Cricket Wireless 2012 Annual Report Download - page 35

In addition, U.S. credit markets have in recent years experienced significant dislocations and liquidity
disruptions. Uncertainty in the credit or capital markets could negatively impact our ability to access additional
debt financing or to refinance existing indebtedness in the future on favorable terms or at all. These general
economic conditions, combined with intensified competition in the wireless telecommunications industry and
other factors, have also adversely affected the trading prices of equity securities of many U.S. companies,
including Leap, which could significantly limit our ability to raise additional capital through the issuance of
common stock, preferred stock or other equity securities. Any of these risks could impair our ability to fund our
operations or limit our ability to expand our business, which could have a material adverse effect on our business,
financial condition and results of operations.
We Have Entered into Agreements with Significant Purchase Commitments and Cannot Guarantee that
We Will Meet These Commitments or Realize the Expected Benefits from These Agreements.
iPhone Purchase Commitment
In May 2012, we entered into a three-year iPhone purchase commitment with Apple. The commitment
began upon our launch of sales of the iPhone in June 2012. Based on our current handset purchase and sales mix
and current iPhone device pricing, we estimate that the commitment would require us to purchase approximately
$800 million of iPhones, with annual commitments during the three-year period that increase moderately in the
second and third years. We project that the minimum number of iPhones that we are required to purchase from
Apple over the term of the commitment would represent 10% or less of the total number of handsets we expect to
sell to new and upgrading customers over the period of the commitment and for approximately one year
thereafter. However, the actual amount that we spend and the number of devices that we purchase over the term
of the commitment will depend on many factors, including customer acceptance and availability of current and
future versions of the device, future costs for the device, the success of our marketing and advertising efforts,
customer demand for devices offered by other manufacturers and other factors.
At our current purchase rate, we project that we will purchase approximately one-half of our first-year
minimum purchase commitment through June 2013, although the actual amount of our purchases will depend on
the factors described above. If Apple were to require us to meet the annual minimum commitment in each of the
three years of the contract term, we estimate that we would be required to purchase approximately $100 million
of additional iPhones in mid-2013 above our current purchase rate, approximately $150 million of additional
iPhones in mid-2014 above our current purchase rate and approximately $200 million of additional iPhones in
mid-2015 above our current purchase rate. If we were unable to sell such additional devices at the rates and
prices we project, such differences could have a material adverse impact on our business, results of operations
and financial condition.
Wholesale Agreement
In August 2010, we entered into a wholesale agreement with an affiliate of Sprint Nextel which we use to offer
Cricket services in nationwide retailers outside of our current network footprint. We have agreed, among other
things, to purchase a minimum of $300 million of wholesale services over the initial five-year term of the
agreement, with the following annual minimum purchase commitments: $20 million in 2011; $75 million in 2012;
$80 million in 2013; $75 million in 2014; and $50 million in 2015. We entered into an amendment to the wholesale
agreement in February 2013 to enable us to purchase 4G LTE services. In addition, under the amendment, we can
credit up to $162 million of revenue we provide Sprint under other existing commercial arrangements against the
minimum purchase commitment. Any wholesale revenue we provide to Sprint in a given year above the minimum
purchase commitment for that particular year is credited to the next succeeding year. However, to the extent the
revenues we provide Sprint were to fall beneath the applicable commitment amount for any given year, excess
revenues from a subsequent year could not be carried back to offset such shortfall.
Our obligation to provide the minimum purchase amount for any calendar year is subject to Sprint’s
compliance with specified covenants in the wholesale agreement. Based upon a review of information provided
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