1
SHEARMAN & STERLING
COUNSEL FOR DEBTOR AND DEBTOR-IN-POSSESSION
NEW YORK, NY 10022-6069
(212) 848-4000
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE:
IRIDIUM WORLD COMMUNICATIONS LTD.
CASE NO. 99-45759-CB
CHAPTER 11
MONTHLY OPERATING STATEMENT
FOR THE PERIOD SEPTEMBER 14, 1999 THROUGH SEPTEMBER 30, 1999
AND FOR THE PERIOD OCTOBER 1, 1999 THROUGH OCTOBER 31, 1999
FOR THE PERIOD SEPTEMBER 14, 1999 THROUGH SEPTEMBER 30, 1999:
DISBURSEMENTS: (IN THOUSANDS) $0
---------------------
OPERATING LOSS: (IN THOUSANDS) $13
---------------------
FOR THE PERIOD OCTOBER 1, 1999 THROUGH OCTOBER 31, 1999:
DISBURSEMENTS: (IN THOUSANDS) $0
---------------------
OPERATING LOSS: (IN THOUSANDS) $25
---------------------
THIS OPERATING STATEMENT MUST BE SIGNED BY A REPRESENTATIVE OF THE DEBTORS
THE UNDERSIGNED, HAVING REVIEWED THE ATTACHED AND BEING FAMILIAR WITH THE
DEBTORS' FINANCIAL AFFAIRS, VERIFIES UNDER THE PENALTY OF THE PERJURY, THAT THE
INFORMATION CONTAINED THEREIN IS COMPLETE, ACCURATE AND TRUTHFUL TO THE BEST OF
MY KNOWLEDGE.
DATE: NOVEMBER 29, 1999 /s/ F. THOMAS TUTTLE
------------------------------
F. THOMAS TUTTLE, SECRETARY
INDICATE IF THIS IS AN AMENDED STATEMENT BY CHECKING HERE:
AMENDED STATEMENT ________
2
HEADNOTE
These unaudited condensed financial statements have been prepared for the
purpose of filing with the United States Bankruptcy Court for the Southern
District of New York. These condensed financial statements have not been
prepared in accordance with generally accepted accounting principles ("GAAP")
because Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121") has not been applied to Iridium LLC, the investee entity, and
certain other disclosures required under GAAP have been omitted. The Company
expects that, upon application of SFAS 121, the carrying amount of Iridium LLC's
long-lived assets will be written down by a material amount; however, at this
time it is not possible to determine such amount. In the opinion of management,
all other accounting principles applicable to the Company have been applied in
the accompanying consolidated financial statements and all adjustments necessary
for a fair presentation of such information have been made. However, there could
also be year-end audit adjustments and adjustments as a result of the Company's
filing for protection under Chapter 11 of the United States Bankruptcy Code.
IRIDIUM WORLD COMMUNICATIONS LTD.
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED BALANCE SHEET
(IN THOUSANDS)
9/30/99 10/31/99
--------- ----------
ASSETS
Cash $ - $ -
Investment in Iridium LLC - -
--------- ---------
Total assets $ - $ -
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise $ - $ -
Liabilities subject to compromise - -
--------- ---------
Total liabilities - -
Stockholders' equity
Common stock 197 197
Additional paid-in capital 489,335 489,360
Accumulated deficit (489,532) (489,557)
--------- ---------
Total stockholders' equity - -
--------- ---------
Total liabilities and stockholders' equity $ - $ -
========= =========
The accompanying notes are an integral part of the financial statements.
