periods prior to the second quarter of 2011 include other businesses that were reported in our International segment. The sale of our businesses in Ireland, Poland, and Romania were individually immaterial for separate disclosure in prior periods.
During the year ended December 31, 2012, we completed the sale of the operations in Germany, Belgium and Spain for total expected proceeds of approximately
$18.9 million
. We have received approximately half of the expected proceeds and expect to receive the remainder by
March 2013
. In connection, with the Belgium sale transaction, we have also extended a loan of approximately
$0.9 million
to the purchaser and obtained an option to utilize the proceeds from repayment of the loan to obtain a
10%
equity interest in the purchaser at the maturity of the loan in
April 2019
. We recognized a gain on the sale of these operations of approximately
$22.3 million
, net of tax benefits of
$5.1 million
and the reclassification of cumulative translation adjustments of
$8.7 million
, in Net loss from discontinued operations.
During the third quarter of 2012, we made an insolvency filing with respect to our operations in Spain followed by its disposition in a sale. As a result, certain intercompany loans related to our international operations were considered to be uncollectible for federal income tax purposes and, as a result, there was an increase to the deferred tax liability of our discontinued operations of approximately
$167.2 million
along with a corresponding deferred tax expense for our discontinued operations. See Note 9, Income taxes for further discussion.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summarized financial information for discontinued operations is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Total revenues
|
$
|
8,473
|
|
|
$
|
20,767
|
|
|
$
|
21,723
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
$
|
(1,185
|
)
|
|
$
|
(86,749
|
)
|
|
$
|
(53,266
|
)
|
Income tax benefit (provision)
|
(167,176
|
)
|
|
4,939
|
|
|
1,374
|
|
Net loss from discontinued operations
|
(168,361
|
)
|
|
(81,810
|
)
|
|
(51,892
|
)
|
Less: non-controlling interests in net loss from discontinued operations of consolidated subsidiaries
|
1,356
|
|
|
61,379
|
|
|
39,817
|
|
Net loss from discontinued operations attributable to Clearwire Corporation
|
$
|
(167,005
|
)
|
|
$
|
(20,431
|
)
|
|
$
|
(12,075
|
)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,815
|
|
Prepaid and other assets
|
—
|
|
|
1,739
|
|
Total current assets
|
—
|
|
|
3,554
|
|
Property, plant and equipment, net
|
—
|
|
|
10,351
|
|
Spectrum licenses, net
|
—
|
|
|
19,313
|
|
Other assets
|
—
|
|
|
3,478
|
|
Total assets of discontinued operations
|
$
|
—
|
|
|
$
|
36,696
|
|
Liabilities
|
|
|
|
Other current liabilities
|
$
|
—
|
|
|
$
|
8,930
|
|
Other long-term liabilities
|
—
|
|
|
16,266
|
|
Total liabilities of discontinued operations
|
$
|
—
|
|
|
$
|
25,196
|
|
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
19.
|
Quarterly Financial Information (unaudited)
|
Summarized quarterly financial information for the years ended
December 31, 2012
and
2011
is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
2012 quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
322,639
|
|
|
$
|
316,932
|
|
|
$
|
313,882
|
|
|
$
|
311,241
|
|
|
$
|
1,264,694
|
|
Operating loss
|
$
|
(421,887
|
)
|
|
$
|
(311,260
|
)
|
|
$
|
(332,905
|
)
|
|
$
|
(312,731
|
)
|
|
$
|
(1,378,783
|
)
|
Net loss from continuing operations
|
$
|
(561,026
|
)
|
|
$
|
(431,027
|
)
|
|
$
|
(320,410
|
)
|
|
$
|
(431,282
|
)
|
|
$
|
(1,743,745
|
)
|
Net loss from continuing operations attributable to Clearwire Corporation
|
$
|
(182,054
|
)
|
|
$
|
(143,179
|
)
|
|
$
|
(41,344
|
)
|
|
$
|
(194,985
|
)
|
|
$
|
(561,562
|
)
|
Net loss attributable to Clearwire Corporation
|
$
|
(181,823
|
)
|
|
$
|
(145,809
|
)
|
|
$
|
(213,781
|
)
|
|
$
|
(187,154
|
)
|
|
$
|
(728,567
|
)
|
Net loss from continuing operations attributable to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.40
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(1.01
|
)
|
Diluted
|
$
|
(0.44
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(1.27
|
)
|
Net loss attributable to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.40
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(1.31
|
)
|
Diluted
|
$
|
(0.44
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(1.39
|
)
|
2011 quarter:
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
236,808
|
|
|
$
|
322,611
|
|
|
$
|
332,177
|
|
|
$
|
361,870
|
|
|
$
|
1,253,466
|
|
Operating loss
|
$
|
(647,358
|
)
|
|
$
|
(911,594
|
)
|
|
$
|
(399,136
|
)
|
|
$
|
(433,149
|
)
|
|
$
|
(2,391,237
|
)
|
Net loss from continuing operations
|
$
|
(793,160
|
)
|
|
$
|
(939,770
|
)
|
|
$
|
(479,457
|
)
|
|
$
|
(643,346
|
)
|
|
$
|
(2,855,733
|
)
|
Net loss from continuing operations attributable to Clearwire Corporation
|
$
|
(216,877
|
)
|
|
$
|
(160,525
|
)
|
|
$
|
(83,502
|
)
|
|
$
|
(235,998
|
)
|
|
$
|
(696,902
|
)
|
Net loss attributable to Clearwire Corporation
|
$
|
(226,955
|
)
|
|
$
|
(168,738
|
)
|
|
$
|
(84,791
|
)
|
|
$
|
(236,849
|
)
|
|
$
|
(717,333
|
)
|
Net loss from continuing operations attributable to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.89
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(2.70
|
)
|
Diluted
|
$
|
(0.89
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(2.99
|
)
|
Net loss attributable to Clearwire Corporation per Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.93
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(2.78
|
)
|
Diluted
|
$
|
(0.93
|
)
|
|
$
|
(1.01
|
)
|
|
$
|
(0.54
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(3.07
|
)
|
|
|
20.
