
Note 4.	Investments

The components of investments were as follows:



	March 31, 2013		December 31, 2012
	(in millions)
Marketable equity securities	$	45	$	45
Equity method and other investments	821		1,008
	$	866	$	1,053

Equity Method Investment in Clearwire

Sprint's Ownership Interest

Sprint's investment in Clearwire Corporation and its consolidated subsidiary Clearwire Communications LLC (together, "Clearwire") is one of the ways we participate in the fourth generation (4G) wireless broadband market. Sprint offers certain 4G products utilizing Clearwire's 4G wireless Worldwide Interoperability for Microwave Access (WiMAX) broadband network in available markets.

As of March 31, 2013, Sprint held approximately 50.2% of a non-controlling voting interest and a 2.1% non-controlling economic interest in Clearwire Corporation as well as a 48.1% non-controlling economic interest in Clearwire Communications LLC (together, “Equity Interests”) for which the carrying value totaled $472 million.

As of March 31, 2013, Sprint held two promissory notes receivable from Clearwire. In 2012, in conjunction with long-term pricing agreements within the mobile virtual network operator (MVNO) agreement reached between the two companies in the fourth quarter 2011, Sprint provided $150 million to Clearwire in exchange for a promissory note with a stated interest rate of 11.5%. The first of two installments of $75 million plus accrued interest matured in January 2013 and the second installment will mature in January 2014. The difference between the fair value of the note and its face value at the date of issuance has been recorded as a prepaid expense, which is being amortized over the service period to cost of service. Sprint, at its sole discretion, can choose to offset any amounts payable by Clearwire under this promissory note against amounts owed by Sprint under the MVNO agreement, and this action was taken for the installment due in January 2013. Additionally, Sprint holds a note receivable from Clearwire issued in 2008 with a fixed interest rate of 12% and a maturity date of December 2015. The total carrying value of the promissory notes receivable, which includes accretion related to premiums for both notes and fees associated with the 2009 replacement of the 2008 note, was $248 million and $320 million as of March 31, 2013 and December 31, 2012, respectively.

Clearwire elected to forgo the first two draws, totaling $160 million, available under the financing agreement entered into in December 2012, and no longer has a right to borrow that amount. Beginning in March 2013, Clearwire elected to draw the full amount and issue Clearwire Exchangeable Notes totaling $80 million per month in each of March, April and May 2013. Sprint has funded this amount, totaling $240 million, related to Clearwire's elections to draw, of which $80 million was funded during the first quarter 2013. The Clearwire Exchangeable Notes are a hybrid instrument consisting of an investment in a debt security (the Notes) and an embedded derivative instrument representing Sprint's equity conversion right. The difference between the initial fair value of the embedded derivative and the carrying value of the Notes results in a discount which will be accreted to interest income over the life of the notes. The Notes are classified as an available-for-sale debt security carried at fair value with changes in fair value subsequently reported in accumulated other comprehensive income and reclassified from accumulated other comprehensive loss into "Other income (expense), net" in Sprint's consolidated statement of comprehensive loss when realized. The embedded derivative is also carried at fair value with changes in fair value recognized in Sprint's consolidated statement of comprehensive loss.

The carrying value of Sprint's Equity Interests, together with the long-term portion of the carrying value of the notes receivable and the Clearwire Exchangeable Notes, are included in the line item "Investments" in Sprint's consolidated balance sheets. The current portion of the carrying value of the notes receivable is included in the line item "Prepaid expenses and other current assets" in Sprint's consolidated balance sheets.

Equity in Losses and Summarized Financial Information

Equity in losses from Clearwire were $202 million and $290 million for the three-month periods ended March 31, 2013 and 2012, respectively. Sprint's losses from its investment in Clearwire consist of Sprint's share of Clearwire's net loss and other adjustments, if any, such as non-cash impairment of Sprint's investment, gains or losses associated with the dilution of Sprint's ownership interest resulting from Clearwire's equity issuances, and other items recognized by Clearwire Corporation that do not affect Sprint's economic interest. Sprint's equity in losses from Clearwire for the three-month period ended March 31, 2012 include charges of approximately $40 million, which are associated with Clearwire's write-off of certain network and other assets that no longer meet its strategic plans.

Our proportionate share of the underlying net assets of Clearwire exceeds the carrying value of our equity investment by approximately $271 million, which is primarily related to our non-cash impairments recognized in prior periods.

Summarized financial information for Clearwire is as follows:



	Three Months Ended
	March 31,
	2013			2012
	(in millions)
Revenues	$	318		$	323
Operating expenses	(622		)	(745		)
Operating loss	$	(304	)	$	(422	)
Net loss from continuing operations before non-controlling interests	$	(462	)	$	(561	)
Net income from discontinued operations before non-controlling interests	$	—		$	1

Sprint's Recoverability

At each financial reporting measurement date, we evaluate the excess, if any, of Sprint's carrying value over the estimated fair value of our investment in Clearwire to determine if such excess, an implied unrealized loss, is other-than-temporary. Our evaluation considers, among other things, both observable and unobservable inputs, including Clearwire's market capitalization, historical volatility associated with Clearwire's common stock, the duration of a decline in Clearwire's average trading stock price below Sprint's carrying value, potential tax benefits, governance rights associated with our non-controlling voting interest, and our expectation of the duration of our ongoing relationship, as well as other factors. Based on the aforementioned factors, including the trading price of Clearwire's common stock, which was in excess of our carrying value as of March 31, 2013, we have concluded that there was no impairment of our investment in Clearwire as of March 31, 2013. The determination of an estimate of fair value for a non-public security, such as our non-controlling economic interest, is subject to significant judgment and uncertainty.

Clearwire's remaining funding available under the financing agreement entered into in December 2012 is $400 million and Clearwire's ability to draw on the remaining funding will depend, in part, on whether Clearwire shareholders approve the transaction contemplated by the merger agreement with Sprint. Clearwire has disclosed that if the merger agreement with Sprint terminates, whether as a result of its shareholders failing to approve the proposed merger, or for any other reason, there would be substantial doubt about its ability to continue as a going concern for the next twelve months. In such case, Clearwire projects that its cash and short-term investments would be depleted sometime in the first quarter 2014. Sprint will continue to assess our investment in Clearwire for impairment and may determine in future periods that all or a portion of our investment is impaired dependent upon the factors described above.

Clearwire Related-Party Transactions

Sprint's equity method investment in Clearwire includes agreements by which we resell wireless data services utilizing Clearwire's 4G network. In addition, Clearwire utilizes the third generation (3G) Sprint network to provide dual-mode service to its customers in those areas where access to its 4G network is not available. Amounts included in our consolidated balance sheets related to our agreement to purchase 4G services from Clearwire as of March 31, 2013 and December 31, 2012 totaled $127 million and $78 million, respectively, for prepaid expenses and other current assets and $80 million and $79 million, respectively, for accounts payable, accrued expense and other current liabilities. Cost of services and products included in our consolidated statements of comprehensive loss related to our agreement to purchase 4G services from Clearwire totaled $101 million and $105 million for the three-month periods ended March 31, 2013 and 2012, respectively.