EX-99.2 3 v53303exv99w2.htm EX-99.2 exv99w2
Exhibit 99.2
(CLEARWIRE LOGO)
Clearwire Corporation
2008 Unaudited Quarterly Pro Forma
Financial Information

 

 

CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
                    9 months ended    
    3 months ended   6 months ended   September 30,   12 months ended
    March 31, 2008   June 30, 2008   2008   December 31, 2008
 
                                
REVENUES
   $ 51,528     $ 110,091     $ 170,930     $ 230,646  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     65,035       132,805       208,351       285,759  
Selling, general and administrative expense
     139,801       261,854       374,688       484,421  
Depreciation and amortization
     26,611       54,732       86,932       128,602  
Spectrum lease expense
     65,518       114,538       174,092       250,184  
     
Total operating expenses
     296,965       563,929       844,063       1,148,966  
     
OPERATING LOSS
     (245,437 )     (453,838 )     (673,133 )     (918,320 )
OTHER INCOME (EXPENSE):
                                
Interest income
     8,754       12,583       16,051       18,569  
Interest expense
     (47,427 )     (95,170 )     (143,683 )     (192,588 )
Other-than-temporary impairment loss and realized loss on investments
     (4,849 )     (32,767 )     (42,120 )     (78,447 )
Other income (expense), net
     73       (1,424 )     (2,099 )     (10,968 )
     
Total other income (expense), net
     (43,449 )     (116,778 )     (171,851 )     (263,434 )
     
INCOME (LOSS) BEFORE INCOME TAXES
     (288,886 )     (570,616 )     (844,984 )     (1,181,754 )
Income tax provision
     —       —       —       —  
     
NET LOSS
     (288,886 )     (570,616 )     (844,984 )     (1,181,754 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     212,447       419,533       621,190       867,608  
     
NET LOSS ATTRIBUTABLE TO CLEARWIRE
   $ (76,439 )   $ (151,083 )   $ (223,794 )   $ (314,146 )
     
 
                                
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
   $ (0.39 )   $ (0.78 )   $ (1.15 )   $ (1.62 )
Diluted
   $ (0.41 )   $ (0.81 )   $ (1.26 )   $ (1.73 )
 
                                
Weighted average Class A Common Shares outstanding:
                                
Basic
     194,484       194,484       194,484       194,484  
Diluted
     723,307       723,307       723,307       723,307  
Clearwire Corporation
Summary of Pro Forma Financial Data — YTD
(In thousands)
(Unaudited)
                                 
                    Nine months ended        
    3 months ended     6 months ended     September 30,     Twelve months ended  
    March 31, 2008     June 30, 2008     2008     December 31, 2008  
    Pro Forma     Pro Forma     Pro Forma     Pro Forma  
 
                                
REVENUES
   $ 51,528     $ 110,091     $ 170,930     $ 230,646  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs (exclusive of items shown separately below)
     65,035       132,805       208,351       285,759  
Selling, general and administrative expense
     139,801       261,854       374,688       484,421  
Depreciation and amortization
     26,611       54,732       86,932       128,602  
Spectrum lease expense
     65,518       114,538       174,092       250,184  
 
                        
Total operating expenses
     296,965       563,929       844,063       1,148,966  
 
                        
OPERATING LOSS
     (245,437 )     (453,838 )     (673,133 )     (918,320 )
 
                                
LESS NON CASH ITEMS
                                
Spectrum Lease Expense
     39,931       58,005       79,964       112,944  
Tower & Building Rents
     5,020       12,269       21,854       30,524  
Stock Compensation
     10,712       23,744       33,739       44,570  
Depreciation and amortization
     26,611       54,732       86,932       128,602  
 
                        
Total non cash
     82,274       148,750       222,489       316,640  
 
                        
ADJUSTED OIBDA (1)
     (163,163 )     (305,088 )     (450,644 )     (601,680 )
Adjusted OIBDA Margin
     -317 %     -277 %     -264 %     -261 %

 

 

 
(1)   Adjusted OIBDA is a non-GAAP financial measure. Adjusted OIBDA is defined as consolidated operating loss less depreciation and amortization expenses, non cash expenses related to capital assets (towers, spectrum leases and buildings) and stock-based compensation expense. In a capital-intensive industry, management believes Adjusted OIBDA, as well as the associated percentage margin calculation, to be meaningful measures of the company’s operating performance. We provide Adjusted OIBDA as a supplemental performance measure because management believes it facilitates comparisons of the company’s operating performance from period to period and comparisons of the company’s operating performance to that of other companies by backing out potential differences caused by non-cash expenses related to long-term capital assets and leases, and share-based compensation. Because Adjusted OIBDA facilitates internal comparisons of our historical operating performance, management also uses Adjusted OIBDA for business planning purposes and in measuring our performance relative to that of our competitors. In addition, we believe that Adjusted OIBDA and similar measures are widely used by investors, financial analysts and credit rating agencies as a measure of our financial performance over time and to compare our financial performance with that of other companies in our industry.

