Quarterly Report

Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: March 31, 2012
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to          

______________________________________
Commission file number 001-34196
Clearwire Corporation
(Exact name of registrant as specified in its charter)
DELAWARE
 
56-2408571
(State Of Incorporation)
 
(I.R.S. ID)
1475 120th AVE. NE BELLEVUE, WASHINGTON 98005
(425) 216-7600
______________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) Yes þ      No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  þ
 
Accelerated filer  o
Non-accelerated filer  o
 
Smaller reporting company  o          
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ

The number of shares outstanding of the registrant's Class A common stock as of April 24, 2012 , was 492,525,036 . The number of shares outstanding of the registrant's Class B common stock as of April 24, 2012 was 839,702,592 .
 

Table of Contents


CLEARWIRE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
For The Quarter Ended March 31, 2012

Table of Contents

 
 
Page
 
 
 
 
 
 
 
 
 
 

Table of Contents


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CLEARWIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
March 31,
2012
 
December 31,
2011
ASSETS
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
310,134

 
$
891,929

Short-term investments
1,122,374

 
215,655

Restricted cash
2,178

 
1,000

Accounts receivable, net of allowance of $4,647 and $5,542
125,587

 
83,660

Inventory
18,241

 
23,832

Prepaids and other assets
75,968

 
71,083

Total current assets
1,654,482

 
1,287,159

Property, plant and equipment, net
2,720,040

 
3,014,277

Restricted cash
7,286

 
7,619

Spectrum licenses, net
4,281,208

 
4,298,254

Other intangible assets, net
36,792

 
40,850

Other assets
162,979

 
157,797

Assets of discontinued operations (Note 18)
29,022

 
36,696

Total assets
$
8,891,809

 
$
8,842,652

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
269,904

 
$
157,172

Other current liabilities
207,807

 
122,756

Total current liabilities
477,711

 
279,928

Long-term debt, net
4,243,426

 
4,019,605

Deferred tax liabilities, net
139,640

 
152,182

Other long-term liabilities
832,567

 
719,703

Liabilities of discontinued operations (Note 18)
24,907

 
25,196

Total liabilities
5,718,251

 
5,196,614

Commitments and contingencies (Note 13)


 


Stockholders’ equity:
 

 
 

Class A common stock, par value $0.0001, 2,000,000 shares authorized; 492,524 and 452,215 shares outstanding
49

 
45

Class B common stock, par value $0.0001, 1,400,000 shares authorized; 839,703 shares outstanding
83

 
83

Additional paid-in capital
2,811,007

 
2,714,634

Accumulated other comprehensive income
1,971

 
2,793

Accumulated deficit
(1,799,649
)
 
(1,617,826
)
Total Clearwire Corporation stockholders’ equity
1,013,461

 
1,099,729

Non-controlling interests
2,160,097

 
2,546,309

Total stockholders’ equity
3,173,558

 
3,646,038

Total liabilities and stockholders’ equity
$
8,891,809

 
$
8,842,652

See accompanying notes to unaudited condensed consolidated financial statements.

2
Table of Contents


CLEARWIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2012
 
2011
Revenues
$
322,639

 
$
236,808

Operating expenses:
 
 
 

Cost of goods and services and network costs (exclusive of items shown separately below)
263,790

 
240,145

Selling, general and administrative expense
142,655

 
214,864

Depreciation and amortization
177,973

 
182,474

Spectrum lease expense
79,708

 
74,821

Loss from abandonment of network and other assets
80,400

 
171,862

Total operating expenses
744,526

 
884,166

Operating loss
(421,887
)
 
(647,358
)
Other income (expense):
 
 
 

Interest income
264

 
840

Interest expense
(136,686
)
 
(119,920
)
Loss on derivative instruments
(4,862
)
 
(26,781
)
Other income (expense), net
(13,268
)
 
290

Total other expense, net
(154,552
)
 
(145,571
)
Loss from continuing operations before income taxes
(576,439
)
 
(792,929
)
Income tax benefit (provision)
15,413

 
(231
)
Net loss from continuing operations
(561,026
)
 
(793,160
)
Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries
378,972

 
576,283

Net loss from continuing operations attributable to Clearwire Corporation
(182,054
)
 
(216,877
)
Net income (loss) from discontinued operations attributable to Clearwire Corporation (Note 18)
231

 
(10,078
)
Net loss attributable to Clearwire Corporation
$
(181,823
)
 
$
(226,955
)
Net loss from continuing operations attributable to Clearwire Corporation per Class A Common Share:
 

 
 

Basic
$
(0.40
)
 
$
(0.89
)
Diluted
$
(0.44
)
 
$
(0.89
)
Net loss attributable to Clearwire Corporation per Class A Common Share:
 
 
 

Basic
$
(0.40
)
 
$
(0.93
)
Diluted
$
(0.44
)
 
$
(0.93
)

See accompanying notes to unaudited condensed consolidated financial statements.

