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TMCNet:  CLEARWIRE CORP /DE - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

[February 14, 2013]

CLEARWIRE CORP /DE - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) 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 57-------------------------------------------------------------------------------- Table of Contents 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.

58-------------------------------------------------------------------------------- Table of Contents 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 59-------------------------------------------------------------------------------- Table of Contents 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.

60-------------------------------------------------------------------------------- Table of Contents 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.

61-------------------------------------------------------------------------------- Table of Contents 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: • a significant decrease in the market price of the asset; • significant underperformance relative to expected historical or projected future operating results; • significant changes in our use of the assets or the strategy for our overall business; and • significant negative industry or economic trends.

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 62-------------------------------------------------------------------------------- Table of Contents 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: • a significant decrease in the market price of the asset; • a significant change in the extent or manner in which the asset is being used; • a significant change in the business climate that could affect the value of the asset; • a current period loss combined with projections of continuing losses associated with use of the asset; • a significant change in our business or technology strategy; • a significant change in our management's views of growth rates for our business; and • a significant change in the anticipated future economic and regulatory conditions and expected technological availability.

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.

63-------------------------------------------------------------------------------- Table of Contents 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 64-------------------------------------------------------------------------------- Table of Contents 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.

65-------------------------------------------------------------------------------- Table of Contents 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).

Percentage Percentage Change Change 2012 2011 Year Ended December 31, Versus Versus 2012 2011 2010 2011 2010 Revenues: Retail revenues $ 795,632 $ 758,254 $ 480,761 4.9% 57.7% Wholesale revenues 468,469 493,661 50,593 (5.1)% 875.7% Other revenues 593 1,551 3,749 (61.8)% (58.6)% Total revenues 1,264,694 1,253,466 535,103 0.9% 134.2% Operating expenses: Cost of goods and services and network costs (exclusive of items shown separately below) 908,078 1,249,966 912,776 (27.4)% 36.9% Selling, general and administrative expense 558,202 698,067 870,980 (20.0)% (19.9)% Depreciation and amortization 768,193 687,636 454,003 11.7% 51.5% Spectrum lease expense 326,798 308,693 279,993 5.9% 10.3% Loss from abandonment of network and other assets 82,206 700,341 180,001 (88.3)% 289.1% Total operating expenses 2,643,477 3,644,703 2,697,753 (27.5)% 35.1% Operating loss (1,378,783 ) (2,391,237 ) (2,162,650 ) 42.3% (10.6)% Other income (expense): Interest income 1,895 2,335 4,950 (18.8)% (52.8)% Interest expense (553,459 ) (505,992 ) (152,868 ) (9.4)% (231.0)% Gain on derivative instruments 1,356 145,308 63,255 (99.1)% 129.7% Other income (expense), net (12,153 ) 681 (2,671 ) N/M 125.5% Total other expense, net (562,361 ) (357,668 ) (87,334 ) (57.2)% (309.5)% Loss from continuing operations before income taxes (1,941,144 ) (2,748,905 ) (2,249,984 ) 29.4% (22.2)% Income tax benefit (provision) 197,399 (106,828 ) (1,218 ) 284.8% N/M Net loss from continuing operations (1,743,745 ) (2,855,733 ) (2,251,202 ) 38.9% (26.9)% Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries 1,182,183 2,158,831 1,775,840 (45.2)% 21.6% Net loss from continuing operations attributable to Clearwire Corporation (561,562 ) (696,902 ) (475,362 ) 19.4% (46.6)% Net loss from discontinued operations attributable to Clearwire Corporation, net of tax (167,005 ) (20,431 ) (12,075 ) N/M (69.2)% Net loss attributable to Clearwire Corporation $ (728,567 ) $ (717,333 ) $ (487,437 ) (1.6)% (47.2)% 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.

Percentage Percentage Year Ended December 31, Change Change 2012 2011 Versus Versus (In thousands, except percentages) 2012 2011 2010 2011 2010 Population covered by services 137,366 134,159 114,233 2.4% 17.4% Subscribers: Retail 1,361 1,292 1,099 5.3% 17.6% Wholesale 8,220 9,123 3,246 (9.9)% 181.1% 66-------------------------------------------------------------------------------- Table of Contents 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 67-------------------------------------------------------------------------------- Table of Contents 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 68-------------------------------------------------------------------------------- Table of Contents 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.

69-------------------------------------------------------------------------------- Table of Contents 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) Year 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 70-------------------------------------------------------------------------------- Table of Contents 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.

71-------------------------------------------------------------------------------- Table of Contents 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.

72-------------------------------------------------------------------------------- Table of Contents 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.

73-------------------------------------------------------------------------------- Table of Contents 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): Less Than Contractual Obligations Total 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 74-------------------------------------------------------------------------------- Table of Contents 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.

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