 

 

CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
    Three months ended March 31, 2008  
    Historical              
    3 month period           Purchase     Clearwire  
    Clearwire     3 month period     Accounting     Corporation  
    Corporation (1)     Old Clearwire     and Other (2)     Pro Forma  
REVENUES:
   $ —     $ 51,528     $ —       51,528  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     26,861       38,174       —       65,035  
Selling, general and administrative expense
     40,255       99,546       —       139,801  
Depreciation and amortization
     6,770       28,085       (13,482) (b)     26,611  
 
                     5,238 (b)        
Spectrum lease expense
     21,215       35,685       9,317 (c)     65,518  
 
                     (699) (d)        
 
                        
Total operating expenses
     95,101       201,490       374       296,965  
 
                        
OPERATING LOSS
     (95,101 )     (149,962 )     (374 )     (245,437 )
OTHER INCOME (EXPENSE):
                                
Interest income
     285       8,469       —       8,754  
Interest expense
     —       (28,594 )     28,410 (g)     (47,427 )
 
                     (47,243 )(h)        
Other-than-temporary impairment loss and realized loss on investments
     —       (4,849 )     —       (4,849 )
Other income (expense), net
     1,546       (774 )     (699) (d)     73  
 
                        
Total other income (expense), net
     1,831       (25,748 )     (19,532 )     (43,449 )
 
                        
LOSS BEFORE INCOME TAXES
     (93,270 )     (175,710 )     (19,906 )     (288,886 )
Income tax provision
     (4,167 )     (1,916 )     6,083 (i)     —  
 
                        
NET LOSS
     (97,437 )     (177,626 )     (13,823 )     (288,886 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     —       1,237       211,210 (j)     212,447  
 
                        
NET LOSS ATTRIBUTABLE TO CLEARWIRE CORPORATION
   $ (97,437 )   $ (176,389 )   $ 197,387     $ (76,439 )
 
                        
 
                                
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
           $ (1.08 )           $ (0.39) (3)
 
                            
Diluted
           $ (1.08 )           $ (0.41) (3)
 
                            
 
                                
Weighted average Class A Common Shares outstanding:
                                
Basic
             164,056               194,484 (3)
 
                            
Diluted
             164,056               723,307 (3)
 
                            

 

 

     CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
    Three months ended June 30, 2008  
    Historical              
    3 month period             Purchase     Clearwire  
    Clearwire     3 month period     Accounting     Corporation  
    Corporation (1)     Old Clearwire     and Other (2)     Pro Forma  
REVENUES:
   $ —     $ 58,563     $ —     $ 58,563  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     25,577       42,193       —       67,770  
Selling, general and administrative expense
     26,691       95,362       —       122,053  
Depreciation and amortization
     9,532       28,901       (14,886) (b)     28,121  
 
                     4,574 (b)        
Spectrum lease expense
     11,879       28,522       9,317 (c)     49,020  
 
                     (698) (d)        
Transaction costs
     —       10,224       (10,224) (e)     —  
 
                        
Total operating expenses
     73,679       205,202       (11,917 )     266,964  
 
                        
OPERATING LOSS
     (73,679 )     (146,639 )     11,917       (208,401 )
OTHER INCOME (EXPENSE):
                                
Interest income
     —       3,829       —       3,829  
Interest expense
     (232 )     (25,711 )     25,884 (g)     (47,743 )
 
                     (47,684) (h)        
Other-than-temporary impairment loss and realized loss on investments
     —       (27,918 )     —       (27,918 )
Other income (expense), net
     1,256       (2,055 )     (698) (d)     (1,497 )
 
                        
Total other income (expense), net
     1,024       (51,855 )     (22,498 )     (73,329 )
 
                        
LOSS BEFORE INCOME TAXES
     (72,655 )     (198,494 )     (10,581 )     (281,730 )
Income tax provision
     (6,911 )     (1,668 )     8,579 (i)     —  
 
                        
NET LOSS
     (79,566 )     (200,162 )     (2,002 )     (281,730 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     —       1,108       205,978 (j)     207,086  
 
                        
NET LOSS ATTRIBUTABLE TO CLEARWIRE CORPORATION
   $ (79,566 )   $ (199,054 )   $ 203,976     $ (74,644 )
 
                        
 
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
           $ (1.21 )           $ (0.38) (3)
 
                            
Diluted
           $ (1.21 )           $ (0.40) (3)
 
                            
 
Weighted average Class A Common Shares outstanding:
                                
Basic
             164,129               194,484 (3)
 
                            
Diluted
             164,129               723,307 (3)
 
                            

 

 

CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
    Six months ended June 30, 2008  
    Historical              
    6 month period             Purchase     Clearwire  
    Clearwire     6 month period     Accounting     Corporation  
    Corporation (1)     Old Clearwire     and Other (2)     Pro Forma  
REVENUES:
   $ —     $ 110,091     $ —     $ 110,091  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     52,438       80,367       —       132,805  
Selling, general and administrative expense
     66,946       194,908       —       261,854  
Depreciation and amortization
     16,302       56,986       (28,368) (b)     54,732  
 
                     9,812 (b)        
Spectrum lease expense
     33,094       64,207       18,634 (c)     114,538  
 
                     (1,397) (d)        
Transaction costs
     —       10,224       (10,224) (e)     —  
 
                        
Total operating expenses
     168,780       406,692       (11,543 )     563,929  
 
                        
OPERATING LOSS
     (168,780 )     (296,601 )     11,543       (453,838 )
OTHER INCOME (EXPENSE):
                                