3
Table of Contents


CLEARWIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2012
 
2011
Net loss:
 
 
 
Net loss from continuing operations
$
(561,026
)
 
$
(793,160
)
Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries
378,972

 
576,283

Net loss from continuing operations attributable to Clearwire Corporation
(182,054
)
 
(216,877
)
Net income (loss) from discontinued operations
1,043

 
(40,688
)
Less: non-controlling interests in net (income) loss from discontinued operations of consolidated subsidiaries
(812
)
 
30,610

Net income (loss) from discontinued operations attributable to Clearwire Corporation
231

 
(10,078
)
Net loss attributable to Clearwire Corporation
(181,823
)
 
(226,955
)
Other comprehensive income (loss):
 
 
 
Unrealized foreign currency gains (losses) during the period
(777
)
 
4,018

Unrealized investment holding gains (losses) during the period
(198
)
 
4,455

Less: reclassification adjustment of foreign currency gains to net loss
(1,764
)
 
—

Other comprehensive income (loss)
(2,739
)
 
8,473

Less: non-controlling interests in other comprehensive income (loss) of consolidated subsidiaries
1,917

 
(6,376
)
Other comprehensive income (loss) attributable to Clearwire Corporation
(822
)
 
2,097

Comprehensive loss:
 
 
 
Comprehensive loss
(562,722
)
 
(825,375
)
Less: non-controlling interests in comprehensive loss of consolidated subsidiaries
380,077

 
600,517

Comprehensive loss attributable to Clearwire Corporation
$
(182,645
)
 
$
(224,858
)

See accompanying notes to unaudited condensed consolidated financial statements.


4
Table of Contents


CLEARWIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2012
 
2011
Cash flows from operating activities:
 

 
 

Net loss from continuing operations
$
(561,026
)
 
$
(793,160
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 

Deferred income taxes
(15,863
)
 
(63
)
Non-cash loss on derivative instruments
4,862

 
26,781

Accretion of discount on debt
10,188

 
10,613

Depreciation and amortization
177,973

 
182,474

Amortization of spectrum leases
14,216

 
13,633

Non-cash rent expense
46,382

 
56,250

Loss on property, plant and equipment (Note 5)
139,056

 
178,325

Other non-cash activities
18,696

 
6,611

Changes in assets and liabilities:
 
 
 

Inventory
5,070

 
1,376

Accounts receivable
(42,662
)
 
(28,099
)
Prepaids and other assets
(11,198
)
 
(4,760
)
Prepaid spectrum licenses
—

 
(2,521
)
Deferred revenue
154,246

 
3,688

Accounts payable and other liabilities
119,897

 
100,439

Net cash provided by (used in) operating activities of continuing operations
59,837

 
(248,413
)
Net cash provided by operating activities of discontinued operations
5,814

 
1,459

Net cash provided by (used in) operating activities
65,651

 
(246,954
)
Cash flows from investing activities:
 

 
 

Payments to acquire property, plant and equipment
(21,867
)
 
(271,244
)
Purchases of available-for-sale investments
(1,022,287
)
 
(786,777
)
Disposition of available-for-sale investments
117,953

 
244,822

Other investing activities
(845
)
 
14,005

Net cash used in investing activities of continuing operations
(927,046
)
 
(799,194
)
Net cash provided by (used in) investing activities of discontinued operations
59

 
(3,034
)
Net cash used in investing activities
(926,987
)
 
(802,228
)
Cash flows from financing activities:
 

 
 

Principal payments on long-term debt
(6,295
)
 
(1,103
)
Proceeds from issuance of long-term debt
300,000

 
—

Debt financing fees
(6,205
)
 
(1,148
)
Proceeds from issuance of common stock
—

 
1,322

Net cash provided by (used in) financing activities of continuing operations
287,500

 
(929
)
Net cash provided by financing activities of discontinued operations
—

 
—

Net cash provided by (used in) financing activities
287,500

 
(929
)
Effect of foreign currency exchange rates on cash and cash equivalents
(2,269
)
 
227

Net decrease in cash and cash equivalents
(576,105
)
 
(1,049,884
)
Cash and cash equivalents:
 
 
 

Beginning of period
893,744

 
1,233,562

End of period
317,639

 
183,678

Less: cash and cash equivalents of discontinued operations at end of period
7,505

 
1,745

Cash and cash equivalents of continuing operations at end of period
$
310,134

 
$
181,933

Supplemental cash flow disclosures:
 

 
 

Cash paid for interest including capitalized interest paid
$
732

 
$
986

Non-cash investing activities:
 
 
 

Fixed asset purchases in accounts payable and accrued expenses
$
14,050

 
$
82,353

Fixed asset purchases financed by long-term debt
$
—

 
$
7,635

Non-cash financing activities:
 
 
 

Vendor financing obligations
$
—

 
$
(757
)
Capital lease obligations
$
—

 
$
(6,878
)
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 accompanying notes to unaudited condensed consolidated financial statements.


