clearwire communications 3-31-16 financial statements · 2016. 6. 28. · title: clearwire...

Clearwire Communications LLCAnnual Financial Reporting Package

March 31, 2016

CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIES

Table of Contents

PagePART I

Item 1. BusinessItem 1A. Risk FactorsItem 2. PropertiesItem 3. Legal Proceedings

PART IIItem 6. Selected Financial DataItem 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures about Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes In and Disagreements With Accountants on Accounting and Financial DisclosureItem 9B. Other Information

PART IIIItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Member MattersItem 13. Certain Relationships and Related Transactions, and Director Independence

PART IVItem 15. Exhibits and Financial Statement Schedules

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CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIES (Continued)

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PART I

Explanatory Note

This annual financial reporting package, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains "forward-looking statements" that 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. You should review carefully the section entitled "Risk Factors" for a discussion of these and other risks that relate to our business.

Except as otherwise noted, references to "we", "us", "our", the "Company" and "Clearwire" refer to Clearwire Communications LLC and its subsidiaries.

Item 1. Business

Overview

On December 17, 2012, Clearwire Corporation entered into an Agreement and Plan of Merger with Sprint Nextel Corporation (as amended, the Merger Agreement) pursuant to which Sprint Nextel Corporation agreed to acquire all of the outstanding shares of Clearwire Corporation Class A and Class B common stock not currently owned by Sprint Nextel Corporation, SoftBank Group Corp. (SoftBank), or their affiliates. The merger (Sprint Acquisition), closed on July 9, 2013 (the Acquisition Date) and as of that date we became an indirect wholly-owned subsidiary of Sprint Communications, Inc., formerly known as Sprint Nextel Corporation (Sprint) and an indirect wholly-owned subsidiary of Sprint Corporation. At the closing, the outstanding shares of Clearwire Corporation common stock were converted automatically into the right to receive $5.00 per share in cash, without interest (Merger Consideration). As a result of the Sprint Acquisition and the resulting change in ownership and control, the acquisition method of accounting was applied by Sprint and pushed-down to us resulting in a new basis of presentation based on the estimated fair values of our assets and liabilities for the successor period beginning as of the day following the consummation of the merger. The estimated fair values were based on management's judgment after evaluating several factors, including a valuation assessment. In addition, in order to align with SoftBank's, Sprint’s parent, reporting schedule, we changed our fiscal year end from December 31 to March 31, effective March 31, 2014. As a result, references herein to any fiscal year refer to the twelve-month period ending March 31 unless otherwise specifically noted.

We operate next generation mobile broadband networks that provided high-speed mobile Internet and residential Internet access services in communities throughout the country. Our fourth generation (4G) mobile broadband networks operate on the Time Division Duplex Long Term Evolution (TDD-LTE) technology. As of the date of the Sprint Acquisition, we had deployed Worldwide Interoperability of Microwave Access technology 802.16e standard (WiMAX), and we were overlaying certain existing mobile WiMAX sites with the TDD-LTE technology and expanding 4G LTE on our 2.5 gigahertz (GHz) spectrum to certain sites. Sprint ceased using WiMAX technology on March 31, 2016.

Through March 31, 2016, we offered our services primarily through Sprint. Sprint accounts for substantially all of our wholesale sales to date, and offers services in each of our 4G markets. Due to the merger with Sprint, we discontinued new sales of our services and devices through our retail channel. However, we continued to receive revenues and serviced customers who existed prior to the merger up through the date of the shutdown of the WiMAX network on March 31, 2016. As an indirect wholly-owned subsidiary of Sprint, they direct all decision making concerning the network integration, sales and marketing plans.

The consolidated financial statements distinguish between the predecessor period for periods prior to the Sprint Acquisition (Predecessor) and the successor period (Successor) for the period following the consummation of the acquisition. As a result of the valuation of assets acquired and liabilities assumed at fair value at the time of the Sprint Acquisition, the financial statements for the Successor period are presented on a measurement basis different than the Predecessor period and are, therefore, not comparable.


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Our Networks

Overview

Our 4G mobile broadband network is a telecommunications system designed to support fixed, portable and mobile service offerings over a single network architecture. This telecommunications system consisted of three primary elements, including the radio access network (RAN), the network core, and the backhaul network which interconnects them.

Technology

Our 4G mobile broadband network operating on LTE technology is a wireless internet protocol (IP)-based, Ethernet platform that is also built around orthogonal frequency-division multiplexing (OFDM) and TDD, both of which allowed us to address two challenges that face wireless carriers, namely non-line of sight (NLOS), performance and frequency utilization.

OFDM allows subdivision of bandwidth into multiple frequency sub-carriers so that data can be divided and transmitted separately to ensure a higher reliability of packet data reception at the receiving end. This characteristic of OFDM enables a 4G network to more efficiently serve subscribers in urban and suburban settings compared to existing third generation (3G) technologies. Unlike Frequency Division Duplex, which requires paired spectrum with guard bands, TDD only requires a single channel for downlink and uplink, making it more flexible for use in various global spectrum allocations. It also ensures complete channel reciprocity for better support of closed loop advanced antenna technologies like Multiple-In Multiple-Out and beamforming. Additionally, TDD allows a service provider to maximize spectrum utilization by allocating up and down link resources appropriate to the traffic pattern over a given market.

Radio Access Network Components

Our RAN covers the “last mile” and connects Sprint's subscribers with our tower sites. Our RAN is comprised of base station transceivers and end user devices used by our subscribers. One of the end user devices is the customer premise equipment (CPE). The CPE is a NLOS wireless modem that connects to any IP-based device, such as a computer or a Wi-Fi router, using a standard Ethernet connection. It is simple to install and requires no service provider configuration or support and no software download or installation, a subscriber only needs to connect the CPE to an external power source and to their computer.

The base station allows for 360-degree coverage by employing multiple transceivers and antennas on a single tower to maximize subscriber density and spectral efficiency. Our base stations generally are located on existing communications towers, but can also be placed on rooftops of buildings and other elevated locations. We generally lease our tower locations from third parties.

Backhaul Network

Our backhaul network is responsible for transmitting data and voice traffic between our tower sites and the network core. Operators have previously relied primarily on wireline backhaul networks to handle this traffic. However, in most of our markets, we rely primarily on microwave backhaul. Our microwave backhaul network wirelessly transmits data traffic from one location to another, such as from our tower locations to our network core.

Network Core

The network core routes the data traffic from our backhaul network to the Internet or, for voice services that we resell, the public switched telephone network. The primary functions of the mobile 4G core include:

• authenticating and authorizing subscribers; • aggregating and routing traffic to and from the Internet;• subscriber provisioning and billing; • controlling IP addresses and connecting to the Internet; and• offering value-added services such as live video, location-based services, and music broadcast programming.

Spectrum

Our network operates over licensed spectrum in our markets. We hold approximately 140 megahertz (MHz) of spectrum on average across our national spectrum footprint and approximately 160 MHz of spectrum on average in the 100 largest markets in the United States. In the United States, licensed spectrum is governed by the Federal Communications Commission (FCC) rules that provide a license holder with exclusive use of a specified spectrum frequency band and restrict interference from other licensees and spectrum users, providing some protection against interruption and degradation of service.


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We provide our services in the United States on spectrum located within the 2496 to 2690 MHz band, commonly referred to as the 2.5 GHz spectrum band, which is designated for Broadband Radio Services (BRS) and Educational Broadband Services (EBS). Most BRS and EBS licenses are allocated to specific geographic service areas. Other BRS licenses provide for 493 separate Basic Trading Areas. Under current FCC rules, we can access BRS spectrum either through outright ownership of a BRS license issued by the FCC or through a leasing arrangement with a BRS license holder. The FCC rules generally limit eligibility to hold EBS licenses to accredited educational institutions and certain governmental, religious and nonprofit entities, but permit those license holders to lease up to 95% of their capacity for non-educational purposes. Therefore, apart from a few EBS licenses we acquired under a prior EBS rule, we access EBS spectrum through long-term leasing arrangements with EBS license holders. Our EBS spectrum leases typically have an initial term equal to the remaining term of the EBS license, with an option to renew the lease for additional terms, for a total lease term of up to 30 years. In addition, we generally have a right of first refusal for a period of time after our leases expire or otherwise terminate to match another party's offer to lease the same spectrum. Our leases are generally transferable, assuming we obtain required governmental approvals.