Interest income
     285       12,298       —       12,583  
Interest expense
     (232 )     (54,305 )     54,294 (g)     (95,170 )
 
                     (94,927) (h)        
Other-than-temporary impairment loss and realized loss on investments
     —       (32,767 )     —       (32,767 )
Other income (expense), net
     2,802       (2,829 )     (1,397) (d)     (1,424 )
 
                        
Total other income (expense), net
     2,855       (77,603 )     (42,030 )     (116,778 )
 
                        
LOSS BEFORE INCOME TAXES
     (165,925 )     (374,204 )     (30,487 )     (570,616 )
Income tax provision
     (11,078 )     (3,584 )     14,662 (i)     —  
 
                        
NET LOSS
     (177,003 )     (377,788 )     (15,825 )     (570,616 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     —       2,345       417,188 (j)     419,533  
 
                        
NET LOSS ATTRIBUTABLE TO CLEARWIRE CORPORATION
   $ (177,003 )   $ (375,443 )   $ 401,363     $ (151,083 )
 
                        
 
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
           $ (2.29 )           $ (0.78) (3)
 
                            
Diluted
           $ (2.29 )           $ (0.81) (3)
 
                            
 
Weighted average Class A Common Shares outstanding:
                                
Basic
             164,096               194,484 (3)
 
                            
Diluted
             164,096               723,307 (3)
 
                            

 

 

CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
    Three months ended September 30, 2008  
    Historical              
    3 month period             Purchase     Clearwire  
    Clearwire     3 month period     Accounting     Corporation  
    Corporation (1)     Old Clearwire     and Other (2)     Pro Forma  
REVENUES:
   $ —     $ 60,839     $ —     $ 60,839  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     31,147       44,399       —       75,546  
Selling, general and administrative expense
     27,992       84,842       —       112,834  
Depreciation and amortization
     12,984       28,604       (14,543) (b)     32,200  
 
                     5,155 (b)        
Spectrum lease expense
     18,741       32,194       9,317 (c)     59,554  
 
                     (698) (d)        
Transaction costs
     —       4,932       (4,932) (e)     —  
 
                        
Total operating expenses
     90,864       194,971       (5,701 )     280,134  
 
                        
OPERATING LOSS
     (90,864 )     (134,132 )     5,701       (219,295 )
OTHER INCOME (EXPENSE):
                                
Interest income
     —       3,468       —       3,468  
Interest expense
     —       (24,726 )     24,356 (g)     (48,513 )
 
                     (48,143) (h)        
Other-than-temporary impairment loss and realized loss on investments
     —       (9,353 )     —       (9,353 )
Other income (expense), net
     1,135       (1,112 )     (698) (d)     (675 )
 
                        
Total other income (expense), net
     1,135       (31,723 )     (24,485 )     (55,073 )
 
                        
LOSS BEFORE INCOME TAXES
     (89,729 )     (165,855 )     (18,784 )     (274,368 )
Income tax provision
     (47,874 )     (1,781 )     49,655 (i)     —  
 
                        
NET LOSS
     (137,603 )     (167,636 )     30,871       (274,368 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     —       1,061       200,596 (j)     201,657  
 
                        
NET LOSS ATTRIBUTABLE TO CLEARWIRE CORPORATION
   $ (137,603 )   $ (166,575 )   $ 231,467     $ (72,711 )
 
                        
 
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
           $ (1.01 )           $ (0.37) (3)
 
                            
Diluted
           $ (1.01 )           $ (0.45) (3)
 
                            
 
Weighted average Class A Common Shares outstanding:
                                
Basic
             164,232               194,484 (3)
 
                            
Diluted
             164,232               723,307 (3)
 
                            

 

 

CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
    Nine months ended September 30, 2008  
    Historical              
    9 month period             Purchase     Clearwire  
    Clearwire     9 month period     Accounting     Corporation  
    Corporation (1)     Old Clearwire     and Other (2)     Pro Forma  
REVENUES:
   $ —     $ 170,930     $ —     $ 170,930  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     83,585       124,766       —       208,351  
Selling, general and administrative expense
     94,938       279,750       —       374,688  
Depreciation and amortization
     29,286       85,590       (42,911 )(b)     86,932  
 
                     14,967 (b)        
Spectrum lease expense
     51,835       96,401       27,951 (c)     174,092  
 
                     (2,095 )(d)        
Transaction costs
     —       15,156       (15,156 )(e)     —  
 
                        
Total operating expenses
     259,644       601,663       (17,244 )     844,063  
 
                        
OPERATING LOSS
     (259,644 )     (430,733 )     17,244       (673,133 )
OTHER INCOME (EXPENSE):
                                
Interest income
     285       15,766       —       16,051  
Interest expense
     (232 )     (79,031 )     78,650 (g)     (143,683 )
 
                     (143,070 )(h)        
Other-than-temporary impairment loss and realized loss on investments
     —       (42,120 )     —       (42,120 )
Other income (expense), net
     3,937       (3,941 )     (2,095 )(d)     (2,099 )
 
                        
Total other income (expense), net
     3,990       (109,326 )     (66,515 )     (171,851 )
 