5
Table of Contents


CLEARWIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Three Months Ended March 31, 2012 and 2011

 
Class A
Common Stock
 
Class B
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amounts
 
Shares
 
Amounts
 
Additional Paid In Capital
 
Accumulated
Other
Comprehensive Income
 
Accumulated Deficit
 
Non-controlling Interests
 
Total
Stockholders’
Equity
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
—

 
—

 
—

 
—

 
—

 
—

 
(216,877
)
 
(576,283
)
 
(793,160
)
Net loss from discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
(10,078
)
 
(30,610
)
 
(40,688
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
2,097

 
—

 
6,376

 
8,473

Issuance of common stock, net of issuance costs, and other capital transactions
2,083

 
—

 
—

 
—

 
9,278

 
—

 
—

 
(7,956
)
 
1,322

Share-based compensation and other transactions
—

 
—

 
—

 
—

 
1,700

 
—

 
—

 
4,660

 
6,360

Balances at March 31, 2011
245,627

 
$
24

 
743,481

 
$
74

 
$
2,232,088

 
$
4,592

 
$
(1,127,448
)
 
$
3,942,975

 
$
5,052,305

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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
—

 
—

 
—

 
—

 
—

 
—

 
(182,054
)
 
(378,972
)
 
(561,026
)
Net income from discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
231

 
812

 
1,043

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
(822
)
 
—

 
(1,917
)
 
(2,739
)
Issuance of common stock, net of issuance costs, and other capital transactions
40,309

 
4

 
—

 
—

 
92,547

 
—

 
—

 
(7,638
)
 
84,913

Share-based compensation and other transactions
—

 
—

 
—

 
—

 
3,826

 
—

 
—

 
1,503

 
5,329

Balances at March 31, 2012
492,524

 
$
49

 
839,703

 
$
83

 
$
2,811,007

 
$
1,971

 
$
(1,799,649
)
 
$
2,160,097

 
$
3,173,558


See accompanying notes to unaudited condensed consolidated financial statements.

6
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




1.
Description of Business

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in our 2011 Annual Report on Form 10-K. In the opinion of management, all adjustments consisting of normal recurring accruals necessary for a fair presentation have been included. The results for the three months ended March 31, 2012 and 2011 do not necessarily indicate the results that may be expected for the full year.

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. As of March 31, 2012 , we offered our services in 88 markets in the United States covering an estimated 134 million people, including an estimated 132 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 Nextel Corporation, which we refer to as Sprint, accounts for primarily all of our wholesale revenues to date, and offers services in each of our 4G markets. 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 capital for our current business and the development of our network.

Over the long term, we will need to expand our revenue base by increasing sales to our existing wholesale partners and by adding additional wholesale partners. 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 in the United States as their next generation wireless technology. By deploying LTE, we believe that we will be able to take advantage of our leading spectrum position to offer offload data capacity to existing and future mobile broadband service providers for resale to their customers on a cost effective basis.
As of March 31, 2012 , we believe that we had sufficient cash to fund the near-term liquidity needs of our business for at least the next 12 months based on the cash and short term investments we had on hand as of the end of the quarter, the ongoing impact of our 2011 expense reductions, and the cash we expect to receive for our mobile WiMAX services from our retail business and from Sprint under the agreement signed with them in November 2011, which we refer to as the November 2011 4G MVNO Amendment (See Note 17, Related Party Transactions, for further information). While we generated cash from operating activities in the first quarter of 2012, we do not expect our operations to generate cumulative positive cash flows during the next twelve months. If our business fails to perform as we expect or if we incur unforeseen expenses, we may be required to raise additional capital in the near term to fund our current business and the deployment of our LTE network. Also, we believe we will need to raise substantial additional capital to fund our business and meet our financial obligations beyond the next 12 months .
2.
Summary of Significant Accounting Policies
The condensed consolidated financial statements have been prepared in accordance with accounting principals 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 same accounting policies are followed for preparing the quarterly and annual financial information unless otherwise disclosed in the notes below.
Revenue Recognition  - We primarily earn revenue by providing access to our high-speed wireless networks. In our 4G mobile broadband markets, we offer our services through retail channels and through our wholesale partners. Sprint, our largest wholesale customer, accounts for primarily all of our wholesale revenue to date, and comprises approximately 36% of total revenues during the three months ended March 31, 2012 .

7
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue consisted of the following (in thousands):
 
Three Months Ended March 31,
 
2012
 
2011
Retail revenue
$
204,810

 
$
175,241

Wholesale revenue
117,821

 
60,895

Other revenue
8

 
672

Total revenues
$
322,639

 
$
236,808


In November 2011, we entered into the November 2011 4G MVNO Amendment with Sprint under which, among other things, Sprint will pay 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 is payable 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 in January 2012. 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. See Note 17, Related Party Transactions, for further information on the provisions of this new agreement. Wholesale revenue for the three months ended March 31, 2012 is comprised of the current period portion of the revenue recognized on a straight-line basis from the November 2011 4G MVNO Amendment. For 2011, the majority 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.
The following accounting policies were adopted in the three months ended March 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 Statement of Comprehensive Loss, rather than in the Consolidated Statements of Stockholders' Equity, as previously reported.