3
HEADNOTE
These unaudited condensed financial statements have been prepared for the
purpose of filing with the United States Bankruptcy Court for the Southern
District of New York. These condensed financial statements have not been
prepared in accordance with generally accepted accounting principles ("GAAP")
because Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121") has not been applied to Iridium LLC, the investee entity, and
certain other disclosures required under GAAP have been omitted. The Company
expects that, upon application of SFAS 121, the carrying amount of Iridium LLC's
long-lived assets will be written down by a material amount; however, at this
time it is not possible to determine such amount. In the opinion of management,
all other accounting principles applicable to the Company have been applied in
the accompanying consolidated financial statements and all adjustments necessary
for a fair presentation of such information have been made. However, there could
also be year-end audit adjustments and adjustments as a result of the Company's
filing for protection under Chapter 11 of the United States Bankruptcy Code.
IRIDIUM WORLD COMMUNICATIONS LTD.
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED STATEMENT OF LOSS
(IN THOUSANDS)
PERIOD FROM
SEPTEMBER 14, PERIOD FROM
1999 THROUGH OCTOBER 1, 1999
SEPTEMBER 30, THROUGH OCTOBER
1999 31, 1999
-------------- ----------------
Equity in loss of Iridium LLC $ - $ -
--- ---
Loss before reorganization items - -
--- ---
Reorganization expense items:
Professional fees 13 25
--- ---
13 25
--- ---
Loss before income taxes 13 25
Income taxes - -
--- ---
Net Loss $13 $25
=== ===
The accompanying notes are an integral part of the financial statements.
4
HEADNOTE
These unaudited condensed financial statements have been prepared for the
purpose of filing with the United States Bankruptcy Court for the Southern
District of New York. These condensed financial statements have not been
prepared in accordance with generally accepted accounting principles ("GAAP")
because Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121") has not been applied to Iridium LLC, the investee entity, and
certain other disclosures required under GAAP have been omitted. The Company
expects that, upon application of SFAS 121, the carrying amount of Iridium LLC's
long-lived assets will be written down by a material amount; however, at this
time it is not possible to determine such amount. In the opinion of management,
all other accounting principles applicable to the Company have been applied in
the accompanying consolidated financial statements and all adjustments necessary
for a fair presentation of such information have been made. However, there could
also be year-end audit adjustments and adjustments as a result of the Company's
filing for protection under Chapter 11 of the United States Bankruptcy Code.
IRIDIUM WORLD COMMUNICATIONS LTD.
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM
SEPTEMBER 14, PERIOD FROM
1999 THROUGH OCTOBER 1, 1999
SEPTEMBER 30, THROUGH OCTOBER
1999 31, 1999
-------------- ----------------
Cash flows from operating activities:
Net loss before reorganization items $ - $ -
Adjustments to reconcile net loss before reorganization
items to net cash used:
Equity in loss of Iridium LLC - -
---- ----
- -
---- ----
Net loss from reorganization items (13) (25)
Professional fees to be paid for by Iridium LLC 13 25
---- ----
- -
---- ----
Net cash used in operating activities - -
---- ----
Cash flows from investing activities:
Net cash used in investing activities - -
---- ----
Cash flows from financing activities:
Net cash provided by financing activities - -
---- ----
Increase (decrease) in cash and cash equivalents - -
Cash and cash equivalents, beginning of period - -
---- ----
Cash and cash equivalents, end of period $ - $ -
==== ====
Supplemental disclosures of cash flow information:
Cash paid for reorganization items:
Professional fees - -
---- ----
- -
==== ====
The accompanying notes are an integral part of the financial statements.
5
Iridium World Communications Ltd.
(Debtor-in-Possession)
Schedule of Taxes Paid
For the period from September 14, 1999 through October 31, 1999
Payroll Taxes: Not applicable
Sales, Use and Excise Taxes: Not applicable
Property Taxes: Not applicable
6
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Iridium World Communications Ltd. ("IWCL", the "Debtor" or the "Company") was
incorporated under the laws of Bermuda on December 12, 1996. At inception, IWCL
was wholly owned by Iridium LLC ("ILLC"), a Delaware limited liability company.
