Clearwire 2008 Annual Report Download - page 54

Th
e use o
f
t
h
e reme
di
a
l
met
h
o
df
or a
ll
o
f
t
h
eO
ld
C
l
earw
i
re assets,
b
ut
f
or on
l
y a port
i
on o
f
t
h
e
f
ormer Spr
i
nt
assets, means that Clearwire will bear the entire tax burden with respect to the built-in
g
ain on the Old Clearwire
assets, and will have shifted to it a portion of the tax burden with respect to the built-in gain on the former Sprin
t
assets. Accor
di
ng
l
y, C
l
earw
i
re
i
s
lik
e
l
yto
b
ea
ll
ocate
d
as
h
are o
f
t
h
e taxa
bl
e
i
ncome o
f
C
l
earw
i
re Commun
i
cat
i
ons
t
hat exceeds its proportionate economic interest in Clearwire Communications, and Clearwire ma
y
incur a material
li
a
bili
ty
f
or taxes. However, su
bj
ect to t
h
eex
i
st
i
ng an
d
poss
ibl
e
f
uture
li
m
i
tat
i
ons on t
h
e use o
f
C
l
earw
i
re’s net
operat
i
ng
l
osses, w
hi
c
h
we re
f
er to as NOLs, un
d
er Sect
i
on 382 an
d
Sect
i
on 384 o
f
t
h
eCo
d
e, C
l
earw
i
re’s NOLs ar
e
g
enera
lly
expecte
d
to
b
eava
il
a
bl
etoo
ff
set, to t
h
e extent o
f
t
h
ese NOLs,
i
tems o
fi
ncome an
dg
a
i
na
ll
ocate
d
t
o
Clearwire by Clearwire Communications. See “Risk Factors — The ability of Clearwire to use its net operating
losses to offset its income and gain is subject to limitation.” Clearwire Communications is required to mak
e
di
str
ib
ut
i
ons to C
l
earw
i
re
i
n amounts necessar
y
to pa
y
a
ll
taxes reasona
bly d
eterm
i
ne
dby
C
l
earw
i
re to
b
epa
y
a
bl
e
w
ith respect to its distributive share of the taxable income of Clearwire Communications, after takin
g
into account
t
he net operating loss deductions and other tax benefits reasonably expected to be available to Clearwire. See th
e
s
ect
i
ons t
i
t
l
e
d
“R
i
s
k
Factors — Man
d
ator
y
tax
di
str
ib
ut
i
ons ma
yd
epr
i
ve C
l
earw
i
re Commun
i
cat
i
ons o
ff
un
d
st
h
a
t
are re
q
uired in its business” and “Certain Relationshi
p
s and Related Transactions, and Director Inde
p
endence
”
b
eg
i
nn
i
ng on pages 43 an
d
122, respect
i
ve
l
y, o
f
t
hi
s report
.
Sa
l
es o
f
certain
f
ormer C
l
earwire assets
by
C
l
earwire Communications ma
y
trigger taxa
bl
e gain t
o
C
learwire.
