1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
IRIDIUM WORLD COMMUNICATIONS LTD.
(Exact name of Registrant as specified in its charter)
BERMUDA 0-22637 52-2025291
(State or other jurisdiction (Commission file Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
CLARENDON HOUSE, 2 CHURCH STREET, HAMILTON HM 11, BERMUDA
(441) 295-5950
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
---------------
IRIDIUM LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 0-22637-01 52-1984342
(State or other jurisdiction (Commission file Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
(202) 408-3800
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
---------------
IRIDIUM OPERATING LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 0-22637-02 52-2066319
(State or other jurisdiction (Commission file Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
(202) 408-3800
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
---------------
2
IRIDIUM CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 333-31741-03 52-2048739
(State or other jurisdiction (Commission file Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
(202) 408-3800
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
---------------
IRIDIUM IP LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 333-31741-01 52-2048736
(State or other jurisdiction (Commission file Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
(202) 408-3800
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
---------------
IRIDIUM ROAMING LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 333-31741-02 52-2048734
(State or other jurisdiction (Commission file Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
(202) 408-3800
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
---------------
IRIDIUM FACILITIES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 333-44349-04 52-2083969
(State or other jurisdiction (Commission file Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
(202) 408-3800
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
SHARES OUTSTANDING
CLASS AT MAY 1, 1999
--------------------------- ------------------------
Iridium World
Communications Ltd. 19,729,130
Common Stock, Class A
$0.01 par value per share
3
IRIDIUM WORLD COMMUNICATIONS LTD.
----------
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
----------
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
----------
IRIDIUM CAPITAL CORPORATION
IRIDIUM IP LLC
IRIDIUM ROAMING LLC
IRIDIUM FACILITIES CORPORATION
----------
INDEX TO FORM 10-Q
---------
PAGE
NUMBER
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
IRIDIUM WORLD COMMUNICATIONS LTD.
Condensed Balance Sheets
March 31, 1999 and December 31, 1998 5
Unaudited Condensed Statements of Loss
For the three months ended March 31, 1999 and 1998 6
Unaudited Condensed Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 7
Notes to Unaudited Condensed Financial Statements 8
IRIDIUM LLC
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 10
Unaudited Condensed Consolidated Statements of Loss
For the three months ended March 31, 1999 and 1998 11
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4
PAGE
NUMBER
--------
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 12
Notes to Unaudited Condensed Consolidated Financial Statements 13
IRIDIUM OPERATING LLC (INCLUDING: IRIDIUM CAPITAL CORPORATION,
IRIDIUM IP LLC, IRIDIUM ROAMING LLC, IRIDIUM FACILITIES CORPORATION)
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 16
Unaudited Condensed Consolidated Statements of Loss
For the three months ended March 31, 1999 and 1998 17
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 18
Notes to Unaudited Condensed Consolidated Financial Statements 19
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 33
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 33
ITEM 2 Changes in Securities and Use of Proceeds 33
ITEM 3 Defaults upon Senior Securities 33
ITEM 4 Submission of Matters to a Vote of Security Holders 33
ITEM 5 Other Information 33
ITEM 6 Exhibits and Reports on Form 8-K 34
SIGNATURES 35
EXHIBIT INDEX 37
4
5
ITEM 1. FINANCIAL INFORMATION
IRIDIUM WORLD COMMUNICATIONS LTD.
CONDENSED BALANCE SHEETS
(In Thousands Except Share Data)
MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
------------ -----------
ASSETS
Cash.................................................................................. $ - $ -
Investment in Iridium LLC............................................................. 119,702 302,549
------------ -----------
Total assets.............................................................. $ 119,702 $ 302,549
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities........................................................................... $ - $ -
Stockholders' equity:
Class A Common stock, voting, par value $0.01; 50,000,000 shares authorized;
12,180,648 and 19,729,130 issued and outstanding............................... 122 197
Class B Common stock, nonvoting, par value $0.01; 2,500,000 shares authorized;
20,625 issued and outstanding.................................................. - -
Additional paid-in capital........................................................ 246,053 489,224
Accumulated deficit............................................................... (126,473) (186,872)
------------ -----------
119,702 302,549
------------ -----------
Total liabilities and stockholders' equity................................ $ 119,702 $ 302,549
============ ===========
The accompanying notes are an integral part of these condensed financial
statements.
5
6
IRIDIUM WORLD COMMUNICATIONS LTD.
UNAUDITED CONDENSED STATEMENTS OF LOSS
(In Thousands Except Share Data)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1998 1999
------------ -------------
Equity in loss of Iridium LLC............................... $ 17,426 $ 60,399
------------ -------------
Loss before income taxes.................................... 17,426 60,399
Income taxes................................................ - -
------------ -------------
Net loss.................................................... $ 17,426 $ 60,399
============ ============
Net loss per Class A Common share - basic and diluted ...... $ 1.45 $ 3.44
============ ============
Weighted average shares used in computing
net loss per Class A Common share - basic and diluted..... 12,008,654 17,541,493
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
6
7
IRIDIUM WORLD COMMUNICATIONS LTD.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
( In Thousands )
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (17,426) $ (60,399)
Adjustments to reconcile net loss to net cash
used in operating activities -
Equity in loss of Iridium LLC................... 17,426 60,399
---------- ----------
Net cash used in operating activities....................... - -
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Iridium LLC.............................. (583) (243,246)
---------- ----------
Net cash used in investing activities....................... (583) (243,246)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from equity offering....................... - 242,400
Proceeds from Class B Common Stock...................... 275 -
Proceeds from exercise of stock options................. 308 846
---------- ----------
Net cash provided by financing activities................... 583 243,246
---------- ----------
Increase in cash............................................ - -
CASH, beginning of period................................... - -
---------- ----------
CASH, end of period......................................... $ - $ -
========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
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8
IRIDIUM WORLD COMMUNICATIONS LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Iridium World Communications Ltd. ("IWCL") was incorporated under the
laws of Bermuda on December 12, 1996. At inception, IWCL was wholly owned by
Iridium LLC, a limited liability company. In June 1997, IWCL registered with the
Securities and Exchange Commission a total of 13,800,000 shares of its Class A
Common Stock ("Class A Common Stock") for sale in an initial public offering
(the "Offering"), and on June 13, 1997, IWCL consummated the Offering and issued
12,000,000 shares of Class A Common Stock. Pursuant to the 1997 Subscription
Agreement between IWCL and Iridium LLC, approximately $225 million in net
proceeds from the Offering were invested in Class 1 Membership Interests of
Iridium LLC ("Class 1 Interests"), at which time the outstanding shares of Class
A Common Stock held by Iridium LLC were retired, and IWCL became a member of
Iridium LLC.
Iridium LLC, through its wholly-owned subsidiary Iridium Operating LLC
("Iridium"), a Delaware limited liability company, has completed its efforts to
develop and deploy a global wireless system (the "Iridium System") that
enables subscribers to send and receive telephone calls virtually anywhere in
the world, all with one phone, one phone number and one customer bill. Iridium
commenced commercial satellite phone service on November 1, 1998 and commercial
satellite paging service on November 15, 1998. Iridium is transitioning from a
development stage limited liability company to an operating limited liability
company.
IWCL's sole asset is its investment in Iridium LLC. As of December 31,
1998 and March 31, 1999, IWCL owned 12,180,648 and 19,729,130 Class 1 Interests,
respectively, representing approximately 8.6% and 13.2% of the total outstanding
Class 1 Interests in Iridium LLC, respectively.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments necessary for a fair presentation
of the financial position of IWCL as of March 31, 1999 and the results of its
operations and its cash flows for the three months ended March 31, 1998 and
1999. These condensed financial statements are unaudited and do not include all
related footnote disclosures. These financial statements should be read in
conjunction with the audited financial statements of IWCL and Iridium LLC and
footnotes thereto included in their joint Annual Report on Form 10-K for 1998.
Since its inception on December 12, 1996 through March 31, 1999, IWCL has
not entered into any material operating transactions or incurred any material
expenses. The results of operations for the three months ended March 31, 1998
and 1999 are not necessarily indicative of the results of operations expected in
the future.
3. EARNINGS PER SHARE
Basic earnings (loss) per Class A Common share is calculated by dividing
net income (loss) by the weighted average number of Class A Common shares
outstanding during the period. Diluted earnings (loss) per share is calculated
by dividing net income (loss) by the weighted average number of Class A Common
shares and, to the extent dilutive, other potentially dilutive securities
outstanding during the period. Potentially dilutive securities are comprised of
warrants to purchase Class A Common Stock issued in conjunction with Iridium
LLC's issuance of Series A Senior Notes, stock options, and Class B Common
Stock. Due to losses incurred during the three months ended March 31, 1998 and
1999, the impact of the warrants, stock options, and Class B Common Stock is
anti-dilutive and is not included in the diluted earnings (loss) per share
calculation.
4. STOCKHOLDERS' EQUITY
On January 21, 1999, IWCL issued 7,500,000 shares of Class A Common Stock
in a public offering resulting in net proceeds of $242,400,000. Pursuant to the
Share Issuance Agreement between IWCL and Iridium LLC, such proceeds were used
by IWCL to purchase 7,500,000 Class 1 Interests in Iridium LLC.
8
9
IRIDIUM WORLD COMMUNICATIONS LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
5. DEBT
IWCL has no material indebtedness. However, Iridium's $800 million
secured bank facility contains various covenants, including covenants that
require Iridium to satisfy certain minimum revenue and subscriber levels as of
March 31, 1999, June 30, 1999 and September 30, 1999. These minimum subscriber
and revenue covenants included the condition that, at March 31, 1999, Iridium
have cumulative cash revenues of at least $4 million, cumulative accrued
revenues of at least $30 million, at least 27,000 Iridium World Satellite
Service subscribers and at least 52,000 total subscribers. As a result of
various factors, Iridium's subscriber levels and revenues for its initial
commercial operations have been significantly below its prior estimates and the
required covenant levels. Accordingly, Iridium requested and received a waiver
of compliance with the March 31, 1999 revenue and subscriber conditions from the
lenders under the secured bank facility. This waiver is conditioned on Iridium's
compliance with the March 31, 1999 minimum revenue and subscriber levels by May
31, 1999.
Iridium now expects, however, that it will not meet the March 31, 1999
minimum revenue and subscriber levels on May 31, 1999 as is required by the
waiver. Iridium is currently in negotiations with the lenders under the
secured bank facility regarding an amendment to the secured bank facility to
modify the revenue and subscriber covenants or, if an amendment cannot be
agreed upon, to obtain a waiver of such covenants. The lenders are under no
obligation to provide an amendment or waiver and there can be no assurance
that the lenders will agree to such an amendment or waiver. Failure to agree
to an amendment of the secured bank facility, or to obtain an additional
waiver thereunder, would result in default and subject the entire amount
outstanding under the secured bank facility to acceleration by the lenders and
the pursuit of other remedies, including enforcing their security interests in
substantially all of the assets of Iridium. Any such action by the lenders
would have a material adverse effect on Iridium, IWCL and Iridium LLC.
Because an amendment has not been agreed to and Iridium has not
received a waiver, the entire outstanding balance of approximately $800
million, along with the entire outstanding balances on the guaranteed bank
facility, senior subordinated notes and notes payable, all of which have
cross-default and/or cross-acceleration provisions, are classified as current
in the condensed consolidated financial statements of Iridium. Iridium had
approximately $480 million outstanding under the guaranteed bank facilities,
$337 million of senior subordinated notes and $1.4 billion of notes payable
outstanding as of March 31, 1999.
