<PAGE>   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 JUNE 30, 1998


                        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)

                                 ---------------


<PAGE>   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 AUGUST 6, 1998
        -------------------------                -------------------------
               Iridium World
            Communications Ltd.                        12,073,544
          Common Stock, Class A
        $0.01 par value per share

<PAGE>   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

                                    ---------

<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                    NUMBER
                                                                                    ------
<S>       <C>                                                                       <C>
Part I    FINANCIAL INFORMATION

ITEM 1    Financial Statements

          IRIDIUM WORLD COMMUNICATIONS LTD.

          Condensed Balance Sheets
               June 30, 1998 and December 31, 1997                                     5

          Unaudited Condensed Statements of Loss
               For the three and six months ended June 30, 1998 and 1997               6

          Unaudited Condensed Statements of Cash Flows
               For the six months ended June 30, 1998 and 1997                         7

          Notes to Unaudited Condensed Financial Statements                            8

          IRIDIUM LLC

          Condensed Consolidated Balance Sheets
               June 30, 1998 and December 31, 1997                                    10

          Unaudited Condensed Consolidated Statements of Loss
               For the three and six months ended June 30, 1998 and 1997              11
</TABLE>



                                        3
<PAGE>   4

<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                    NUMBER

<S>       <C>                                                                       <C>
          Unaudited Condensed Consolidated Statements of Cash Flows
               For the six months ended June 30, 1998 and 1997                        12

          Notes to Unaudited Condensed Consolidated Financial Statements              13

          IRIDIUM OPERATING LLC (INCLUDING:  IRIDIUM CAPITAL CORPORATION,
          IRIDIUM IP LLC, IRIDIUM ROAMING LLC AND IRIDIUM FACILITIES CORPORATION)

          Condensed Consolidated Balance Sheets
               June 30, 1998 and December 31, 1997                                    16

          Unaudited Condensed Consolidated Statements of Loss
               For the three and six months ended June 30, 1998 and 1997              17

          Unaudited Condensed Consolidated Statements of Cash Flows
               For the six months ended June 30, 1998 and 1997                        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 Disclosure About Market Risk                   30

PART II   OTHER INFORMATION

ITEM 1    Legal Proceedings                                                           31

ITEM 2    Changes in Securities and Use of Proceeds                                   31

ITEM 3    Defaults upon Senior Securities                                             31

ITEM 4    Submission of Matters to a Vote of Security Holders                         31

ITEM 5    Other Information                                                           31

ITEM 6    Exhibits and Reports on Form 8-K                                            31

SIGNATURES                                                                            32

EXHIBIT INDEX                                                                         34
</TABLE>



                                       4
<PAGE>   5
                       IRIDIUM WORLD COMMUNICATIONS LTD.

                            CONDENSED BALANCE SHEETS
                        (In Thousands Except Share Data)

<TABLE>
<CAPTION>

                                                                                                                    JUNE 30,
                                                                                              DECEMBER 31,            1998
                                                                                                  1997             (UNAUDITED)
                                                                                            ---------------       -------------
<S>                                                                                        <C>                   <C>
                                         ASSETS
Cash...................................................................................    $             -       $           -
Investment in Iridium LLC..............................................................            223,922             187,197
                                                                                            ---------------       -------------
            Total Assets...............................................................    $       223,922       $     187,197
                                                                                            ===============       =============
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities............................................................................    $             -       $           -

Stockholders' equity:
    Class B Common stock, non-voting, par value $0.01; 2,500,000 shares authorized;
       no and 20,625 issued and outstanding............................................                  -                   -
    Class A Common stock, voting, par value $0.01; 50,000,000 shares authorized;
        12,003,262 and 12,073,344 issued and outstanding...............................                120                 121
    Additional paid-in capital.........................................................            242,636             244,269
    Accumulated deficit................................................................            (18,834)            (57,193)
                                                                                            ---------------       -------------
                                                                                                   223,922             187,197
                                                                                            ---------------       -------------
            Total liabilities and stockholders' equity.................................    $       223,922       $     187,197
                                                                                            ===============       =============
</TABLE>


             The accompanying notes are an integral part of these
                       condensed financial statements.

                                       5

<PAGE>   6

                       IRIDIUM WORLD COMMUNICATIONS LTD.

                     UNAUDITED CONDENSED STATEMENTS OF LOSS
                        (In Thousands Except Share Data)


<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                  JUNE 30,                           JUNE 30,
                                                        -----------------------------      ---------------------------
                                                            1997             1998             1997            1998
                                                        ------------     ------------      ----------     ------------
<S>                                                    <C>              <C>               <C>            <C>
Equity in loss of Iridium LLC.......................   $         779    $      20,933             779    $      38,359
                                                        ------------     ------------      ----------     ------------
Loss before income taxes............................             779           20,933             779           38,359
Income taxes........................................               -                -               -                -
                                                        ------------     ------------      ----------     ------------
Net loss............................................   $         779    $      20,933             779    $      38,359
                                                        ============     ============      ==========     ============
Net loss per Class A Common share - basic and 
  diluted ..........................................   $        0.28    $        1.74            0.56    $        3.19
                                                        ------------     ------------      ----------     ------------
Weighted average shares used in computing
  net loss per Class A Common share - basic
  and diluted.......................................       2,769,231       12,058,897       1,392,265       12,033,944
                                                        ============     ============      ==========     ============
</TABLE>



             The accompanying notes are an integral part of these
                       condensed financial statements.

                                       6

<PAGE>   7

                       IRIDIUM WORLD COMMUNICATIONS LTD.

