Clearwire 2009 Annual Report Download - page 49

Commun
i
cat
i
ons. Sa
l
es o
f
assets
i
nor
d
er to ena
bl
eC
l
earw
i
re Commun
i
cat
i
ons to ma
k
et
h
e necessary
di
str
ib
ut
i
ons
c
ould further increase the tax liabilit
y
of Clearwire, resultin
g
in the need to make additional distributions and, a
s
discussed below, possible additional tax loans to Sprint.
At present, C
l
earw
i
re
h
as su
b
stant
i
a
l
NOLs
f
or Un
i
te
d
States
f
e
d
era
li
ncome tax purposes. In part
i
cu
l
ar, w
e
believe that Clearwire’s cumulative tax loss as of December 31, 2009, for United States federal income tax
p
urposes, was approximately
$
1.6 billion. A portion of Clearwire’s NOLs is subject to certain annual limitation
s
i
mpose
d
un
d
er Sect
i
on 382 o
f
t
h
eCo
d
e. Su
bj
ect to t
h
eex
i
st
i
ng Sect
i
on 382
li
m
i
tat
i
ons, an
d
t
h
e poss
ibili
ty t
h
a
t
further limitations under Sections 382 and 384 ma
y
arise after the Closin
g
(as a result of the Ri
g
hts Offerin
g
or othe
r
f
uture transact
i
ons), C
l
earw
i
re’s NOLs genera
ll
yw
ill b
eava
il
a
bl
etoo
ff
set
i
tems o
fi
ncome an
d
ga
i
na
ll
ocate
d
t
o
C
l
earw
i
re
b
yC
l
earw
i
re Commun
i
cat
i
ons
.
T
he use b
y
Clearwire of its NOLs ma
y
be further limited if Clearwire is affected b
y
an “ownership chan
g
e,”
w
i
t
hi
nt
h
e mean
i
ng o
f
Sect
i
on 382 o
f
t
h
eCo
d
e. Broa
dl
y, C
l
earw
i
re w
ill h
ave an owners
hi
pc
h
ange
if
,overat
h
ree-
y
ear period, the portion of the stock of Clearwire, b
y
value, owned b
y
one or more “five-percent stockholders
”
i
ncreases b
y
more than
5
0 percenta
g
e points. Clearwire believes that the Ri
g
hts Offerin
g
ma
y
cause an ownershi
p
ch
ange. An exc
h
ange
b
y an Investor o
f
C
l
earw
i
re Commun
i
cat
i
ons C
l
ass B Common Interests an
d
C
l
ass B
Common Stock for Class A Common Stock ma
y
also cause or contribute to an ownership chan
g
e of Clearwire.
Clearwire has no control over the timin
g
of an
y
such exchan
g
e. If Clearwire under
g
oes an ownership chan
g
e, then
th
e amount o
f
t
h
e pre-owners
hi
pc
h
ange NOLs o
f
C
l
earw
i
re t
h
at may
b
e use
d
to o
ff
set
i
ncome o
f
C
l
earw
i
re ar
i
s
i
n
g
i
n each taxable
y
ear after the ownership chan
g
e
g
enerall
y
will be limited to the product of the fair market value of
t
he stock of Clearwire at the time of the ownership chan
g
e and a specified rate based on lon
g
-term tax-exempt bond
yi
e
ld
s.
Separatel
y
, under Section 384 of the Code, Clearwire ma
y
not be permitted to offset built-in
g
ain in asset
s
acquired b
y
it in certain tax-free transactions, if the
g
ain is reco
g
nized within five
y
ears of the acquisition of the
b
u
il
t-
i
nga
i
n assets, w
i
t
h
NOLs ar
i
s
i
ng
b
e
f
ore t
h
e acqu
i
s
i
t
i
on o
f
t
h
e
b
u
il
t-
i
nga
i
n assets. Sect
i
on 384 may app
l
yt
o
built-in
g
ain to which Clearwire succeeds in the case of a holdin
g
compan
y
exchan
g
eb
y
an Investor
.