3.
Charges Resulting from Cost Savings Initiatives

In connection with our ongoing 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 for leases subject to termination actions, reduced by estimated sublease rentals that could be reasonably obtained. 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.


8
Table of Contents
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:
 
 
 
 
 
 

Three months ended March 31, 2011
$
2,061

 
$
4,494

 
$
—

 
$
6,555

Three months ended March 31, 2012
11,463

 
203

 
—

 
11,666

Cumulative cost incurred to date (2)
$
168,315

 
$
20,101

 
$
420

 
$
188,836

 
 
 
 
 
 
 
 
Accrued liability as of December 31, 2011
$
164,403

 
$
1,597

 
$
—

 
$
166,000

Costs incurred, excluding non-cash credits
11,463

 
203

 
—

 
11,666

Cash and share payments
(14,852
)
 
(1,092
)
 
—

 
(15,944
)
Accrued liability as of March 31, 2012 (3)
$
161,014

 
$
708

 
$
—

 
$
161,722

                 
(1)  
Lease and other contract termination costs for the three months ended March 31, 2011 includes non-cash credits of $39.4 million , representing the reversal of deferred rent balances at the cease-use date, while the costs for the three months ended March 31, 2012 includes $327,000 of accrued executory costs relating to unused tower sites where our current contract requires us to continue payments for the remaining term.
(2)  
Based on current estimates, total costs for these activities are not expected to be significantly different from those incurred to date.
(3)  
$2.5 million is recorded within Accounts payable and accrued expenses, $44.4 million is recorded as Other current liabilities and $114.8 million is recorded as Other long-term liabilities on the consolidated balance sheets. There were no significant adjustments to the liability during the quarter.

For the three months ended March 31, 2012, $10.8 million was recorded as Cost of goods and services and network costs and $852,000 was recorded as Selling, general and administrative expenses. For the three months ended March 31, 2011, $2.0 million was recorded as Cost of goods and services and network costs and $4.5 million was recorded as Selling, general and administrative expenses.

4.
Investments
Investments as of March 31, 2012 and December 31, 2011 consisted of the following (in thousands):
 
March 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
$
1,122,544

 
$
20

 
$
(190
)
 
$
1,122,374

 
$
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 quarter ended March 31, 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.


9
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5.
Property, Plant and Equipment
Property, plant and equipment as of March 31, 2012 and December 31, 2011 consisted of the following (in thousands):
 
Useful
 
March 31, 2012
 
December 31, 2011
 
Lives (Years)
 
 
Network and base station equipment
5 -15
 
$
3,356,443

 
$
3,350,696

Customer premise equipment
2
 
70,662

 
82,545

Furniture, fixtures and equipment
3-5
 
475,650

 
450,254

Leasehold improvements
Lessor of useful life or lease term
 
43,697

 
46,435

Construction in progress
N/A
 
112,996

 
262,761

 
 
 
4,059,448

 
4,192,691

Less: accumulated depreciation and amortization
 
 
(1,339,408
)
 
(1,178,414
)
 
 
 
$
2,720,040

 
$
3,014,277

 
Three Months Ended March 31,
 
2012
 
2011
Supplemental information (in thousands):
 

 
 

Capitalized interest
$
2,174

 
$
12,234

Depreciation expense
$
173,367

 
$
176,901

We have entered into lease arrangements related to our network construction and equipment that meet the criteria for capital leases. At March 31, 2012 and December 31, 2011 , we have recorded capital lease assets with an original cost of $81.2 million 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 March 31, 2012 included $30.1 million of costs related to completing network projects not yet placed in service, $74.9 million of network and base station equipment not yet assigned to a project and $7.9 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, including the provisions for excessive and obsolete equipment. During the three months ended March 31, 2012, we solidified our LTE network architecture, including identifying the first approximately 5,000 sites at which we expect to deploy LTE technology.  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.  In addition, any network equipment not required to support our network deployment plans or sparing requirements was also written down to expected salvage value.  This assessment resulted in the write-downs of network equipment and cell site development costs of $80.0 million and network equipment held in our warehouses of $52.2 million during the three months ended March 31, 2012.
In connection with our savings initiatives, during the three months ended March 31, 2011, we identified, evaluated and terminated certain unutilized tower leases that no longer fit within management's deployment plan, 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 included in construction in progress related to leases for which we have initiated such terminations were written down resulting in a charge of $145.4 million for the three months ended March 31, 2011. See Note 3, Charges Resulting from Cost Savings Initiatives, for a discussion of the costs associated with lease terminations.