We believe that our significant spectrum holdings in the 2.5 GHz band, both in terms of spectrum depth and breadth, are optimal for delivering 4G mobile broadband services. As of March 31, 2016, we owned or leased, over 47 billion MHz-POPs of spectrum in the United States. Of this, we estimate that we own approximately 40% of those MHz-POPs with the remainder being leased from third parties, generally under lease terms that extend up to 30 years.

Competition

The market for broadband services includes companies that offer a variety of services using a number of different technological platforms. Our services are offered primarily through Sprint and we compete with these companies on the basis of the ease of use, portability, speed, reliability, and price of our respective services. Our principal competitors include other wireless providers, Wi-Fi, other 4G service providers, and others.

Regulatory Matters

Overview

The regulatory environment relating to our business and operations is evolving. A number of legislative and regulatory proposals under consideration by federal, state and local governmental entities may lead to the repeal, modification or introduction of laws or regulations that could affect our business. Significant areas of existing and potential regulation for our business include broadband Internet access, spectrum regulation and Internet taxation. Most recently, the FCC adopted revisions to its transactional “spectrum screen”, a tool it uses when evaluating whether a transaction is in the public interest. These revisions included adding to the screen a significant portion of 2.5 GHz spectrum finding that it is “suitable and available” for mobile broadband use. As a result, future Sprint spectrum acquisitions of 2.5 GHz (or other) spectrum may exceed the spectrum screen trigger and thus be subject to additional FCC review. The consequences of this review are uncertain but could result in delayed resolution or more challenging licensing conditions for Sprint and its subsidiaries.

Intellectual Property

We review our technological developments with our technology staff, legal counsel and business units to identify and capture innovative and novel features of our core and non-core technology developments that may provide us with commercial advantages and file patent applications as necessary to protect these features both in the United States and elsewhere.

Employees

As of March 31, 2016, we did not have any employees.

Our Corporate Information

We are a Delaware state limited liability company. Our principal executive offices are located at 6200 Sprint Parkway, Overland Park, Kansas 66251, and our telephone number is (855) 848-3280.


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ITEM 1A. Risk Factors

We have incurred and expect to continue to realize significant net losses for the foreseeable future and will likely require additional funding from Sprint to continue to meet our financial obligations.

We have recorded net losses in each reporting period since our inception, and we cannot anticipate with certainty what our earnings will be in any future period. We expect to continue to have operating losses in the future. We do not expect our operations to generate cumulative positive cash flows during the next twelve months, and we expect to continue to incur net losses for the foreseeable future. We expect to meet our funding needs for the immediate future through Sprint's use of our TDD-LTE network under the 2011 November 4G MVNO Amendment, the use of additional spectrum by Sprint under our spectrum agreement with Sprint and our $3.0 billion revolving credit agreement with Sprint (Sprint Credit Agreement). As an indirect wholly-owned, consolidated subsidiary of Sprint, to the extent we are unable to fund our business through our wholesale revenue streams, we expect to receive funding for any shortfall from Sprint during the next twelve months. If Sprint fails to fund us for any reason, we would need to raise substantial additional capital over the long-term to be able to meet our financial obligations and continue to operate.

We may be required to recognize an impairment of our long-lived assets, goodwill, or other indefinite-lived intangible assets, which could have a material adverse effect on our financial position and results of operations.

As a result of the Sprint Acquisition and the remeasurement of assets acquired and liabilities assumed in connection with the transaction and pushed-down to us, we recorded goodwill at its estimate of fair value of approximately $601.8 million. Additionally, we recorded $1.2 billion and $11.9 billion of long-lived assets and indefinite-lived intangible assets, respectively, as of the close of the Sprint Acquisition. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We are required to perform impairment tests for goodwill and other indefinite-lived intangible assets at least annually and whenever events or circumstances indicate that it is more likely than not that the asset is impaired or that the carrying amounts may not be recoverable. Continued sustained declines in the Company's operating results, future forecasted cash flows and other assumptions, as well as significant sustained declines in Sprint’s stock price and related market capitalization, could impact the underlying key assumptions and our estimated fair values, potentially leading to a future material impairment of long-lived assets, goodwill, or other indefinite-lived assets, which could adversely affect our financial position and results of operations. Moreover, certain equipment assets may never be deployed or redeployed, in which case cash and/or non-cash charges that could be material to our consolidated financial statements would be recognized.

Negative outcomes of legal proceedings may adversely affect our business and financial condition.

We are involved in certain legal proceedings, which may be complicated, costly, and disruptive to our business operations. We may incur significant expenses in defending these matters and may be required to pay significant fines, awards, or settlements. In addition, litigation or other proceedings could result in restrictions on our current or future manner of doing business. Any of these potential outcomes, such as judgments, awards, settlements, or orders could have an adverse effect on our business, financial condition, operating results, or ability to do business.

The interests of Sprint may conflict with the interests of holders of our indebtedness.

The interests of Sprint may not coincide with the interests of holders of our indebtedness. Sprint’s ownership may result in Clearwire taking actions that holders of our indebtedness do not view as beneficial. In addition, the performance of Sprint and Sprint’s common stock may adversely affect the trading price of Clearwire debt securities.

If we do not obtain and maintain rights to use licensed spectrum in one or more markets, we may be unable to operate in these markets, which could adversely affect the value of our spectrum licenses and we may be required to recognize an impairment of our spectrum licenses, which could have an adverse effect on our financial position and results of operations.

To offer our services using licensed spectrum, we depend on our ability to acquire and maintain sufficient rights to use spectrum through ownership or leases in each of the markets in which we operate. Obtaining and maintaining the necessary amount of licensed spectrum in these markets can be a long and difficult process that can be costly and require a disproportionate amount of our resources. We may not be able to acquire, lease or maintain the spectrum necessary to operate.

Additionally, other companies hold spectrum rights that could be made available for lease or sale and recently there have been many secondary market transactions among Clearwire's competitors as they seek to enhance and rationalize their spectrum portfolios. The availability of additional spectrum in the marketplace could change the market value of spectrum rights and, as a result, may adversely affect the value of our spectrum assets.

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ITEM 2. Properties

Our executive offices are located in Overland Park, Kansas. We believe that substantially all of our property and equipment is in good condition, subject to normal wear and tear. We believe that our current facilities have sufficient capacity to meet the projected needs of our business. The following table lists our significant leased properties and the square footage of those properties:

City, State (Function)

Approximate Size

(Square Feet)

Bellevue, WA (administrative) 42,100

ITEM 3. Legal Proceedings

We are involved in legal proceedings that are described in the Notes to the Consolidated Financial Statements included in this annual financial reporting package.


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PART II

ITEM 6. Selected Financial Data

The following selected financial data should be read in conjunction with our historical financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this report.

