Clearwire 2008 Annual Report Download - page 53

I
na
ddi
t
i
on, to success
f
u
ll
y
i
ntro
d
uce our serv
i
ces
i
n new mar
k
ets an
d
grow our
b
us
i
ness
i
nex
i
st
i
ng
d
omest
i
c
and international markets, we rel
y
on the skills of our
g
eneral mana
g
ers in these markets. If we cannot hire, train an
d
r
etain motivated and well-qualified individuals to serve as general managers in our markets, we may face
diffi
cu
l
t
i
es
i
n attract
i
ng, recru
i
t
i
ng an
d
reta
i
n
i
ng var
i
ous sa
l
es an
d
support personne
li
nt
h
ose mar
k
ets, w
hi
c
h
m
a
y
lead to difficulties in
g
rowin
g
our subscriber base
.
T
he tax allocation methods to be adopted by Clearwire Communications are likely to result in dispropor
-
t
ionate allocations of taxable income
.
C
learwire and S
p
rint have contributed to Clearwire Communications assets that have a material amount o
f
b
uilt-in
g
ain for income tax purposes — meanin
g
that the fair market value ascribed to those assets at the time of
c
ontr
ib
ut
i
on, as re
fl
ecte
di
nt
h
e
i
n
i
t
i
a
l
cap
i
ta
l
account
b
a
l
ances an
d
percentage
i
nterests
i
nC
l
earw
i
re Commu-
ni
cat
i
ons rece
i
ve
dby
C
l
earw
i
re an
d
Spr
i
nt,
i
s
g
reater t
h
an t
h
e current
b
as
i
so
f
t
h
ose assets
f
or tax purposes. For t
hi
s
p
ur
p
ose, the fair market value ascribed to those assets at the time of contribution was calculated based u
p
on a value
of
$
17 per Clearwire Communications Class A and Class B Common Interest plus liabilities assumed by Clearwire
C
ommun
i
cat
i
ons at t
h
et
i
me o
f
contr
ib
ut
i
on. We re
f
er to contr
ib
ute
d
assets t
h
at
h
a
v
ea
f
a
i
r mar
k
et
v
a
l
ue t
h
at excee
ds
t
he tax basis of those assets on the date of contribution as built-in
g
ain assets. Under Section 704(c) of the Internal
Revenue Code of 1986, which we refer to as the Code, items of income, gain, loss or deduction of Clearwir
e
Commun
i
cat
i
ons must
b
ea
ll
ocate
d
among
i
ts mem
b
ers
f
or tax purposes
i
n a manner t
h
at ta
k
es account o
f
t
he
difference between the tax basis and the fair market value of the built-in
g
ain assets. The built-in
g
ain assets o
f
Clearwire Communications with the lar
g
est amounts of built-in
g
ain are spectrum and other intan
g
ible propert
y.
C
learwire Communications will maintain a ca
p
ital account for each member, which will reflect the fair market
value of the property contributed by that member to Clearwire Communications and the amount of which generally
will
correspon
d
to t
h
e mem
b
er’s percenta
g
e
i
nterest
i
nC
l
earw
i
re Commun
i
cat
i
ons. For cap
i
ta
l
account purposes
,
Clearwire Communications will amortize the value of the contributed built-in
g
ain assets,
g
enerall
y
on a strai
g
ht-
line basis over a period of up to 15 years, and each member will be allocated amortization deductions, generally on a
p
ro rata
b
as
i
s
i
n proport
i
on to t
h
e num
b
er o
f
C
l
earw
i
re Commun
i
cat
i
ons C
l
ass A an
d
C
l
ass B Common Interest
s
held b
y
the member as compared to the total number of Clearwire Communications Class A and Class B Common
Interests. Tax amort
i
zat
i
on on a
b
u
il
t-
i
nga
i
n asset, w
hi
c
h
w
ill b
e
b
ase
d
on t
h
e tax
b
as
i
so
f
t
h
at asset, w
ill b
e
a
ll
ocate
dfi
rst to t
h
e non-contr
ib
ut
i
ng mem
b
ers (mean
i
ng mem
b
ers ot
h
er t
h
an C
l
earw
i
re,
i
nt
h
e case o
ff
ormer
Clearwire assets, and members other than S
p
rint, in the case of former S
p
rint assets), in an amount u
p
to the ca
p
ital
account amort
i
zat
i
on a
ll
ocate
d
to t
h
at mem
b
er w
i
t
h
respect to t
h
at asset. T
h
us, t
h
e consequence o
f
t
h
e
b
u
il
t-
i
nga
i
n
will b
et
h
at C
l
earw
i
re
,i
nt
h
e case o
ff
ormer C
l
earw
i
re assets
,
w
ill b
ea
ll
ocate
d
amort
i
zat
i
on
d
e
d
uct
i
ons
f
or tax
p
ur
p
oses that are less than its share of the ca
p
ital account amortization with res
p
ect to those assets. In this
c
ircumstance, Clearwire will recognize over time, in the form of lower tax amortization deductions, the built-in gain
f
or w
hi
c
hi
t was g
i
ven econom
i
c cre
di
tatt
h
et
i
me o
ff
ormat
i
on o
f
C
l
earw
i
re Commun
i
cat
i
ons
.