10
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

We incurred the following losses associated with PP&E for the three months ended March 31, 2012 and 2011 (in thousands):
 
Three Months Ended March 31,
 
2012
 
2011
Abandonment of network projects no longer meeting strategic network plans
$
79,971

 
$
26,105

Abandonment of network projects associated with terminated leases
—

 
145,449

Abandonment of corporate projects
429

 
308

Total loss from abandonment of network and other assets
80,400

 
171,862

Charges for disposal and differences between recorded amounts and results of physical counts (1)
6,454

 
443

Charges for excessive and obsolete equipment (1)(2)
52,202

 
6,020

Total losses on property, plant and equipment
$
139,056

 
$
178,325

      
(1)     Included in Cost of goods and services and network costs on the consolidated statements of operations.
(2)  
For the three months ended March 31, 2012, $2.3 million is included in Selling, general and administrative expense on the consolidated statements of operations.
In addition, during the first quarter of 2012, as a result of Sprint's recent announcement that it plans to decommission its iDEN network, we evaluated the remaining useful lives of our Network and base station equipment co-located at iDEN sites identified by Sprint to be decommissioned. We concluded that, for certain of the Network and base station equipment at these sites, it is not likely that we would continue to operate our equipment at the current location once Sprint decommissions its site and therefore, we determined the useful lives of the Network and base station equipment at these sites should be accelerated beginning in the first quarter of 2012 from a weighted-average remaining useful life of approximately 5 years to approximately 1 - 2 years based on the expected date of decommissioning. We will continue to monitor the estimated useful lives of our network assets as our plans continue to evolve. Any further adjustments to those lives would likely result in increased depreciation expense in future periods.

6.
Spectrum Licenses
Owned and leased spectrum licenses as of March 31, 2012 and December 31, 2011 consisted of the following (in thousands):
 
 
 
March 31, 2012
 
December 31, 2011
 
Wtd Avg
Lease Life
 
Gross Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
 
Gross Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
Indefinite-lived owned spectrum
Indefinite
 
$
3,098,983

 
$
—

 
$
3,098,983

 
$
3,098,983

 
$
—

 
$
3,098,983

Spectrum leases and prepaid spectrum
16-25 years
 
1,364,907

 
(194,904
)
 
1,170,003

 
1,364,907

 
(181,033
)
 
1,183,874

Pending spectrum and transition costs
N/A
 
12,222

 
—

 
12,222

 
15,397

 
—

 
15,397

Total spectrum licenses
 
 
$
4,476,112

 
$
(194,904
)
 
$
4,281,208

 
$
4,479,287

 
$
(181,033
)
 
$
4,298,254


 
Three Months Ended March 31,
 
2012
 
2011
Supplemental Information (in thousands):
 
 
 

Amortization of prepaid and other spectrum licenses
$
14,795

 
$
14,182



11
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of March 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
2012
$
54,189

2013
54,160

2014
53,929

2015
53,641

2016
53,024

Thereafter
901,060

Total
$
1,170,003


We expect that all renewal periods in our leases will be renewed by us, and the costs to renew to be immaterial.

7.
Other Intangible Assets
Other intangible assets as of March 31, 2012 and December 31, 2011 consisted of the following (in thousands):
 
 
 
March 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

 
$
(74,681
)
 
$
33,594

 
$
108,275

 
$
(70,894
)
 
$
37,381

Trade names and trademarks
5 years
 
3,804

 
(2,536
)
 
1,268

 
3,804

 
(2,346
)
 
1,458

Patents and other
10 years
 
3,228

 
(1,298
)
 
1,930

 
3,228

 
(1,217
)
 
2,011

Total other intangibles
 
 
$
115,307

 
$
(78,515
)
 
$
36,792

 
$
115,307

 
$
(74,457
)
 
$
40,850


As of March 31, 2012 , the future amortization of other intangible assets is expected to be as follows (in thousands):

2012
$
12,172

2013
12,299

2014
7,734

2015
3,867

2016
322

Thereafter
398

Total
$
36,792


 
Three Months Ended March 31,
 
2012
 
2011
Supplemental Information (in thousands):
 

 
 

Amortization expense
$
4,058

 
$
5,024


We evaluate all of our patent renewals on a case by case basis, based on renewal costs.


12
Table of Contents
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):
 
March 31, 2012
 
December 31, 2011
Accounts payable and accrued expenses:
 

 
 

Accounts payable
$
68,580

 
$
65,285

Accrued interest
163,514

 
39,980

Salaries and benefits
13,932

 
29,075

Business and income taxes payable
16,813

 
15,304

Other accrued expenses
7,065

 
7,528

Total accounts payable and accrued expenses
269,904

 
157,172

Other current liabilities:
 

 
 

Derivative instruments
11,554

 
8,240

Deferred revenues (1)
116,266

 
36,691

Current portion of long-term debt
26,919

 
26,474

Cease-to-use lease liability (2)
44,449

 
45,645

Other
8,619

 
5,706

Total other current liabilities
207,807

 
122,756

Total
$
477,711

 
$
279,928

Other long-term liabilities
Other long-term liabilities consisted of the following (in thousands):
 
March 31, 2012
 
December 31, 2011
Deferred rents associated with tower and spectrum leases
$
598,552

 
$
555,838

Cease-to-use liability (2)
114,841

 
117,000

Deferred revenue (1)
75,878

 
1,207

Other
43,296

 
45,658

Total
$
832,567

 
$
719,703

         
(1)     See Note 17, Related Party Transactions, for further detail regarding deferred revenue balances with related parties.
(2)
See Note 3, Charges Resulting from Cost Savings Initiatives, for further information.