Successor Predecessor

Year EndedMarch 31,

Year EndedMarch 31,

Three Months Ended

March 31,

175 DaysEnded

December 31,

190 Days Ended July 9,

Three Months Ended

March 31, Year Ended December 31,

2016 2015 2014 2013 2013 2013 2012 2011

(in thousands)

Statement of Operations Data:Revenues $ 1,367,383 $ 1,107,884 $ 277,911 $ 554,884 $ 665,602 $ 318,042 $1,264,694 $ 1,253,466Net loss from continuingoperations (280,264) (456,440) (127,041) (496,431) (1,000,190) (457,377) (1,942,414) (2,910,265)

Net loss from continuingoperations attributable toClearwire CommunicationsLLC (280,264) (456,580) (126,961) (496,224) (999,841) (457,211) (1,939,036) (2,905,368)

Balance Sheet Data:Total assets $ 13,922,374 $ 14,291,079 $ 14,498,144 $ 14,634,696 n/a n/a $7,669,935 $ 8,847,573Long-term debt, net 948,752 1,559,102 1,299,709 1,523,696 n/a n/a 4,271,192 4,019,605

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The consolidated financial statements distinguish between the predecessor period (Predecessor) for periods prior to the Clearwire acquisition by Sprint (Sprint Acquisition) and the successor period (Successor) for the periods following the consummation of the acquisition. As a result of the valuation of assets acquired and liabilities assumed at fair value at the time of the Sprint Acquisition, the financial statements for the Successor period are presented on a measurement basis different than the Predecessor period and are, therefore, not comparable. In addition, in order to align with SoftBank’s reporting schedule, we changed our fiscal year end from December 31 to March 31, effective March 31, 2014. As a result, references herein to any fiscal year refer to the twelve-month period ending March 31 unless otherwise specifically noted. See Item 8, Note 3, Significant Transaction - Sprint Acquisition, for further discussion.

We operate next generation mobile broadband networks that provide high-speed mobile Internet and residential Internet access services in communities throughout the country. Our fourth generation (4G) mobile broadband networks operate on the Time Division Duplex Long Term Evolution (TDD-LTE) technology. Our 4G mobile broadband networks provide a connection anywhere within our coverage area.

As of the date of the Sprint Acquisition, we had deployed WiMAX technology and we were in the process of deploying 4G LTE technology using the 2.5 gigahertz (GHz) spectrum on certain sites. On March 31, 2016, Sprint ceased using WiMAX technology and continues to evaluate its consolidated cell tower portfolio, including the cell towers obtained in the Sprint Acquisition. As a result, there could be lease exit costs recorded in future periods. The timing of any lease exit charges will depend on the date the sites cease being utilized without future economic benefit.

Through March 31, 2016, we offered our services primarily through Sprint. Sprint accounts for substantially all of our wholesale sales to date, and offers services in each of our 4G markets. Due to the merger with Sprint, we discontinued new sales of our services and devices through our retail channel. However, we continued to receive revenues and serviced customers who existed prior to the merger up through the date of the shutdown of the WiMAX network on March 31, 2016. As an indirect wholly-owned subsidiary of Sprint, Sprint directs all decision making concerning the network integration, sales and marketing plans.


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Results of Operations

The following table sets forth the consolidated results of operations. The Company's results of operations distinguish between a predecessor period (Predecessor) relating to Clearwire for the periods prior to the Sprint Acquisition and a successor period (Successor) for the period following the consummation of the Sprint Acquisition. As a result of the July 9, 2013 Sprint Acquisition and in order to present Management's Discussion and Analysis in a way that offers a meaningful period to period comparison, we have combined the 2013 Predecessor results with the 2013 Successor results, on an unaudited combined basis (Combined). The unaudited Combined information for the year ended December 31, 2013 does not comply with accounting principles generally accepted in the United States (U.S. GAAP) and is not intended to represent what our consolidated results of operations would have been if the Successor had actually been formed on January 1, 2013, nor have we made any attempt to either include or exclude expenses or income that would have resulted had the Sprint Acquisition actually occurred on January 1, 2013. Variances resulting primarily from the Sprint Acquisition, on July 9, 2013 are discussed below in the appropriate sections.

Successor Combined Successor Predecessor

Year Ended Year Ended

ThreeMonthsEnded Year Ended

175 DaysEnded

190 DaysEnded

ThreeMonthsEnded

March 31, March 31, March 31, December 31, July 9, March 31,

2016 2015 2014 2013 2013 2013 2013(in thousands)

Revenues:Retail and other $ 210,649 $ 511,985 $ 159,898 $ 760,633 $ 335,910 $ 424,723 $ 203,125Wholesale 1,156,734 595,899 118,013 459,853 218,974 240,879 114,917

Total revenues 1,367,383 1,107,884 277,911 1,220,486 554,884 665,602 318,042Operating expenses:

Cost of goods and services and network costs(exclusive of depreciation and amortizationincluded below) 1,036,276 1,025,247 264,706 1,182,848 534,766 648,082 311,223

Selling, general and administrative expense 82,391 102,867 30,389 380,886 154,638 226,248 108,724Depreciation 314,659 345,937 89,049 596,980 228,485 368,495 184,178Amortization 4,034 5,119 1,354 22,900 3,864 19,036 10,169Severance, exit costs and loss on property, plant andequipment 129,414 8,322 597 40,680 40,680 — —

Total operating expenses 1,566,774 1,487,492 386,095 2,224,294 962,433 1,261,861 614,294Operating loss (199,391) (379,608) (108,184) (1,003,808) (407,549) (596,259) (296,252)Other income (expense):

Interest expense, net (80,930) (77,182) (18,955) (451,230) (145,598) (305,632) (140,517)Loss on derivative instruments — — — (77,765) (134) (77,631) (11,730)Gain on extinguishment of debt — — — 61,188 61,188 — —Other income (expense), net 79 367 134 (23,262) (3,475) (19,787) (8,447)

Total other expense, net (80,851) (76,815) (18,821) (491,069) (88,019) (403,050) (160,694)

Loss before income taxes (280,242) (456,423) (127,005) (1,494,877) (495,568) (999,309) (456,946)Income tax provision (22) (17) (36) (1,744) (863) (881) (431)

Net loss (280,264) (456,440) (127,041) (1,496,621) (496,431) (1,000,190) (457,377)Less: non-controlling interests in net loss of

consolidated subsidiaries — (140) 80 556 207 349 166Net loss attributable to Clearwire Communications

LLC $ (280,264) $ (456,580) $ (126,961) $ (1,496,065) $ (496,224) $ (999,841) $ (457,211)

Revenues

Prior to the closing of the retail operations following the Sprint Acquisition, retail revenues were primarily generated from subscription fees for our 4G and Pre-4G services, as well as from sales of 4G devices for periods prior to the acquisition when 4G devices were sold. Wholesale revenues are primarily generated from service fees for our 4G services.

Retail revenues for the Successor year ended March 31, 2016 decreased approximately $301.3 million compared to the year ended March 31, 2015 primarily due to closing our retail operations following the Sprint Acquisition and a decline in customers as they either migrated to the Sprint network or deactivated service in anticipation of the shutdown of the WiMAX


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network, which occurred on March 31, 2016. The decrease of approximately $248.6 million for the Successor year ended March 31, 2015 compared to the Combined year ended December 2013 and the decrease of approximately $43.2 million during the Successor three months ended March 31, 2014 compared to the same Predecessor period in 2013 is also primarily due to the closing of retail operations following the Sprint Acquisition.

Wholesale revenue for the Successor year ended March 31, 2016 increased $560.8 million compared to the Successor year ended March 31, 2015 primarily due to the continued overall growth in LTE usage by Sprint. Wholesale revenue for the Successor year ended March 31, 2015 increased $136.0 million compared to the Combined year ended December 2013 and increased slightly during the Successor three months ended March 31, 2014 compared to the same Predecessor period in 2013 primarily as a result of spectrum use revenue recognized under the Sprint Spectrum Agreement that went into effect at the beginning of 2014. This increase was partially offset by lower revenue under usage based pricing for WiMAX services beginning in 2014 under the 4G MVNO Agreement with Sprint. During the Successor years ended March 31, 2016 and 2015, the three months ended March 31, 2014, and the Combined year ended December 31, 2013, wholesale revenue recorded attributable to Sprint comprised 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, spectrum lease expense, and cost of goods sold. 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 (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 and services and network costs was relatively flat for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015. The decrease in Cost of goods and services and network costs during the Successor year ended March 31, 2015 compared to the Combined year ended December 31, 2013 and during the Successor three months ended March 31, 2014 compared to the same Predecessor period in 2013 was primarily due to discontinued new sales of our devices through our retail channels following the Sprint Acquisition.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A), expenses include all of the following: third-party professional service fees; billing and customer care; sales commissions; software license and maintenance costs; bad debt expense; property and other operating taxes; and administrative support activities, including executive, finance and accounting, information technology, legal, human resources, treasury and other shared services performed under the Sprint Services Agreement.

