Sprint - Nextel 2011 Annual Report Download - page 80

Table of Contents
SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The components of investments were as follows:
M
arketable equit
y
securities
Investments in marketable equity securities are recognized at fair value and are considered available-for-sale securities. Accordingly, unrealized holding gains
and losses on these securities are recognized in accumulated other comprehensive income (loss), net of related income tax. Realized gains or losses are measured and
reclassified from accumulated other comprehensive income (loss) into earnings based on identifying the specific investments sold or where an other-than-temporary
impairment exists.
E
quit
y
Method Investment in Clearwire
Sprint's Ownership Interest
Sprint's investment in Clearwire is part of our plan to participate in the 4G wireless broadband market. Sprint offers 4G products utilizing Clearwire's 4G
wireless broadband network in available markets.
As of December 31, 2011, Sprint holds approximately 51.5% of a non-controlling economic interest in Clearwire in the form of 705 million Class B non-
voting common interests (Class B Non-voting) in Clearwire Communications LLC and a 48.6% non-controlling voting interest in the form of 628 million shares of Class
B voting common stock (Class B Voting) of Clearwire Corporation (together, “Class B Common Interests”) for which the carrying value, as of December 31, 2011,
totaled approximately $1.7 billion. Each share of Clearwire Corporation Class B Voting, together with one Clearwire Communications LLC Class B Non-voting, is
exchangeable for one share of Clearwire Corporation's Class A common stock, a publicly traded security. If Sprint does not elect to buy back any shares previously
surrendered, any Class B Non-voting shares in excess of Class B Voting shares could be sold separately, subject to certain restrictions.
In addition to Class B Common Interests, Sprint holds a note receivable from Clearwire issued in 2008 with a fixed interest rate of 12% and a maturity date of
December 2015. The carrying value of the note receivable, which includes accretion of the premium and fees for the 2009 rollover, was $178 million and $177 million as
of December 31, 2011 and 2010, respectively. The carrying value of Sprint's Class B Common Interests, together with the carrying value of the note receivable, are
included in the line item "Investments" in Sprint's consolidated balance sheets.
On November 30, 2011, Sprint entered into new agreements with Clearwire that established long-term pricing terms for 4G services, both WiMAX and LTE.
Under terms of the agreements, Sprint is required to pay Clearwire $926 million in total over the course of 2012 and 2013 in exchange for unlimited WiMAX services
during those years. The agreements also establish long-term usage-based pricing for LTE services in 2012 and beyond and WiMAX services in 2014 and beyond. Under
the terms Sprint may also make a series of refundable prepayments up to $350 million for LTE services, if Clearwire achieves certain build-out targets and network
specifications by June 2013 or obtains purchase commitments for LTE services from other customers. These payments, beginning in 2013, will be applied towards LTE
usage over the remaining term of the contract. In addition, the agreement provided improved terms and competitive pricing for re-wholesaling of WiMAX services by
Sprint beginning in 2012. Lastly, as part of the agreements, on January 2, 2012, Sprint provided $150 million to Clearwire in exchange for a promissory note with a stated
interest rate of 11.5% that matures in two installments of $75 million plus accrued interest in January 2013 and in January 2014. Sprint, at its sole discretion, can choose
to offset any amounts payable by Clearwire under this promissory note against amounts owed by Sprint under the MVNO agreement.
F-13
Note 3. Investments
December 31,
2011 2010
(in millions)
Marketable equity securities $43 $39
Equity method and other investments 1,953 3,350
$1,996
$3,389