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Copyright

Iridium LLC
Harvard Business School Case 9-200-039
Case Software 2-200-705
Copyright 2000 by the President and Fellows of Harvard College
Research Associate Fuaad A. Qureshi and William Olsen (MBA '00) prepared this
case from published sources under the supervision of Professor Benjamin Esty
as the basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation. It is based, in part, on Scott
Vuchetich's (MBA '99) Faculty Sponsored Research project.

Page 1

Exhibit 1
Exhibit 1

Existing and Proposed Satellite Systems


Estimated Cost
($ billions)

Segment/Project

Lead Sponsor

Constellation Specifications

Voice Transmission
(1) Iridium, LLC
(2) Globalstar
(3) ICO
(4) Ellipso
(5) ECCO
(6) ACeS
(7) Thuraya

Motorola
Loral, Qualcomm, Vodafone, Airtouch
Inmarsat, TRW, Hughes, various PTTs
Mobile Communications Holdings
Constellation Communications
Pacifik Satelit, Phillipine Long Distance
Etisalat (United Arab Emirates)

Data Transmission
(1) Teledesic
(2) Skybridge
(3) CyberStar
(4) Astrolink
(5) Spaceway
(6) Orbcomm
(7) Leo One

Low orbit, 66 satellites, plus 6 spares


Low orbit, 48 satellites, plus 8 spares
Medium orbit, 10 satellites, plus 2 spares
17 satellites, most in elliptical orbit
Low orbit, 46 satellites, plus 8 spares
2 geosynchronous satellites
2 geosynchronous satellites
Total Cost (Voice Transmission)

$5.5
$3.3
$4.6
$1.4
$3.0
$0.9
$1.0
$19.7

Gates, McCaw, Motorola, Boeing


Alcatel, Loral
Loral
Lockheed Martin
Hughes Electronics
Orbital Sciences
Leo One

Low orbit, 288 satellites, plus 12 spares


Low orbit, 80 satellites
3 geosynchronous satellites
9 geosynchronous satellites
8 geosynchronous satellites
"Little LEO," 36 satellites
"Little LEO," 48 satellites
Total Cost (Data Transmission)

$9.0
$4.2
$1.6
$4.0
$3.2
$0.3
$0.5
$22.8

Total Cost (Voice & Data)

$42.5

Sources:

Various newspaper and industry articles.

Page 2

Exhibit 2
Global Telecommunication Service Segments

Exhibit 2

1999 Size
($ billions)

Segment
Wireline
Wireless
Satellites
- MSSa
- FSSb
Total

Sources:

$609.0
$206.8
$19.2
_______

$835.0

1990-1999
CAGR

2000-2004
Estimated CAGR

8.0%
14.2
27.0
21.4
31.7

8.0%
15.0
42.6
60.3
28.0

10.2%

10.1%

$1.9
$17.3

McKinsey & Company, Telecommunications Industry Report, 1999.


U.S. Industry and Trade Outlook, Telecommunications Services, 1999.

Notes:
a
Mobile Satellite Services.
b
Fixed Satellite Services.

Page 3

Exhibit 5
Exhibit 5

Iridium Financial Projections and Capitalization, 1999-2007

1998 Act.

1999

2000

2001

2002

2003

2004

2005

2006

2007

5
0

600
50

1,475
125

2,525
225

3,675
325

4,550
425

5,275
525

5,900
600

6,525
650

7,150
690

$0.2
-436
552
-988
265
-1,253
0
-1,253

$403
-351
811
-1,162
387
-1,549
0
-1,549

$2,183
1,339
966
373
454
-81
0
-81

$3,748
2,809
1,213
1,596
424
1,172
176
996

$4,994
3,859
1,333
2,526
278
2,248
337
1,911

$5,821
4,611
1,084
3,527
59
3,468
520
2,948

$6,249
4,973
1,109
3,864
0
3,864
580
3,284

$6,435
5,100
1,020
4,080
0
4,080
612
3,468

$6,495
5,084
822
4,262
39
4,223
633
3,590

$6,481
5,001
605
4,396
92
4,304
646
3,658

Cash Flow Data


Depreciation/Amortization
Capital Expenditures
Increase (Decrease) in NWCa

552
716
-398

811
927
290

966
1,349
63

1,213
1,246
-102

1,333
1,258
-81

1,084
1,274
-54

1,109
947
-28

1,020
391
-12

822
413
-4

605
844
-1

Balance Sheet Data


Cash
Property, Plant and Equipment
Total Assets
Total Debt

25
3,584
3,739
2,854

10
3,215
3,319
3,930

10
3,597
3,833
4,437

10
3,630
3,979
3,352

10
3,555
3,990
1,266

20
3,745
4,270
0

30
3,020
3,582
0

50
2,390
2,988
0

50
1,981
2,583
450

50
2,103
2,704
1155

Income Statement (000s)