SG&A expense decreased approximately 20% for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015, primarily due to declines in our retail sales following the Sprint Acquisition, resulting in lower commissions, IT and billing and collecting expenses, partially offset by higher professional fees. SG&A expense decreased approximately 73.0% and 72.0% for the Successor year ended March 31, 2015 compared to the Combined year ended December 31, 2013 and Successor three months ended March 31, 2014 compared to the same Predecessor period in 2013, respectively. The decrease was primarily due to a decrease in marketing and advertising costs resulting from a winding down of advertising of the CLEAR brand combined with lower general and administrative expenses resulting from workforce reductions following the Sprint Acquisition.

Depreciation and Amortization

Depreciation and amortization expense primarily represents depreciation recorded on property, plant and equipment (PP&E), and amortization of intangible assets.

The decrease during the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 is primarily due to assets being retired or fully depreciated. The decrease during the Successor year ended March 31, 2015 compared to the Combined year ended December 31, 2013, and the Successor three months ended March 31, 2014 compared to the same Predecessor period in 2013, is due primarily to the Sprint Acquisition and the recording of all of our PP&E at its estimated fair value. The fair value adjustment resulted in an overall decrease in PP&E net book value of approximately $775 million which in turn resulted in lowering the depreciation expense. The change in amortization for all periods was insignificant.

Severance, Exit Costs and Loss on Property, Plant and Equipment

Severance, exit costs and loss on property, plant and equipment for the Successor year ended March 31, 2016 includes lease exit costs related to lease terminations and recognition of cease-to-use liabilities for tower leases and access exit costs primarily due to the shutdown of the WiMAX network on March 31, 2016.


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Severance, exit costs and loss on property, plant and equipment for the Successor year ended March 31, 2015 includes lease exit costs related to lease terminations and recognition of cease-to-use liabilities for tower leases where we have provided notice to our landlords of our intention not to renew. In addition, the Successor year ended March 31, 2015 includes a $1.4 million favorable true-up adjustment to severance primarily associated with reductions in force as a result of the Sprint Acquisition.

Severance, exit costs and loss on property, plant and equipment for the Successor three months ended March 31, 2014 includes severance of $0.6 million primarily associated with reductions in force as a result of the Sprint Acquisition and lease exit costs related to lease terminations and recognition of cease-to-use liabilities for tower leases where we have provided notice to our landlords of our intention not to renew. Severance, exit costs and loss on property, plant and equipment for the Successor year ended December 31, 2013 includes severance of $25.8 million primarily associated with reductions in force as a result of the Sprint Acquisition and lease exit costs related to lease termination costs and recognition of cease-to-use liabilities for tower leases where we have provided notice to our landlords of our intention not to renew of approximately $14.9 million.

Interest Expense, net

Interest expense, net increased for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 primarily due to increased interest expense related to the Sprint Credit Agreement. Interest expense, net decreased for the Successor year ended March 31, 2015 compared to the Combined year ended December 31, 2013 and for the Successor three months ended March 31, 2014 compared to the same Predecessor period in 2013, primarily due to the retirement of debt of approximately $3.45 billion and the exchange of debt for equity of $240.0 million in the latter half of 2013. In addition, interest expense, net was impacted by the Sprint Acquisition and recording of our debt instruments at their estimated fair value. The fair value adjustment resulted in premiums on our long-term debt which when amortized, lowers our overall interest expense, net.

Loss on Derivative Instruments

The loss on derivative instruments for the Combined year ended December 31, 2013 is due to the recognition of a $77.6 million loss at inception on the exchange options related to the exchangeable notes to Sprint maturing in 2018 (Sprint Notes).

Other Income (Expense), net

Other income (expense), net for the Successor years ended March 31, 2016 and March 31, 2015 is primarily composed of miscellaneous income. Other income (expense), net for the Successor three months ended March 31, 2014 is primarily composed of gains on short-term investments combined with miscellaneous income. Other income (expense), net for the Combined year ended December 31, 2013 is primarily composed of gains recognized on the extinguishment of debt. Subsequent to the Sprint Acquisition, we repaid approximately $3.45 billion in debt resulting in the recognition of $56.3 million in gains and exchanged $240.0 million in debt for equity resulting in the recognition of $4.9 million in gains. These gains were partially offset by management fee expenses of approximately $24.2 million with Clearwire Corporation.


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Cash Flow Analysis

The following table presents a summary of our cash flows and beginning and ending cash balances:

Successor Combined Successor Predecessor

Year Ended Year EndedThree Months

Ended Year Ended175 Days

Ended190 Days

EndedThree Months

EndedMarch 31, March 31, March 31, December 31, July 9, March 31,

2016 2015 2014 2013 2013 2013 2013(in thousands)

Net cash provided by (used in) operatingactivities $ 248,016 $ (315,771) $ 270,411 $ (964,857) $ (623,842) $ (341,015) $ (105,045)Net cash (used in) provided by investingactivities (17,096) (10,243) (5,333) 472,294 350,277 122,017 13,551Net cash (used in) provided by financingactivities (249,472) 297,787 (215,167) 299,251 79,405 219,846 70,156

Operating Activities

Net cash provided by operating activities was $248.0 million for the Successor year ended March 31, 2016 compared to net cash used in operating activities of $315.8 million for the Successor year ended March 31, 2015, which resulted in a favorable increase of $563.8 million. The increase was a result of increased cash received from customers of $271.6 million primarily due to increased wholesale revenues as a result of continued overall growth of LTE usage by Sprint partially offset by decreased retail revenues due to the decision by Sprint to close our retail operations following the Sprint Acquisition and a decline in customers as they either migrated to the Sprint network or deactivated service in anticipation of the shutdown of the WiMAX network, which occurred on March 31, 2016. In addition, we had decreased vendor payments of $295.6 million primarily due to favorable changes in working capital.

Net cash used in operating activities of $315.8 million decreased $649.1 million for the Successor year ended March 31, 2015 compared to the Combined year ended December 31, 2013. This decrease in cash used in operating activities for the Successor year ended March 31, 2015 compared to the Combined year ended December 31, 2013 is due to decreased interest paid of $368.9 million, which was primarily due to retiring $2.95 billion of senior secured notes maturing in 2015 and $500.0 million of second priority secured notes maturing in 2017 and exchanging 160,000,800 shares of Clearwire Corporation Class B common stock and our Class B common interest for $240.0 million of exchangeable notes to Sprint maturing in 2018 in the second half of 2013. In addition, we also had decreased vendor and labor-related payments of $277.8 million due to reduced operations after the Sprint Acquisition. These decreases were offset by decreased cash received from customers of $176.7 million due to the closing of retail operations after the Sprint Acquisition. In addition, the Combined year ended December 31, 2013 included $179.7 million of call redemption premiums paid primarily due to retiring $2.95 billion of senior secured notes maturing in 2015 and $500.0 million of second priority secured notes maturing in 2017.

Net cash provided by operating activities was $270.4 million for the Successor three months ended March 31, 2014 compared to net cash used in operating activities of $105.0 million for the same Predecessor period in 2013, which resulted in a favorable increase of $375.4 million. This increase is due to increases in deferred revenue of $270.7 million primarily due to cash received associated with the Sprint Spectrum Agreement and decreases in vendor and labor-related payments of $154.5 million due to reduced operations after the Sprint Acquisition. These increases were partially offset by decreases in cash received from customers of $49.8 million due to the closing of retail operations after the Sprint Acquisition.

Investing Activities

During the Successor year ended March 31, 2016 net cash used in investing activities was $17.1 million compared to $10.2 million for the Successor year ended March 31, 2015, which resulted in an increase of $6.9 million. The increase was primarily due to cash paid for previously leased equipment purchased at the end of the lease term partially offset by reduced payments for property, plant and equipment primarily as a result of providing more of our services on the Sprint network as we worked towards shutting down the WiMAX network.