The failure of Iridium to negotiate an amendment to the $800 million
secured bank facility, or the inability of Iridium to negotiate an amendment on
favorable terms, could have a material adverse impact on Iridium's financial
position and results of operations. Since IWCL's sole asset is its investment in
Iridium LLC, IWCL's financial position and results of operations could also be
adversely impacted.
6. SUBSEQUENT EVENT
In April and May, 1999, various purported securities class action
lawsuits were filed against IWCL, Iridium LLC, Iridium, Motorola Inc., and
several former officers and directors of IWCL, Iridium LLC and Iridium, in the
United States District Court for the District of Columbia, alleging violations
of the federal securities laws during the period September 9, 1998 through
March 29, 1999.
Management believes that the allegations in the legal proceedings
described above are without merit and intends to vigorously defend against the
allegations.
9
10
IRIDIUM LLC
(A Development Stage Limited Liability Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Member Interest Data)
MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
-------------- --------------
ASSETS
Current assets :
Cash and cash equivalents.......................................................... $ 24,756 $ 195,443
Accounts receivable, net of allowance of $93 and $126.............................. 93 1,316
Due from affiliates................................................................ 17,031 10,699
Prepaid expenses and other current assets.......................................... 15,021 11,649
-------------- --------------
Total current assets........................................................... 56,901 219,107
Property and equipment, net............................................................ 3,584,209 3,412,809
Other assets........................................................................... 97,785 87,598
-------------- --------------
Total assets................................................................... $ 3,738,895 $ 3,719,514
============== ==============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities :
Accounts payable and accrued expenses.............................................. $ 165,539 $ 113,105
Due to Member, current portion..................................................... 131,532 104,672
Bank facilities.................................................................... - 1,280,000
Senior subordinated notes (net of discount)........................................ - 337,423
Notes payable (net of discount), $1,450,000 principal amount....................... - 1,406,766
-------------- --------------
Total current liabilities...................................................... 297,071 3,241,966
Bank facilities........................................................................ 1,125,000 -
Senior subordinated notes (net of discount)............................................ 323,484 -
Notes payable (net of discount), $1,450,000 principal amount........................... 1,405,735 -
Due to Member, net of current portion.................................................. 86,240 225,421
Other liabilities...................................................................... 24,202 37,524
-------------- --------------
Total liabilities.............................................................. 3,261,732 3,504,911
-------------- --------------
Commitments and Contingencies
Members' equity:
Class 2 Interests, authorized 50,000 interests for Series M; authorized an
aggregate of 300,000 interests for Series A, Series B and Series C:
Series M, convertible, no interests issued and outstanding................. - -
Series A, redeemable, convertible, 46,016 and 47,684 interests issued
and outstanding; liquidation value of $46,016 and $47,684 .............. 46,016 47,684
Series B, redeemable, 1 interest issued and outstanding.................... - -
Series C, redeemable, 75 interests issued and outstanding.................. - -
Class 1 Interests, authorized 225,000,000 interests, 141,420,453 and
148,968,935 interests issued and outstanding.................................. 2,114,316 2,355,409
Deferred Class 1 Interest compensation............................................. (1,162) (1,082)
Adjustment for minimum pension liability........................................... (1,813) (1,813)
Deficit accumulated during the development stage................................... (1,680,194) (2,185,595)
-------------- --------------
Total members' equity.......................................................... 477,163 214,603
-------------- --------------
Total liabilities and members' equity.......................................... $ 3,738,895 $ 3,719,514
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
10
11
IRIDIUM LLC
( A Development Stage Limited Liability Company )
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(In Thousands Except Member Interest Data)
THREE MONTHS ENDED PERIOD FROM
MARCH 31, JUNE 14, 1991
----------------------------- (INCEPTION) THROUGH
1998 1999 MARCH 31, 1999
------------ ------------ -------------------
Revenues............................................. $ - $ 1,451 $ 1,637
Operating expenses:
Sales, general and administrative................ 60,511 181,810 930,972
Depreciation and amortization.................... 107,791 205,901 879,242
------------ ------------ -------------
Total operating expenses.................... 168,302 387,711 1,810,214
------------ ------------ -------------
Operating loss....................................... 168,302 386,260 1,808,577
Other income and expenses:
Interest expense, net............................ 35,264 119,141 369,047
------------ ------------ -------------
Loss before provision for income taxes............... 203,566 505,401 2,177,624
Provision for income taxes........................... - - 7,971
------------ ------------ -------------
Net loss............................................. $ 203,566 $ 505,401 $ 2,185,595
============ ============ =============
Preferred dividend requirement....................... 1,447 1,668
------------ ------------
Net loss applicable to Class 1 Interests............. $ 205,013 $ 507,069
============ ============
Net loss per Class 1 Interest - basic and diluted.... $ 1.45 $ 3.45
============ ============
Weighted average interests used in computing
net loss per Class 1 Interest - basic and diluted.. 141,227,834 146,781,298
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
11
12
IRIDIUM LLC
( A Development Stage Limited Liability Company )
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( In Thousands )
PERIOD FROM
THREE MONTHS ENDED JUNE 14, 1991
MARCH 31, (INCEPTION)
----------------------- THROUGH
1998 1999 MARCH 31, 1999
---------- ---------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................. $ (203,566) $ (505,401) $ (2,185,595)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization.......................................... 107,791 205,901 879,242
Interest converted to additional debt.................................. - 13,939 157,905
Amortization of financing costs........................................ - 8,657 8,657
Expense recognized for warrants issued in
connection with debt guarantee and other compensation............ 5,261 315 128,356
Employee Class 1 Interest compensation................................ 50 80 524
Loss on disposal of assets............................................. - 39,270 39,357
Changes in assets and liabilities:
Increase in accounts receivable.................................. - (1,223) (1,316)
Decrease (Increase) in prepaid expenses and other current assets. (882) 3,372 (11,649)
Decrease (Increase) in due from affiliates....................... 44 6,331 (10,700)
Decrease (Increase) in other assets.............................. (11,506) 2,438 (16,652)
(Decrease) Increase in accounts payable and accrued expenses..... (11,627) 111,633 184,403
Increase in other liabilities.................................... 1,857 11,578 25,522
---------- ---------- --------------
Net cash used in operating activities................... (112,578) (103,110) (801,946)
---------- ---------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................................................. (129,275) (123,649) (3,990,129)
---------- ---------- --------------
Net cash used in investing activities................... (129,275) (123,649) (3,990,129)
---------- ---------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Class 1 and Class 2 Interests.......................... 583 242,446 2,223,838
Net proceeds from issuance of senior notes and warrants.............................. - - 1,618,959
Borrowings under guaranteed bank line of credit...................................... 75,000 - 2,131,500
Payments under guaranteed bank line of credit........................................ - (145,000) (1,651,500)
Borrowings under senior secured line of credit....................................... - 300,000 1,210,000
Payments under senior secured line of credit......................................... - - (410,000)
Decrease in restricted cash.......................................................... 350,220 - -
Deferred financing costs............................................................. (830) - (135,279)
---------- ---------- --------------
Net cash provided by financing activities............... 424,973 397,446 4,987,518
---------- ---------- --------------
Increase in cash and cash equivalents.................................................. 183,120 170,687 195,443
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................................... 9,040 24,756 -
---------- ---------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................... $ 192,160 $ 195,443 $ 195,443
========== ========== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
12
13
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Iridium LLC (the "Parent") and its subsidiaries have completed their
efforts to develop and deploy a global wireless system (the "Iridium System")
that enables subscribers to send and receive telephone calls virtually anywhere
in the world - all with one phone, one phone number and one customer bill.
Iridium commenced commercial satellite phone service on November 1, 1998 and
commercial satellite paging service on November 15, 1998. The Parent, including
its subsidiaries, is transitioning from a development stage limited liability
company to an operating limited liability company.
Iridium, Inc., the predecessor to the Parent, was incorporated on June
14, 1991. Iridium, Inc. operated as a wholly-owned subsidiary of Motorola, Inc.
("Motorola") until July 29, 1993. On July 29, 1993, Iridium, Inc. closed on, and
had its first capital draw under, a private placement of shares of Common Stock,
subscribed to by U. S. and foreign investors. On July 29, 1996, the Parent was
formed as a limited liability company, under the terms and conditions of the
limited liability agreement ("LLC Agreement"), pursuant to the provisions of the
Delaware limited liability company act. Also on July 29, 1996, Iridium, Inc. was
merged with and into the Parent, with the Parent as the surviving entity.
Concurrent with the merger, all shares of Common Stock of Iridium, Inc. were
exchanged for Class 1 Membership Interests in the Parent ("Class 1 Interests").
As a result of a series of private placements and the offerings of common stock
of Iridium World Communications Ltd. ("IWCL"), Motorola's direct and indirect
Class 1 Membership Interest in the Parent has been reduced to approximately 18%
as of March 31, 1999, before considering unexercised warrants held by Motorola.
On December 18, 1997, the Parent entered into an asset drop-down
transaction (the "Asset Drop-Down Transaction") with Iridium Operating LLC
("Iridium"), a newly formed wholly-owned subsidiary of the Parent. Pursuant to
the Asset Drop-Down Transaction, substantially all of the assets and liabilities
of the Parent were transferred to Iridium. All assets and liabilities were
transferred to Iridium at the Parent's carrying value. Accordingly, unless
otherwise specified, references within these notes to Iridium that relate to any
action prior to the date of the Asset Drop-Down Transaction should be construed
as references to Parent, as predecessor of Iridium. The Parent's only
significant asset is its investment in Iridium.
The Iridium System is subject to regulation by the Federal Communications
Commission ("FCC"), and by foreign administrations and regulatory bodies. On
January 31, 1995, Motorola obtained a license from the FCC to construct, launch
and operate the Iridium System, subject to certain conditions.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of the Parent and subsidiaries as of March 31, 1999, and the results of
their operations and their cash flows for the three month periods ended March
31, 1998 and 1999, and the period from June 14, 1991 (inception) through March
31, 1999. These condensed consolidated financial statements are unaudited, and
do not include all related footnote disclosures. The results of operations for
the three months ended March 31, 1998 and 1999 are not necessarily indicative of
the results of operations expected in the future, although the Parent will
continue to be a development stage limited liability company until significant
revenues are generated. These financial statements should be read in conjunction
with the Parent's audited consolidated financial statements and footnotes
thereto included in the Annual Report on Form 10-K for 1998.
3. MEMBERS' EQUITY
The Parent declared approximately $1,447,000 and $1,668,000 of in-kind
dividends to holders of Series A Class 2 Membership Interests during the three
month periods ended March 31, 1998 and 1999, respectively.
On January 21, 1999, IWCL issued 7,500,000 shares of Class A Common Stock
in a public offering resulting
13
14
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
in net proceeds to IWCL of approximately $242,400,000. Pursuant to the Share
Issuance Agreement between IWCL and Iridium LLC, all of such proceeds were used
to purchase 7,500,000 Class 1 Interests in the Parent. Upon receipt, Parent
transferred the proceeds from the sale of Class 1 Interests to Iridium. Iridium
has used a portion of such proceeds to fund operations.
4. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 1998 and 1999, $79,447,000 and
$121,365,000, respectively, of interest costs were incurred. For the three
months ended March 31, 1999, all interest was expensed. Interest expensed for
the three months ended March 31, 1998 was $40,000,000 with the remaining
interest capitalized to the system under construction. Interest paid was
$75,408,000 and $102,881,000 during the three months ended March 31, 1998 and
1999, respectively.