                  UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
                                ( In Thousands )


<TABLE>
<CAPTION>
                                                                                      SIX MONTHS ENDED
                                                                                          JUNE 30,
                                                                              ---------------------------------
                                                                                  1997                 1998
                                                                              ------------         ------------
<S>                                                                          <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES :                                      
    Net loss..............................................................   $       (779)        $    (38,359)
    Adjustments to reconcile net loss to net cash
        used in operating activities -
            Equity in loss of Iridium LLC.................................            779               38,359
                                                                              ------------         ------------
Net cash used in operating activities.....................................              -                    -
                                                                              ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES :
    Investments in Iridium LLC............................................       (225,600)              (1,209)
                                                                              ------------         ------------
Net cash used in investing activities.....................................       (225,600)              (1,209)
                                                                              ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES :
    Net proceeds from equity offering.....................................        225,600                    -
    Proceeds from Class B Common Stock....................................              -                  275
    Proceeds from Class A Common Stock subscribed.........................             12                    -
    Retirement of Class A Common Stock....................................            (12)                   -
    Proceeds from exercise of stock options...............................              -                  934
                                                                              ------------         ------------
                        Net cash provided by financing activities.........        225,600                1,209
                                                                              ------------         ------------

Increase (decrease) in cash...............................................              -                    -

CASH, beginning of period.................................................              -                    -
                                                                              ------------         ------------

CASH, end of period.......................................................   $          -         $          -
                                                                              ============         ============
</TABLE>


             The accompanying notes are an integral part of these
                       condensed financial statements.

                                       7

<PAGE>   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 development stage 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.

            On July 13, 1997, in connection with the issuance of Series A Notes
by Iridium LLC, IWCL issued 300,000 warrants to purchase up to 1,560,000 shares
of Class A Common Stock and applied the net proceeds to purchase warrants to
acquire up to 1,560,000 Class 1 Interests from Iridium LLC. When a warrant to
purchase Class A Common Stock is exercised, IWCL is required to exercise a
corresponding warrant to purchase Class 1 Interests.

            Iridium LLC through its wholly-owned subsidiary Iridium Operating
LLC ("Iridium"), a Delaware limited liability company, is currently devoting
substantially all of its efforts to establishing and commercializing the Iridium
communications system (the "Iridium System").

            IWCL's sole assets are its investments in Iridium LLC. At June 30,
1998, IWCL's investment was approximately 8.5% of the total outstanding Class
1 Interests in Iridium LLC.

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 June 30, 1998 and its results of
operations for the three and six month periods ended June 30, 1998 and 1997, and
its cash flows for the six month period ended June 30, 1998 and 1997. 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 footnotes thereto included in
the Annual Report on Form 10-K and the audited consolidated financial statements
of Iridium LLC and the footnotes thereto included the Annual Report on Form
10-K.

            Since its inception on December 12, 1996 through June 30, 1998, IWCL
has not entered into any operating transactions or incurred any expenses. The
results of operations for the three and six months ended June 30, 1998 are not
necessarily indicative of the results of operations expected in the future.

3.          STOCKHOLDERS' EQUITY

GLOBAL OWNERSHIP PROGRAM

            IWCL and Iridium LLC have commenced a Global Ownership Program which
is designed to offer up to an aggregate of 2,500,000 shares of IWCL's Class B
Common Stock at a purchase price of $13.33 per share to certain governmental
telecommunication administrations and related entities as part of a
comprehensive program to enhance market access, improve the competitive standing
of the Iridium System and achieve appropriate regulatory approvals. At the time
of issuance, purchasers of Class B Common Stock are required to pay only a
minimum amount equal to the per share par value of the Class B Common Stock;
$.01 per share. The balance of the purchase price will be payable through the
withholding of dividends, if any, which would otherwise be payable on the shares
of Class B Common Stock. However, a holder of Class B Common Stock may elect to
pay the entire purchase price in cash at any time. Class B Common Stock is
convertible to Class A Common Stock on a one-for-one basis, subject to
anti-dilution adjustments, once certain conditions are met, including full
payment for the shares and expiration of a minimum holding period. The proceeds
generated from each sale of Class B Common Stock are used to


                                       8
<PAGE>   9

                        IRIDIUM WORLD COMMUNICATIONS LTD.

                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


purchase Class 1 Interests in Iridium LLC. The payment terms with respect to
such Iridium LLC Class 1 Interests will mirror the payment terms on the Class B
Common Stock. As of June 30, 1998, 20,625 shares of Class B Common Stock had
been issued under this program resulting in net proceeds of $275,000 to IWCL.
The shares were recognized at a fair value of $33.88 per share (the trading
price of the Class A Common Stock at the date of issue) with a corresponding
increase in IWCL's investment in Iridium LLC. In accordance with the Share
Issuance Agreement, the net proceeds were invested in Class 1 Interests of
Iridium LLC.


4.          EARNINGS (LOSS) 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 the Series A Notes, stock options and Class B Common Stock. Due to the
losses incurred during the three and six months ended June 30, 1998 and 1997,
the impact of the warrants and stock options is anti-dilutive and is not
included in the diluted earnings (loss) per share calculations.


                                       9

<PAGE>   10
                                  IRIDIUM LLC
               ( A Development Stage Limited Liability Company )

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                  ( In Thousands Except Member Interest Data )



<TABLE>
<CAPTION>
                                                                                                          JUNE 30,
                                                                                  DECEMBER 31,              1998
                                                                                      1997               (UNAUDITED)
                                                                                ---------------        -------------
                               ASSETS
<S>                                                                            <C>                    <C>
Current assets :
    Cash and cash equivalents.........................................         $        9,040         $       33,027
    Restricted cash...................................................                350,220                      -
    Due from affiliates...............................................                 13,604                 21,693
    Prepaid expenses and other current assets.........................                  6,612                 13,900
                                                                                --------------         --------------
        Total current assets..........................................                379,476                 68,620
Property and equipment, net...........................................              1,526,326              2,796,288
System under construction.............................................              1,625,054                576,175
Other assets..........................................................                114,831                 87,480
                                                                                --------------         --------------
        Total assets..................................................         $    3,645,687         $    3,528,563
                                                                                ==============         ==============
                   LIABILITIES AND MEMBERS' EQUITY
Current liabilities :
    Accounts payable and accrued expenses.............................         $      106,794         $      107,013
    Accounts payable to Member........................................                 10,601                 99,381
    Bank facilities, current portion..................................                350,000                415,000
                                                                                --------------         --------------
        Total current liabilities.....................................                467,395                621,394
Bank facilities, net of current portion...............................                210,000                      -
Long-term debt due to Members.........................................                273,302                297,336
Notes payable, $1,450,000 principal amount as of June 30, 1998........              1,054,288              1,403,783
Other liabilities.....................................................                  6,065                 10,156
                                                                                --------------         --------------
        Total liabilities.............................................              2,011,050              2,332,669
                                                                                --------------         --------------

