looks like 19%
>>Financial: At December 31, 1998, the Company owned, directly and indirectly,
approximately 19% of Iridium LLC (Iridium LLC and its operating subsidiary,
Iridium Operating LLC are collectively referred to as Iridium). The Company's
equity and bond investment in Iridium and its equity investments in several
Iridium gateway companies aggregated approximately $263 million and are in-
cluded in Other Assets. During the year, the Company recorded, as its share of
Iridium's net loss for the year, a total loss of approximately $265 million.
The Company expects to record losses equal to its remaining equity investment
in Iridium of approximately $50 million by the end of the first quarter of1999.
Iridium's bank facilities include an $800 million Senior Secured Credit
Agreement. That agreement contains subscriber and revenue targets and other
conditions that Iridium must meet to avoid default. On March 1, 1999, Iridium
announced that it was likely that it would not meet its first quarter 1999
subscriber and revenue targets. There can be no assurances that the lenders
under this credit agreement will revise those targets so that Iridium does not
default or that they will waive such default. If a default occurs under the
Senior Secured Credit Agreement, those lenders could execute on their security
interest in substantially all of Iridium's assets and require certain invest-
ors in Iridium to comply with their capital call requirements, which in the
Company's case would be approximately $50 million. If this investment was re-
quired, it would be subject to the same accounting treatment applied to the
Company's prior equity investment in Iridium.
In addition, if Iridium defaults under its Senior Secured Credit Agreement
it will be in default under a $750 million Senior Guaranteed Credit Agreement
which the Company has directly guaranteed. The majority of this facility is
scheduled to mature on December 31, 2000 and the remainder is scheduled to ma-
ture on December 31, 2001. Iridium has used and is using the proceeds of this
senior guaranteed facility generally to make payments to the Company for the
Iridium system. If Iridium were to default under the $750 million Senior Guar-
anteed Credit Agreement, the banks providing loans under the Senior Guaranteed
Credit Agreement could terminate Iridium's ability to make further draws un-
F-32
MOTOROLA, INC. AND SUBSIDIARIES NOTES TO
(Dollars in millions, except as noted) CONSOLIDATED FINANCIAL STATEMENTS
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der that agreement, accelerate all the outstanding obligations under that
agreement and require the Company to satisfy its guarantee obligations.
Also, although the Company has not directly guaranteed the Senior Secured
Credit Agreement, it has agreed to guarantee an additional $350 million of
Iridium debt upon Iridium's request. If Iridium requests that the Company pro-
vide this additional guarantee, it may be used by Iridium to guarantee or re-
duce the amount outstanding under the Senior Secured Credit Agreement. The
Company believes it is likely that Iridium will ask the Company to make this
additional $350 million guarantee available in the near future, either for
working capital or in some manner related to the Senior Secured Credit Agree-
ment.
The Company has also provided $400 million of financial support directly to
Iridium by deferring amounts owed under a contract with the Company. As of
February 27, 1999, Iridium has deferred $176 million of payments and the Com-
pany expects that Iridium will continue to defer payments. The repayment of
these deferred payments is subordinated to repayment of Iridium's senior se-
cured bank loans, as is the repayment to the Company by Iridium of any amounts
the Company pays to banks under its guarantees and some other obligations owed
to the Company. Approximately $88 million is owed to the Company by Iridium,
apart from the deferred payments described above, as of February 27, 1999.
The Company has several contracts valued at $3.2 billion with Iridium for
the operation and maintenance of the
global personal communications system. Through the end of 1998, the Company
has earned and received payments approximating $242 million under these con-
tracts. The Company has significant subcontracts for portions of the system,
for which it will generally remain obligated even if Iridium is unable to sat-
isfy the terms of the contracts with the Company. In addition, the Company has
substantial investments in assets related to these contracts, such as invento-
ry, manufacturing equipment, buildings and potential obligations to the em-
ployees employed in connection with these contracts.
The loss of the value of its investment in Iridium and Iridium gateway com-
panies, the failure of Iridium to make contractual payments to the Company or
any default by Iridium under its credit agreements and debt instruments which
results in the acceleration of Iridium debt or the Company having to perform
under its Iridium guarantee obligations would have a material adverse effect
on the Company's consolidated financial position, liquidity and results of op-
erations. << |