9.
Income Taxes

Clearwire Corporation, which we refer to as Clearwire or the Company, holds no significant assets other than its equity interests in Clearwire Communications LLC, which we refer to as Clearwire Communications. Clearwire Communications is treated as a partnership for United States federal income tax purposes and therefore does not pay United States federal income tax. As a result, any current and deferred tax consequences, including for Clearwire, arise at the partner level. Other than the balances associated with the non-United States operations, the only temporary difference for Clearwire is the basis difference associated with our investment in the partnership. We have recognized a deferred tax liability for this basis difference. Our deferred tax assets primarily represent net operating loss 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. A portion of our deferred tax assets will be realized through schedulable reversing deferred tax liabilities, however all of the net operating losses incurred on or before December 13, 2011 are limited under Section 382 and a portion cannot be realized within

13
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

the carry-forward period. Net operating losses incurred after December 13, 2011 are not subject to limitation under Section 382. As it relates to the United States tax jurisdiction, we determined that our temporary taxable difference associated with our investment in Clearwire Communications will not completely reverse within the carry-forward period of the net operating losses. The portion of such temporary difference that will reverse within the carry-forward period of the net operating losses represents relevant future taxable income. Management has reviewed the facts and circumstances, including the history of net operating losses and 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.

The income tax benefit reflected in our condensed consolidated statements of operations primarily reflects United States deferred taxes net of certain state taxes.

10.
Long-term Debt, Net
Long-term debt at March 31, 2012 and December 31, 2011 consisted of the following (in thousands):
 
March 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

 
$
(33,509
)
 
$
2,913,985

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

 
(180,512
)
 
448,738

Vendor Financing Notes (3)
LIBOR based (2)
 
6.25%
 
2014/2015
 
43,308

 
(50
)
 
43,258

Capital lease obligations (3)
 
 
 
 
 
 
64,364

 
—

 
64,364

Total debt, net
 
 
 
 
 
 
$
4,484,416

 
$
(214,071
)
 
4,270,345

Less: Current portion of Vendor Financing Notes and capital lease obligations (4)
 
 
 
 
 
 
 

 
 

 
(26,919
)
Total long-term debt, net
 
 
 
 
 
 
 

 
 

 
$
4,243,426

_______________________________________
(1)  
Represents weighted average effective interest rate based on quarter-end balances.
(2)  
Coupon rate based on 3-month LIBOR plus a spread of 5.50% .
(3)      As of March 31, 2012, par value of approximately $107.7 million is secured by assets classified as Network and base station equipment.
(4)      Included in Other current liabilities on the consolidated balance sheets.


14
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
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 value 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 sheets.
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 $294.8 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. Under certain circumstances, Clearwire Communication 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 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.

Exchangeable Notes Transaction  — During the quarter ended March 31, 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 Clearwire's Class A common stock, which we refer to as 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 of its 8.25% exchangeable notes due 2040 , which we refer to as the Exchangeable Notes, for a total price equal to the Purchase Price. Clearwire used the proceeds of the sale of the Class A Common Stock to contribute to Clearwire Communications to allow it to retire $100.0 million in aggregate principal amount of its Exchangeable Notes, plus accrued but unpaid interest, held by the institutional investors. Due to the significant discount resulting from the recognition of the exchange options as a separate derivative liability upon the issuance of the Exchangeable Notes, extinguishment of the Exchangeable Notes in the Exchange Transaction resulted in a loss of $10.1 million recorded in Other income (expense), net on the consolidated statements of operations.

15
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 three months ended March 31, 2012 and 2011 , consisted of the following (in thousands):
 
Three Months Ended March 31,
 
2012
 
2011
Interest coupon (1)
$
128,672

 
$
121,541

Accretion of debt discount and amortization of debt premium, net (2)
10,188

 
10,613

Capitalized interest
(2,174
)
 
(12,234
)
 
$
136,686

 
$
119,920

_______________________________________
(1)  
During the three months ended March 31, 2012, includes $2.5 million of coupon interest relating to 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, which we refer to as 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 Exchange 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 March 31, 2012 and December 31, 2011, respectively, and mature in 2040 . See Note 10, Long-term Debt, Net, for further information on the Exchange Transaction.
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 March 31, 2012 and December 31, 2011 , the Exchange Options’ estimated fair value of $11.6 million and $8.2 million , respectively, was reported in Other current liabilities on our consolidated balance sheets. For the three months ended March 31, 2012 and 2011 , we recognized losses of $4.9 million and $26.8 million , respectively, from the changes in the estimated fair value in Loss on derivative instruments in our consolidated statements of operations. See Note 12, Fair Value, for information regarding valuation of the Exchange Options.