T
ax loans that Clearwire Communications may be required to make to Sprint in connection with the sale
o
f certain former Sprint built-in gain assets may deprive Clearwire Communications of funds that are
r
e
q
uire
d
to o
p
erate its
b
usiness.
Under the Operatin
g
A
g
reement, if Clearwire Communications or an
y
of its subsidiaries enters into
a
t
ransaction that results in the reco
g
nition of an
y
portion of the built-in
g
ain with respect to a former Sprint asset
(ot
h
er t
h
an
i
n connect
i
on w
i
t
h
t
h
e
di
sso
l
ut
i
on o
f
C
l
earw
i
re Commun
i
cat
i
ons or t
h
e
di
spos
i
t
i
on o
f
certa
i
n spec
ifi
e
d
S
print assets), Clearwire Communications will be required, upon deliver
y
b
y
Sprint of a timel
y
request therefore, t
o
m
ake a tax loan to Sprint on the terms set forth in the Operatin
g
A
g
reement. The principal amount of an
y
tax loan t
o
S
pr
i
nt w
ill b
et
h
e amount
b
yw
hi
c
h
t
h
e
b
u
il
t-
i
nga
i
n recogn
i
ze
db
y Spr
i
nt on t
h
esa
l
eo
ff
ormer Spr
i
nt assets excee
ds
an
y
tax losses allocated b
y
Clearwire Communications to Sprint in the taxable
y
ear in which the sale of such built in
g
ain assets occurs, multiplied b
y
then-hi
g
hest mar
g
inal federal and state income tax rates applicable to corporation
s
r
es
id
ent
i
nt
h
e state
i
nw
hi
c
h
Spr
i
nt’s pr
i
nc
i
pa
l
corporate o
ffi
ces are
l
ocate
d
(ta
ki
ng
i
nto account t
h
e
d
e
d
uct
ibili
ty o
f
s
tate taxes
f
or
f
e
d
era
li
ncome tax purposes). Interest on an
y
tax
l
oan w
ill b
epa
y
a
bl
e
by
Spr
i
nt to C
l
earw
i
r
e
Commun
i
cat
i
ons sem
i
annua
lly
at a
fl
oat
i
n
g
rate equa
l
to t
h
e
high
er o
f
(a) t
h
e
i
nterest rate
f
or C
l
earw
i
re
Communications’ unsecured floating rate indebtedness and (b) the interest rate for Sprint’s unsecured floating
r
ate
i
n
d
e
b
te
d
ness p
l
us 200
b
as
i
spo
i
nts. Pr
i
nc
i
pa
l
on an
y
tax
l
oan to Spr
i
nt
i
spa
y
a
bl
e
i
n equa
l
annua
li
nsta
ll
ments
from the tax loan date to the later of (x) the 15th anniversar
y
of the Closin
g
or (
y
) the first anniversar
y
of the tax loan
date. An
y
tax loan that Clearwire Communications is required to make to Sprint ma
y
deprive Clearwire
Commun
i
cat
i
ons o
ff
un
d
st
h
at are requ
i
re
di
n
i
ts
b
us
i
ness
.
Th
e tax a
ll
ocation met
h
o
d
sa
d
o
p
te
dby
C
l
earwire Communications are
l
i
k
e
ly
to resu
l
tin
d
is
p
ro
p
ortionate
all
ocations o
f
taxa
bl
e income.
C
learwire and S
p
rint have contributed to Clearwire Communications assets that have a material amount o
f
b
u
il
t-
i
n
g
a
i
n
f
or
i
ncome tax purposes — mean
i
n
g
t
h
at t
h
e
f
a
i
r mar
k
et va
l
ue ascr
ib
e
d
to t
h
ose assets at t
h
et
i
me o
f
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
percenta
g
e
i
nterests
i
nC
l
earw
i
re Commu
-
n
ications received b
y
Clearwire and Sprint, is
g
reater than the current basis of those assets for tax purposes. For this
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