Sprint - Nextel 2008 Annual Report Download - page 128

CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Loss From Settlement of Pre-existing Relationships
Before the Closing, Sprint leased spectrum to Old Clearwire through various spectrum lease agreements. As
part of the Transactions, Sprint contributed both the spectrum lease agreements and the spectrum assets
underlying those agreements to our business. As a result of the Transactions, the spectrum lease agreements were
effectively terminated, and the settlement of those agreements was accounted for as a separate element apart
from the business combination. The settlement gain or loss recognized from the termination was valued based on
the amount by which the agreements are favorable or unfavorable to our business relative to current market rates.
The spectrum lease agreements were considered to be unfavorable to our business by approximately
$80.6 million on a net basis. As such, we reduced the purchase consideration paid and recorded a non-recurring
expense of approximately $80.6 million, which is included in transaction related expenses, related to the
settlement of the unfavorable spectrum lease agreements in connection with the Transactions.
4. Investments
Investments as of December 31, 2009 and 2008 consist of the following (in thousands):
December 31, 2009 December 31, 2008
Gross Unrealized Gross Unrealized
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
Short-term
U.S. Government and
Agency Issues ..... $2,106,584 $ 231 $(154) $2,106,661 $1,899,529 $2,220 $— $1,901,749
Long-term
U.S. Government and
Agency Issues ..... 74,670 — (154) 74,516 — — — —
Other debt securities .... 8,959 4,212 — 13,171 18,974 — — 18,974
Total long-term ........ 83,629 4,212 (154) 87,687 18,974 — — 18,974
Total investments ..... $2,190,213 $4,443 $(308) $2,194,348 $1,918,503 $2,220 $— $1,920,723
For the years ended December 31, 2009 and 2008, we recorded an other-than-temporary impairment loss of
$10.0 million and $17.0 million, respectively, related to our other debt securities.
At December 31, 2009, U.S. Government and Agency Issues securities with an amortized cost basis of
$929.9 million had unrealized losses of approximately $308,000. All of these securities have been in an
unrealized loss position for less than two months and the unrealized losses resulted from changes in interest rates.
Other debt securities include investments in collateralized debt obligations, which we refer to as CDOs,
supported by preferred equity securities of insurance companies and financial institutions with stated final
maturity dates in 2033 and 2034. These are variable rate debt instruments whose interest rates are normally reset
approximately every 30 or 90 days through an auction process. As of December 31, 2009, the total fair value and
cost of our security interests in CDOs was $13.2 million and $9.0 million, respectively. The total fair value and
cost of our security interests in CDOs as of December 31, 2008 was $12.9 million. We also own Auction Market
Preferred securities issued by a monoline insurance company and these securities are perpetual and do not have a
final stated maturity. In July 2009, the issuer’s credit rating was downgraded to CC and Caa2 by Standard &
Poor’s and Moody’s rating services, respectively and the total fair value and cost of our Auction Market
Preferred securities was written down to $0. The total fair value and cost of our Auction Market Preferred
securities as of December 31, 2008 was $6.1 million. Current market conditions do not allow us to estimate when
the auctions for our other debt securities will resume, if ever, or if a secondary market will develop for these
securities. As a result, our other debt securities are classified as long-term investments.
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