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, 39,907 and 42,853
           interests issued and  outstanding; liquidation value of
            $39,907 and $42,853.......................................                 39,907                 42,853
         Series B, redeemable, 1 interest issued and outstanding......                      -                      -
         Series C, redeemable, 75 interests issued and outstanding....                      -                      -
    Class 1 Interests, authorized 225,000,000 interests,
      141,222,442 and 141,313,149 interests issued and outstanding....              2,024,220              2,030,741
    Deferred Class 1 Interest compensation............................                 (1,454)                (1,323)
    Adjustment for minimum pension liability..........................                   (643)                  (643)
    Deficit accumulated during the development stage..................               (427,393)              (875,734)
                                                                                --------------         --------------
        Total members' equity.........................................              1,634,637              1,195,894
                                                                                --------------         --------------
        Total liabilities and members' equity.........................         $    3,645,687         $    3,528,563
                                                                                ==============         ==============
</TABLE>



              The accompanying notes are an integral part of these
                        condensed financial statements.

                                       10
<PAGE>   11

                                  IRIDIUM LLC
               ( A Development Stage Limited Liability Company )

              UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS
                   (In Thousands Except Member Interest Data)




<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED JUNE 30,
                                                   --------------------------------
                                                       1997               1998
                                                   --------------     -------------
<S>                                               <C>                <C>
OPERATING EXPENSES                              
    Sales, general and administrative........     $       48,042     $       71,651
    Depreciation and amortization............                372            117,858
                                                   --------------     -------------
        Total operating expenses.............             48,414            189,509
OTHER INCOME
    Interest expense (income), net...........               (488)            55,266
                                                   --------------     -------------
Loss before provision for income taxes.......             47,926            244,775
Provision for income taxes...................                  -                  -
                                                   --------------     -------------
Net loss.....................................     $       47,926     $      244,775
                                                   =============      =============
Preferred dividend requirement...............              1,316              1,499
                                                   --------------     -------------
Net loss applicable to Class 1
  Interests.................................      $       49,242     $      246,274
                                                   ==============     =============
Net loss per Class 1 Interest -
  basic and diluted.........................      $         0.40     $         1.74
                                                   ==============     =============
Weighted average interests used
  in computing net loss per Class
  1 Interest - basic and diluted............         124,627,234        141,298,702
                                                   ==============     =============
</TABLE>

<TABLE>
<CAPTION>
                                                                                               PERIOD FROM
                                                                                              JUNE 14, 1991
                                                                                           (INCEPTION) THROUGH
                                                          SIX MONTHS ENDED JUNE 30,            JUNE 30, 1998
                                                   ------------------------------------    -------------------
                                                        1997                  1998
                                                   --------------       --------------
<S>                                               <C>                  <C>                  <C>
OPERATING EXPENSES                                
    Sales, general and administrative........     $       83,865       $       132,162      $      445,463
    Depreciation and amortization............                603               225,649             347,078
                                                   --------------       --------------       -------------
        Total operating expenses.............             84,468               357,811             792,541
OTHER INCOME                                                                                              
    Interest expense (income), net...........               (614)               90,530              75,222
                                                   --------------       --------------       -------------
Loss before provision for income taxes.......             83,854               448,341             867,763
Provision for income taxes...................                  -                     -               7,971
                                                   --------------       --------------       -------------
Net loss.....................................     $       83,854       $       448,341      $      875,734
                                                   ==============       ==============       =============
Preferred dividend requirement...............              3,607                 2,946                    
                                                   --------------       --------------                    
Net loss applicable to Class 1                                                                            
  Interests.................................      $       87,461       $       451,287                    
                                                   ==============       ==============                    
Net loss per Class 1 Interest -                                                                           
  basic and diluted.........................      $         0.71       $          3.19                    
                                                   ==============       ==============                    
Weighted average interests used                                                                           
  in computing net loss per Class                                                                         
  1 Interest - basic and diluted............         123,625,227           141,272,496                    
                                                   ==============       ==============                    
</TABLE>


              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       11
<PAGE>   12


                                  IRIDIUM LLC
               ( A Development Stage Limited Liability Company )

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                ( In Thousands )
<TABLE>
<CAPTION>
                                                                               SIX MONTHS ENDED                 PERIOD FROM
                                                                                   JUNE 30,                    JUNE 14, 1991
                                                                       --------------------------------     (INCEPTION) THROUGH
                                                                            1997               1998            JUNE 30, 1998
                                                                       --------------     -------------     -------------------
<S>                                                                   <C>                 <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
    Net loss.......................................................   $      (83,854)         (448,341)    $       (875,734)
    Adjustments to reconcile net loss to net cash
        used in operating activities -
            Depreciation and amortization..........................              603           225,649              347,078
            Interest converted to additional debt..................                -            77,208               77,208
            Expense recognized for warrants issued in
               connection with debt guarantee......................           35,266             7,885               89,219
            Employee Class 1 Interests  compensation...............                -               131                  283
            Loss on diposal of assets..............................                -                 -                   87
            Changes in assets and liabilities:
                Increase in prepaid expenses and other
                   current assets..................................           (2,167)           (7,288)             (13,900)
                Increase in due from affiliates....................           (6,793)           (8,089)             (21,693)
                Decrease (Increase) in other assets................          (16,643)            1,451              (17,208)
                (Decrease) Increase in accounts payable and
                   accrued expenses................................           20,811           (62,234)             (13,440)
                Increase (Decrease) in other liabilities...........           (1,321)            4,091               10,076
                                                                       --------------     -------------     -------------------
                    Net cash used in operating activities..........          (54,098)         (209,537)            (418,024)
                                                                       --------------     -------------     -------------------