                        
LOSS BEFORE INCOME TAXES
     (255,654 )     (540,059 )     (49,271 )     (844,984 )
Income tax provision
     (58,952 )     (5,365 )     64,317 (i)     —  
 
                        
NET LOSS
     (314,606 )     (545,424 )     15,046       (844,984 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     —       3,406       617,784 (j)     621,190  
 
                        
NET LOSS ATTRIBUTABLE TO CLEARWIRE CORPORATION
   $ (314,606 )   $ (542,018 )   $ 632,830     $ (223,794 )
 
                        
 
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
           $ (3.30 )           $ (1.15 )(3)
 
                            
Diluted
           $ (3.30 )           $ (1.26 )(3)
 
                            
 
Weighted average Class A Common Shares outstanding:
                                
Basic
             164,145               194,484 (3)
 
                            
Diluted
             164,145               723,307 (3)
 
                            

 

 

CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
    Three months ended December 31, 2008  
    Historical              
    3 month period             Purchase     Clearwire  
    Clearwire     2 month period     Accounting     Corporation  
    Corporation (1)     Old Clearwire     and Other (2)     Pro Forma  
REVENUES:
   $ 20,489     $ 39,227     $ —     $ 59,716  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     47,904       29,504       —       77,408  
Selling, general and administrative expense
     56,002       92,631       (38,900) (a)     109,733  
Depreciation and amortization
     28,860       19,227       (9,954) (b)     41,670  
 
                                
 
                     3,537 (b)        
Spectrum lease expense
     38,197       32,149       6,212 (c)     76,092  
 
                                
 
                     (466) (d)        
Transaction costs
     82,960       31,010       (33,397) (e)     —  
 
                                
 
                     (80,573) (f)        
 
                        
Total operating expenses
     253,923       204,521       (153,541 )     304,903  
 
                        
OPERATING LOSS
     (233,434 )     (165,294 )     153,541       (245,187 )
OTHER INCOME (EXPENSE):
                                
Interest income
     806       1,712       —       2,518  
Interest expense
     (16,313 )     (15,407 )     15,405 (g)     (48,905 )
 
                     (32,590) (h)        
Other-than-temporary impairment loss and realized loss on investments
     (17,036 )     (19,291 )     —       (36,327 )
Other income (expense), net
     (9,109 )     706       (466) (d)     (8,869 )
 
                        
Total other income (expense), net
     (41,652 )     (32,280 )     (17,651 )     (91,583 )
 
                        
LOSS BEFORE INCOME TAXES
     (275,086 )     (197,574 )     135,890       (336,770 )
Income tax provision
     (2,655 )     (14 )     2,669 (i)     —  
 
                        
NET LOSS
     (277,741 )     (197,588 )     138,559       (336,770 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     159,721       86       86,611 (j)     246,418  
 
                        
NET LOSS ATTRIBUTABLE TO CLEARWIRE CORPORATION
   $ (118,020 )   $ (197,502 )   $ 225,170     $ (90,352 )
 
                        
 
                                
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
                           $ (0.46) (3)
 
                              
Diluted
                           $ (0.47) (3)
 
                              
 
                                
Weighted average Class A Common Shares outstanding:
                                
Basic
                             194,484 (3)
 
                              
Diluted
                             723,307 (3)
 
                              

 

 

CLEARWIRE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
                                 
    Twelve months ended December 31, 2008  
    Historical              
    12 month period             Purchase     Clearwire  
    Clearwire     11 month period     Accounting     Corporation  
    Corporation (1)     Old Clearwire     and Other (2)     Pro Forma  
REVENUES:
   $ 20,489     $ 210,157     $ —     $ 230,646  
OPERATING EXPENSES:
                                
Cost of goods and services and network costs
     131,489       154,270       —       285,759  
Selling, general and administrative expense
     150,940       372,381       (38,900) (a)     484,421  
Depreciation and amortization
     58,146       104,817       (52,865) (b)     128,602  
 
                                
 
                     18,504 (b)        
Spectrum lease expense
     90,032       128,550       34,163 (c)     250,184  
 
                     (2,561) (d)        
Transaction costs
     82,960       46,166       (48,553) (e)     —  
 
                     (80,573) (f)        
 
                        
Total operating expenses
     513,567       806,184       (170,785 )     1,148,966  
 
                        
OPERATING LOSS
     (493,078 )     (596,027 )     170,785       (918,320 )
OTHER INCOME (EXPENSE):
                                
Interest income
     1,091       17,478       —       18,569  
Interest expense
     (16,545 )     (94,438 )     94,055 (g)     (192,588 )
 
                     (175,660) (h)        
Other-than-temporary impairment loss and realized loss on investments
     (17,036 )     (61,411 )     —       (78,447 )
Other income (expense), net
     (5,172 )     (3,235 )     (2,561) (d)     (10,968 )
 
                        
Total other income (expense), net
     (37,662 )     (141,606 )     (84,166 )     (263,434 )
 
                        
LOSS BEFORE INCOME TAXES
     (530,740 )     (737,633 )     86,619       (1,181,754 )
Income tax provision
     (61,607 )     (5,379 )     66,986 (i)     —  
 
                        
NET LOSS
     (592,347 )     (743,012 )     153,605       (1,181,754 )
Less: non-controlling interests in net loss of consolidated subsidiaries
     159,721       3,492       704,395 (j)     867,608  
 