# Voice Subscribers
# Paging Subscribers
Revenues
EBITDA
Depreciation/Amortization
EBIT
Interest Expense, net
Profit Before Tax
Taxes @ 15%
Net Income

Iridium, LLC, Capitalization as of 12/31/98


Debt
Secured Bank Debt, @ Prime + 2.75%
Guaranteed Bank Debt, @ Prime
Sr. Sub. Notes @ 14.5%, due 2006
Senior Notes A @ 13.0%, due 2005
Senior Notes B @ 14.0%, due 2005
Senior Notes C @ 11.25%, due 2005
Senior Notes D @ 10.88%, due 2005
Total Debt
Deferred payments due monthly to Motorola
Equity
Preferred Partnerships (EquityClass 2)
Total Class 1 Equity Raised
Accumulated Losses
Net Class 1 Equity (book value)
Debt/Total Capital (book value)
Debt/Total Capital (market value)
Debt/Total Capital (of the capital raised)

Sources:

($ millions)
500
625
323
278
480
300
348
2,854
218
46
2,114
1,683
431
86%
34%
57%

Capital Market Data as of 12/31/98


Iridium Information
Stock Price (IRIDQ)
Equity Beta (weekly data)
Asset Beta (1998 average)
Class 1 Interests (shares)
Class 1 Interests (fully diluted)b
Proceeds from Class 1 warrantsb
Yields on US Treasury Bills, Notes and Bonds
3-month
1-year
10-year
30-year
Prime Rate
Yields on Corporate Bonds
Aaa Rated
Baa Rated

Salomon Smith Barney, Equity Research Report, February 1, 1999; casewriter estimates; Federal Reserve Bulletin; Iridium World Communications, Ltd. 1998 Annual Report.

Notes:
a
Changes in working capital excludes cash and cash equivalents.
b
Exercise of the outstanding Class 1 warrants would increase the number of interests from 141 to 185 million, and yield $220 million of proceeds to the company.

Page 4

$39.5
1.58
1.25
141 million
185 million
$220 million
4.48%
4.53%
4.65%
5.09%
7.75%
6.23%
7.23%

Exhibit 6
Exhibit 6

Financial Statistics for Select Industries, December 31, 1998

S&P Industry Group


Broadcast (Television/Radio/Cable)
Retail (General Merchandise)
Retail (Food Chains)
Telephone
Tobacco
Electric Utilitiesa
Natural Gas Utilitiesa
Lodgings-Hotels
Airlines
Water Utilitiesa
Hardware & Tools
Aerospace/Defense
Railroads
Household Products
Restaurants
Publishing (Newspapers)
Iron & Steel
Personal Care
Chemicals (Specialty)
Telecommunications (Long Distance)
Textiles (Apparel)
Health Care (Drugs)
Leisure Products
Telecommunications (Cellular)
Retail (Specialty)
Textiles (Home Furnishing)
Electronics (Semiconductors)
Electronics (Components Distribution)
Biotechnology
Computer (Software/Services)
Computers (Networking)
Mean
Median

Source:

Current
Ratio

Debt to Total
Capital
(Book Value)

Times
Interest
Earned

Return on
Assets

1.4
1.3
1.0
0.8
1.6
0.8
0.8
0.5
0.8
0.8
1.4
1.2
0.7
1.1
0.6
1.1
2.0
1.5
2.4
0.8
2.2
1.4
1.5
0.9
1.4
3.4
2.3
1.8
2.1
2.6
2.2

74%
60
59
59
57
57
53
53
53
52
50
50
45
40
38
38
38
36
36
33
28
25
25
24
23
19
15
11
8
3
0

2.4 X
5.8
4.0
4.5
8.5
2.6
2.9
9.9
5.9
3.1
-1.4
6.1
2.9
6.9
4.4
8.1
14.8
11.5
46.8
3.6
5.8
25.1
5.0
4.0
8.7
2.5
33.0
27.6
30.6
16.3
112.3b

3.41%
7.96
6.08
8.09
9.88
2.86
3.65
9.75
7.09
3.04
-11.96
3.66
2.56
11.26
8.03
9.09
6.92
9.43
7.93
3.60
9.01
15.16
6.60
2.17
6.20
2.60
15.03
11.34
23.51
18.25
13.58

1.4
1.4

37
38

13.7
5.9

7.61
7.93

S&P Analyst's Handbook, Standard & Poor's Corp., New York, 1999.