CASH FLOWS FROM INVESTING ACTIVITIES :
    Purchases of property and equipment............................           (2,422)          (11,069)             (34,324)
    Additions to system under construction.........................         (224,566)         (298,830)          (3,390,265)
                                                                       --------------     -------------     -------------------
                    Net cash used in investing activities..........         (226,988)         (309,899)          (3,424,589)
                                                                       --------------     -------------     -------------------

CASH FLOWS FROM FINANCING ACTIVITIES :
    Net proceeds from issuance of Class 1 and Class 2 Interests....          263,691             1,209            1,933,528
    Net proceeds from issuance of senior notes and warrants........                -           341,379            1,619,021
    Borrowings under guaranteed bank line of credit................          230,000           140,000            1,300,000
    Payments under guaranteed bank line of credit..................          (75,000)         (285,000)          (1,235,000)
    Borrowings under senior secured line of credit.................                -                 -              350,000
    Decrease in restricted cash....................................                -           350,220                    0
    Deferred financing costs.......................................          (33,075)           (4,385)             (91,909)
                                                                       --------------     -------------     -------------------
                    Net cash provided by financing activities......          385,616           543,423            3,875,640
                                                                       --------------     -------------     -------------------

Increase in cash and cash equivalents..............................          104,530            23,987               33,027

CASH AND CASH EQUIVALENTS, beginning of period.....................            1,889             9,040                    -
                                                                       --------------     -------------     -------------------

CASH AND CASH EQUIVALENTS, end of period...........................   $      106,419     $      33,027     $         33,027
                                                                       ==============     =============     ===================
</TABLE>


              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       12
<PAGE>   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 are devoting their
present efforts to developing and commercializing a global wireless system --
the Iridium(R) Communications System (the "Iridium System") -- that will enable
subscribers to send and receive telephone calls virtually anywhere in the world
-- all with one phone, one phone number and one customer bill.

            Iridium, Inc. 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. As a result of three private placements of equity,
five supplemental private placements with certain additional equity investors
and proceeds received from the initial public offering 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 19.73% as
of June 30, 1998, before considering unexercised warrants held by Motorola.

            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").

            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, including, without limitation, all
liabilities with respect to the outstanding 13% Senior Notes due 2005, Series A
and 14% Senior Notes due 2005, Series B and the 11 1/4% Senior Notes due 2005,
Series C (collectively, the "Senior Notes"). Pursuant to the indentures relating
to the Senior Notes, Iridium has been substituted for the Parent, and the Parent
has been released from all obligations under the indentures relating to the
Senior Notes. 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. As a result of the Asset Drop-Down Transaction, the
Parent's only significant asset is its investment in Iridium.

            Iridium has contracted with Motorola to design, develop, produce and
deliver into orbit the space segment component of the Iridium System. The
scheduled date for delivery of the approximately $3.45 billion space segment is
in 1998. Iridium plans to begin its commercial operations in September 1998.

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 June 30, 1998, and the results of
their operations for the three and six month periods ended June 30, 1998 and
1997, and the period from June 14, 1991 (inception) through June 30, 1998, and
their cash flows for the six month periods ended June 30, 1998 and 1997, and the
period from June 14, 1991 (inception) through June 30, 1998. These condensed
consolidated financial statements are unaudited, and do not include all related
footnote disclosures. The results of operations for the three and six months
ended June 30, 1998 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 the commencement of commercial operations
and anticipates a net loss for the year. 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.


                                       13
<PAGE>   14

                                   IRIDIUM LLC
                 (A Development Stage Limited Liability Company)

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


3.          MEMBERS' EQUITY

            The Parent declared approximately $1,449,000 and $1,316,000 of
in-kind dividends to holders of Series A Class 2 Membership Interests during the
three month periods ended June 30, 1998 and 1997, respectively, and $2,946,000
and $3,607,000 for the six month periods ended June 30, 1998 and 1997,
respectively.

GLOBAL OWNERSHIP PROGRAM

            The Parent, in conjunction with IWCL, has commenced a Global
Ownership Program which is designed to offer up to an aggregate of 2,500,000
shares of IWCL's Class B Common Stock at a purchase price of $13.33 per share to
certain governmental telecommunication administrations and related entities as
part of a comprehensive program to enhance market access, improve the
competitive standing of the Iridium System and achieve appropriate regulatory
approvals. As of June 30, 1998, 20,625 shares of Class B Common Stock had been
issued under this program resulting in net proceeds of $275,000 to IWCL. In
accordance with the Share Issuance Agreement, IWCL invested the net proceeds in
Parent in exchange for 20,625 Class 1 Interests. The shares were recognized at a
fair value of $33.88 per share (the trading price of IWCL's Class A Common Stock
at the date of issue) with the difference between the purchase price and fair
value capitalized as license costs. During the six months ended June 30, 1998,
$424,000 was capitalized to license costs under this program. No amounts were
capitalized during the six months ended June 30, 1997.

4.          SUPPLEMENTAL CASH FLOW INFORMATION

            During the six months ended June 30, 1998 and 1997, $160,628,000 and
$32,032,000, respectively, of interest costs were incurred. Interest expensed
for the six months ended June 30, 1998 was $90,857,000 with the remaining
interest capitalized to the system under construction. For the six months ended
June 30, 1997, all interest expense was capitalized to the system under
construction. Interest paid was $82,781,000 and $7,931,000 during the six months
ended June 30, 1998 and 1997, respectively.