                        
NET LOSS ATTRIBUTABLE TO CLEARWIRE CORPORATION
   $ (432,626 )   $ (739,520 )   $ 858,000     $ (314,146 )
 
                        
 
                                
Net loss attributable to Clearwire Corporation per Class A Common Share:
                                
Basic
                           $ (1.62) (3)
 
                              
Diluted
                           $ (1.73) (3)
 
                              
 
                                
Weighted average Class A Common Shares outstanding:
                                
Basic
                             194,484 (3)
 
                              
Diluted
                             723,307 (3)
 
                              

 

 

Notes to Clearwire Corporation
Unaudited Pro Forma Condensed Combined Statements of Operations
1. Basis of Presentation
          On November 28, 2008, (the “Closing”), Clearwire Corporation, (“Clearwire”), completed the transactions contemplated by the Transaction Agreement and Plan of Merger dated as of May 7, 2008, as amended, (the “Transaction Agreement”), with Clearwire Legacy LLC, (“Old Clearwire”), Sprint Nextel Corporation, (“Sprint”), Comcast Corporation, (“Comcast”), Time Warner Cable Inc., (“Time Warner Cable”), Bright House Networks, LLC, (“Bright House”), and Google Inc., (“Google”). For accounting purposes, the transactions, (the “Transactions”) were accounted for under SFAS No. 141 and treated as a reverse acquisition with the WiMAX business contributed from Sprint, (“Sprint WiMAX Business”), deemed to be the accounting acquirer.
          At the Closing, Comcast, Time Warner Cable, Bright House, Google, known collectively as the Investors, made an aggregate $3.2 billion capital contribution to Clearwire and its subsidiary, Clearwire Communications LLC, (“Clearwire Communications”). In exchange for the contribution of the Sprint WiMAX Business and their investments, as applicable, Google initially received 25,000,000 shares of Clearwire’s Class A Common Stock, par value $0.0001 per share, (“Clearwire Class A Common Stock”) and Sprint and the other Investors received an aggregate of 505,000,000 shares of Clearwire’s Class B Common Stock, par value $0.0001 per share, (“Clearwire Class B Common Stock”) and an equivalent amount of Clearwire Communications Class B non-voting common interest, (“Clearwire Communications Class B Common Interests”). The number of shares of Clearwire Class A and B Common Stock and Clearwire Communications Class B Common Interests, as applicable, that the Investors were entitled to receive under the Transaction Agreement was subject to a post-closing adjustment based on the trading price of Clearwire Class A Common Stock on NASDAQ over 15 randomly-selected trading days during the 30-day period ending on the 90th day after the Closing, or February 26, 2009 (“the Adjustment Date”), with a floor of $17.00 per share and a cap of $23.00 per share. During the measurement period, Clearwire Class A Common Stock traded below $17.00 per share on NASDAQ, so on the Adjustment Date, we issued to the Investors an additional 4,411,765 shares of Clearwire Class A Common Stock and 23,823,529 shares of Clearwire Class B Common Stock and Clearwire Communications Class B Common Interests to reflect the $17.00 final price per share. Additionally, in accordance with the subscription agreement, on February 27, 2009, CW Investment Holdings, LLC purchased 588,235 shares of Clearwire Class A Common Stock at $17.00 per share for a total investment of $10 million. For the purposes of determining the number of shares outstanding within the unaudited pro forma condensed combined statements of operations, we assumed that the additional shares and common interests issued to the Investors and CW Investment Holdings LLC on the Adjustment Date and February 27, 2009, respectively, were issued as of the Closing and that the Closing was consummated on January 1, 2008.
          After giving effect to the Transactions, the post-closing adjustment and the investment by CW Investment Holdings LLC, Sprint owns the largest interest in Clearwire with an effective voting and economic interest in Clearwire and its subsidiaries of approximately 51 percent.
          In connection with the integration of the Sprint WiMAX Business and Old Clearwire operations, we expect that certain non-recurring charges will be incurred. We also expect that certain synergies might be realized due to operating efficiencies or future revenue synergies expected to result from the Transactions. However, in preparing the unaudited pro forma condensed combined statements of operations which gives effect to the Transactions as if they were consummated on January 1, 2008, no pro forma adjustments have been reflected to consider any such costs or benefits.
2. Pro Forma Adjustments related to Purchase Accounting for the three and six months ended June 30, 2008
          The pro forma adjustments related to purchase accounting have been derived from the preliminary allocation of the purchase consideration to the identifiable tangible and intangible assets acquired and

 