During the Successor year ended March 31, 2015 net cash used in investing activities was $10.2 million compared to net cash provided by investing activities of $472.3 million for the Combined year ended December 31, 2013, which resulted in a decrease of $482.5 million. The decrease was primarily due to no available-for-sale security purchases and dispositions in the Successor year ended March 31, 2015 as compared to net receipts related to purchases and dispositions of available-for-sale securities of $672.7 million for the Combined year ended December 31, 2013. This decline was partially offset by reduced payments for property, plant and equipment of $193.1 million for the Successor year ended March 31, 2015 compared to the Combined year ended December 31, 2013.


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During the Successor three months ended March 31, 2014 net cash used in investing activities was $5.3 million compared to net cash provided by investing activities of $13.6 million for the same Predecessor period in 2013, which resulted in a decrease of $18.9 million. This change was primarily due to no available-for-sale securities purchases and dispositions in the Successor three months ended March 31, 2014 due to the Sprint Acquisition as compared to net receipts related to purchases and dispositions of available-for-sale securities of $49.5 million for the same Predecessor period in 2013. This decline in net receipts related to purchases and dispositions of available-for-sale securities was partially offset by reduced payments for property, plant and equipment of $30.5 million for the Successor three months ended March 31, 2014 compared to the same Predecessor period in 2013.

Financing Activities

Net cash used in financing activities of $249.5 million during the Successor year ended March 31, 2016 primarily consisted of net payments of $213.0 million related to the Sprint Credit Agreement and debt payments of $36.5 million.

Net cash provided by financing activities of $297.8 million during the Successor year ended March 31, 2015 primarily consisted of receipts of $343.0 million related to the Sprint Credit Agreement, which were partially offset by debt payments of $45.2 million.

During the Successor three months ended March 31, 2014 net cash used in financing activities was $215.2 million compared to net cash provided by financing activities of $70.2 million for the same Predecessor period in 2013, which resulted in a decrease of $285.4 million. The Successor three months ended March 31, 2014 primarily consisted of a $200.0 million payment on the Sprint Credit Agreement. The Predecessor three months ended March 31, 2013 primarily consisted of an $80.0 million receipt for Sprint notes in connection with the Merger Agreement.

Net cash provided by financing activities was $299.3 million for the Combined year ended December 31, 2013. During the Combined year ended December 31, 2013, we received approximately $3.25 billion in cash contributions from Sprint for purposes of debt repayments and took draws on the Sprint notes and the Sprint Credit Agreement of $240.0 million and $315.5 million, respectively. These were partially offset by debt repayments of $3.68 billion.

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 March 31, 2016. 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 March 31, 2016:

Contractual Obligations TotalLess Than

1 Year 1 - 3 Years 3 - 5 Years Over 5 Years(in thousands)

Long-term debt obligations(1) $ 1,174,713 $ 300,000 $ 245,479 $ — $ 629,234Interest payments on long-term debt obligations(1) 1,359,000 109,621 107,315 103,824 1,038,240Operating lease obligations 1,799,675 370,609 689,676 454,461 284,929Spectrum lease obligations 6,620,531 208,116 432,301 444,081 5,536,033Spectrum service credits and signed spectrum agreements 86,195 3,440 6,880 6,880 68,995Capital lease obligations(2) 94,775 33,676 29,434 18,360 13,305Purchase agreements(3) 119,717 73,990 36,491 8,773 463Total $ 11,254,606 $ 1,099,452 $ 1,547,576 $ 1,036,379 $ 7,571,199

____________________________________(1) Principal and interest payments beyond 2017 represent potential principal and interest payment of the Exchangeable Notes beyond the

expected repayment in 2017.(2) Includes $18.8 million representing interest.(3) Purchase agreements include purchase commitments with 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 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


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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 consolidated financial statements.

Liquidity and Capital Resource RequirementsWe expect to continue to have operating losses in the future. However, we expect the funding from the 4G MVNO

Agreement, the spectrum agreement with Sprint and the Sprint Credit Agreement (See Note 4, Related Party Transactions) to be sufficient to meet our funding needs for the next twelve months. As an indirect wholly-owned subsidiary of Sprint, to the extent we are not able to fund our business through our wholesale revenue streams with Sprint, we expect to receive funding for any shortfall from the Sprint Credit Agreement.

Sprint's ability to meet its long-term funding requirements, which includes the long-term funding requirements of Clearwire, is dependent upon its ability to obtain external funding and to successfully execute on its cost reduction initiatives. However, there is no assurance that Sprint will be successful in these actions. Furthermore, since Sprint accounts for substantially all of our revenues and liquidity sources, if Sprint is unable to obtain additional funds from external sources such that their operations are materially adversely affected, Clearwire would likely not be able to support its operations.

Critical Accounting Policies and Estimates

We apply those accounting policies that management believes best reflect the underlying business and economic events, consistent with U.S. GAAP. Our more critical accounting policies include valuation and recoverability of long-lived assets and evaluation of goodwill and indefinite-lived assets for impairment. Inherent in such policies are certain key assumptions and estimates made by management. Management regularly updates its estimates used in the preparation of the financial statements based on its latest assessment of the current and projected business and general economic environment. Our significant accounting policies and estimates are summarized in the Notes to the Consolidated Financial Statements.

Valuation and Recoverability of Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. Long-lived asset groups were determined based upon certain factors including assessing the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment analyses, when performed, are based on our current business and technology strategy, views of growth rates for our business, anticipated future economic and regulatory conditions and expected technological availability.

If we experience significant operational challenges and the Sprint Credit Agreement availability is reduced or no longer available, future cash flows of the Company may not be sufficient to recover the carrying value and we could record asset impairments that are material to our consolidated results of operations and financial condition.

In addition to the analysis described above, certain assets that have not yet been deployed in the business, including network equipment, cell site development costs and software in development will be expensed if events or changes in circumstances cause us to conclude the assets are no longer needed to meet management's strategic plans and are no longer probable of being deployed.

Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment

As a result of the Sprint Acquisition and the remeasurement of assets acquired and liabilities assumed in connection with the transaction, we recognized indefinite-lived assets at their acquisition-date estimates of fair value, including spectrum licenses and goodwill of approximately $11.9 billion and $601.8 million, respectively. The estimated fair values were determined based on numerous assumptions and estimates.

We have identified the spectrum licenses as indefinite-lived intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are being used, and the effects of obsolescence on their use. The acquisition-date fair value of Sprint and Clearwire's spectrum licenses was estimated using the Greenfield direct value method, which approximates fair value through estimating the discounted future cash flows of a hypothetical start-up business. Assumptions key in estimating fair value under this method include, but are not limited to, capital expenditures, subscriber activations and deactivations, revenues and expenses, market share achieved, tax rates in effect and discount rate. To estimate the acquisition-date fair value of Clearwire's spectrum licenses pushed-down as a result of the Sprint Acquisition, a market approach was used.


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We evaluate the carrying value of our indefinite-lived intangible assets, including goodwill, at least annually or more frequently whenever events or changes in circumstances indicate that the asset may be impaired, or in the case of goodwill, that the fair value of the reporting unit is below its carrying amount. During the quarter ended March 31, 2016, the Company completed its annual impairment testing for goodwill and indefinite-lived assets by electing to perform a qualitative assessment. As a result of this assessment, we determined that it is not more likely than not that these assets are impaired. As such, a quantitative assessment was not performed and no impairments were recorded.

The Company has the option to perform a qualitative assessment in order to determine if it is more likely than not that the indefinite-lived intangible assets is impaired. If the Company bypasses the qualitative assessment, or if the qualitative assessment indicates that it is more likely than not that the asset is impaired, the Company performs a quantitative assessment which consists of a comparison of the fair value of the asset to its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized equal to that excess.

Additionally, a qualitative assessment may be performed for goodwill to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount including goodwill. If the Company chooses to not perform a qualitative assessment, or the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a two-step approach is used to test goodwill for potential impairment.