5.          TRANSACTIONS WITH MEMBERS

GUARANTEED BANK FACILITY

            In accordance with the Second Amended and Restated Agreement
Regarding Guarantee, dated May 11, 1998, among the Parent, Iridium and Motorola,
pursuant to which Motorola guaranteed Iridium's obligations under the Guaranteed
Bank Facility, an additional 9,071 and 40,912 warrants to purchase 680,325 and
3,068,400 Class 1 Interests, respectively, were earned by Motorola during the
six months ended June 30,1998 and 1997, respectively. The Parent recognized
$7,885,000 and $35,266,000 as expense during the six months ended June 30, 1998
and 1997, respectively, in connection with the warrants earned by Motorola.
Warrant expense for the three months ended June 30, 1998 and 1997 was $2,624,000
and $17,536,000, respectively.

            The Second Amended and Restated Agreement Regarding Guarantee
provides that, when the Guaranteed Bank Facility and Motorola's Guarantee have
been permanently reduced to $275 million or less, the Parent and Iridium have
the option to compensate Motorola for its Guarantee by having the Parent
continue to pay warrant compensation at the existing rate or (i) having Iridium
pay interest on the guaranteed amount at a rate based on the difference between
the interest rate on the Guaranteed Bank Facility and the interest rate on the
Series A and Series B Senior Notes of Iridium Operating LLC plus (ii) having the
Parent pay substantially reduced warrant compensation based on the number of
warrants issued in connection with the offering of the Series A Notes (the "High
Yield Compensation"). Interest incurred on the guaranteed amount was $2,833,000
for both the three and six months ended June 30, 1998.

            On May 13, 1998, Iridium permanently reduced the commitment of the
bank lenders under the Guaranteed Bank Facility from $450 million to $275
million. As a result of the reduction, the maximum number of warrants Motorola
is expected to earn as compensation for their guarantee of that facility from
inception until the expected maturity in June 1999 is 104,229 warrants to
purchase approximately 7,817,000 Class 1 Interests (assuming Iridium and Parent
pay High Yield Compensation,


                                       14
<PAGE>   15

                                   IRIDIUM LLC
                 (A Development Stage Limited Liability Company)

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


including interest on the guaranteed amount, through maturity).

            Currently, Iridium and the Parent have elected to pay Motorola High
Yield Compensation. While the Parent and Iridium expect that electing to pay
High Yield Compensation will reduce the effective cost of the Motorola
Guarantee, there can be no assurance that such expectation will prove correct or
that the Motorola Guarantee will not exceed $275 million.

STANDBY PURCHASE AGREEMENT

            In an effort to ensure that sufficient quantities of hand-held
phones and pagers are available for distribution in advance of the commencement
of commercial operations, Parent has entered into with Motorola, and intends to
enter into with Kyocera Corporation, standby commitments to purchase an
aggregate of up to $400 million in subscriber equipment. These Commitments would
be triggered on or after January 1, 1999, but only to the extent such subscriber
equipment is not purchased by and shipped to gateway operators or service
providers prior to January 1, 1999.

6.          LONG TERM DEBT

            On May 13, 1998, Iridium and Iridium Capital Corporation completed
an offering of $350 million principal amount of 10 7/8% Senior Notes due 2005,
Series D ("Series D Notes"). The Series D Notes are guaranteed by Iridium
Roaming LLC, Iridium IP LLC and Iridium Facilities Corporation. The Series D
Notes have substantially the same terms as the Senior Notes other than interest
rate and issue date. The net proceeds received were approximately $341 million.
Interest on the Series D Notes is payable in cash semi-annually on January 15
and July 15 of each year, commencing on July 15, 1998. The Series D Notes are
redeemable at the option of Iridium, in whole or in part, at any time on or
after July 15, 2002. The Series D Notes mature on July 15, 2005.

7.          EARNINGS PER SHARE

            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 share 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 and six months ended June
30, 1998, the impact of other potentially dilutive securities is anti-dilutive
and is not included in the diluted earnings (loss) per Class 1 Interest
calculations.

8.          COMPREHENSIVE INCOME

            In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, Reporting Comprehensive Income. Accumulated other
comprehensive income (loss) consists entirely of the minimum pension liability.
The new disclosure requirements with respect to comprehensive income are as
follows:

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS                 SIX MONTHS
                                                                                  ENDED JUNE 30,              ENDED JUNE 30,
                                                                             ------------------------    ------------------------
                                                                                1997          1998          1997          1998
                                                                             ---------     ----------    ---------     ----------
<S>                                                                          <C>           <C>           <C>           <C>
Comprehensive income (loss):
Net loss, as reported..................................................      $(47,926)     $(244,775)    $(83,854)     $(448,341)
Other comprehensive income (loss)......................................              -              -            -              -
                                                                             ---------     ----------    ---------     ----------
Total..................................................................      $(47,926)     $(244,775)    $(83,854)     $(448,341)
                                                                             =========     ==========    =========     ==========

Accumulated other comprehensive income (loss):
Beginning of period....................................................        $(733)         $(643)       $(733)         $(643)
                                                                               ======         ======       ======         ======
End of period..........................................................        $(733)         $(643)       $(733)         $(643)
                                                                               ======         ======       ======         ======
</TABLE>


                                       15

<PAGE>   16

                             IRIDIUM OPERATING LLC
                  ( A Wholly-Owned Subsidiary of Iridium LLC )
               ( A Development Stage Limited Liability Company )

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                ( In Thousands )
<TABLE>
<CAPTION>
                                                                                                    JUNE 30,
                                                                              DECEMBER 31,            1998
                                                                                  1997             (UNAUDITED)
                                                                              -------------       -------------
                                ASSETS
<S>                                                                          <C>                 <C>
Current assets :
    Cash and cash equivalents............................................    $       5,940       $      33,027
    Restricted cash .....................................................          350,220                   -
    Due from affiliates..................................................           13,604              21,693
    Prepaid expenses and other current assets............................            6,612              13,900
                                                                              -------------       -------------
        Total current assets.............................................          376,376              68,620
Property and equipment, net  ............................................        1,526,326           2,796,288
System under construction  ..............................................        1,625,054             576,175
Other assets ............................................................          114,831              86,932
                                                                              -------------       -------------
        Total assets.....................................................    $   3,642,587       $   3,528,015
                                                                              =============       =============