 

liabilities assumed of Old Clearwire, including the allocation of the excess of the estimated fair value of net assets acquired over the purchase price. The allocation of the purchase consideration is preliminary and based on valuations derived from estimated fair value assessments and assumptions used by management. While management believes that its preliminary estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different values being assigned to individual assets acquired and liabilities assumed, and the resulting amount of the excess of estimated fair value of net assets acquired over the purchase price. The final purchase price allocation is pending the finalization of appraisal valuations primarily related to spectrum and fixed assets acquired, which may result in an adjustment to the preliminary purchase price allocation.
          Article 11 of Regulation S-X requires that pro forma adjustments reflected in the unaudited pro forma statements of operations are directly related to the transaction for which pro forma financial information is presented and have a continuing impact on the results of operations. Certain charges have been excluded in the unaudited pro forma condensed combined statements of operations as such charges were incurred in direct connection with or at the time of the Transactions and are not expected to have an ongoing impact on the results of operations after the Closing.
          a. Represents the accelerated vesting of stock options for certain members of management upon the Closing, which resulted in a one-time charge of approximately $38.9 million recorded by Old Clearwire in its historical financial statements for the 2 months and 11 months ended November 28, 2008. As these are non-recurring charges directly attributable to the Transactions, they are excluded from the unaudited pro forma condensed combined statements of operations.
          b. Represents adjustments in the depreciation expense on a pro forma basis related to items of Old Clearwire property, plant and equipment that are being depreciated over their estimated remaining useful lives on a straight-line basis. The reduction in depreciation expense results from a decrease in the carrying value of Old Clearwire property, plant and equipment due to the allocation of the excess of the estimated fair value of net assets acquired over the purchase price used in purchase accounting for the Transactions.
          c. Represents adjustments to record amortization on a pro forma basis related to Old Clearwire spectrum lease contracts and other intangible assets over their estimated weighted average remaining useful lives on a straight-line basis. The increase in the amortization expense results from an increase in the carrying value of the Old Clearwire spectrum lease contracts and other intangible assets resulting from purchase accounting.
          d. Represents the elimination of intercompany other income and related expenses associated with the historical agreements pre-Closing between the Sprint WiMAX Business and Old Clearwire where Old Clearwire leased spectrum licenses from the Sprint WiMAX Business. The other income and related expense adjustments are as follows (in thousands):
                                 
    Three Months   Three Months   Three Months   Three Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
 
Intercompany other income and related expenses
  $ 699     $ 698     $ 698     $ 466  
                                 
    Three Months   Six Months   Nine Months   Twelve Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
 
Intercompany other income and related expenses
  $ 699     $ 1,397     $ 2,095     $ 2,561  

 

 

     e. Represents the reversal of transaction costs recorded in the Old Clearwire historical financial statements. As these are non-recurring charges directly attributable to the Transactions, they are excluded from the unaudited pro forma condensed combined statements of operations for all period presented. The reversal of the transaction costs are as follows (in thousands):
                                 
    Three Months     Three Months     Three Months     Three Months  
    Ended     Ended     Ended     Ended  
    March 31,     June 30,     September 30,     December 31,  
    2008     2008     2008     2008  
Investment banking fees
   $ —     $ 6,000     $ —     $ 27,360  
Other professional fees
     —       4,224       4,932       6,037  
 
                        
Total transaction costs
  $ —     $ 10,224     $ 4,932     $ 33,397  
 
                        
                                 
    Three Months     Six Months     Nine Months     Twelve Months  
    Ended     Ended     Ended     Ended  
    March 31,     June 30,     September 30,     December 31,  
    2008     2008     2008     2008  
Investment banking fees
   $ —     $ 6,000     $ 6,000     $ 33,360  
Other professional fees
     —       4,224       9,156       15,193  
 
                        
Total transaction costs
  $ —     $ 10,224     $ 15,156     $ 48,553  
 
                        
     f. Prior to the Closing, Sprint leased spectrum to Old Clearwire through various spectrum lease agreements. As part of the Transactions, Sprint contributed both the spectrum lease agreements and the spectrum assets underlying those agreements. As a result of the Transactions, the spectrum lease agreements were effectively terminated, and the settlement of those agreements was accounted for as a separate element from the business combination. A settlement loss of $80.6 million resulted from the termination as the agreements were considered to be unfavorable to Clearwire relative to current market rates. This one-time charge recorded by Clearwire at the closing is excluded from the unaudited pro forma condensed combined statements of operations.
     g. Prior to the Closing, Old Clearwire refinanced the Senior Term Loan Facility and renegotiated the loan terms. Historical interest expense related to the Senior Term Loan Facility before the refinancing and amortization of the deferred financing fees recorded by Old Clearwire has been reversed as if the Transactions were consummated on January 1, 2008. A summary of the adjustments are as follows (in thousands):
                                 
    Three Months   Three Months   Three Months   Three Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Historical interest expense
   $ 28,410   $ 25,884   $ 24,356   $ 15,405
                                 
    Three Months   Six Months   Nine Months   Twelve Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Historical interest expense
   $ 28,410   $ 54,294   $ 78,650   $ 94,055
     h. Represents the adjustment to record pro forma interest expense assuming the Senior Term Loan Facility, including the Sprint Pre-Closing financing (as defined in the Transaction Agreement) under the Amended Credit Agreement (as defined below), was outstanding as of January 1, 2008. The Closing would have resulted in an event of default under the terms of the credit agreement underlying the Senior Term Loan Facility unless the consent of the lenders was obtained. On November 21, 2008, Old

 

 