5. EARNINGS PER CLASS 1 INTEREST
Basic earnings (loss) per Class 1 Interest is calculated by dividing net
income (loss), after considering required dividends on Class 2 Interests, by the
weighted average number of Class 1 Interests outstanding during the period.
Diluted earnings (loss) per Class 1 Interest is calculated by dividing net
income (loss), after considering required dividends on Class 2 Interests, by the
weighted average number of Class 1 Interests and, to the extent dilutive, other
potentially dilutive securities outstanding during the period. Potentially
dilutive securities are comprised of options, warrants, and convertible Class 2
Interests. Due to the losses incurred during the three months ended March 31,
1998 and 1999, the impact of other potentially dilutive securities is
anti-dilutive and is not included in the diluted earnings (loss) per Class 1
Interest calculation.
6. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income. In 1998 and 1999, the amounts
associated with the components of other comprehensive income relate to the
Parent's adjustment for minimum pension liability and are not material.
7. SATELLITE LOSS
In March 1999, Iridium disposed of a satellite due to mechanical
malfunction, resulting in a loss of approximately $39 million which is included
as a component of general operating expense in the condensed consolidated
statement of loss. The satellite was replaced, by Motorola, with an in-orbit
spare satellite as part of the Operating and Maintenance Contract between
Iridium and Motorola.
8. DEBT
Iridium's $800 million secured bank facility contains various covenants,
including covenants that require Iridium to satisfy certain minimum revenue and
subscriber levels as of March 31, 1999, June 30, 1999 and September 30, 1999.
These minimum subscriber and revenue covenants included the condition that, at
March 31, 1999, Iridium have cumulative cash revenues of at least $4 million,
cumulative accrued revenues of at least $30 million, at least 27,000 Iridium
World Satellite Service subscribers and at least 52,000 total subscribers. As a
result of various factors, Iridium's subscriber levels and revenues for its
initial commercial operations have been significantly below its prior estimates
and the required covenant levels. Accordingly, Iridium requested and received a
waiver of compliance with the March 31, 1999 revenue and subscriber conditions
from the lenders under the secured bank facility. This waiver is conditioned on
Iridium's compliance with the March 31, 1999 minimum revenue and subscriber
levels by May 31, 1999.
Iridium now expects, however, that it will not meet the March 31, 1999
minimum revenue and subscriber levels on May 31, 1999 as is required by the
waiver. Iridium is currently in negotiations with the lenders under the secured
bank facility regarding an amendment to the secured bank facility to modify the
revenue and subscriber covenants or, if an amendment cannot be agreed upon, to
obtain a waiver of such covenants. The lenders are under no obligation to
provide an amendment or
14
15
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
waiver and there can be no assurance that the lenders will agree to such an
amendment or waiver. Failure to agree to an amendment of the secured bank
facility, or to obtain an additional waiver thereunder, would result in default
and subject the entire amount outstanding under the secured bank facility to
acceleration by the lenders and the pursuit of other remedies, including
enforcing their security interests in substantially all of the assets of
Iridium. Any such action by the lenders would have a material adverse effect on
Iridium, IWCL and the Parent.
Because an amendment has not been agreed to and Iridium has not received
a waiver, the entire outstanding balance of approximately $800 million, along
with the entire outstanding balances on the guaranteed bank facility, senior
subordinated notes and notes payable, all of which have cross-default and/or
cross-acceleration provisions, are classified as current in the accompanying
condensed consolidated financial statements. Iridium had approximately $480
million outstanding under the guaranteed bank facilities, $337 million of senior
subordinated notes and $1.4 billion of notes payable outstanding as of March 31,
1999.
9. SUBSEQUENT EVENT
In April and May, 1999, various purported securities class action
lawsuits were filed against IWCL, Parent, Iridium, Motorola Inc., and several
former officers and directors of IWCL, Parent and Iridium, in the United States
District Court for the District of Columbia, alleging violations of the federal
securities laws during the period September 9, 1998 through March 29, 1999.
Management believes that the allegations in the legal proceedings
described above are without merit and intends to vigorously defend against the
allegations.
15
16
IRIDIUM OPERATING LLC
( A Wholly-Owned Subsidiary of Iridium LLC )
( A Development Stage Limited Liability Company )
CONDENSED CONSOLIDATED BALANCE SHEETS
( In Thousands )
MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
------------ -----------
ASSETS
Current assets :
Cash and cash equivalents.................................... $ 24,756 $ 195,443
Accounts receivable, net of allowance of $93 and $126........ 93 1,316
Due from affiliates.......................................... 17,031 10,699
Prepaid expenses and other current assets.................... 15,021 11,649
------------ -----------
Total current assets..................................... 56,901 219,107
Property and equipment, net...................................... 3,584,209 3,412,809
Other assets..................................................... 97,237 87,122
------------ -----------
Total assets............................................. $ 3,738,347 $ 3,719,038
============ ===========
LIABILITIES AND MEMBER'S EQUITY
Current liabilities :
Accounts payable and accrued expenses........................ $ 165,539 $ 113,105
Due to Parent's Member, current portion...................... 131,532 104,672
Bank facilities.............................................. - 1,280,000
Senior subordinated notes (net of discount).................. - 337,423
Notes payable (net of discount), $1,450,000 principal amount. - 1,406,766
------------ -----------
Total current liabilities................................ 297,071 3,241,966
Bank facilities.................................................. 1,125,000 -
Senior subordinated notes (net of discount)...................... 323,484 -
Notes payable (net of discount), $1,450,000 principal amount..... 1,405,735 -
Due to Parent's Member, net of current portion................... 86,240 225,421
Other liabilities................................................ 24,202 37,524
------------ -----------
Total liabilities........................................ 3,261,732 3,504,911
------------ -----------
Commitments and Contingencies
Member's equity :
Member's Interest............................................ 2,158,178 2,401,011
Deficit accumulated during the development stage............. (1,679,750) (2,185,071)
Adjustment for minimum pension liability..................... (1,813) (1,813)
------------ -----------
Total member's equity.................................... 476,615 214,127
------------ -----------
Total liabilities and member's equity.................... $ 3,738,347 $ 3,719,038
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
16
17
IRIDIUM OPERATING LLC
( A Wholly-Owned Subsidiary of Iridium LLC )
( A Development Stage Limited Liability Company )
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(In Thousands)
THREE MONTHS ENDED PERIOD FROM
MARCH 31, JUNE 14, 1991
----------------------------------------- (INCEPTION) THROUGH
1998 1999 MARCH 31, 1999
----------------- ----------------- -----------------
Revenues............................................... $ - $ 1,451 $ 1,637
Operating expenses:
Sales, general and administrative.................. 60,461 181,730 930,448
Depreciation and amortization...................... 107,791 205,901 879,242
----------------- ----------------- -----------------
Total operating expenses....................... 168,252 387,631 1,809,690
----------------- ----------------- -----------------
Operating loss......................................... 168,252 386,180 1,808,053
Other income and expenses:
Interest expense, net.............................. 35,264 119,141 369,047
----------------- ----------------- -----------------
Loss before provision for income taxes ................ 203,516 505,321 2,177,100
Provision for income taxes............................. - - 7,971
----------------- ----------------- -----------------
Net loss............................................... $ 203,516 $ 505,321 $ 2,185,071
================= ================= =================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
17
18
IRIDIUM OPERATING LLC
( A Wholly-Owned Subsidiary of Iridium LLC )
( A Development Stage Limited Liability Company )
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( In Thousands )
PERIOD FROM
THREE MONTHS ENDED MARCH 31, JUNE 14, 1991
---------------------------------- (INCEPTION) THROUGH
1998 1999 MARCH 31, 1999
--------------- -------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (203,516) $ (505,321) $ (2,185,071)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............................. 107,791 205,901 879,242
Interest converted to additional debt...................... - 13,939 157,905
Amortization of financing costs............................ - 8,657 8,657
Expense recognized for warrants issued in
connection with debt guarantee........................... 5,261 315 128,356
Loss on disposal of assets................................. - 39,270 39,357
Changes in assets and liabilities:
Increase in accounts receivable.......................... - (1,223) (1,316)
Decrease (Increase) in prepaid expenses and other current
assets................................................. (882) 3,372 (11,649)
Decrease (Increase) in due from affiliates............... 44 6,331 (10,700)
Decrease (Increase) in other assets...................... (10,958) 2,438 (16,652)
(Decrease) Increase in accounts payable and accrued
expenses............................................... (11,627) 111,633 184,403
Increase in other liabilities............................ 1,857 11,578 25,522
--------------- -------------- -----------------
Net cash used in operating activities.................. (112,030) (103,110) (801,946)
--------------- -------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (129,275) (123,649) (3,990,129)
--------------- -------------- -----------------
Net cash used in investing activities.................. (129,275) (123,649) (3,990,129)
--------------- -------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Parent's Class 1 and Class 2
Interests.................................................... 583 242,446 2,223,838
Net proceeds from issuance of senior notes and warrants........ - - 1,618,959
Borrowings under guaranteed bank line of credit................ 75,000 - 2,131,500
Payments under guaranteed bank line of credit.................. - (145,000) (1,651,500)
Borrowings under senior secured line of credit................. - 300,000 1,210,000
Payments under senior secured line of credit................... - - (410,000)
Decrease in restricted cash.................................... 350,220 - -
Deferred financing costs....................................... (830) - (135,279)
Transfer to Parent............................................. 2,552 - -
--------------- -------------- -----------------
Net cash provided by financing activities.............. 427,525 397,446 4,987,518
--------------- -------------- -----------------
Increase in cash and cash equivalents............................ 186,220 170,687 195,443
CASH AND CASH EQUIVALENTS, beginning of period................... 5,940 24,756 -
--------------- -------------- -----------------
CASH AND CASH EQUIVALENTS, end of period......................... $ 192,160 $ 195,443 $ 195,443
=============== ============== =================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
18
19
IRIDIUM OPERATING LLC
(A Wholly-Owned Subsidiary of Iridium LLC)
(A Development Stage Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Iridium Operating LLC ("Iridium"), a wholly-owned subsidiary of Iridium
LLC (the "Parent"), has completed its efforts to develop and deploy a global
wireless system (the "Iridium System") that enables subscribers to send and
receive telephone calls virtually anywhere in the world - all with one phone,
one phone number and one customer bill. Iridium commenced commercial satellite
phone service on November 1, 1998 and commercial satellite paging service on
November 15, 1998. Iridium is transitioning from a development stage limited
liability company to an operating limited liability company.
Iridium, Inc., the predecessor to the Parent, was incorporated on June
14, 1991. Iridium, Inc. operated as a wholly-owned subsidiary of Motorola, Inc.
("Motorola") until July 29, 1993. On July 29, 1993, Iridium, Inc. closed on, and
had its first capital draw under, a private placement of shares of Common Stock,
subscribed to by U. S. and foreign investors. On July 29, 1996, the Parent was
formed as a limited liability company, under the terms and conditions of the
limited liability agreement ("LLC Agreement"), pursuant to the provisions of the
Delaware limited liability company act. Also on July 29, 1996, Iridium, Inc. was
merged with and into the Parent, with the Parent as the surviving entity.
Concurrent with the merger, all shares of Common Stock of Iridium, Inc. were
exchanged for Class 1 Membership Interests in the Parent ("Class 1 Interests").
