Cricket Wireless 2010 Annual Report Download - page 31

what we have negotiated to pay under the wholesale agreement. We also cannot guarantee that we will be able to
renew the agreement on terms that will be acceptable to us following the completion of the initial five-year term of
the agreement. If we are unable to attract new wireless customers and increase our distribution , our ability to derive
benefits from this new agreement could be limited, which could materially adversely affect our business, financial
condition and results of operations.
Our Business and Stock Price May Be Adversely Affected if Our Internal Controls Are Not Effective.
Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of
their internal control over financial reporting. To comply with this statute, each year we are required to document
and test our internal control over financial reporting; our management is required to assess and issue a report
concerning our internal control over financial reporting; and our independent registered public accounting firm is
required to report on the effectiveness of our internal control over financial reporting.
In our quarterly and annual reports (as amended) for the periods ended from December 31, 2006 through
September 30, 2008, we reported a material weakness in our internal control over financial reporting which related
to the design of controls over the preparation and review of the account reconciliations and analysis of revenues,
cost of revenues and deferred revenues, and ineffective testing of changes made to our revenue and billing systems
in connection with the introduction or modification of service offerings. As described in “Part II — Item 9A.
Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
SEC on February 27, 2009, we took a number of actions to remediate this material weakness, which included
reviewing and designing enhancements to certain of our systems and processes relating to revenue recognition and
user acceptance testing and hiring and promoting additional accounting personnel with the appropriate skills,
training and experience in these areas. Based upon the remediation actions described in “Part II — Item 9A.
Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
SEC on February 27, 2009, management concluded that the material weakness described above was remediated as
of December 31, 2008.
In addition, we previously reported that certain material weaknesses in our internal control over financial
reporting existed at various times during the period from September 30, 2004 through September 30, 2006. These
material weaknesses included excessive turnover and inadequate staffing levels in our accounting, financial
reporting and tax departments, weaknesses in the preparation of our income tax provision, and weaknesses in our
application of lease-related accounting principles, fresh-start reporting oversight, and account reconciliation
procedures.
Although we believe we took appropriate actions to remediate the control deficiencies we identified and to
strengthen our internal control over financial reporting, we cannot assure you that we will not discover other
material weaknesses in the future or that no material weakness will result from any difficulties, errors, delays or
disruptions while we implement and transition to significant new internal systems, such as the transition to our new
customer billing system during 2011. The existence of one or more material weaknesses could result in errors in our
financial statements, and substantial costs and resources may be required to rectify these or other internal control
deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported
financial information, the market price of Leap common stock could decline significantly, we may be unable to
obtain additional financing to operate and expand our business, and our business and financial condition could be
harmed.
Our Primary Business Strategy May Not Succeed in the Long Term.
A major element of our business strategy is to offer consumers unlimited wireless services for a flat rate
without requiring them to enter into a fixed-term contract or pass a credit check. We provide nationwide voice, data
and mobile broadband wireless services through our own Cricket network footprint and through roaming
agreements that we have entered into with other carriers. In addition, we recently entered into a national
wholesale agreement which permits us to offer Cricket wireless services outside of our current network
footprint. Our strategy of offering unlimited wireless services may not prove to be successful in the long term.
From time to time, we also evaluate our product and service offerings and the demands of our target customers and
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