The first step compares the fair value of a reporting unit, estimated using a market approach or a discounted cash flow method, with its carrying amount including goodwill. The determination of the fair value of the reporting unit requires significant estimates and assumptions, including significant unobservable inputs. Changes in certain assumptions or management's failure to execute on the current plan could have a significant impact to the estimated fair value of the reporting unit. If fair value of the reporting unit is less than the carrying value, a second step is performed, which compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value, an impairment loss is recognized equal to that excess.

The determination of fair value requires considerable judgment and is highly sensitive to changes in underlying assumptions. Consequently, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill and spectrum licenses impairment tests will prove to be accurate predictions of the future. Differences in our forecasted cash flows, operating results, growth rates, capital expenditures, cost of capital, discount rates and other assumptions as compared to the estimates utilized for the purpose of valuing indefinite-lived intangible assets and goodwill as a result of the Sprint Acquisition, as well as a significant adverse change in legal factors or in the business climate, and /or a significant decline in our parent company’s stock price and related market capitalization, could affect the results of our impairment assessment and potentially lead to a future material impairment of our indefinite-lived intangible assets, including goodwill.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued new authoritative literature, Revenue from Contracts with Customers. The issuance is part of a joint effort by the FASB and the International Accounting Standards Board (IASB) to enhance financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards and, thereby, improving the consistency of requirements, comparability of practices and usefulness of disclosures. The new standard will supersede much of the existing authoritative literature for revenue recognition. In July 2015, the FASB deferred the effective date of this standard. As a result, the standard and related amendments will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year. Early application is permitted, but not before the original effective date of April 1, 2017. The FASB has subsequently issued additional guidance on several areas including the implementation of principal versus agent considerations and recognition of breakage for certain prepaid stored-value products requiring breakage of these liabilities to be accounted for consistent with the breakage guidance under this revenue standard. They also clarified how an entity should evaluate when a promised good or service is distinct within the context of a contract and allowed entities to disregard goods or services that are immaterial in the context of a contract. Entities are allowed to transition to the new standard by either retrospective application or recognizing the cumulative effect. The Company is currently evaluating the newly issued guidance, including which transition approach will be applied. We expect this guidance to have a material impact on our consolidated financial statements.

In August 2014, the FASB issued authoritative guidance regarding Disclosure of Uncertainties about an Entity’sAbility to Continue as a Going Concern, which requires management to assess an entity’s ability to continue as a goingconcern and to provide related footnote disclosures in certain circumstances. The updated guidance requires management toperform interim and annual assessments on whether there are conditions or events, considered in the aggregate, that raisesubstantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financialstatements are issued and to provide related disclosures, if required. The standard will be effective for the Company’s fiscal year beginning April 1, 2016, including interim reporting periods within that fiscal year, although early adoption is permitted. The Company does not expect the adoption of this guidance to have a material effect on our consolidated financial statements.


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In January 2015, the FASB issued authoritative guidance on Extraordinary and Unusual Items, eliminating theconcept of extraordinary items. The issuance is part of the FASB’s initiative to reduce complexity in accounting standards.Under the current guidance, an entity is required to separately classify, present and disclose events and transactions that meetthe criteria for extraordinary classification. Under the new guidance, reporting entities will no longer be required to considerwhether an underlying event or transaction is extraordinary, however, presentation and disclosure guidance for items that areunusual in nature or occur infrequently was retained and expanded to include items that are both unusual in nature andinfrequently occurring. The amendments will be effective for the Company’s fiscal year beginning April 1, 2016, although earlyadoption is permitted if applied from the beginning of a fiscal year. The Company does not expect the adoption of thisguidance to have a material effect on our consolidated financial statements.

In February 2015, the FASB issued authoritative guidance regarding Consolidation, which provides guidance to management when evaluating whether they should consolidate certain legal entities. The updated guidance modifies evaluation criteria of limited partnerships and similar legal entities, eliminates the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships. All legal entities will be subject to reevaluation under the revised consolidation model. The standard will be effective for the Company’s fiscal year beginning April 1, 2016, including interim periods within that fiscal year, although early adoption is permitted. The Company does not expect the adoption of this guidance to have a material effect on our consolidated financial statements. In November 2015, the FASB issued authoritative guidance regarding Balance Sheet Classification of DeferredTaxes, which simplifies the presentation of deferred income taxes by requiring all deferred income tax liabilities and assets beclassified as noncurrent on the consolidated balance sheets. We elected to early adopt the guidance as of January 1, 2016 andapplied it prospectively, therefore, prior periods were not retrospectively adjusted. Our adoption of this guidance did not havea material effect on our consolidated financial statements.

In January 2016, the FASB issued authoritative guidance regarding Financial Instruments, which amended guidance on the classification and measurement of financial instruments. Under the new guidance, entities will be required to measure equity investments that are not consolidated or accounted for under the equity method at fair value with any changes in fair value recorded in net income, unless the entity has elected the new practicability exception. For financial liabilities measured using the fair value option, entities will be required to separately present in other comprehensive income the portion of the changes in fair value attributable to instrument-specific credit risk. Additionally, the guidance amends certain disclosure requirements associated with the fair value of financial instruments. The standard will be effective for the Company’s fiscal year beginning April 1, 2018, including interim reporting periods within that fiscal year. The Company is currently evaluating the guidance and assessing the impact it will have on our consolidated financial statements.

In February 2016, the FASB issued authoritative guidance regarding Leases. The new standard will supersede much of the existing authoritative literature for leases. This guidance requires lessees, among other things, to recognize right-of-use assets and liabilities on their balance sheet for all leases with lease terms longer than twelve months. The standard will be effective for the Company for its fiscal year beginning April 1, 2019, including interim periods within that fiscal year with early application permitted. Entities are required to use modified retrospective application for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements with the option to elect certain transition reliefs. The Company is currently evaluating the guidance and we expect it to have a material impact on our consolidated financial statements, however we are still assessing the overall impact.

Forward-Looking Statements

Statements and information included in this annual financial reporting package 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 financial reporting package 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 impact our actual 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.


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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. Our primary interest rate risk is associated with our variable rate Sprint Credit Agreement. At March 31, 2016, the Sprint Credit Agreement had an aggregate principal amount outstanding of $245.5 million. The interest rate resets quarterly based on the 3-month LIBOR rate. A 1% increase in the 3-month LIBOR rate would increase interest expense over the next twelve month period by approximately $2.0 million.

We have long-term fixed-rate debt with a book value of $977.3 million and $76.0 million of fixed-rate capital lease obligations, respectively, outstanding at March 31, 2016. While changes in interest rates or our credit spread impact the fair value of this fixed rate debt, there is no impact to earnings and cash flows as the rate paid does not change if market interest rates or credit spreads change. The Exchangeable Notes, with a carrying value of $654.5 million at March 31, 2016, have a maturity of 2040; however, it is likely the notes would be held no longer than December 1, 2017, the date that we have the option to redeem the Exchangeable Notes at par and the noteholders may require us to repurchase the Exchangeable Notes at par.

As of March 31, 2016, we held no cash equivalents or available-for-sale short-term investments.