As a result of a series of private placements and the offerings of common stock
of Iridium World Communications Ltd. ("IWCL"), Motorola's direct and indirect
Class 1 Membership Interest in the Parent has been reduced to approximately 18%
as of March 31, 1999, before considering unexercised warrants held by Motorola.
On December 18, 1997, the Parent entered into an asset drop-down
transaction (the "Asset Drop-Down Transaction") with Iridium, a newly formed
wholly-owned subsidiary of the Parent. Pursuant to the Asset Drop-Down
Transaction, substantially all of the assets and liabilities of the Parent were
transferred to Iridium. All assets and liabilities were transferred to Iridium
at the Parent's carrying value. Accordingly, unless otherwise specified,
references within these notes to Iridium that relate to any action prior to the
date of the Asset Drop-Down Transaction should be construed as references to
Parent, as predecessor of Iridium. The Parent's only significant asset is
its investment in Iridium.
The Iridium System is subject to regulation by the Federal Communications
Commission ("FCC"), and by foreign administrations and regulatory bodies. On
January 31, 1995, Motorola obtained a license from the FCC to construct, launch
and operate the Iridium System, subject to certain conditions.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of Iridium and subsidiaries as of March 31, 1999, and the results of
their operations and their cash flows for the three month periods ended March
31, 1998 and 1999, and the period from June 14, 1991 (inception) through March
31, 1999. These condensed consolidated financial statements are unaudited, and
do not include all related footnote disclosures. The results of operations for
the three months ended March 31, 1998 and 1999 are not necessarily indicative of
the results of operations expected in the future, although Iridium will continue
to be a development stage limited liability company until substantial revenues
are generated. These financial statements should be read in conjunction with
Iridium's audited consolidated financial statements and footnotes thereto
included in the Annual Report on Form 10-K for 1998.
3. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 1998 and 1999, $79,447,000 and
$121,365,000, respectively, of interest costs were incurred. For the three
months ended March 31, 1999, all interest was expensed. Interest expensed for
the three months ended March 31, 1998 was $40,000,000 with the remaining
interest capitalized to the system under
19
20
IRIDIUM OPERATING LLC
(A Wholly-Owned Subsidiary of Iridium LLC)
(A Development Stage Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
construction. Interest paid was $75,408,000 and $102,881,000 during the three
months ended March 31, 1998 and 1999, respectively.
4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income. In 1998 and 1999, the amounts
associated with the components of other comprehensive income relate to Iridium's
adjustment for minimum pension liability and are not material.
5. SATELLITE LOSS
In March 1999, Iridium disposed of a satellite due to mechanical
malfunction, resulting in a loss of approximately $39 million which is included
as a component of general operating expense in the condensed consolidated
statement of loss. The satellite was replaced, by Motorola, with an in-orbit
spare satellite as part of the Operating and Maintenance Contract between
Iridium and Motorola.
6. DEBT
Iridium's $800 million secured bank facility contains various covenants,
including covenants that require Iridium to satisfy certain minimum revenue and
subscriber levels as of March 31, 1999, June 30, 1999 and September 30, 1999.
These minimum subscriber and revenue covenants included the condition that, at
March 31, 1999, Iridium have cumulative cash revenues of at least $4 million,
cumulative accrued revenues of at least $30 million, at least 27,000 Iridium
World Satellite Service subscribers and at least 52,000 total subscribers. As a
result of various factors, Iridium's subscriber levels and revenues for its
initial commercial operations have been significantly below its prior estimates
and the required covenant levels. Accordingly, Iridium requested and received a
waiver of compliance with the March 31, 1999 revenue and subscriber conditions
from the lenders under the secured bank facility. This waiver is conditioned on
Iridium's compliance with the March 31, 1999 minimum revenue and subscriber
levels by May 31, 1999.
Iridium now expects, however, that it will not meet the March 31, 1999
minimum revenue and subscriber levels on May 31, 1999 as is required by the
waiver. Iridium is currently in negotiations with the lenders under the secured
bank facility regarding an amendment to the secured bank facility to modify the
revenue and subscriber covenants or, if an amendment cannot be agreed upon, to
obtain a waiver of such covenants. The lenders are under no obligation to
provide an amendment or waiver and there can be no assurance that the lenders
will agree to such an amendment or waiver. Failure to agree to an amendment of
the secured bank facility, or to obtain an additional waiver thereunder, would
result in default and subject the entire amount outstanding under the secured
bank facility to acceleration by the lenders and the pursuit of other remedies,
including enforcing their security interests in substantially all of the assets
of Iridium. Any such action by the lenders would have a material adverse effect
on Iridium, IWCL and Iridium LLC.
Because an amendment has not been agreed to and Iridium has not
received a waiver, the entire outstanding balance of approximately $800
million, along with the entire outstanding balances on the guaranteed bank
facility, senior subordinated notes and notes payable, all of which have
cross-default and/or cross-acceleration provisions, are classified as current
in the accompanying condensed consolidated financial statements. Iridium had
approximately $480 million outstanding under the guaranteed bank facilities,
$337 million of senior subordinated notes and $1.4 billion of notes payable
outstanding as of March 31, 1999.
20
21
IRIDIUM OPERATING LLC
(A Wholly-Owned Subsidiary of Iridium LLC)
(A Development Stage Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. IRIDIUM SUBSIDIARIES
The Series A Senior Notes, Series B Senior Notes, Series C Senior Notes
and Series D Senior Notes (collectively the "Senior Notes"), which approximate
$1.45 billion of aggregate principal, are co-issued by Iridium and Iridium
Capital Corporation ("Capital") and are fully and unconditionally guaranteed,
jointly and severally, on a senior unsecured basis by Iridium Roaming LLC,
Iridium IP LLC, Iridium Facilities Corporation and Iridium (Potomac) LLC
(collectively, the "Guarantor Subsidiaries" and together with Capital, the
"Iridium Subsidiaries"). Each of the Iridium Subsidiaries is a wholly-owned
subsidiary of Iridium. Iridium Canada Facilities Inc., a wholly-owned foreign
subsidiary of Iridium, has not guaranteed the Senior Notes, and had operations
since inception that were inconsequential to the business of Iridium. Capital
was formed and capitalized by the Parent on June 16, 1997 (subscribed capital of
$100). Iridium Roaming LLC was formed by the Parent on June 15, 1997. Iridium IP
LLC was formed by the Parent on February 28, 1997. In connection with the Asset
Drop-Down Transaction, Parent's interest in Capital, Iridium Roaming LLC and
Iridium IP LLC was transferred to Iridium. Iridium Facilities Corporation was
formed by Iridium on February 6, 1998. Iridium Canada Facilities Inc. was formed
by Iridium on March 19, 1998. Iridium (Potomac) LLC was formed by Iridium on
February 17, 1999.
The following is summarized financial information of Capital as of March
31, 1999 and for the period from inception through March 31, 1999. Full
financial statements of Capital are not presented because management believes
they are not material to investors.
MARCH 31, 1999
--------------
(THOUSANDS)
Current assets........ $ 0
Total assets.......... 0
Current liabilities... 0
Total liabilities..... 0
- ------------
FOR THE PERIOD FROM
INCEPTION THROUGH
MARCH 31, 1999
-------------------
Net revenues.......... $ 0
Operating expenses.... 0
Net loss.............. 0
Iridium has recognized the obligations relating to the Senior Notes
because Capital has no operations to service such obligations.
The following is summarized financial information of the Guarantor
Subsidiaries as of March 31, 1999 and for the period from inception of each of
the Guarantor Subsidiaries through March 31, 1999. Full financial statements of
the Guarantor Subsidiaries are not presented because management believes they
are not material to investors.
MARCH 31, 1999
--------------
Current assets............ $ 0
Total assets.............. 0
Current liabilities....... 0
Total liabilities......... 0
FOR THE PERIOD FROM
INCEPTION THROUGH
MARCH 31, 1999
-------------------
Net revenues.............. $ 0
Operating expenses........ 0
21
22
IRIDIUM OPERATING LLC
(A Wholly-Owned Subsidiary of Iridium LLC)
(A Development Stage Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Net loss.................. 0
8. SUBSEQUENT EVENT
In April and May, 1999, various purported securities class action
lawsuits were filed against IWCL, Parent, Iridium, Motorola Inc., and several
former officers and directors of IWCL, Parent and Iridium, in the United States
District Court for the District of Columbia, alleging violations of the federal
securities laws during the period September 9, 1998 through March 29, 1999.
Management believes that the allegations in the legal proceedings
described above are without merit and intends to vigorously defend against the
allegations.
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
This quarterly report is filed jointly by Iridium World Communications
Ltd., or "IWCL", Iridium LLC, or "Parent", Iridium Operating LLC, or "Iridium",
Iridium Capital Corporation, or "Capital", Iridium Roaming LLC, or "Roaming",
Iridium IP LLC, or "IP", and Iridium Facilities Corporation, or "Facilities".
Unless otherwise indicated, the information contained in this report is
presented as of May 13, 1999.
IWCL is a member of Parent and has no other business. IWCL has no
operations other than those related to its interests in Parent. IWCL's sole
assets are its membership interests in Parent and its warrants to acquire
membership interests in Parent and, accordingly, IWCL's results of operations
reflect its proportionate share of the results of operations of Parent on an
equity accounting basis. As of March 31, 1998, IWCL owned approximately 13.3%
of the total outstanding Class 1 Interests in Parent. The business of Iridium
constitutes substantially all of the business of Parent.
Accordingly, the management's discussion and analysis section of this
report focuses on the financial condition and results of operations of Iridium.
RECENT DEVELOPMENTS - IRIDIUM IS EXPERIENCING SUBSTANTIAL DIFFICULTIES
TRANSITIONING FROM A DEVELOPMENT STAGE COMPANY TO AN OPERATING COMPANY
In the fourth quarter of 1998, Iridium began the transition from a
development stage company into an operating company. Iridium has experienced
significant difficulties in making this transition, including that its
subscriber ramp-up and revenue generation have been substantially below its
expectations. Iridium believes the factors that have negatively affected its
results include initial difficulties in the distribution of phones and pagers
and an inability of Iridium and its gateways to effectively market and
distribute Iridium World Services. In addition, Iridium believes that it will be
necessary to revise its business plan to increase subscriber demand and
revenue generation. Initiatives Iridium is considering include changing its
pricing structure and restructuring its indebtedness.
As a result of its substantially lower than anticipated subscriber
ramp-up and revenue generation, Iridium is facing additional financial and
operational risks and challenges, including (i) the risk of default under its
secured bank facility on May 31, 1999 and related cross-defaults under its
guaranteed bank facilities, senior notes and senior subordinated notes, (ii)
the need to raise substantial additional funding and (iii) the need to revise
its business plan to (a) increase subscriber ramp-up and revenues from
operations and, simultaneously, (b) decrease its relatively high current fixed
costs, including interest and operating expenses. These risks and challenges
are described in greater detail below. For additional information regarding
the challenges and risks Iridium faces, see Exhibit 99 to this report.