Clearwire entered into the Amended and Restated Credit Agreement with the lenders to obtain their consent and to satisfy other conditions to closing under the Transaction Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement resulted in additional fees to be paid and adjustments to the underlying interest rates. The Sprint Pre-Closing Financing was assumed by Clearwire on the Closing, as a result of the financing of the Sprint WiMAX Business operations by Sprint for the period from April 1, 2008 through the Closing, and added as an additional tranche of term loans under the Amended Credit Agreement.
     Pro forma interest expense was calculated over the period using the effective interest method of approximately 14.0 percent. Pro forma interest expense also reflects an adjustment to accrete the debt to par value. Pro forma interest expense was calculated based on the contractual terms under the Amended Credit Agreement, assuming a term equal to its contractual maturity of 30 months and the underlying interest rate was the LIBOR loan base rate of 2.75 percent, as the 3 month LIBOR rate in effect at the Closing was less than the base rate, plus the applicable margin. The calculation assumed an applicable margin of 6.00 percent and additional rate increases as specified in the Amended Credit Agreement over the term of the loan. Total interest expense on a pro forma basis does not include an adjustment for capitalized interest. The adjustments to record pro forma interest expense are as follows (in thousands):
                                      
    Three Months   Three Months   Three Months   Three Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma interest expense
   $ 47,243   $ 47,684   $ 48,143   $ 32,590
                                 
    Three Months   Six Months   Nine Months   Twelve Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma interest expense
   $ 47,243   $ 94,927   $ 143,070   $ 175,660
A one-eighth percentage change in the interest rate would increase or decrease interest expense by the following (in thousands):
                                 
    Three Months   Three Months   Three Months   Three Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
One-eighth percentage change in the interest rate
   $ 427   $ 431   $ 435   $ 295
                                 
    Three Months   Six Months   Nine Months   Twelve Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
One-eighth percentage change in the interest rate
   $ 427   $ 858   $ 1,293   $ 1,588
     i. Represents the adjustment to reflect the pro forma income tax expense for the three months ended March 31, 2008, the three and six months ended June 30, 2008, the three and nine months ended September 30, 2008 and the three and twelve months ended December 31, 2008, which was determined by computing the pro forma effective tax rates for each period presented, giving effect to the Transactions. Clearwire expects to generate net operating losses into the foreseeable future and thus has recorded a valuation allowance for the deferred tax assets not expected to be realized. Therefore, for the periods presented, no tax benefit was recognized.

 

 

     j. Represents the allocation of a portion of the pro forma combined net loss to the non-controlling interests in consolidated subsidiaries based on Sprint’s and the Investors’ (other than Google) ownership of the Clearwire Communications Class B Common Interests upon Closing of the Transactions and reflects the contribution by CW Investment Holdings LLC and the Investors at $17.00 per share following the post-closing adjustment. This adjustment is based on pre-tax loss since income tax consequences associated with any loss allocated to the Clearwire Communications Class B Common Interests will be incurred directly by Sprint and the Investors (other than Google and CW Investment Holdings LLC).
3. Pro Forma Loss per Share
     The Clearwire combined pro forma net loss per Class A common share presented below assumes the closing of the Transactions and that the Clearwire Class A and B Common Stock and Clearwire Communications Class B Common Interests issued to Sprint, the Investors and CW Investment Holdings LLC were outstanding from January 1, 2008 and reflects the resolution of the post-closing price adjustment at $17.00 per share. The shares of Clearwire Class B Common Stock have nominal equity rights. These shares have no right to dividends of Clearwire and no right to any proceeds on liquidation other than the par value of Clearwire Class B Common Stock.
     The following table presents the pro forma number of Clearwire shares outstanding as if the Transactions had been consummated on January 1, 2008 (in thousands):
                 
    Basic   Diluted
 
                
Clearwire Class A Common Stock held by existing stockholders(i)
     164,484       164,484  
Clearwire Class A Common Stock sold to Google(i)
     29,412       29,412  
Clearwire Class A Common Stock sold to CW Investment Holdings LLC(i)
     588       588  
Clearwire Class B Common Stock issued to Sprint(ii)
     —       370,000  
Clearwire Class B Common Stock sold to Comcast(ii)
     —       61,765  
Clearwire Class B Common Stock sold to Intel(ii)
     —       58,823  
 
                
Clearwire Class B Common Stock sold to Time Warner Cable(ii)
     —       32,353  
 
                
Clearwire Class B Common Stock sold to Bright House Networks(ii)
     —       5,882  
 
                
 
                
Weighted average Clearwire Class A Common Stock outstanding
     194,484       723,307  
 
                
 
(i)   Shares outstanding related to Clearwire Class A Common Stock held by existing stockholders has been derived from the sum of the number of shares of Old Clearwire Class A Common Stock and Old Clearwire’s Class B Common Stock issued and outstanding at November 28, 2008, subject to conversion into the right to receive one share of Clearwire Class A Common Stock.
 
    The basic weighted average shares outstanding related to Clearwire Class A Common Stock are the shares issued in the Transactions and assumed to be outstanding for the entire period for which loss per share is being calculated.
 