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ITEM 8. Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report

Consolidated Balance Sheets as of March 31, 2016 and 2015

Consolidated Statements of Operations for the years ended March 31, 2016 and 2015 (Successor), three months ended March 31, 2014 (Successor), 175 days ended December 31, 2013 (Successor), 190 days ended July 9, 2013 (Predecessor), and the unaudited three months ended March 31, 2013 (Predecessor)

Consolidated Statements of Comprehensive Loss for the years ended March 31, 2016 and 2015 (Successor), three months ended March 31, 2014 (Successor), 175 days ended December 31, 2013 (Successor), 190 days ended July 9, 2013 (Predecessor), and the unaudited three months ended March 31, 2013 (Predecessor)

Consolidated Statements of Cash Flows for the years ended March 31, 2016 and 2015 (Successor), three months ended March 31, 2014 (Successor), 175 days ended December 31, 2013 (Successor), 190 days ended July 9, 2013 (Predecessor), and the unaudited three months ended March 31, 2013 (Predecessor)

Consolidated Statements of Members' Equity for the years ended March 31, 2016 and 2015 (Successor), three months ended March 31, 2014 (Successor), 175 days ended December 31, 2013 (Successor), and the 190 days ended July 9, 2013 (Predecessor)

Notes to Consolidated Financial Statements

18

19

20

21

22

23

24


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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Members of Clearwire Communications LLCOverland Park, Kansas

We have audited the accompanying consolidated financial statements of Clearwire Communications LLC and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of March 31, 2016 and 2015 (Successor Dates), and the related consolidated statements of operations, comprehensive loss, cash flows, and members' equity for the years ended March 31, 2016 and 2015 (Successor Periods), the three months ended March 31, 2014 (Successor Period), the 175 day period ended December 31, 2013 (Successor Period), and the 190 day period ended July 9, 2013 (Predecessor Period), and the related notes to the consolidated financial statements (the "consolidated financial statements").

Management's Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Clearwire Communications LLC and its subsidiaries as of March 31, 2016 and 2015 (Successor Dates), and the results of their operations and their cash flows for the years ended March 31, 2016 and 2015 (Successor Periods), the three months ended March 31, 2014 (Successor Period), the 175 day period ended December 31, 2013 (Successor Period), and the 190 day period ended July 9, 2013 (Predecessor Period) in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, effective July 9, 2013, Sprint Nextel Corporation (now known as Sprint Communications, Inc.) acquired all of the outstanding shares of Class A and Class B common stock of Clearwire Communications LLC’s parent, Clearwire Corporation, in a business combination accounted for as a purchase. As a result of the acquisition, the consolidated financial information for the Successor periods after the acquisition is presented on a different cost basis than that for the Predecessor periods before the acquisition and applies the accounting policies of the parent and, therefore, is not comparable. Our opinion is not modified with respect to this matter.

/s/ DELOITTE & TOUCHE LLP

Kansas City, MissouriJune 24, 2016

CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

19

March 31,2016

March 31,2015

(in thousands)

ASSETSCurrent assets:

Cash and cash equivalents $ 3,242 $ 21,794

Restricted cash 258 258

Accounts and notes receivable, net of allowance of $0 and $480 86,181 57,095

Inventory — 1,013

Prepaid expenses and other assets 65,461 77,265

Total current assets 155,142 157,425

Property, plant and equipment, net 462,901 751,950

Intangible assets:

Spectrum licenses, net 11,884,150 11,884,150

Goodwill 601,778 601,778

Definite-lived intangible assets, net 780,510 859,233

Other assets 37,893 36,543

Total assets $ 13,922,374 $ 14,291,079

LIABILITIES AND MEMBERS' EQUITY

Current liabilities:

Accounts payable $ 78,510 $ 72,361

Accrued expenses and other current liabilities 379,865 359,023

Current portion of long-term debt and capital lease obligations 350,023 37,900

Total current liabilities 808,398 469,284

Long-term debt and capital lease obligations 948,752 1,559,102

Other long-term liabilities 765,062 582,267

Total liabilities 2,522,212 2,610,653

Commitments and contingencies

Members' Equity:

Class A members' equity 6,394,098 6,394,098

Class B members' equity 6,375,267 6,375,267

Accumulated other comprehensive loss (80) (80)

Accumulated deficit (1,360,029) (1,079,765)

Total Clearwire Communications LLC members’ equity 11,409,256 11,689,520

Non-controlling interests (9,094) (9,094)

Total members' equity 11,400,162 11,680,426

Total liabilities and members' equity $ 13,922,374 $ 14,291,079

See accompanying notes to consolidated financial statements, including Note 4. Related Party Transactions.

CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS

20



Ended175 Days

Ended190 Days

EndedThree Months

Ended


2016 2015 2014 2013 20132013

(Unaudited)

(in thousands)

Revenues $ 1,367,383 $ 1,107,884 $ 277,911 $ 554,884 $ 665,602 $ 318,042Operating expenses:

Cost of goods and services and network costs(exclusive of depreciation and amortizationincluded below) 1,036,276 1,025,247 264,706 534,766 648,082 311,223

Selling, general and administrative expense 82,391 102,867 30,389 154,638 226,248 108,724

Depreciation 314,659 345,937 89,049 228,485 368,495 184,178Amortization 4,034 5,119 1,354 3,864 19,036 10,169Severance, exit costs and loss on disposal ofproperty, plant and equipment 129,414 8,322 597 40,680 — —

Total operating expenses 1,566,774 1,487,492 386,095 962,433 1,261,861 614,294

Operating loss (199,391) (379,608) (108,184) (407,549) (596,259) (296,252)

Other income (expense):

Interest expense, net (80,930) (77,182) (18,955) (145,598) (305,632) (140,517)

Loss on derivative instruments — — — (134) (77,631) (11,730)

Gain on extinguishment of debt — — — 61,188 — —

Other income (expense), net 79 367 134 (3,475) (19,787) (8,447)

Total other expense, net (80,851) (76,815) (18,821) (88,019) (403,050) (160,694)Loss before income taxes (280,242) (456,423) (127,005) (495,568) (999,309) (456,946)

Income tax provision (22) (17) (36) (863) (881) (431)

Net loss before non-controlling interests (280,264) (456,440) (127,041) (496,431) (1,000,190) (457,377)Less: non-controlling interests in net loss ofconsolidated subsidiaries — (140) 80 207 349 166

Net loss $ (280,264) $ (456,580) $ (126,961) $ (496,224) $ (999,841) $ (457,211)


CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

21



Ended175 Days

Ended190 Days

EndedThree Months

Ended


2016 2015 2014 2013 20132013

(Unaudited)

(in thousands)

Net loss:Net loss $ (280,264) $ (456,440) $ (127,041) $ (496,431) $ (1,000,190) $ (457,377)Less: non-controlling interests in net loss of

consolidated subsidiaries — (140) 80 207 349 166Net loss attributable to ClearwireCommunications LLC (280,264) (456,580) (126,961) (496,224) (999,841) (457,211)

Other comprehensive income (loss):Unrealized foreign currency gains (losses)

during the period — — — (80) 43 44Less: reclassification adjustment of foreign

currency gains to net lossUnrealized investment holding gains (losses)

during the period — — — — (35) (1)Less: reclassification adjustment of investment

holding gains to net loss — — — — — —Other comprehensive income (loss) — — — (80) 8 43

Less: non-controlling interests in othercomprehensive income of consolidatedsubsidiaries — — — — — —

Other comprehensive income (loss) attributableto Clearwire Communications LLC — — — (80) 8 43

Comprehensive loss:Comprehensive loss (280,264) (456,440) (127,041) (496,511) (1,000,182) (457,334)Less: non-controlling interests incomprehensive loss of consolidatedsubsidiaries — (140) 80 207 349 166

Comprehensive loss attributable to ClearwireCommunications LLC $ (280,264) $ (456,580) $ (126,961) $ (496,304) $ (999,833) $ (457,168)


CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

22



Ended175 Days

Ended190 Days

EndedThree Months

Ended

March 31,

2016March 31,

2015March 31,

2014December31, 2013

July 9,2013

March 31,2013

(Unaudited)(in thousands)

Cash flows from operating activities:Net loss from continuing operations $ (280,264) $ (456,440) $ (127,041) $ (496,431) $ (1,000,190) $ (457,377)

Adjustments to reconcile net loss to net cash provided by (used in)operating activities:

Non-cash loss on derivative instruments — — — 134 77,631 11,730(Amortization of premium)/accretion of discount on debt (47,326) (45,705) (11,195) (48,006) 36,832 11,323Depreciation and amortization 318,693 351,056 90,403 232,349 387,531 194,347Amortization of spectrum leases 41,821 40,509 10,127 20,199 27,618 13,212Non-cash rent expense 173,235 193,987 53,828 86,713 71,183 39,679Call premium paid on debt redemption — — — (179,719) — —Loss on property, plant and equipment — — — 5,271 4,367 —Gain on extinguishment of debt — — — (61,188) — —Other non-cash activities, net 6,156 (25) (8) (3) 20,973 9,644