Secured Bank Facility and Guaranteed Bank Facilities. On December 23,
1998, Iridium closed on three new bank credit facilities providing for an
aggregate amount of up to approximately $1.55 billion of borrowings -- the $800
million secured bank facility due December 29, 2000 and the $750 million
(collectively) Motorola guaranteed bank facilities (which includes a $475
million term credit facility due December 29, 2000 and a $275 million revolving
credit facility due December 31, 2001). The secured bank facility is secured
by, among other things, substantially all of Iridium's assets. Borrowings under
the Motorola guaranteed bank facilities are guaranteed by Motorola. Pursuant to
the Motorola MOU and the Motorola ARG (two agreements among Motorola, Parent
and Iridium regarding Motorola's credit support of Iridium and the compensation
due from Iridium and Parent for such support which are described in greater
detail in the registrants' annual report on Form 10-K for 1998), Iridium is
required to compensate Motorola with equity and cash for, among other things,
providing guarantees of Iridium's borrowings under the Motorola guaranteed bank
facilities.
23
24
Iridium Expects that it Will Not Satisfy the Secured Bank Facility Revenue and
Subscriber Covenants. Iridium's secured bank facility contains various
covenants, including covenants that require Iridium to satisfy certain minimum
revenue and subscriber levels as of March 31, 1999, June 30, 1999 and September
30, 1999. These minimum subscriber and revenue covenants include the condition
that, at March 31, 1999, Iridium have cumulative cash revenues of at least $4
million, cumulative accrued revenues of at least $30 million, at least 27,000
Iridium World Satellite Service subscribers and at least 52,000 total
subscribers. As a result of various factors, Iridium's subscriber levels and
revenues have been significantly below its prior estimates. Accordingly,
Iridium requested and received a waiver of compliance with the March 31, 1999
revenue and subscriber conditions from the lenders under the secured bank
facility. This waiver is conditioned on Iridium's compliance with the March 31,
1999 minimum revenue and subscriber levels by May 31, 1999, and does not affect
or constitute a waiver of any other term of the secured bank facility,
including the minimum revenue and subscriber conditions at June 30, 1999 and
September 30, 1999
As of March 31, 1999, Iridium had $195,000 of cumulative cash
revenues, $1.637 million of cumulative accrued revenues, 7,188 Iridium World
Satellite Service subscribers and 10,294 total subscribers. Iridium now expects
that it will not satisfy the secured bank facility's May 31, 1999 (extended from
March 31, 1999) minimum subscriber and revenue covenants and also expects that
it will not be able to satisfy the June 30, 1999 and September 30, 1999
covenants. Iridium has engaged the lenders under the secured bank facility in
negotiations regarding a waiver of, or amendment to, these covenants. The
lenders are under no obligation to provide such a waiver or amendment and
Iridium can provide no assurance that a waiver or amendment will be received.
If a waiver or amendment is not received, a default would occur and the lenders
under the secured bank facility would have the right to, among other remedies,
accelerate the payment of the $800 million principal amount of the facility
(and all other amounts due thereunder) and enforce their security interests in
substantially all of the assets of Iridium, including the Iridium System. A
default under the secured bank facility likely would have a material adverse
effect on Iridium and on Parent and IWCL. In addition, if an amendment or waiver
is received, in consideration for agreeing to such an amendment or waiver, the
lenders under the secured bank facility likely would require Iridium to agree
to additional covenants and provide additional compensation.
Cross Default and Cross Acceleration of Indebtedness. In addition, if
there is a default under the secured bank facility or the lenders under the
secured bank facility accelerate Iridium's obligations or pursue certain other
remedies, then as a result of cross-default (guaranteed bank facilities) and/or
cross-acceleration (senior notes and senior subordinated notes) provisions, the
outstanding indebtedness under Iridium's guaranteed bank facilities, senior
notes and senior subordinated notes could be accelerated by the holders
thereof. As of March 31, 1999, Iridium had approximately $480 million
outstanding under the guaranteed bank facilities, approximately $1.45 billion
of senior notes outstanding and approximately $337 million of senior
subordinated notes outstanding.
Substantial Subscriber Ramp-up and Revenue Generation Problems.
Iridium believes that its slower than expected subscriber ramp-up and revenue
generation have been initially the result of problems with the initial
distribution of subscriber equipment, a shortage of fully-trained service
providers and sales personnel and a lack of effective marketing and
distribution of Iridium World Services by Iridium, its gateways and its service
providers. During the initial roll-out of Iridium World Services, (i) Kyocera
experienced significant difficulties in achieving Iridium's quality control
standards and was unable to ship significant quantities of phones until early
March of 1999, (ii) there were substantial difficulties in distributing phones
and pagers to various markets around the world, (iii) although Motorola's
satellite phones and pagers were available, the production of cellular
cassettes for its dual mode satellite/cellular phones and some other
accessories was delayed, and (iv) Iridium and its gateway operators had
difficulty identifying and training service providers and their sales staffs.
Iridium believes that, as a result of various factors, significant
portions of its target markets have developed negative impressions about the
quality and pricing of Iridium World Services. Iridium is in the process of
developing and implementing various initiatives to appropriately address this
problem. For example, Iridium has found that its initial service pricing was
too complex and has undertaken a process of simplifying these prices as part
of the revisions to its business plan.
Revision of Business Plan -- Revenue Generation and Cost Structure.
While Iridium believes that the initial problems with the availability of
satellite phones and pagers largely have been addressed, Iridium believes that
its strategy for marketing and distribution of Iridium World Services,
including its method for implementing its business strategy with its gateways
and service providers, needs to be revised. Accordingly, Iridium and its
gateways are in the process of revising Iridium's business plan to increase
subscriber ramp-up and revenue generation. The initiatives Iridium and its
gateways are developing likely will take time to finalize and implement.
Iridium also is in the process of revising its revenue and subscriber estimates
in light of its initial marketing and distribution difficulties and its
expected revisions to its business plan. Iridium expects this revision will
result in significantly lower estimates of revenues from operations and
accordingly, will adversely affect its prior expectation about its financial
condition, including (i) its ability to meet the minimum revenue and subscriber
covenants and other terms of the secured bank facility, (ii) its future sources
of funds from revenues from operations and (iii) its financing needs.
Iridium expects that it estimates regarding future funds from
operations will be significantly below its prior estimates and expects that it
will require substantial additional funding.
Efforts to Reduce Fixed Costs. Simultaneously with its efforts to
increase revenues, Iridium is the process of exploring various alternatives for
reducing its high current fixed costs, including substantial interest and
operating expenses. These alternatives include debt restructuring and operating
cost reductions.
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Retention of Donaldson, Lufkin and Jenrette. On May 13, 1999, Iridium
retained Donaldson, Lufkin and Jenrette, ("DLJ"), to assist it in evaluating
and reviewing alternatives to restructure its indebtedness and reduce financing
costs.
Claircom Acquisition. On December 22, 1998, Parent and Iridium Aero
Acquisition Sub, Inc., or "Aero", a Delaware corporation and a wholly-owned
subsidiary of Parent, entered into a stock purchase agreement pursuant to which
Aero agreed to acquire all of the outstanding capital stock of Claircom
Communications Group, Inc., a Delaware corporation and a provider of in-flight
phone service for commercial and executive aircraft, from ATGI, Inc., a
Delaware corporation and a wholly-owned subsidiary of AT&T Wireless Services,
Inc., and Rogers Cantel Inc. Aero agreed to acquire the Claircom shares for an
estimated aggregate price of approximately $65 million, consisting of
approximately $25.6 million in cash to be paid at closing and approximately
$39.4 million of notes of Claircom which will be guaranteed by Parent and
issued to the sellers of the Claircom shares immediately prior to closing. The
aggregate purchase price is subject to certain adjustments, including working
capital adjustments and adjustments for capital expenditures made for the
benefit of Claircom prior to the closing. The Claircom notes are to have a term
of nine years and pay interest at a rate of 8% per annum, but not require any
payments for the first two years following their issuance -- interest accrued
during the first two-year period is to be added to the principal amount of the
notes. These Claircom notes also are to contain certain restrictive covenants,
including restrictions on dividends, and are to be secured by substantially all
of the assets of Claircom and a pledge of the Claircom shares by Aero.
It is uncertain whether this acquisition will be consummated. Parent
and Aero currently do not have sufficient cash available to satisfy the $26.5
million cash payment required at closing and their ability to raise cash to
fund such payment is substantially constrained by Iridium's current financial
difficulties. While Iridium has sufficient funds to conclude this transaction,
the payment by Iridium would require approval of the lenders under the secured
bank facility. Iridium is currently evaluating whether the acquisition is in
the best interests of Iridium and Parent in light of its current financial
difficulties.
LIQUIDITY AND CAPITAL RESOURCES
Iridium's Expectations About Its Future Operations and Funding
Requirements Are Forward Looking. The statements in this report regarding
Iridium's future funding requirements and funding sources for 1999 and
thereafter are estimates and are forward looking. Actual results are likely to
differ, and may differ materially, from the information expressed or implied in
such statements. These estimates are based on a number of assumptions,
including Iridium's expectations about its ability to generate revenues from
operations and to obtain additional financing, and should be viewed in light of
the following facts: (i) Iridium expects that it will fail to meet the May 31,
1999 minimum subscriber and revenue covenants under its secured bank facility
(these conditions were extended from March 31, 1999 by waiver) and such a
failure (in the absence of an applicable amendment or waiver) generally would
give the lenders under the facility the right to pursue various remedies,
including enforcing their security interests in substantially all of the
assets of Iridium and could result in the acceleration of Iridium's other
approximately $2.27 billion in indebtedness; (ii) Iridium has only a six month
history of operations and no meaningful revenues and there is no operational
service that provides a direct comparison to Iridium's services; (iii) Iridium
expects to need substantial additional external funding and the availability of
additional sources of funding is constrained by many factors, including factors
beyond Iridium's control; and (iv) Iridium faces many challenges and risks.
There are many factors that could cause these forward looking statements to be
inaccurate. See "Recent Developments -- Iridium is Experiencing Substantial
Difficulties in Transitioning from a Development Stage Company to an Operating
Company" and Exhibit 99 to this report for further discussion of some of the
factors which could result in Iridium's forward looking statements proving to
be incorrect.
Transition to an Operating Company -- Shift in Operations. Prior to
the fourth quarter of 1998, Iridium devoted substantially all of its operations
efforts to the design, construction and development of the Iridium System and
to preparation for the commercial operation of the Iridium System. Iridium
expects that its efforts for 1999 and the two to three years thereafter will
focus on the operation of the Iridium System, the provision of global wireless
telecommunications services and the attraction and retention of customers.
Transition to an Operating Company -- Shift in Factors Affecting
Financial Condition. Prior to year-end 1998, Iridium's funding requirements
principally were driven by the cost of the construction and deployment of the
Iridium System and interest expense (in 1997 and 1998). During this development
stage period, Iridium had no meaningful revenue and, accordingly, relied on
outside funding. Iridium expects that its operational funding requirements for
1999 and the two to three years thereafter principally will be driven by the
costs of operating and maintaining the satellite constellation, the costs of
providing Iridium services and interest expense. In addition, the principal
considerations of Iridium's management in evaluating Iridium's financial
condition have shifted from obtaining financing on favorable terms for the
construction of the Iridium System and the roll-out of commercial service to
generating revenues, obtaining additional funding in amounts sufficient to
satisfy its funding requirements, and reducing expenses in light of
substantially lower than expected subscriber ramp-up and revenue generation.
Currently, Iridium is not generating sufficient funds from operations
to satisfy its operational cash needs and, accordingly, is continuing to rely
on outside funding. Iridium expects that its funding requirements will
substantially exceed its revenues for 1999 and a significant period thereafter
and substantial external funding will be required.