If
t
h
ere
i
s not enoug
h
tax
b
as
i
s
i
na
b
u
il
t-
i
nga
i
n asset to ma
k
e tax a
ll
ocat
i
ons o
f
amort
i
zat
i
on
d
e
d
uct
i
ons to t
h
e
n
on-contributin
g
members in an a
gg
re
g
ate amount equal to their capital account amortization with respect to tha
t
asset, then the re
g
ulations under Section 704(c) of the Code permit the members to choose one of several methods t
o
account
f
or t
hi
s
diff
erence. Un
d
er t
h
e Operat
i
ng Agreement a
ll
o
f
t
h
e
b
u
il
t-
i
nga
i
n assets contr
ib
ute
db
yC
l
earw
i
r
e
and 50% of the built-in
g
ain in the assets contributed b
y
Sprint will be accounted for under the so-called “remedial
”
m
ethod. Under that method, the non-contributin
g
members will be allocated “phantom” tax amortization deduc
-
t
ions in the amount necessary to cause their tax amortization deductions to be equal to their capital accoun
t
amort
i
zat
i
on on t
h
e
b
u
il
t-
i
n
g
a
i
n asset, an
d
t
h
e contr
ib
ut
i
n
g
mem
b
er (C
l
earw
i
re,
i
nt
h
e case o
f
O
ld
C
l
earw
i
re assets)
will b
ea
ll
ocate
d
a matc
hi
n
gi
tem o
f
p
h
antom or
di
nar
yi
ncome. T
h
e reme
di
a
l
met
h
o
di
s
i
nten
d
e
d
to ensure t
h
at t
he
e
ntire tax burden with respect to the built-in gain on a built-in gain asset is borne by the contributing member. Unde
r
t
he Operatin
g
A
g
reement, the remainin
g
50% of the built-in
g
ain in the assets contributed b
y
Sprint will be
accounte
df
or un
d
er t
h
e so-ca
ll
e
d
“tra
di
t
i
ona
l
” met
h
o
d
.Un
d
er t
h
at met
h
o
d,
t
h
e tax amort
i
zat
i
on
d
e
d
uct
i
on
s
allocated to the non-contributin
g
members with respect to a built-in
g
ain asset are limited to the actual tax
amort
i
zat
i
on ar
i
s
i
ng
f
rom t
h
e
b
u
il
t-
i
nga
i
n asset. T
h
ee
ff
ect o
f
t
h
e tra
di
t
i
ona
l
met
h
o
di
st
h
at some o
f
t
h
e tax
b
ur
d
e
n
wi
t
h
respect to t
h
e
b
u
il
t-
i
nga
i
nona
b
u
il
t-
i
nga
i
n asset
i
ss
hif
te
d
to t
h
e non-contr
ib
ut
i
ng mem
b
ers,
i
nt
h
e
f
orm o
f
r
educed tax amortization deductions
.
41