    The computation of pro forma diluted Clearwire Class A Common Stock did not include the effects of the following options, restricted stock units and warrants as the inclusion of these securities would have been anti-dilutive (in thousands):

 

 

         
    As of November
    28, 2008
Stock options
     18,431  
Warrants
     17,806  
Restricted stock units
     1,238  
 
        
 
     37,475  
 
        
(ii)   Holders of Clearwire Class B Common Stock will be entitled at any time to exchange one share of Clearwire Class B Common Stock, in combination with one Clearwire Communications Class B Common Interest, for one share of Clearwire Class A Common Stock.
     Shares of Clearwire Class B Common Stock have no impact on pro forma basic net loss per share because they do not participate in net income (loss) attributable to Clearwire or distributions. However, the hypothetical exchange of Clearwire Communications Class B Common Interests together with Clearwire Class B Common Stock for Clearwire Class A Common Stock may have a dilutive effect on pro forma diluted loss per Class A common share due to certain tax effects. As previously mentioned, that exchange would result in a decrease to the non-controlling interests and a corresponding increase in net loss attributable to the Clearwire Class A Common Stock. Further, to the extent that all of the Clearwire Communications Class B Common Interests and Clearwire Class B Common Stock are converted to Clearwire Class A Common Stock on a pro forma basis, the partnership structure is assumed to no longer exist and Clearwire would be required to recognize a tax charge related to indefinite lived intangible assets. Net loss available to holders of Clearwire Class A Common Stock, assuming conversion of the Clearwire Communications Class B Common Interests and Clearwire Class B Common Stock, is as follows (in thousands):
                                 
    Three Months   Three Months   Three Months   Three Months
    Ended   Ended   Ended   Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma net loss
  $ (76,439 )   $ (74,644 )   $ (72,711 )   $ (90,352 )
Non-controlling interests in net loss of consolidated subsidiaries
    (212,447 )     (207,086 )     (201,657 )     (246,418 )
Less: Pro forma tax adjustment resulting from dissolution of Clearwire Communications LLC.
     (6,083 )     (8,579 )     (49,655 )     (2,669 )
     
Net loss available to Clearwire Class A Common Stockholders, assuming the exchange of Clearwire Class B Common Stock and Clearwire Communications Class B Common Interests to Clearwire Class A Common Stock
  $ (294,969 )   $ (290,309 )   $ (324,023 )   $ (339,439 )
     
                                 
    Three Months   Six Months   Nine Months    
    Ended   Ended   Ended   Year Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma net loss
  $ (76,439 )   $ (151,083 )   $ (223,794 )   $ (314,146 )
Non-controlling interests in net loss of consolidated subsidiaries
    (212,447 )     (419,533 )     (621,190 )     (867,608 )
Less: Pro forma tax adjustment resulting from dissolution of Clearwire Communications LLC.
     (6,083 )     (14,662 )     (64,317 )     (66,986 )
     
Net loss available to Clearwire Class A Common Stockholders, assuming the exchange of Clearwire Class B Common Stock and Clearwire Communications Class B Common Interests to Clearwire Class A Common Stock
  $ (294,969 )   $ (585,278 )   $ (909,301 )   $ (1,248,740 )
     

 

 

     The pro forma net loss per share available to holders of Clearwire Class A Common Stock is calculated as follows (in thousands, except per share amounts):
                                 
    Basic Pro Forma Net Loss Per Share
    Three months ended:
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma net loss available Clearwire Class A Common Stockholders
   $ (76,439 )   $ (74,644 )   $ (72,711 )   $ (90,352 )
Weighted average Clearwire Class A Common Stock outstanding
     194,484       194,484       194,484       194,484  
     
 
                                
Basic pro forma net loss per share of Clearwire Class A Common Stock
   $ (0.39 )   $ (0.38 )   $ (0.37 )   $ (0.46 )
     
                                 
    Diluted Pro Forma Net Loss Per Share
    Three months ended:
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma net loss available Clearwire Class A Common Stockholders
   $ (294,969 )   $ (290,309 )   $ (324,023 )   $ (339,439 )
Weighted average Clearwire Class A Common Stock outstanding
     723,307       723,307       723,307       723,307  
     
 
                                
Diluted pro forma net loss per share of Clearwire Class A Common Stock
   $ (0.41 )   $ (0.40 )   $ (0.45 )   $ (0.47 )
     
     The pro forma net loss per share available to holders of Clearwire Class A Common Stock is calculated as follows (in thousands, except per share amounts):
                                 
    Basic Pro Forma Net Loss Per Share
    Three Months   Six Months   Nine Months    
    Ended   Ended   Ended   Year Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma net loss available Clearwire Class A Common Stockholders
   $ (76,439 )   $ (151,083 )   $ (223,794 )   $ (314,146 )
Weighted average Clearwire Class A Common Stock outstanding
     194,484       194,484       194,484       194,484  
     
 
                                
Basic pro forma net loss per share of Clearwire Class A Common Stock
   $ (0.39 )   $ (0.78 )   $ (1.15 )   $ (1.62 )
     
                                 
    Diluted Pro Forma Net Loss Per Share
    Three Months   Six Months   Nine Months    
    Ended   Ended   Ended   Year Ended
    March 31,   June 30,   September 30,   December 31,
    2008   2008   2008   2008
Pro forma net loss available Clearwire Class A Common Stockholders
   $ (294,969 )   $ (585,278 )   $ (909,301 )   $ (1,248,740 )
Weighted average Clearwire Class A Common Stock outstanding
     723,307       723,307       723,307       723,307  
     
 
                                
Diluted pro forma net loss per share of Clearwire Class A Common Stock
   $ (0.41 )   $ (0.81 )   $ (1.26 )   $ (1.73 )