          LIABILITIES AND MEMBER'S EQUITY
Current liabilities :
    Accounts payable and accrued expenses................................    $     106,794       $     107,013
    Accounts payable to Parent's Members.................................           10,601              99,381
    Bank facilities, current portion.....................................          350,000             415,000
                                                                              -------------       -------------
        Total current liabilities........................................          467,395             621,394
Bank facilities, net of current portion..................................          210,000                   -
Long-term debt due to Parent's Members...................................          273,302             297,336
Notes payable, $1,450,000 principal amount as of June 30, 1998...........        1,054,288           1,403,783
Other liabilities........................................................            6,065              10,156
                                                                              -------------       -------------
        Total liabilities................................................        2,011,050           2,332,669
                                                                              -------------       -------------

Commitments and Contingencies
Member's equity :
    Member's Interest....................................................        2,059,421           2,071,440
    Deficit accumulated during the development stage.....................         (427,241)           (875,451)
    Adjustment for minimum pension liability.............................             (643)               (643)
                                                                              -------------       -------------
        Total member's equity............................................        1,631,537           1,195,346
                                                                              -------------       -------------
        Total liabilities and member's equity............................    $   3,642,587       $   3,528,015
                                                                              =============       =============
</TABLE>




              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       16
<PAGE>   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)


<TABLE>
<CAPTION>
                                                                                                                   PERIOD FROM
                                                                                                                  JUNE 14, 1991
                                                                                                               (INCEPTION) THROUGH
                                            THREE MONTHS ENDED JUNE 30,         SIX MONTHS ENDED JUNE 30,         JUNE 30, 1998
                                           -----------------------------     -------------------------------   -------------------
                                              1997             1998              1997                1998
                                           ------------     ------------     ------------       ------------
<S>                                       <C>              <C>              <C>                <C>             <C>
OPERATING EXPENSES
    Sales, general and
       administrative................     $     48,042     $      71,570    $     83,865       $     132,031      $     445,180
    Depreciation and amortization....              372           117,858             603             225,649            347,078
                                           ------------     ------------     ------------       ------------       ------------
        Total operating expenses.....           48,414           189,428          84,468             357,680            792,258
OTHER INCOME
    Interest expense (income),
      net............................             (488)           55,266            (614)             90,530             75,222
                                           ------------     ------------     ------------       ------------       ------------
Loss before provision for
  income taxes.......................           47,926           244,694          83,854             448,210            867,480
Provision for income taxes...........                -                 -               -                   -              7,971
                                           ------------     ------------     ------------       ------------       ------------
Net loss.............................     $     47,926     $     244,694    $     83,854       $     448,210      $     875,451
                                           ============     ============     ============       ============       ============
</TABLE>




              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       17
<PAGE>   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 )

<TABLE>
<CAPTION>
                                                                                                                  PERIOD FROM
                                                                                       SIX MONTHS ENDED          JUNE 14, 1991
                                                                                           JUNE 30,               (INCEPTION)
                                                                                  ---------------------------       THROUGH
                                                                                      1997            1998       JUNE 30, 1998
                                                                                  ------------   ------------    --------------
<S>                                                                              <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
    Net loss.................................................................    $    (83,854)      (448,210)   $     (875,451)
    Adjustments to reconcile net loss to net cash
        used in operating activities -
            Depreciation and amortization....................................             603        225,649           347,078
            Interest converted to additional debt............................               -         77,208            77,208
            Expense recognized for warrants issued in
               connection with debt guarantee................................          35,266          7,885            89,219
            Loss on diposal of assets........................................               -              -                87
            Changes in assets and liabilities:
                Increase in prepaid expenses and other current assets........          (2,167)        (7,288)          (13,900)
                Increase in due from affiliates..............................          (6,793)        (8,089)          (21,693)
                Decrease (Increase) in other assets..........................         (16,643)         1,451           (17,208)
                (Decrease) Increase in accounts payable and accrued
                   expenses..................................................          20,811        (62,234)          (13,440)
                Increase (Decrease) in other liabilities.....................          (1,321)         4,091            10,076
                                                                                  ------------   ------------    --------------
                    Net cash used in operating activities....................         (54,098)      (209,537)         (418,024)
                                                                                  ------------   ------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES :
    Purchases of property and equipment......................................          (2,422)       (11,069)          (34,324)
    Additions to system under construction...................................        (224,566)      (298,830)       (3,390,265)
                                                                                  ------------   ------------    --------------
                    Net cash used in investing activities....................        (226,988)      (309,899)       (3,424,589)
                                                                                  ------------   ------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES :
    Net proceeds from issuance of Parent's Class 1 and Class 2
      Interests..............................................................         263,691          1,209         1,933,528
    Net proceeds from issuance of senior notes and warrants..................               -        341,379         1,619,021
    Borrowings under guaranteed bank line of credit..........................         230,000        140,000         1,300,000
    Payments under guaranteed bank line of credit............................         (75,000)      (285,000)       (1,235,000)
    Borrowings under senior secured line of credit...........................               -              -           350,000
    Decrease in restricted cash..............................................               -        350,220                 -
    Deferred financing costs.................................................         (33,075)        (4,385)          (91,909)
    Transfer from Parent.....................................................               -          3,100                 -
                                                                                  ------------   ------------    --------------
                    Net cash provided by financing activities................         385,616        546,523         3,875,640
                                                                                  ------------   ------------    --------------

Increase in cash and cash equivalents........................................         104,530         27,087            33,027

CASH AND CASH EQUIVALENTS, beginning of period...............................           1,889          5,940                 -
                                                                                  ------------   ------------    --------------

CASH AND CASH EQUIVALENTS, end of period.....................................    $    106,419   $     33,027    $       33,027
                                                                                  ============   ============    ==============
</TABLE>




              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       18
<PAGE>   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") is devoting its present efforts to developing and
commercializing a global wireless system -- the Iridium(R) Communications System
(the "Iridium System") -- that will enable subscribers to send and receive
telephone calls virtually anywhere in the world -- all with one phone, one phone
number and one customer bill.