In June 1997, IWCL consummated an initial public offering and issued 12,000,000
shares of Class A Common Stock. Pursuant to the 1997 Subscription Agreement
between IWCL and ILLC, approximately $225 million in net proceeds from the
Offering were invested in 12,000,000 Class 1 Membership Interests of ILLC (Class
1 Interests), at which time the outstanding shares of Class A Common Stock held
by ILLC were retired, and IWCL became a member of ILLC.
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 ILLC, such proceeds were used by IWCL to
purchase 7,500,000 Class 1 Interests in ILLC.
ILLC through its wholly-owned subsidiary Iridium Operating LLC ("IOLLC"), a
Delaware limited liability company, has completed its efforts to develop and
deploy a global wireless personal communications system. IOLLC commenced
commercial satellite phone service on November 1, 1998 and commercial satellite
paging service on November 15, 1998. ILLC's transition from a development stage
limited liability company to an operating limited liability company has been
adversely affected by various factors, including much slower than expected
subscriber growth. As a result of the difficulties in effecting this transition,
on August 13, 1999, involuntary bankruptcy petitions were filed by certain
creditors of IOLLC and its subsidiary, Iridium Capital Corporation. See Note 3
for a description of the bankruptcy proceedings.
IWCL's sole asset is its investment in ILLC. As of September 30 and October 31,
1999, IWCL owned 19,753,238 Class 1 Interests, representing approximately 13.25%
of the total outstanding Class 1 Interests in ILLC.
2. BASIS OF PRESENTATION
These unaudited financial statements have been prepared for the purpose of
filing with the United States Bankruptcy Court for the Southern District of New
York. These unaudited financial statements have not been prepared in accordance
with generally accepted accounting principles ("GAAP") because Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") has
not been applied by ILLC, and certain other disclosures required under GAAP have
been omitted.
SFAS 121 requires a company to evaluate the recoverability of its long-lived
assets whenever events or circumstances indicate that the carrying amount of
such assets may be impaired. If considered impaired, SFAS 121 requires that the
long-lived assets be written down to fair value. ILLC's long-lived assets are
comprised of the Iridium Space System and related assets. The Company expects
that, upon application of SFAS 121, the carrying amount of ILLC's long-lived
assets will be written down by a material amount; however, at this time it is
not possible to determine such amount. The accompanying unaudited financial
statements also omit certain disclosures required under GAAP, including earnings
(loss) per share data.
With the exceptions described above, in the opinion of management, all other
accounting principles applicable to the Company have been applied in the
7
accompanying unaudited financial statements and all adjustments necessary for a
fair presentation of such information have been made. However, there could also
be year-end audit adjustments and adjustments to certain other accounts as a
result of the Company's filing for protection under Chapter 11 of the United
States Bankruptcy Code.
In connection with the bankruptcy proceedings the Company has adopted AICPA
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires entities in
bankruptcy to present their pre-petition liabilities on the basis of the
expected amount of allowed claims in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies".
3. BANKRUPTCY PETITION
On August 13, 1999 (the "Petition Date"), certain creditors of IOLLC and its
subsidiary, Iridium Capital Corporation, filed involuntary bankruptcy petitions
against them in the United States Bankruptcy Court for the Southern District of
New York (the "Court"). Also, on August 13, 1999, the ILLC, IOLLC, Iridium
Capital Corporation and IWCL filed voluntary petitions in the United States
Bankruptcy Court for the District of Delaware. On August 16, 1999, the Court
entered an agreed order, which, among other things stayed the Delaware
petitions. On September 13, 1999 (the "Conversion Date"), the Court entered an
order granting the ILLC, IOLLC, IWCL and Iridium Capital Corporation relief
under Chapter 11 of the US Bankruptcy Code. Additionally, on the Conversion
Date, three additional IOLLC subsidiaries, Iridium IP LLC, Iridium (Potomac) LLC
and Iridium Roaming LLC (together and collectively with the other companies the
"Debtors") filed voluntary petitions under Chapter 11 relief.