|
Parent Company Only Condensed Financial Statements
|
Under the terms of agreements governing the indebtedness of Clearwire Communications, which is a subsidiary of Clearwire and comprises substantially all of the net assets of the Company, such subsidiary is restricted from making dividend payments, loans or advances, other than mandatory tax payments
and reimbursement of costs,
to Clearwire. The restrictions have resulted in the restricted net assets (as defined in Securities and Exchange Commission Rule 4-08(e)(3) of Regulation S-X) of Clearwire’s subsidiary exceeding
25%
of the consolidated net assets of Clearwire and its subsidiaries.
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following condensed parent-only financial statements of Clearwire account for the investment in Clearwire Communications under the equity method of accounting. The financial statements should be read in conjunction with the consolidated financial statements of Clearwire and subsidiaries and notes thereto.
CLEARWIRE CORPORATION
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
|
(In thousands)
|
ASSETS
|
|
|
|
Cash and cash equivalent
|
$
|
2
|
|
|
$
|
—
|
|
Other assets
|
1,186
|
|
|
3,319
|
|
Investments in equity method investees
|
1,187,993
|
|
|
1,481,047
|
|
Total assets
|
$
|
1,189,181
|
|
|
$
|
1,484,366
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Deferred tax liabilities, net
|
$
|
143,992
|
|
|
$
|
152,182
|
|
Other liabilities
|
3,250
|
|
|
953
|
|
Total liabilities
|
147,242
|
|
|
153,135
|
|
Stockholders’ equity
|
1,041,939
|
|
|
1,331,231
|
|
Total liabilities and stockholders’ equity
|
$
|
1,189,181
|
|
|
$
|
1,484,366
|
|
CLEARWIRE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating expenses
|
16,315
|
|
|
8,982
|
|
|
7,283
|
|
Operating loss
|
(16,315
|
)
|
|
(8,982
|
)
|
|
(7,283
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Loss from equity investees
|
(758,705
|
)
|
|
(612,214
|
)
|
|
(496,875
|
)
|
Other income
|
12,877
|
|
|
9,171
|
|
|
16,784
|
|
Total other expense, net
|
(745,828
|
)
|
|
(603,043
|
)
|
|
(480,091
|
)
|
Loss before income taxes
|
(762,143
|
)
|
|
(612,025
|
)
|
|
(487,374
|
)
|
Income tax benefit (provision)
|
199,199
|
|
|
(105,308
|
)
|
|
—
|
|
Net loss from continuing operations
|
$
|
(562,944
|
)
|
|
$
|
(717,333
|
)
|
|
$
|
(487,374
|
)
|
Net loss from discontinued operations
|
(167,176
|
)
|
|
—
|
|
|
—
|
|
Net loss
|
$
|
(730,120
|
)
|
|
$
|
(717,333
|
)
|
|
$
|
(487,374
|
)
|
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CLEARWIRE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(562,944
|
)
|
|
$
|
(717,333
|
)
|
|
$
|
(487,374
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Deferred income taxes
|
(199,199
|
)
|
|
105,308
|
|
|
—
|
|
Loss from equity investees
|
758,705
|
|
|
612,214
|
|
|
496,875
|
|
Changes in assets and liabilities, net:
|
|
|
|
|
|
Prepaids and other assets
|
2,133
|
|
|
2
|
|
|
1,256
|
|
Other liabilities
|
1,299
|
|
|
244
|
|
|
(10,469
|
)
|
Net cash provided by (used in) operating activities
|
(6
|
)
|
|
435
|
|
|
288
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Investment in equity investees
|
(58,460
|
)
|
|
(387,742
|
)
|
|
(304,015
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from issuance of common stock
|
58,468
|
|
|
387,296
|
|
|
303,738
|
|
Net (decrease) increase in cash and cash equivalents
|
2
|
|
|
(11
|
)
|
|
11
|
|
Cash and cash equivalents:
|
|
|
|
|
|
Beginning of period
|
—
|
|
|
11
|
|
|
—
|
|
End of period
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
11
|
|