            Iridium, Inc. 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. As a result of three private placements of equity,
five supplemental private placements with certain additional equity investors
and proceeds received from the initial public offering 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 19.73% as
of June 30, 1998, before considering unexercised warrants held by Motorola.

            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").

            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, including, without limitation, all
liabilities with respect to the outstanding 13% Senior Notes due 2005, Series A
and 14% Senior Notes due 2005, Series B and the 11 1/4% Senior Notes due 2005,
Series C (collectively, the "Senior Notes"). Pursuant to the indentures relating
to the Senior Notes, Iridium has been substituted for the Parent, and the Parent
has been released from all obligations under the indentures relating to the
Senior Notes. 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. As a result of the Asset Drop-Down Transaction, the
Parent's only significant asset is its investment in Iridium.

            Iridium has contracted with Motorola to design, develop, produce and
deliver into orbit the space segment component of the Iridium System. The
scheduled date for delivery of the $3.45 billion space segment is in 1998.
Iridium plans to begin its commercial operations in September 1998.

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 June 30, 1998, and the results of
their operations for the three and six month periods ended June 30, 1998 and
1997, and the period from June 14, 1991 (inception) through June 30, 1998, and
their cash flows for the six month periods ended June 30, 1998 and 1997, and the
period from June 14, 1991 (inception) through June 30, 1998. These condensed
consolidated financial statements are unaudited, and do not include all related
footnote disclosures. The results of operations for the three and six months
ended June 30, 1998 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 the commencement of commercial operations and
anticipates a net loss for the year. 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.


                                       19
<PAGE>   20


                              IRIDIUM OPERATING LLC
                   (A Wholly-Owned Subsidiary of Iridium LLC)
                 (A Development Stage Limited Liability Company)

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


3.          SUPPLEMENTAL CASH FLOW INFORMATION

            During the six months ended June 30, 1998 and 1997, $160,628,000 and
$32,032,000, respectively, of interest costs were incurred. Interest expensed
for the six months ended June 30, 1998 was $90,857,000 with the remaining
interest capitalized to the system under construction. For the six months ended
June 30, 1997, all interest expense was capitalized to the system under
construction. Interest paid was $82,781,000 and $7,931,000 during the six months
ended June 30, 1998 and 1997, respectively.

4.          TRANSACTIONS WITH MEMBERS OF THE PARENT

GUARANTEED BANK FACILITY

            In accordance with the Second Amended and Restated Agreement
Regarding Guarantee, dated May 11, 1998, among Iridium, the Parent and Motorola,
pursuant to which Motorola guaranteed Iridium's obligations under the Guaranteed
Bank Facility, an additional 9,071 and 40,912 warrants to purchase 680,325 and
3,068,400 Class 1 Interests, respectively, were earned by Motorola during the
six months ended June 30,1998 and 1997, respectively. The Parent recognized
$7,885,000 and $35,266,000 as expense during the six months ended June 30, 1998
and 1997, respectively, in connection with the warrants earned by Motorola.
Warrant expense for the three months ended June 30, 1998 and 1997 was $2,624,000
and $17,536,000, respectively.

            The Second Amended and Restated Agreement Regarding Guarantee
provides that, when the Guaranteed Bank Facility and Motorola's Guarantee have
been permanently reduced to $275 million or less, the Parent and Iridium have
the option to compensate Motorola for its Guarantee by having the Parent
continue to pay warrant compensation at the existing rate or (i) having Iridium
pay interest on the guaranteed amount at a rate based on the difference between
the interest rate on the Guaranteed Bank Facility and the interest rate on the
Series A and Series B Senior Notes of Iridium Operating LLC plus (ii) having
Parent pay substantially reduced warrant compensation based on the number of
warrants issued in connection with the offering of the Series A Notes (the "High
Yield Compensation"). Interest incurred on the guaranteed amount was $2,833,000
for both the three and six months ended June 30, 1998.

            On May 13, 1998, Iridium permanently reduced the commitment of the
bank lenders under the Guaranteed Bank Facility from $450 million to $275
million. As a result of the reduction, the maximum number of warrants Motorola
is expected to earn as compensation for their guarantee of that facility from
inception until the expected maturity in June 1999 is 104,229 warrants to
purchase approximately 7,817,000 Class 1 Interests (assuming Iridium and the
Parent pay High Yield Compensation, including interest on the guaranteed amount,
through maturity).

            Currently, Iridium and the Parent have elected to pay Motorola High
Yield Compensation. While Iridium and the Parent expect that electing to pay
High Yield Compensation will reduce the effective cost of the Motorola
Guarantee, there can be no assurance that such expectation will prove correct or
that the Motorola Guarantee will not exceed $275 million.

STANDBY PURCHASE AGREEMENT

            In an effort to ensure that sufficient quantities of hand-held
phones and pagers are available for distribution in advance of the commencement
of commercial operations, Iridium has entered into with Motorola, and intends to
enter into with Kyocera Corporation, standby commitments to purchase an
aggregate of up to $400 million in subscriber equipment. These Commitments would
be triggered on or after January 1, 1999, but only to the extent such subscriber
equipment is not purchased by and shipped to gateway operators or service
providers prior to January 1, 1999.