Changes in assets and liabilities:Inventory 1,013 1,666 3,988 7,293 (10,057) (5,269)Accounts and notes receivable (29,086) (41,235) (8,855) (65,794) 6,893 844Prepaid expenses and other assets 10,462 (24,461) 3,201 15,187 (64,066) 3,971Deferred revenue (15,043) (15,029) 234,143 27,531 39,227 (36,630)Accounts payable, accrued expenses and other liabilities 68,355 (320,094) 21,820 (167,378) 61,043 109,481

Net cash provided by (used in) operating activities 248,016 (315,771) 270,411 (623,842) (341,015) (105,045)Cash flows from investing activities:

Payments to acquire property, plant and equipment (17,076) (10,133) (7,022) (126,340) (76,843) (37,510)Purchases of available-for-sale investments — — — — (501,814) (249,988)Disposition of available-for-sale investments — — — 475,064 699,450 299,450Other investing activities (20) (110) 1,689 1,553 1,224 1,599

Net cash (used in) provided by investing activities (17,096) (10,243) (5,333) 350,277 122,017 13,551Cash flows from financing activities:

Principal payments on long-term debt (36,472) (45,213) (15,167) (3,479,429) (20,353) (9,844)Proceeds from issuance of long-term debt — — — — — —Principal payments on long-term debt from Related Party (372,000) — (200,000) — — —Proceeds from issuance of long-term debt from Related Party 159,000 343,000 — 315,479 240,000 80,000Debt financing fees — — — (1,418) — —Members' cash contributions — — — 3,244,773 199 —

Net cash (used in) provided by financing activities (249,472) 297,787 (215,167) 79,405 219,846 70,156Effect of foreign currency exchange rates on cash and cash equivalents — — — (79) 58 3Net (decrease) increase in cash and cash equivalents (18,552) (28,227) 49,911 (194,239) 906 (21,335)Cash and cash equivalents, beginning of period 21,794 50,021 110 194,349 193,443 193,443Cash and cash equivalents, end of period $ 3,242 $ 21,794 $ 50,021 $ 110 $ 194,349 $ 172,108Supplemental cash flow disclosures:

Cash paid for interest including capitalized interest paid $ 128,523 $ 124,172 $ 341 $ 236,893 $ 256,227 $ 338Non-cash investing activities:

Fixed asset purchases in accounts payable and accrued expenses $ 45 $ 147 $ 4,142 $ 7,995 $ 18,337 $ 17,558Fixed asset purchases financed by long-term debt $ — $ — $ — $ 44,101 $ 50,126 $ 19,287

Non-cash financing activities:Equity transactions associated with the Sprint Acquisition $ — $ 205,395 $ — $ — $ — $ —Vendor financing obligations $ — $ — $ — $ — $ (11,128) $ (9,474)Capital lease obligations $ — $ — $ — $ (44,101) $ (38,998) $ (9,813)Class B members' equity units issued for repayment of long-term debt $ — $ — $ — $ 194,493 $ — $ —Repayment of long-term debt through issuances of Class B members'equity units $ — $ — $ — $ (194,493) $ — $ —


CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

23

Class AMembers' Equity

Class BMembers' Equity

Units Amounts Units Amounts

AccumulatedOther

ComprehensiveIncome (Loss)

AccumulatedDeficit

Non-controllingInterests

TotalMembers’

Equity(in thousands)

Predecessor:Balances at December 31, 2012 691,315 $ 3,681,246 773,733 $ 7,091,967 $ (10) $ (8,731,595) $ (8,598) $ 2,033,010Net loss from operations — — — — — (999,841) (349) (1,000,190)Foreign currency translation adjustment — — — — 42 — — 42Unrealized loss on investments — — — — (34) — — (34)Issuance of member units, net of

issuance costs, and other capitaltransactions 131,882 319,614 (123,145) — — — — 319,614

Share-based compensation and othertransactions — 23,104 — (2,132) — — — 20,972Balances at July 9, 2013 823,197 $ 4,023,964 650,588 $ 7,089,835 $ (2) $ (9,731,436) $ (8,947) $ 1,373,414Successor:Balances at July 10, 2013 823,197 $ 6,261,323 650,588 $ 2,862,587 $ — $ — $ (8,947) $ 9,114,963Net loss from operations — — — — — (496,224) (207) (496,431)Foreign currency translation adjustment — — — — (80) — — (80)Issuance of member units, net of

issuance costs, and other capitaltransactions — — 808,955 3,440,060 — — — 3,440,060

Balances at December 31, 2013 823,197 $ 6,261,323 1,459,543 $ 6,302,647 $ (80) $ (496,224) $ (9,154) $ 12,058,512Net loss from operations — — — — — (126,961) (80) (127,041)Balances at March 31, 2014 823,197 $ 6,261,323 1,459,543 $ 6,302,647 $ (80) $ (623,185) $ (9,234) $ 11,931,471Net loss from operations — — — — — (456,580) 140 (456,440)State tax adjustment associated with theSprint Acquisition — 91,678 — 72,620 — — — 164,298Settlement of equity awards inconnection with the Sprint Acquisition — 41,097 — — — — — 41,097Balances at March 31, 2015 823,197 $ 6,394,098 1,459,543 $ 6,375,267 $ (80) $ (1,079,765) $ (9,094) $ 11,680,426Net loss from operations — — — — — (280,264) — (280,264)Balances at March 31, 2016 823,197 $ 6,394,098 1,459,543 $ 6,375,267 $ (80) $ (1,360,029) $ (9,094) $ 11,400,162

See accompanying notes to consolidated financial statements.

CLEARWIRE COMMUNICATIONS LLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24

1. Description of Business On December 17, 2012, Clearwire Corporation, the parent company of Clearwire Communications LLC, entered into

an Agreement and Plan of Merger with Sprint Nextel Corporation (as amended, the Merger Agreement) pursuant to which Sprint Nextel Corporation agreed to acquire all of the outstanding shares of Clearwire Corporation Class A and Class B common stock, not currently owned by Sprint Nextel Corporation, SoftBank Group Corp. (SoftBank), or their affiliates. The acquisition (Sprint Acquisition), closed on July 9, 2013 (the Acquisition Date). We are now an indirect wholly-owned subsidiary of Sprint Communications, Inc., formerly known as Sprint Nextel Corporation (Sprint) and an indirect wholly-owned subsidiary of Sprint Corporation. At the closing, the outstanding shares of Clearwire Corporation common stock were converted automatically into the right to receive $5.00 per share in cash, without interest (Merger Consideration).

On July 10, 2013, SoftBank completed the merger of Sprint (SoftBank Merger). As a result of the SoftBank Merger and the application of acquisition method of accounting applied by Sprint, the consideration transferred by SoftBank has been allocated to the Sprint assets acquired and liabilities assumed based on their estimated fair values as of July 10, 2013, inclusive of the Sprint Acquisition. In addition, in order to align with SoftBank’s reporting schedule we changed our fiscal year end from December to March 31, effective March 31, 2014. References herein to any fiscal year refer to the twelve-month period ending March 31 unless otherwise specifically noted.

As a result of the Sprint Acquisition and the resulting change in ownership and control, the acquisition method of accounting was applied by Sprint and pushed-down to us resulting in a new basis of presentation based on the estimated fair values of our assets and liabilities for the successor period beginning as of the day following the consummation of the Sprint Acquisition.

As of March 31, 2016, we offered our services primarily through Sprint. Sprint accounts for substantially all of our wholesale sales to date, and offers services in each of our 4G markets. Subsequent to the Sprint Acquisition, we discontinued new sales of our services and devices through our retail c

clearwire communications 3-31-16 financial statements · 2016. 6. 28. · title: clearwire...

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