Funding Requirements
Estimated Funding Requirements for 1999. For the first quarter of 1999
Iridium had incurred approximately $361 million (including payments due to
vendors that were deferred as described below). Iridium expects that its
aggregate funding requirements for 1999 and for the final three quarters of
1999 will be approximately $1.54 billion and 1.18 billion, respectively
(including payments due to vendors that have been or are expected to be
deferred). This estimate includes Iridium's estimate of its operating costs for
(i) Iridium System operation, (ii) the acquisition of Claircom and (iii)
working capital, interest and other financing costs. This estimate may be
revised as a result of Iridium's revision of its business plan. Iridium is
evaluating all components of its cost structure in an effort to significantly
reduce costs.
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Iridium System Construction and Operation. With respect to the
development and construction of the Iridium System, Iridium and Motorola are
parties to (i) the space system contract for the design, development,
production and delivery in orbit of the space segment, (ii) the terrestrial
network development contract to design the gateway hardware and software, and
(iii) the operations and maintenance, or "O&M", contract to provide day-to-day
management of the space segment after deployment and to monitor, upgrade and
replace hardware and software of the space segment as necessary to maintain
performance specifications. Substantially all of the initial capital raised by
Iridium was used to make payments to Motorola under the space system contract
and the terrestrial network development contract. The O&M contract represents
a significant funding requirement of Iridium.
As of March 31, 1999, Iridium had incurred all of the approximately
$3.44 billion aggregate estimated cost of the space system contract. On March
8, 1999, Iridium paid $50 million under the space system contract and the
remaining $6 million is expected to be paid in the second quarter 1999. As of
March 31, 1999, Iridium had incurred approximately $303 million of the $323
million aggregate estimated cost of the terrestrial network development
contract. Under an amendment to the terrestrial network development contract,
Motorola has agreed to permit Iridium to defer its obligations to make the
remaining payments due to Motorola. As of March 31, 1999, Iridium had deferred
payment of approximately $77 million of its obligation under the terrestrial
network development contract and expects to defer an additional $19 million by
year end 1999.
Iridium expects payments under the O&M contract to be one of its most
significant funding requirements during commercial operation of the Iridium
System. The O&M contract has a five-year term (ending in November, 2003) and is
extendable, at Iridium's option, for an additional two years. Payments under
the O&M contract are currently payable monthly and are expected to aggregate
approximately $2.89 billion over the initial five-year term of the contract. If
Iridium exercises its option to extend the O&M contract for an additional two
years, the payments due for that two-year extension are expected to aggregate
approximately $1.34 billion. In addition, Iridium is obligated to pay for
certain spare satellites, if any, upon the completion of the contract. The
monthly payments under the O&M contract increase each year, ranging from
payments of $44.8 million in 1999 to $52.6 million in 2003 and $57.3 million in
2005 (if extended). Under the Motorola MOU, Motorola has agreed to permit
Iridium to defer its obligations to pay up to an aggregate of $400 million of
payments due to Motorola under the O&M contract until December 29, 2000. As of
March 31, 1999, Iridium had deferred payment of approximately $220.6 million of
its obligations under the O&M contract and expects to defer an aggregate of
$400 million of such obligations prior to September 1, 1999.
Working Capital, Financing Costs and Software Development. Iridium has
required, and will continue to require, funds for working capital, business
software development, interest on borrowings, financing costs and operating
expenses. Iridium estimates that these costs aggregated approximately $1.27
billion from July 29, 1993, the inception date of Iridium's predecessor, through
March 31, 1999, with approximately $177 million incurred in the first quarter of
1999. Iridium estimates that its costs in calendar year 1999 for these items
will aggregate approximately $830 million.
Claircom Acquisition. The acquisition of Claircom has an estimated
aggregate purchase price of approximately $65 million, consisting of
approximately $25.6 million in cash to be paid at closing and approximately
$39.4 million of notes of Claircom which will be guaranteed by Parent and issued
to the sellers of the Claircom shares immediately prior to closing. It is
uncertain whether this acquisition will be consummated. Iridium is currently
evaluating whether the Claircom acquisition is in the best interests of Iridium
in light of its current financial difficulties.
Estimated Funding Requirements Following 1999. Iridium estimates that
its funding requirements for the two to three year period following 1999 will be
driven by recurring costs similar to those expected in 1999. However, Iridium
currently does not have any arrangement with Motorola to defer costs scheduled
to be incurred after July 1999 under the O&M contract. Motorola is under no
obligation to agree to any additional deferral.
Sources of Funding
Overview. Based on its preliminary view of the revisions that will be
made to its business plan, Iridium expects that its aggregate of approximately
$1.08 billion of additional, available sources of funding outlined below will
not be sufficient to satisfy its expected funding requirements and Iridium
expects that its funding requirements will exceed its available sources by a
significant amount. In addition, the availability of several of the sources of
funding outlined below is contingent upon conditions beyond Iridium's control
and may not be available under certain circumstances. There can be no
assurance that Iridium will have access to sufficient funding to satisfy its
funding requirements.
Estimated Sources of Funds for 1999. As of March 31, 1999, Iridium
estimates that it will have available for the remainder of 1999 aggregate
sources of external funding of approximately $1.08 billion from the secured bank
facility, the guaranteed bank facilities, vendor financing, and additional
Motorola guaranteed borrowings. Iridium expects that its costs (including
approximately $276 million expected to be deferred) for the remainder of 1999
will be approximately $1.18 billion. To the extent that Iridium's revenues do
not exceed the actual difference between its costs and available sources for the
remainder of 1999 (an estimated difference of approximately $100 million) and to
the extent that its anticipated sources of funding are unavailable, Iridium will
need to seek additional financing.
Sources of Funding Beyond 1999. Iridium expects that its currently
available funding will be exhausted in the fourth quarter of 1999. Iridium is
in the process of revising its revenue and subscriber estimates in light of its
initial marketing and distribution difficulties and
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expects that these estimates, when finalized, will be significantly below its
prior estimates and will result in a substantial expected funding gap (the
difference between estimated funding requirements and estimated revenues)
through at least 2000. Iridium will need to close this expected funding gap
through a combination of obtaining additional outside funding and reducing its
cost structure. A failure to effectively close this expected funding gap likely
would have a material adverse effect on Iridium.
In addition, Iridium expects that, in order to (i) receive an
amendment to, or waiver of, the minimum subscriber and revenue covenants in the
secured bank facility, (ii) restructure its indebtedness or (iii) obtain
additional outside funding, it will have to demonstrate a credible plan for
closing this expected funding gap.
Secured Bank Facility. As of March 31, 1999, Iridium had drawn the
entire amount available under the $800 million secured bank facility. Borrowings
under the secured bank facility mature on December 29, 2000. Iridium's
obligations under the secured bank facility are secured by security interests in
substantially all of Iridium's assets, Parent's equity interest in Iridium and
the reserve capital call (the commitment of 17 of Parent's strategic investors
to purchase up to 18,206,550 class 1 interests at a price of $13.33 per class 1
interest, representing an aggregate purchase price of up to approximately $243
million).
The secured bank facility contains various covenants. One group of
covenants requires Iridium to satisfy certain minimum revenue and subscriber
levels, including the conditions that (i) at March 31, 1999, it have cumulative
cash revenues of at least $4 million, cumulative accrued revenues of at least
$30 million, at least 27,000 Iridium World Satellite Service subscribers and at
least 52,000 total subscribers, (ii) at June 30, 1999, it have cumulative cash
revenues of at least $50 million, cumulative accrued revenues of at least $150
million, at least 88,000 Iridium World Satellite Service subscribers and at
least 213,000 total subscribers and (iii) at September 30, 1999, it have
cumulative cash revenues of at least $220 million, cumulative accrued revenues
of at least $470 million, at least 173,000 Iridium World Satellite Service
subscribers and at least 454,000 total subscribers. As a result of various
factors, Iridium's subscriber levels and revenues for its initial commercial
operations have been significantly below its prior estimates. Accordingly,
Iridium requested and received a waiver of compliance with the March 31, 1999
revenue and subscriber conditions from the lenders under the secured bank
facility. This waiver is conditioned on Iridium's compliance with the March 31,
1999 minimum revenue and subscriber levels by May 31, 1999.
As described above under "Recent Developments - Iridium is
Experiencing Substantial Difficulties Transitioning from a Development Stage
Company to an Operating Company - Iridium Expects that it Will Not Satisfy the
Secured Bank Facility Revenue and Subscriber Covenants", Iridium expects that
it will not satisfy the May 31, 1999 (extended from March 31, 1999) minimum
subscriber and revenue covenants. Iridium has engaged the lenders under the
secured bank facility in negotiations regarding a waiver of, or amendment to
these covenants. The lenders are under no obligation to provide such waiver or
amendment and Iridium can provide no assurance that a waiver or amendment will
be received. A failure to receive a waiver or amendment likely would have a
material adverse effect on Iridium. See "Recent Developments - Iridium is
Experiencing Substantial Difficulties Transitioning from a Development Stage
Company to an Operating Company".
Guaranteed Bank Facilities. The guaranteed bank facilities consist of
a $475 million term credit facility that matures on December 29, 2000 and a $275
million revolving credit facility that matures on December 31, 2001, each with a
different, but partially overlapping, syndicate of lenders. As of March 31,
1999, Iridium had drawn an aggregate of approximately $480 million under these
facilities (approximately $470 million under the term facility and approximately
$10 million under the revolving facility). Pursuant to the terms of the
guaranteed bank facilities, Iridium cannot have access to more than an aggregate
of approximately $745 million of borrowings in order to ensure that the Motorola
$750 million guarantee covers additional obligations of Iridium to the lenders
under these facilities. The guaranteed bank facilities do not have covenants
that directly address minimum revenues or subscriber levels, however, they do
have a cross default provision that would be triggered by a default under the
secured bank facility. Borrowings under the guaranteed bank facilities are
guaranteed by Motorola. Pursuant to the Motorola MOU and the Motorola ARG (each
described below), Parent and Iridium are required to compensate Motorola with
equity and cash interest for, among other things, guaranteeing borrowings under
the guaranteed bank facilities.
Motorola Vendor Financing and O&M Bank Facility Guarantee. Under the
Motorola MOU, described below, Motorola has agreed to permit Iridium to defer
its obligations to pay up to an aggregate of $400 million of payments due to
Motorola under the O&M contract until December 29, 2000. As of March 31, 1999,
Iridium had deferred approximately $220.6 million of its obligations under the
O&M contract and expects to defer an aggregate of $400 million of such
obligations prior to September 1, 1999.
Iridium has agreed under a memorandum of understanding with Motorola
and Parent, or "MOU", that it will use its best efforts to obtain a bank
facility to refinance the payment of all such deferrals prior to October 1,
1999. Motorola has conditionally committed under the Motorola MOU to guarantee
up to $400 million of borrowings under such Motorola guaranteed O&M bank
facility. Iridium intends to finance the payment of $400 million of deferred
amounts with the Motorola guaranteed O&M bank facility prior to October 1, 1999.
However, many factors, including changes in the bank lending market and
Iridium's ability to
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generate revenues from commercial operations could adversely affect Iridium's
ability to obtain the Motorola guaranteed O&M bank facility. In addition,
Motorola's commitment to guarantee the Motorola guaranteed O&M bank facility is
subject to certain conditions. Accordingly, there can be no assurance that
Iridium will be able to obtain the Motorola guaranteed O&M bank facility or
otherwise refinance its deferred obligations to Motorola under the O&M
contract. Iridium is required to compensate Motorola pursuant to the Motorola
ARG for Iridium's deferral of payments under the O&M contract and for
Motorola's guarantee of the Motorola guaranteed O&M bank facility with cash and
equity compensation, including warrants to purchase class 1 interests and
warrants to purchase class A common stock.