12.
Fair Value
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,

16
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 the fair value of the Exchange Options at March 31, 2012 and December 31, 2011 of 40% 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 assumptions constant, an increase or decrease of 10% in our estimated stock volatility at March 31, 2012 could result in a loss of $12.4 million , or a gain of $8.9 million , respectively.
The following table summarizes our financial assets and liabilities by level within the valuation hierarchy at March 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
$
285,136

 
$
24,998

 
$
—

 
$
310,134

Short-term investments
$
801,789

 
$
320,585

 
$
—

 
$
1,122,374

Other assets — derivative warrant assets
$
—

 
$
—

 
$
214

 
$
214

Financial liabilities:
 
 
 
 
 
 
 

Other current liabilities — derivative liabilities (Exchange Options)
$
—

 
$
—

 
$
(11,554
)
 
$
(11,554
)
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
)

17
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the change in Level 3 financial assets and liabilities measured on a recurring basis for the three months ended March 31, 2012 (in thousands):
 
January 1, 2012
 
Acquisitions,
Issuances and
Settlements
 
Net Realized/Unrealized
Gains (Losses)
Included in
Earnings
 
Net Realized/Unrealized
Gains (Losses)
Included in
Accumulated
Other
Comprehensive
Income
 
March 31, 2012
 
Net Unrealized Gains (Losses) Included in 2012 Earnings Relating to Instruments Held at March 31, 2012
Other assets:
 
 
 
 
 
 
 
 
 
 

 
 
Derivatives
$
209

 
$
—

 
$
5

(1)  
 
$
—

 
$
214

 
$
5

Other current liabilities:
 
 
 
 
 
 
 
 
 
 

 
 
Derivatives
(8,240
)
 
1,553

 
(4,867
)
(1)  
 
—

 
(11,554
)
 
(4,443
)
_____________________________________
(1)
Included in Loss 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 three months ended March 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
 
March 31, 2011
 
Net Unrealized Gains (Losses) Included in 2011 Earnings Relating to Instruments Held at March 31, 2011
Long-term investments:
 

 
 

 
 

 
 
 

 
 

 
 

Other debt securities
$
15,251

 
$
—

 
$
—

 
 
$
4,446

 
$
19,697

 
$
—

Other assets:
 
 
 
 
 
 
 
 
 
 

 
 
Derivatives
292

 
—

 
—

 
 
—

 
292

 
—

Other current liabilities:
 
 
 
 
 
 
 
 
 
 

 
 
Derivatives
(167,892
)
 
—

 
(26,781
)
(1)  
 
—

 
(194,673
)
 
(26,781
)
______________________________________
(1)
Included in Loss on derivative instruments in the consolidated statements of operations.
The following is the description of the fair value for financial instruments we hold that are not subject to fair value recognition.
Debt Instruments
The senior secured notes maturing in 2015, which we refer to as the 2015 Senior Secured Notes, the 2016 Senior Secured Notes, the second-priority secured notes, which we refer to as 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 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, which we refer to as 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 in 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.

18
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the carrying value and the approximate fair value of our outstanding debt instruments at March 31, 2012 and December 31, 2011 (in thousands):
 
March 31, 2012
 
December 31, 2011
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
Notes:
 

 
 

 
 

 
 

Senior Secured Notes - 2015
$
2,913,985

 
$
2,929,584

 
$
2,912,222

 
$
2,799,820

Senior Secured Notes - 2016
$
300,000

 
$
331,649

 
$
—

 
$
—

Second-Priority Secured Notes
$
500,000

 
$
456,058

 
$
500,000

 
$
425,000

Exchangeable Notes (1)
$
448,738

 
$
476,421

 
$
519,991

 
$
446,134

Vendor Financing Notes
$
43,258

 
$
40,905

 
$
48,276

 
$
44,133

_______________________________________
(1)
Carrying value as of March 31, 2012 and December 31, 2011 is net of $180.5 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 March 31, 2012 , are as follows (in thousands):
 
