Sprint - Nextel 2012 Annual Report Download - page 137

Table of Contents
SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Equity Method Investment in Clearwire
Sprint's Ownership Interest
Sprint's investment in Clearwire Corporation and its consolidated subsidiary Clearwire Communications LLC (together, "Clearwire") is one
of the ways we participate in the fourth generation (4G) wireless broadband market. Sprint offers certain 4G products utilizing Clearwire's 4G wireless
Worldwide Interoperability for Microwave Access (WiMAX) broadband network in available markets.
On December 11, 2012, Sprint purchased the equity holdings of one of Clearwire's equityholders, Eagle River Holdings, LLC (Eagle River)
for
$100 million in cash. These holdings represented 30.9 million shares of Clearwire Corporation Class A Common Stock and 2.7 million shares of
Clearwire Communications LLC Class B Interests (together, “Interests” ). After the purchase, Sprint held a 50.4% non - controlling voting interest and a
2.1% non - controlling economic interest in Clearwire Corporation, as well as a 48.3% non - controlling economic interest in Clearwire Communications
LLC (together, “Equity Interests”
).
Under the Clearwire Equityholders' Agreement, Sprint can nominate seven of the thirteen directors to the Clearwire Board. Upon closing of
the Eagle River purchase, Sprint is no longer subject to the requirement that one of its seven designees be independent of Sprint. In addition, upon
closing, the composition of the remaining board seats was modified so that the number of independent directors the Nominating and Governance
Committee of the Clearwire Board can nominate to the Clearwire Board increased from two to three, while the number of directors the remaining
investors have the right to nominate to the Clearwire Board under the Clearwire Equityholders' Agreement was reduced from four to three directors.
Sprint will continue to account for its ownership interests in Clearwire under the equity method of accounting given the substantive participative
governance rights provided to the minority holders in Clearwire, which restrict Sprint from exerting control over Clearwire's operations.
The carrying value of our Equity Interests totaled
$674 million as of December 31, 2012 . In addition to our Equity Interests, Sprint held two
notes receivable from Clearwire as of
December 31, 2012 . On January 2, 2012, in conjunction with new long - term pricing agreements within the mobile
virtual network operator (MVNO) agreement reached between the two companies in the fourth quarter of 2011, Sprint provided $150 million to
Clearwire in exchange for a promissory note. The note has 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. The difference between the fair value of the note and its face value at the date of issuance has been
recorded as a prepaid expense, which will be amortized over the service period to cost of service. 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, and this action was taken for
the installment due in January 2013. Additionally, 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 total carrying value of the notes receivable, which includes accretion related to premiums for both notes and fees
associated with the 2009 replacement of the 2008 note, was
$320 million and $178 million as of December 31, 2012 and 2011 , respectively. The carrying
value of Sprint's Equity Interests, together with the long
- term portion of the carrying value of the notes receivable, are included in the line item
"Investments" in Sprint's consolidated balance sheets. The current portion of the carrying value of the notes receivable is included in the line item
"Prepaid expenses and other current assets" in Sprint's consolidated balance sheets.
Equity in Losses and Summarized Financial Information
Equity in losses from Clearwire were
$1.1 billion , $1.7 billion and $1.3 billion for the years ended December 31, 2012 , 2011 and 2010,
respectively. Sprint's losses from its investment in Clearwire consist of Sprint's share of Clearwire's net loss and other adjustments, if any, such as non -
cash impairment of Sprint's investment, gains or losses associated with the dilution of Sprint's ownership interest resulting from Clearwire's equity
issuances, and other items recognized by Clearwire Corporation that do not affect Sprint's economic interest. Sprint's equity in losses from Clearwire
for
2012, 2011 and 2010 include charges of approximately $41 million , $361 million and $97 million , respectively, which are associated with Clearwire's
write - off of certain network and other assets that no longer meet its strategic plans. The years ended December 31, 2012 and 2011 also include a pre - tax
impairment of $204 million and $135 million , respectively, reflecting Sprint's reduction in the carrying value of its investment in
F - 16