Motorola MOU; Conditional Commitment of Motorola to Guarantee
Additional Borrowings. In connection with the establishment of the secured
bank facility and the guaranteed bank facilities, Motorola, Parent and Iridium
entered into the Motorola MOU, which amended and restated a previous memorandum
of understanding. Under the Motorola MOU, Motorola has agreed to, among other
things, (i) guarantee up to $750 million of obligations under the guaranteed
bank facilities, (ii) consent to and agree to an amendment to the guaranteed
bank facilities and the related guarantee agreement (or to enter into a new
bank credit facility and guarantee agreement on the same terms (other than
pricing)) that together provide for a $350 million increase in the Motorola
guaranteed borrowings available thereunder, (iii) permit Iridium to defer its
obligations to pay up to an aggregate of $400 million of payments under the O&M
contract until December 29, 2000, (iv) guarantee up to $400 million of
additional borrowings under a bank credit facility with terms (other than
pricing) identical in all material respects to the guaranteed credit facilities
on the condition that such additional guaranteed borrowings be used exclusively
to make payments to Motorola for deferred obligations under the O&M contract
(as described in (iii) above), (v) subordinate certain of its claims vis-a-vis
Iridium to the lenders under the secured bank facility and (vi) consent to an
amendment to the $275 million revolving credit facility component of the
guaranteed bank facilities that would extend the maturity of such facility to
beyond the maturity of the senior notes (which are due July 15, 2005). Iridium
has agreed under the Motorola MOU that it will compensate Motorola for
providing guarantees, deferral rights and other credit support (collectively,
the "Motorola exposure", which generally includes the aggregate amount
guaranteed, or permitted to be deferred, by Motorola) pursuant to the Motorola
ARG, described below. In addition, while Motorola has agreed to consent to (i)
a $350 million increase in the amount of guaranteed borrowings available under
the guaranteed bank facilities (or a new credit facility with terms (other than
pricing) identical in all material respects) and (ii) an extension of the
maturity of the $275 million revolving credit facility component of the
guaranteed bank facilities, there can be no assurance that the lenders under
the guaranteed credit facilities would agree to such amendments or that such a
new credit facility would be available.
Motorola's obligation to defer receipt of up to $400 million in
payment under the O&M contract is unconditional. All of Motorola's other
obligations under the Motorola MOU, including, without limitation, its
obligation to consent to and agree to an amendment to the guaranteed bank
facilities and the related guarantee agreement (or to enter into a new bank
credit facility and guarantee agreement on the same material terms (other than
principal)) that together provide for a $350 million increase in the Motorola
guaranteed borrowings available thereunder, are conditioned on Iridium
complying with the terms of the Motorola MOU, Motorola ARG, the O&M contract
and other agreements with Motorola, including Iridium's payment obligations
under each such agreement. For further discussion of the terms of the Motorola
MOU, see the registrants' report on Form 10-K for 1998.
Motorola ARG. In connection with the establishment of the secured
bank facility and the guaranteed bank facilities, Motorola, Parent and Iridium
also entered into the Motorola agreement regarding guarantee, or "ARG", which
amended and restated a previous agreement. Payments under the Motorola ARG are
based on the amount and duration of Motorola exposure and are due and payable
quarterly.
From the date of the original Motorola ARG through March 31, 1999, for
providing guarantees of Iridium's bank credit facilities and other credit
support, Motorola had earned warrants to purchase an aggregate of (i) 7,741,346
class 1 interests at a price of $.00013 per interest and an aggregate of (ii)
90,722 class 1 interests at a price of $20.90 per interest. The amount of
equity compensation Motorola will earn in the future, under the Motorola ARG,
depends upon the amount of future Motorola exposure, is expected to be
substantial and could increase significantly for a variety of reasons,
including if Iridium is unable to reduce the Motorola exposure to $275 million
or less prior to October 1, 1999. While Iridium has agreed with Motorola that
it will use its best efforts to reduce the Motorola exposure to $275 million or
less as soon as possible, Iridium's ability to repay or replace borrowings
guaranteed by Motorola or pay or finance (without a Motorola guarantee)
deferrals of amounts due to Motorola depends on a variety of factors, including
Iridium's ability to generate revenues and factors beyond Iridium's control
such as the condition of the bank lending and securities markets.
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OPERATIONS
Iridium commenced commercial satellite phone service on November 1,
1998 and commercial satellite paging service on November 15, 1998. Prior to
November 1, 1998, Iridium's only source of income was interest income on the
cash and investment balances from the proceeds of equity and debt commitments in
Iridium, which interest income amounted to approximately $25.5 million from July
29, 1993, the inception date of Iridium's predecessor, to March 31, 1999.
During the same period, Iridium recorded a net loss of approximately $2.17
billion.
During the first quarter of 1999, Parent incurred a net loss of
$505 million, or $3.45 per Class 1 Interest, compared to a $204 million net
loss, or $1.45 per Class 1 Interest, for the corresponding period in 1998. This
was primarily the result of the following increases in expenses: $98 million for
amortization and depreciation expense due to the depreciation of a greater
number of satellites; $80 million for sales, general and administrative expenses
due to increased activities associated with Iridium's transition from a
development stage company into commercial operations; and $84 million for
increased interest expense. In addition, during the first quarter of 1999,
Iridium disposed of a satellite due to mechanical malfunction resulting in a
non-cash loss of approximately $39 million on write-down of the asset. The
satellite was replaced by Motorola with an in-orbit spare satellite as part of
the O&M Contract between Iridium and Motorola. See "-- Capitalization of
Costs", "-- Operating Expenses" and "-- Interest Expense" below.
CAPITALIZATION OF COSTS
All payments by Iridium under the space system contract have been
capitalized. The satellite components of the space system contract are being
depreciated over the five-year estimated life of the satellites. Depreciation
expense is realized on a satellite-by-satellite basis, commencing with the
delivery of each satellite to its mission orbit. Depreciation related to the
ground control stations commences with the placement in service of each such
station over a seven year estimated life. Losses from satellite failures for
which Iridium has financial responsibility under its contractual arrangements
with Motorola are recognized currently. Motorola bears the risk of loss for
launch failures and satellite failures before a satellite is placed into
service. Iridium has obtained a satellite insurance policy to cover certain
costs associated with the loss of a satellite. Capitalized amounts under the
space system contract and the terrestrial network development contract
aggregated approximately $3.74 billion through March 31, 1999. In addition,
costs incurred in connection with the issuance by Iridium of class 1 interests
are reflected as a reduction of Iridium's additional paid-in capital and
Iridium's debt issuance costs are deferred and amortized over the term of the
related indebtedness. Payment of these costs and charges has resulted in
significant negative operating cash flow. Certain interest costs also have
been capitalized through the date of commencement of commercial operations.
A portion of the payments made under the O&M contract will be
capitalized and depreciated. The amount so capitalized will be determined
depending upon the number of replacement satellites put into service. Any
costs under the O&M contract not capitalized will be expensed as incurred.
OPERATING EXPENSES
For the period from July 29, 1993, the inception date of Iridium's
predecessor, through March 31, 1999, total operating expenses were
approximately $1.8 billion, with $388 million of that amount incurred in the
first quarter of 1999. In light of lower than expected subscriber ramp-up and
revenue generation, Iridium is re-evaluating all of its budgeted operating
expenses with a view to making significant reductions.
INTEREST EXPENSE
Iridium has financed, and expects to continue to finance, a
significant portion of its capital requirements through borrowings. As a result
of these borrowings, Iridium has had, and expects it will have, significant
interest costs. Interest costs were capitalized while the Iridium System was
under construction and are now being depreciated. This resulted in all interest
costs being capitalized during
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1995, 1996 and 1997. For the year ended December 31, 1998, approximately $443
million of interest cost was incurred. Interest expensed for the year ended
December 31, 1998 was approximately $273 million with the remaining
approximately $170 million of interest capitalized to the system under
construction. In the first quarter of 1999, Iridium expensed all interest costs
which totaled $121 million. Some portion of interest expense will not be paid
in cash, including the interest expense related to Iridium's 14 1/2% senior
subordinated notes through March 1, 2001. Such non-cash interest will be
accrued and such accrual will increase outstanding indebtedness on Iridium's
consolidated balance sheets.
On May 13, 1999, Iridium retained DLJ to assist it in evaluating and
reviewing alternatives to restructure its indebtedness and reduce financing
costs.
INCOME TAXES
Iridium reports its income as a partnership for United States federal
income tax purposes and accordingly, is not expected to be directly subject to
U.S. federal income tax. Iridium may, however, be subject to tax in some
state, local or foreign jurisdictions on portions of its income. IWCL is
directly subject to U.S. federal income tax on the portion of its income which
is effectively connected with the U.S. business of Iridium. IWCL pays no income
tax under Bermuda law.
YEAR 2000 READINESS DISCLOSURE
General
Iridium's Year 2000 Program or "Y2K Program" addresses information-technology
or "IT", and non-IT problems that may exist within the Iridium System,
including Iridium's suppliers, roaming partners, service providers and other
material distributors.
Until recently, only two digits were used to represent the year in dates
recorded in computer systems. This practice did not anticipate the problem
generated by the turn of the century, after which dates entered as "00" could
be understood by computers to mean 1900 instead of 2000. This and other date
handling processes could result in the incorrect performance of computer
calculations and functionality involving dates.
Y2K Program
The Y2K Program encompasses the Iridium space and ground facilities, as well as
the relevant operations of Iridium's material suppliers and distributors, and
addresses both IT and non-IT systems.
The Y2K Program is divided into five major phases - Awareness, Inventory and
Risk Assessment, Repair and Renovation, Verification and Validation, and
Implementation and Monitoring. The Awareness Phase is intended to ensure the
establishment of the Y2K Program and the awareness of potential risks and Year
2000 issues. This phase, which involves communicating the status and progress
of the Y2K Program within Iridium and to third parties, is an on-going activity
and will continue as Iridium proceeds through the other phases. Iridium has
substantially completed all critical tasks in this phase. The process of
communication, however, is ongoing and will continue through first quarter
2000.
The Inventory and Risk Assessment Phase involves the performance of an
inventory of all Iridium hardware, software and infrastructure, as well as
material vendors, to identify potential Year 2000 issues and to determine the
action required, if any, to mitigate the risk to Iridium. Through its gateways,
Iridium is contacting its third party roaming partners and service providers to
determine the Year 2000 status of their systems, as well as their plans to
bring them into compliance. That process is ongoing. Material items are those
believed by Iridium to have a significant impact on the business from a
customer service, financial or legal perspective. This phase is being performed
by Iridium's internal Y2K team.
The assessment of Iridium developed systems and those of Iridium's key
suppliers has been completed. The results have indicated that fewer upgrades
than initially planned are needed. This has allowed Iridium to accelerate the
Y2K Program, now targeted for completion on July 1, 1999. The gateways are
still completing their evaluation of their internally developed systems and the
status of this analysis is not finalized.
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The Repair and Renovation Phase is intended to ensure that the appropriate
items as identified in the inventory and risk assessment are upgraded to meet
Year 2000 readiness criteria. This may include software updates, hardware
upgrades, development of new processes, new business practices, training
programs, etc.