Notes:
a
Data from S&P Compustat database.
b
1996 data used instead of 1998 data.

Page 5

Exhibit 7
Financial Statistics for Satellite Companies as of December 31, 1998

Exhibit 7

Debt/Total
Capitalizationa
Company
(1) Iridium, LLC
(2) Globalstar L.P.
(3) ICO Global Communications
(4) Gilat Satellite Networks
(5) PanAmSat Corp.
(6) Comsat Corp.
(7) Orbital Sciences Corp.

Sources:

Sales
($ millions)
$0.2
$0.0
$0.1
$155.3
$767.3
$616.5
$734.3

Assets
($ millions)
$3,738.9
$2,670.0
$2,659.4
$410.3
$5,890.5
$1,790.8
$962.7

Book
Value
86%
79%
24%
26%
22%
41%
29%

Market
Value
34%
29%
21%
32%
12%
20%
11%

Interest
Coverage
0.72
-1.28
N/A
-15.7
3.04
1.72
0.70

Provision
for Taxes
($ millions)
$0.0
$0.0
$3.8
$0.3
$95.9
$5.8
$4.5

Net Income
($ millions)
($73.6)
($50.6)
($110.7)
($81.6)
$124.6
$26.4
($6.4)

Current Debt
as % of
Total Debt
4%
15%
0%
2%
1%
3%
13%

Currnet
Ratio
0.19
0.59
4.84
1.60
2.36
1.41
1.21

Company Annual Reports, S&P Compustat, S&P Bond Guide, Bloomberg.

Notes:
a
Debt/Total Capitalization is calculated as the ratio of total debt to the sum of debt, equity, and preferred stock.
b
S&P Long-Term Debt Rating for December 1998 used in lieu of S&P 1998 Senior Debt Rating.
Company Descriptions:
(1) Iridium employed a network of 66 satellites to provide handheld global satellite telephone and paging network. It was based in Washington, D.C.
(2) Globalstar was a joint venture between Space Systems/Loral and Qualcomm. It used a constellation of 48 satellites and was based in New York, New York.
(3) ICO Global Communications, based in the Cayman Islands, would provide mobile and cellular services via a system of 12 satellites.
(4) Gilat Satellite Networks, based in Israel, employed VSAT (Very Small Aperture Technology) for telecommunications and data transmission.
(5) PamAmSat, with 20 satellites, was the leading commercial provider of satellite-based communications services. It was based in Greenwich, Connecticut.
(6) Comsat provided global telecommunications using the 19 Inmarsat satellites (the INTELSAT system). It was based in Bethesda, Maryland.
(7) ORBCOMM, the satellite division of Orbital Sciences, had total sales of $0.8 million, an operating loss of $4.0 million, and identifiable assets of $241.5 million in 1998. ORBCOMM used a constellation of 28 LEO satellites for
global data transmission, and was based in Dulles, Virginia.

Page 6

Cash as
% of
Assets
0.7%
2.1%
20.6%
1.8%
3.0%
1.7%
2.8%

Equity
Beta
1.58
1.70
0.34
1.71
0.96
0.50
1.35

S&P Senior
Debt Rating
CCb
Bb
B
N/A
AABB

Exhibit 11
Exhbit 11

Payments to Motorola from Iridium LLC ($ millions)

Support
Agreement

Year

System Development
Space
Terresterial
System
Network

1995
1996
1997
1998
1999 est.
2000 est.
2001 est.
2002 est.
2003 est.

$0.6
0.9
0.7

$802
836
577
589

Total

$2.1

$2,804

Source:

64
74
139
6

$283

Iridium World Communications Ltd. Class A Stock Prospectus, January 21, 1999.

Page 7

Operations and
Maintenance

Total

129
537
558
581
605
472

$803
901
652
857
543
558
581
605
472

$2,882

$5,871