If
C
l
earw
i
re Commun
i
cat
i
ons se
ll
s
i
n a taxa
bl
e transact
i
on an O
ld
C
l
earw
i
re asset t
h
at
h
a
db
u
il
t-
i
nga
i
natt
h
e
ti
me o
fi
ts contr
ib
ut
i
on to C
l
earw
i
re Commun
i
cat
i
ons, t
h
en, un
d
er Sect
i
on 704(c) o
f
t
h
eCo
d
e, t
h
e tax
g
a
i
nont
he
s
ale of the asset generally will be allocated first to Clearwire in an amount up to the remaining (unamortized
)
p
ortion of the built-in gain on the Old Clearwire asset. Under the Operating Agreement, unless Clearwir
e
Commun
i
cat
i
ons
h
as a
b
ona
fid
e non-tax
b
us
i
ness nee
d
(as
d
e
fi
ne
di
nt
h
e Operat
i
n
g
A
g
reement), C
l
earw
i
re
Communications will not enter into a taxable sale of Old Clearwire assets that are intan
g
ible propert
y
and tha
t
w
ould cause Clearwire to be allocated under Section 704(c) more than
$
10 million of built-in gains during any
36
-month period. For this purpose, Clearwire Communications will have a bona fide non-tax business need with
r
es
p
ect to the sale of Old Clearwire assets, if (1) the taxable sale of the Old Clearwire assets will serve a bona fide
b
usiness need of Clearwire Communications’ wireless broadband business and (2) neither the taxable sale nor th
e
r
e
i
nvestment or ot
h
er use o
f
t
h
e procee
d
s
i
ss
i
gn
ifi
cant
l
y mot
i
vate
db
yt
h
e
d
es
i
re to o
b
ta
i
n
i
ncrease
di
ncome tax
b
enefits for the members or to impose income tax costs on Clearwire. Accordin
g
l
y
, Clearwire ma
y
reco
g
nize built-
i
n
g
ain on the sale of Old Clearwire assets (1) in an amount up to $10 million, in an
y
36-month period, and (2) in
greater amounts,
if
t
h
e stan
d
ar
d
o
fb
ona
fid
e non-tax
b
us
i
ness nee
di
s sat
i
s
fi
e
d
.I
f
C
l
earw
i
re Commun
i
cat
i
ons se
ll
s
O
ld Clearwire assets with unamortized built-in
g
ain, then Clearwire is likel
y
to be allocated a share of the taxable
i
ncome of Clearwire Communications that exceeds its
p
ro
p
ortionate economic interest in Clearwire Communi
-
c
at
i
ons, an
d
may
i
ncur a mater
i
a
lli
a
bili
ty
f
or taxes. However, su
bj
ect to t
h
eex
i
st
i
ng an
d
poss
ibl
e
f
uture
li
m
i
tat
i
ons
on t
h
e use o
f
C
l
earw
i
re’s NOLs un
d
er Sect
i
on 382 an
d
Sect
i
on 384 o
f
t
h
eCo
d
e, C
l
earw
i
re’s NOLs are
g
enera
lly
e
xpected to be available to offset, to the extent of these NOLs, items of income and gain allocated to Clearwire by
Clearwire Communications. See the section titled “Risk Factors — The ability of Clearwire to use its net operating
l
osses to o
ff
set
i
ts
i
ncome an
dg
a
i
n
i
ssu
bj
ect to
li
m
i
tat
i
on”
b
e
gi
nn
i
n
g
on pa
g
e44o
f
t
hi
s report. C
l
earw
i
r
e
Communications is required to make distributions to Clearwire in amounts necessar
y
to pa
y
all taxes reasonabl
y
determined b
y
Clearwire to be pa
y
able with respect to its distributive share of the taxable income of Clearwire
Commun
i
cat
i
ons, a
f
ter ta
ki
ng
i
nto account t
h
e net operat
i
ng
l
oss
d
e
d
uct
i
ons an
d
ot
h
er tax
b
ene
fi
ts reasona
bl
y
e
xpected to be available to Clearwire. See the sections titled “Risk Factors — Mandator
y
tax distributions ma
y
de
p
rive Clearwire Communications of funds that are re
q
uired in its business” and “Certain Relationshi
p
san
d
Re
l
ate
d
Transact
i
ons, an
d
D
i
rector In
d
epen
d
ence”
b
eg
i
nn
i
ng on pages 43 an
d
122, respect
i
ve
l
y, o
f
t
hi
s report
.
Sprint and the Investors may shift to Clearwire the tax burden of additional built-in gain through a hold
-
ing company exchange.
Un
d
er t
h
e Operat
i
n
g
A
g
reement, Spr
i
nt or an Investor ma
y
e
ff
ect an exc
h
an
g
eo
f
C
l
earw
i
re Commun
i
cat
i
ons
C
l
ass B Common Interests an
d
C
l
earw
i
re C
l
ass B Common Stoc
kf
or C
l
earw
i
re C
l
ass A Common Stoc
kby
t
ransferrin
g
to Clearwire a holdin
g
compan
y
that owns the Clearwire Communications Class B Common Interest
s
42