The Repair and Renovation Phase has substantially completed for internal
Iridium LLC systems and the products provided by Motorola. The Iridium
Business Support Systems were initially developed to be Y2K ready and required
only server, operating system, and infrastructure upgrades provided by
suppliers. The upgrades required for the satellite and ground infrastructure
products provided by Motorola are completed.
The Verification and Validation Phase ensures that critical business processes,
systems and infrastructure are verified and tested to ensure Year 2000 issues
will not cause major disruption in the on-going operation of the Iridium
business. Verification and testing of those systems under Iridium's direct
control will be performed by Iridium's internal Y2K team with the support of
our technicians and certain of the principle suppliers of those systems. The
systems developed by Iridium and those developed by Motorola have completed
testing and these upgrades are now Y2K ready.
Finally, during the Implementation and Monitoring Phase, the Year 2000 upgrades
will be installed into Iridium's operating systems, as necessary. Iridium LLC
plans to have all internal critical systems installed and operational by July
1,1999.
An ongoing monitoring activity will be employed to identify and correct
unforeseen Year 2000 critical issues that may arise. In addition, the Y2K
Program plan addresses the monitoring of future upgrades for new products and
services to ensure that no new Y2K problem is introduced into Y2K ready
systems.
State of Readiness
With the completion of the Y2K Verification and Validation Phase, Iridium has
determined that the company is well positioned to be ready for the year 2000.
The Iridium Business Support Systems were developed to be Y2K ready and the
upgrades were minimal. Typical upgrades included server software and operating
systems and these upgrades are now Y2K ready.
Motorola, the supplier of the Iridium satellite and ground systems, has
completed their testing and the system upgrades are now Y2K ready. Kyocera and
Motorola, the suppliers of the handsets and pagers have indicated that these
products are Y2K ready.
Costs
The total cost associated with required modifications to become Year 2000 ready
is not expected to be material to Iridium's financial position or results of
operations. The current estimated total cost to Iridium of the Y2K Program is
$2 million. Iridium estimates that the amount expended on the Y2K Program
during calendar year 1998 was approximately $180,000, all of which was expensed
by Iridium. The costs for the first quarter of 1999 were approximately
$720,000. The gateway costs are not expected to be material as the majority of
the systems are provided to the gateways under maintenance contracts.
The estimated $2 million cost includes the costs of existing maintenance
contracts, internal labor and a small consulting budget for miscellaneous
tasks. Because Iridium does not require a large remediation effort, the Y2K
activities are substantially absorbed within the existing departmental cost
structure. This estimate does not reflect all Y2K costs because, for example,
the Iridium Business Support Systems were developed from the outset to handle
Year 2000 issues, and the cost of this capability was not separately identified
by the supplier.
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Other significant or critical non-Year 2000 information technology projects
under Iridium's direct control have not been materially delayed or impacted by
Year 2000 initiatives.
Risks
Potential risks to Iridium have been differentiated between risks related to
Iridium handset services versus risks related to Iridium services dependent
upon the existing telecom structure in the world.
Based on the results of the assessment of the Iridium Systems and the Motorola
provided space and ground systems, the reasonably likely worst case scenario
that would impact Iridium handset to Iridium handset service would be a power
failure at a ground station location. To mitigate this, Iridium gateways have
back-up generators at all critical ground station locations. Additional
contingency planning will be conducted to evaluate and implement rerouting
procedures where this risk is determined to be significant. In the event a
gateway is not prepared for the transition to the new millennium, Iridium will
implement a contingency plan to operate the network without the gateway.
The reasonably likely worst case scenario for services that depend upon the
transmission of calls over an existing wireless or landline network is the
failure of a call to be completed due to a failure in the existing telecom
network. The back-up use of an Iridium handset to Iridium handset call would
mitigate this risk. In addition, the gateway business owners are working with
the local network providers to identify critical areas of risk. If it is
determined that a critical issue exists in an interconnection arrangement, the
gateway will determine if rerouting is appropriate.
The Y2K Program is expected to significantly reduce our level of uncertainty
about the Year 2000 problem and, in particular, about the Year 2000 compliance
and readiness of our material partners. Iridium believes that, with the
completion of the Y2K Program as scheduled, the potential of significant
interruptions of normal operations should be reduced.
Contingency Plans
Based on the information developed throughout the Y2K Program, Iridium has
begun to develop contingency plans for critical systems and processes. These
plans will include an analysis of the requirement to reroute calls due to
interruption in power at certain gateway ground stations or failure of a
gateway to be Y2K ready. Other plans will address back up and restore
processes to secure critical data, staffing to monitor critical processes
throughout the transition and manual processes for critical operations where
appropriate.
Readers are cautioned that the discussion of Iridium's efforts and expectations
related to Year 2000 are forward-looking statements and should be read in
conjunction with Exhibit 99 to this report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Iridium's long-term debt includes both fixed and variable interest rate
instruments, and the fair market value of Iridium's fixed long-term debt is
sensitive to changes in interest rates. Iridium runs the risk that market rates
will decline and the required payments will exceed those based on current market
rates. Under its current policies, Iridium does not use interest rate derivative
instruments to manage its exposure to interest rate changes. For additional
information see the registrant's joint annual report on Form 10-K for 1998.'
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Securities Class Action Litigation. Starting in late April 1999 and
continuing in May 1999, various purported securities class action lawsuits were
filed against IWCL, Parent, Iridium, Motorola Inc. and several former officers
and directors of IWCL, Parent and Iridium in the United States District Court
for the District of Columbia.
The complaints in these lawsuits purport to be class actions on behalf
of the purchasers of securities of IWCL and Iridium during the period September
9, 1998 through March 29, 1999. The complaints generally allege that defendants
violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 10b-5 thereunder by making material misstatements and by failing
to disclose certain allegedly material information regarding the
commercialization of the Iridium System. The complaints also assert claims
against individual defendants alleging violations of Section 20(a) of the
Exchange Act. The complaints also allege that, in violation of Section 20A of
the Exchange Act, certain of the individual defendants disposed of IWCL's class
A common stock while the price of that stock was artificially inflated by
allegedly false and misleading statements and omissions. The complaints seek
unspecified damages, attorneys' and experts' fees and costs, and such other
relief as the court deems proper.
As of May 6, 1999, the purported class actions commenced in the United
States District Court for the District of Columbia were:
- ------------------------------------------------------------------------------
PLAINTIFF CASE NUMBER FILED
- ------------------------------------------------------------------------------
Parker Freeland 99CV01002 4/22/99
- ------------------------------------------------------------------------------
Teck Young 99CV01017 4/26/99
- ------------------------------------------------------------------------------
Richard Ackerman 99CV01036 4/27/99
- ------------------------------------------------------------------------------
Brian Kleinman 99CV01053 4/28/99
- ------------------------------------------------------------------------------
Ramona Anne Marshall 99CV01058 4/29/99
- ------------------------------------------------------------------------------
Kenneth F. Turner 99CV01096 5/4/99
- ------------------------------------------------------------------------------
Jeffrey S. Hargrove 99CV01117 5/6/99
- ------------------------------------------------------------------------------
The registrants anticipate that additional class action complaints
containing similar allegations may be filed in the future.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
11.1 Computation of Loss Per Class A Common Share
11.2 Computation of Loss per Class 1 Interest
27.1 Financial Data Schedule of Iridium LLC
27.2 Financial Data Schedule of Iridium Operating LLC
27.3 Financial Data Schedule of Iridium World
Communications Ltd.
99.1 Certain of the Factors Which May Affect Forward
Looking Statements
(b) Reports on Form 8-K
Iridium World Communications Ltd., Iridium LLC, Iridium Operating LLC, Iridium
Capital Corporation, Iridium IP LLC, Iridium Roaming LLC and Iridium Facilities
Corporation filed an 8-K on January 27, 1999 reporting a press release
announcing revenues for the fourth quarter.
Iridium World Communications Ltd., Iridium LLC, Iridium Operating LLC, Iridium
Capital Corporation, Iridium IP LLC, Iridium Roaming LLC, and Iridium Facilities
Corporation filed an 8-K on March 3, 1999 reporting a press release issued by
Iridium LLC in response to inquires regarding the company's financial
arrangements due to a delay in subscriber ramp-up caused by distribution
problems.
Iridium World Communications Ltd., Iridium LLC, Iridium Operating LLC, Iridium
Capital Corporation, Iridium IP LLC, Iridium Roaming LLC, and Iridium Facilities
Corporation filed an 8-K on March 29, 1999 reporting press releases issued by
Iridium LLC announcing that (i) Iridium Operating LLC had requested and received
a waiver of compliance with the March 31, 1999 revenue and subscriber covenants
under its secured bank facility and (ii) Roy Grant, CFO of Iridium World
Communications Ltd., Iridium LLC, Iridium Operating LLC and Iridium Capital
Corporation will resign from the registrants effective April 16, 1999.
Iridium World Communications Ltd., Iridium LLC, Iridium Operating LLC, Iridium
Capital Corporation, Iridium IP LLC, Iridium Roaming LLC and Iridium Facilities
Corporation filed an 8-K on April 26, 1999 reporting that on April 22, 1999 and
April 26, 1999 press releases were issued by Iridium LLC announcing that (i)
Edward F. Staiano resigned as Vice Chairman and CEO of Iridium LLC, the Iridium
LLC Board of Directors formed an Executive Committee and appointed an interim
CEO; and (ii) Iridium reported its first quarter results.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the registrants has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized:
IRIDIUM WORLD COMMUNICATIONS LTD.
/s/John A. Richardson
---------------------
John A. Richardson
interim Chief Executive Officer
IRIDIUM LLC
/s/ John A. Richardson
----------------------
John A. Richardson
Vice Chairman and interim Chief Executive Officer
/s/ Leo Mondale
---------------
Leo Mondale
Senior Vice President and Chief Financial Officer
IRIDIUM OPERATING LLC
/s/ John A. Richardson
----------------------
John A. Richardson
Vice Chairman and interim Chief Executive Officer
/s/ Leo Mondale
---------------
Leo Mondale
Senior Vice President and Chief Financial Officer
IRIDIUM CAPITAL CORPORATION
/s/ John A. Richardson
----------------------
John A. Richardson
interim Chief Executive Officer
/s/ Leo Mondale
---------------
Leo Mondale
Chief Financial Officer
IRIDIUM IP LLC
/s/ John A. Richardson
----------------------
John A. Richardson
interim Chief Executive Officer
/s/ Leo Mondale
---------------
Leo Mondale
Chief Financial Officer
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IRIDIUM ROAMING LLC
/s/ John A. Richardson
----------------------
John A. Richardson
interim Chief Executive Officer
/s/ Leo Mondale
---------------
Leo Mondale
Chief Financial Officer
IRIDIUM FACILITIES CORPORATION
/s/ John A. Richardson
----------------------
John A. Richardson
interim Chief Executive Officer
/s/ Leo Mondale
---------------
Leo Mondale
Chief Financial Officer
Date: May 17, 1999
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INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------- ----
11.1 Computation of Loss Per Class A Common Share
11.2 Computation of Loss per Class 1 Interest
27.1 Financial Data Schedule of Iridium LLC
27.2 Financial Data Schedule of Iridium Operating LLC
27.3 Financial Data Schedule of Iridium World Communications Ltd
99.1 Certain of the Factors Which May Affect Forward
Looking Statements
37