By Stephen Phillips
The crippling financial toll of Motorola Inc’s involvement in the insolvent satellite phone venture, Iridium LLC, was apparent in the electronics giant’s quarterly report to shareholders filed with the US Securities and Exchanges Commission late last night.
The 10-Q filing which covers Schaumburg, Illinois-based Motorola’s operations for the three months to October 2, also reveals that the firm shelled out $743m, just yesterday, to cover loans defaulted on by Iridium, which it had guaranteed in August 1996. Motorola paid the cash to a group of banks co-led by Chase Manhattan Bank and Barclays Bank Plc. The company was unavailable for comment as ComputerWire went to press.
The company clocked what it termed a special charge of $994m in the most-recent quarter to cover expenses it expects to incur under Iridium’s financial restructuring and the write-off of bonds in the company it holds. Motorola has an 18% stake in Washington DC-based Iridium, which racked up a bill of $5bn to launch its 66-satellite service late last year, then failed to attract sufficient users to break-even amid complaints of prohibitive costs and cumbersome handsets. Iridium entered Chapter 11 bankruptcy protection in the summer to buy time to make repayments to creditors.
The filing reveals that Motorola is owed $661m by Iridium for equipment, maintenance and services it supplied to the venture. Motorola’s total shareholdings and notes receivable in so-called Iridium gateway companies, essentially international resellers of the satellite phone services, are valued at $47m.
Motorola also said in the filing that the $722m it has invested in inventory, manufacturing operations and buildings related to the supply contracts with Iridium are at risk. It added: while [Motorola] expects to be able to use a portion of these assets in connection with other programs, the company would still incur substantial costs in winding down operations related to the Iridium program.
Meantime Motorola must wait in line behind creditors owed $800m, under a Separate Senior Secured Credit Agreement, for possible repayment from Iridium for the goods and services it has supplied. Motorola could also be liable to invest a further $50m in Iridium under capital call requirements insisted of Iridium investors by the lenders within the secure credit agreement, according to the filing. Additionally Motorola could be called upon under certain conditions to guarantee an additional $350m of Iridium’s debt according to a Memorandum of Understanding, the filing said.
Motorola saw its $332m net income from operations for the quarter to October 2 dwindle to $91m after one-time charges including the Iridium costs. The company earned revenue of $7.69bn over the period.