Effective September 13, 1999, the Court entered an order which authorized the
Debtors to maintain their current bank accounts and cash management system.
Under the current cash management system, bank accounts are maintained and all
expenses are paid by ILLC and IOLLC. Additionally, IWCL and ILLC operate under a
Management Services Agreement, whereby, ILLC manages the day-to-day operations
of IWCL, including, but not limited to, the treasury and accounting functions.
ILLC receives no fees or reimbursement from IWCL for these services. The Debtors
are currently operating in accordance with a cash collateral order effective
until December 15, 1999.
In Chapter 11 bankruptcy proceedings, certain claims in existence prior to the
order of relief, including pending litigation against the Company are stayed
while the Company continues it's business operations as a debtor-in-possession.
These claims are reflected in the balance sheets as "Liabilities Subject to
Compromise". Additional liabilities subject to compromise may arise subsequent
to the filing date resulting from rejection of executory contracts, including
leases, and from the determination by the Court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed amounts. The
Debtors received approval from the Bankruptcy Court, effective September 13,
1999, to pay certain of its pre-petition and pre-conversion obligations,
including employee wages and related taxes and gap period claims (those claims
incurred between the Debtors' Petition Date and the Conversion Date).
4. INVESTMENT IN IRIDIUM LLC
IWCL's sole asset is its investment in Iridium LLC. For the period from
September 14 through September 30, 1999 and for the month period ended October
31, 1999, IWCL's equity in losses of ILLC were approximately $9.0 million and
approximately $14.8 million, respectively. Because IWCL has recognized losses to
date that equal IWCL's investment in ILLC and since IWCL has no commitment to
fund losses of ILLC beyond its investment, losses of ILLC otherwise attributable
to IWCL have not been recognized to the extent such losses exceed IWCL's
investment in ILLC.
8
Substantially all liabilities of ILLC and its subsidiaries are subject to
compromise or other treatment under a plan of reorganization that must be
confirmed by the Bankruptcy Court after a vote of ILLC and subsidiaries'
impaired claimants. There are various claimants that may be affected by a plan
of reorganization, including, (1) the lenders under IOLLC's $800 million secured
credit facility, (2) the lenders under IOLLC's $750 million credit facility
guaranteed by Motorola, Inc., (see Note 5) (3) the holders of IOLLC's $1.45
billion of senior notes, (4) various strategic investors with approximately $945
million of outstanding indebtedness, (5) vendors and trade creditors, and (6)
equity interests of ILLC, including IWCL and other strategic investors.
The ultimate effect of the Chapter 11 bankruptcy proceedings on each of the
various claimants will depend on a variety of factors, including, without
limitation, the specific terms of a confirmed plan of reorganization and the
relative rank of each claim among the priorities established by the U. S.
Bankruptcy Code. In addition, there can be no assurance that ILLC and its
subsidiaries will successfully reorganize under the Chapter 11 proceeding.
Accordingly, the ultimate effect of ILLC's bankruptcy proceeding on IWCL, is not
currently determinable.
5. SUBSEQUENT EVENT
On November 15, 1999, Motorola paid the banks approximately $743 million to
satisfy all of its guarantee obligations under ILLC's Guaranteed Bank Facility.
Pursuant to the Motorola Memorandum of Understanding between Motorola and ILLC,
ILLC is obligated to compensate Motorola for this payment to the banks. Any such
obligation to Motorola for the payment thereof is subject to compromise under
the Chapter 11 proceedings.
9
IRIDIUM WORLD COMMUNICATIONS LTD.
(DEBTOR-IN-POSSESSION)
CASE NUMBER 99-45759(CB)
INSURANCE
I, F. Thomas Tuttle, Secretary of Iridium World Communications Ltd., the debtor
and debtor-in-possession, verify that to the best of my knowledge all insurance
policies are fully paid for the current period.
/s/ F. THOMAS TUTTLE
------------------------------
F. Thomas Tuttle
Secretary
Date: November 29, 1999