Total
 
2012
 
2013
 
2014
 
2015
 
2016
 
Thereafter,
including all
renewal periods
Long-term debt obligations
$
4,420,052

 
$
15,896

 
$
21,194

 
$
5,988

 
$
2,947,724

 
$
300,000

 
$
1,129,250

Interest payments on long-term debt obligations (1)
3,418,463

 
504,723

 
511,056

 
509,990

 
509,866

 
156,163

 
1,226,665

Operating lease obligations (2)
1,819,252

 
266,453

 
388,202

 
347,301

 
266,833

 
174,416

 
376,047

Operating lease payments for assumed renewal periods (2)
8,586,910

 
443

 
11,748

 
56,069

 
141,431

 
230,608

 
8,146,611

Spectrum lease obligations
6,222,370

 
130,290

 
169,005

 
178,130

 
173,026

 
178,716

 
5,393,203

Spectrum service credits and signed spectrum agreements
106,927

 
6,049

 
3,198

 
3,198

 
3,198

 
3,198

 
88,086

Capital lease obligations (3)
105,798

 
9,416

 
12,791

 
13,744

 
11,279

 
7,922

 
50,646

Purchase agreements
211,018

 
115,978

 
62,216

 
17,871

 
6,301

 
1,899

 
6,753

Total
$
24,890,790

 
$
1,049,248

 
$
1,179,410

 
$
1,132,291

 
$
4,059,658

 
$
1,052,922

 
$
16,417,261

_____________________________________
(1)  
Includes $1.19 billion relating to contractual interest payments on the Exchangeable Notes beyond the expected repayment in 2017.
(2)  
Includes executory costs of $53.0 million .
(3)  
Payments include $41.4 million representing interest.

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 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 described 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.
Certain of the tower leases specify a minimum number of new leases to commence by December 31, 2012. Charges may apply if these commitments are not satisfied. The amounts above include the minimum commitment obligation.


19
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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.
Expense recorded related to spectrum and operating leases was as follows (in thousands):
 
Three Months Ended March 31,
 
2012
 
2011
Spectrum lease payments
$
43,293

 
$
40,073

Non-cash spectrum lease expense
22,199

 
21,115

Amortization of spectrum leases
14,216

 
13,633

Total spectrum lease expense
$
79,708

 
$
74,821

Operating lease expense
$
119,074

 
$
138,548


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 three months ended March 31, 2012 and 2011 we satisfied $1.1 million and $2.3 million , respectively, related to these commitments. The maximum remaining commitment at March 31, 2012 is $104.1 million  and is expected to be incurred over the term of the related lease agreements, which generally range from 15-30 years .

Purchase agreements - We have purchase commitments with take-or-pay obligations and/or volume commitments for equipment that are non-cancelable. In addition, we have other obligations 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.

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.
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 early termination fees 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

20
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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. The parties have briefed the issue. Once the Washington Supreme Court issues its opinion, the Court of Appeals will continue considering the appeal of the District Court’s dismissal of all claims in the First Amended Complaint. The parties have agreed to settle the lawsuit. The settlement is pending execution of a definitive agreement and court approval. We have accrued an estimated amount we anticipate to pay for the settlement. The accrual is included 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 evidentiary hearing and the matter are stayed pending a private mediation between the parties. The mediation is scheduled for June 2012. This case is in the early stages of litigation, its outcome is unknown and the possible loss or range of possible loss cannot be reasonably estimated as of the date of this report.
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 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, 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. On April 27, 2011, the US Supreme Court decided Concepcion, and as a result, we expect to renew our motion to compel arbitration. The parties have agreed to settle the lawsuit. The settlement is pending execution of a definitive agreement and court approval. We have accrued an estimated amount we anticipate to pay for the settlement. The accrual is included 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 have agreed to settle the lawsuit. The settlement is pending execution of a definitive agreement and court approval. We have accrued an estimated amount we anticipate to pay for the settlement. The accrual is included in Other current liabilities. The amount accrued is considered immaterial to the financial statements.

21
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 consolidated balance sheets for any indemnification agreements, because they are neither probable nor estimable.

14.
Share-Based Payments
As of March 31, 2012 , there were 33,828,783  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. With the adoption of the 2008 Plan, no additional share 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. 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-based RSUs awarded in 2012 have one to two year performance periods and were granted once the performance objectives were established during the first quarter.
A summary of the RSU activity for the three months ended March 31, 2012 is presented below:
 
Restricted Stock Units
 
Weighted-
Average
Grant Price
 
 
Future Performance and Service Required
 
Future Service Required
 
Future Performance and Service Required
 
Future Service Required
Restricted stock units outstanding — January 1, 2012
—

 
10,749,723

 
$
—

 
$
4.79

  Granted
6,524,830

 
16,825,833

 
1.99

 
2.29

Forfeited
—

 
(542,558
)
 
—

 
4.39

Vested
—

 
(2,346,647
)
 
—

 
4.30

Restricted stock units outstanding — March 31, 2012
6,524,830

 
24,686,351

 
$
1.99

 
$
3.04

As of March 31, 2012 , we have total unrecognized compensation cost of approximately $53.6 million , which is expected to be recognized over a weighted-average period of approximately 2.0 years.
For the three months ended March 31, 2012 , we used a forfeiture rate of 12.0% in determining compensation expense for RSUs.
Stock Options
We granted options to certain officers and employees under the 2008 Plan. All options generally vest over a four-year period. The fair value of option grants was estimated on the date of grant using the Black-Scholes option pricing model.

22
Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary of option activity from January 1, 2012 through March 31, 2012 is presented below:
 
Number of
Options
 
Weighted-
Average
Exercise
Price
Options outstanding — January 1, 2012
4,560,751

 
$
13.98

Granted
—

 
—