                                       20
<PAGE>   21

                              IRIDIUM OPERATING LLC
                   (A Wholly-Owned Subsidiary of Iridium LLC)
                 (A Development Stage Limited Liability Company)

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


5.          LONG TERM DEBT

            On May 13, 1998, Iridium and Iridium Capital Corporation completed
an offering of $350 million principal amount of 10 7/8% Senior Notes due 2005,
Series D ("Series D Notes"). The Series D Notes are guaranteed by Iridium
Roaming LLC, Iridium IP LLC and Iridium Facilities Corporation. The Series D
Notes have substantially the same terms as the Senior Notes other than interest
rate and issue date. The net proceeds received were approximately $341 million.
Interest on the Series D Notes is payable in cash semi-annually on January 15
and July 15 of each year, commencing on July 15, 1998. The Series D Notes are
redeemable at the option of Iridium, in whole or in part, at any time on or
after July 15, 2002. The Series D Notes mature on July 15, 2005.


6.          COMPREHENSIVE INCOME

            In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, Reporting Comprehensive Income . Accumulated other
comprehensive income consists entirely of the minimum pension liability. The new
disclosure requirements with respect to comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS                 SIX MONTHS
                                                                                  ENDED JUNE 30,              ENDED JUNE 30,
                                                                             ------------------------    ------------------------
                                                                                1997          1998          1997          1998
                                                                             ---------     ----------    ---------     ----------
<S>                                                                          <C>           <C>           <C>           <C>
Comprehensive income (loss):
Net loss, as reported..................................................      $(47,926)     $(244,694)    $(83,854)     $(448,210)
Other comprehensive income (loss)......................................              -              -            -              -
                                                                             ---------     ----------    ---------     ----------
Total..................................................................      $(47,926)     $(244,694)    $(83,854)     $(448,210)
                                                                             =========     ==========    =========     ==========

Accumulated other comprehensive income (loss):
Beginning of period....................................................        $(733)        $(643)        $(733)        $(643)
                                                                               ======        ======        ======        ======
End of period..........................................................        $(733)        $(643)        $(733)        $(643)
                                                                               ======        ======        ======        ======
</TABLE>

7.          IRIDIUM SUBSIDIARIES

            The Senior Notes 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 and Iridium Facilities Corporation (collectively, the "Guarantor
Subsidiaries" and together with Capital and Iridium Facilities Canada Inc., the
"Iridium Subsidiaries"). Each of the Iridium Subsidiaries is a wholly-owned
subsidiary of Iridium and, as of June 30, 1998, Iridium has no subsidiaries
other than the Iridium Subsidiaries. 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 and Iridium Facilities
Canada Inc. were formed by Iridium on February 6, 1998 and March 19, 1998,
respectively.


                                       21
<PAGE>   22


                              IRIDIUM OPERATING LLC
                   (A Wholly-Owned Subsidiary of Iridium LLC)
                 (A Development Stage Limited Liability Company)

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


            The following is summarized financial information of Capital as of
June 30, 1998 and for the period from inception through June 30, 1998. Full
financial statements of Capital are not presented because management believes
they are not material to investors.

<TABLE>
<CAPTION>
                                                                JUNE 30, 1998
                                                                -------------
            <S>                                                 <C>
            Current assets..............................             $ 0
            Total assets................................               0
            Current liabilities.........................               0
            Total liabilities...........................               0
</TABLE>

<TABLE>
<CAPTION>
                                                             FOR THE PERIOD FROM
                                                              INCEPTION THROUGH
                                                                JUNE 30, 1998
                                                             -------------------
            <S>                                              <C>
            Net revenues................................             $ 0
            Cost of services............................               0
            Net loss....................................               0
</TABLE>

            Iridium has recognized the obligations relating to the Series A
Notes, the Series B Notes and the Series C Notes because Iridium expects to have
the operations to service such obligations.

            The following is summarized financial information of the Guarantor
Subsidiaries and Iridium Facilities Canada Inc. as of June 30, 1998, and for the
period from inception of each of the Guarantor Subsidiaries and Iridium
Facilities Canada Inc. through June 30, 1998. Full financial statements of the
Guarantor Subsidiaries and Iridium Facilities Canada Inc. are not presented
because management believes they are not material to investors.


<TABLE>
<CAPTION>
                                                                JUNE 30, 1998
                                                                -------------
            <S>                                                 <C>
            Current assets..............................             $ 0
            Total assets................................               0
            Current liabilities.........................               0
            Total liabilities...........................               0
</TABLE>

<TABLE>
<CAPTION>
                                                             FOR THE PERIOD FROM
                                                              INCEPTION THROUGH
                                                                JUNE 30, 1998
                                                             -------------------
            <S>                                              <C>
            Net revenues................................           $   0
            Cost of services............................               0
            Net loss....................................               0
</TABLE>


                                       22

<PAGE>   23

ITEM 2.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     This quarterly report is filed jointly by Iridium World Communications Ltd.
("IWCL"), Iridium LLC ("Parent"), Iridium Operating LLC ("Iridium"), Iridium
Capital Corporation ("Capital"), Iridium Roaming LLC ("Roaming"), Iridium IP LLC
("IP") and Iridium Facilities Corporation ("Facilities"). IWCL acts as a member
of the Parent and has no other business. The business of Iridium constitutes
substantially all of the business of the Parent. Capital, Roaming, IP, and
Facilities are wholly owned subsidiaries of Iridium.

FORWARD LOOKING STATEMENTS

     Iridium is a development stage company with no operating history.
Accordingly, many statements in this report are forward looking. Examples of
such forward looking statements include, but are not limited to, statements
concerning the expected commercial operations date, testing schedule,
operational capabilities, launch schedule, financing needs, financing sources,
the last year in which Iridium will have negative cash flow and a net increase
in year-end borrowings, software installation schedule, availability of Iridium
handsets and actions of third parties, including equipment suppliers, gateway
operators, system contractors, service providers and roaming partners. These
forward looking statements are based on a number of assumptions and are
inherently predictive and speculative. One or more of the assumptions underlying
such forward looking statements is likely to be incorrect. Therefore, actual
results may be materially different from those expressed or implied by such
statements.

     Factors which may cause IWCL's, the Parent's or Iridium's results to differ
materially from those expressed or implied by such forward looking statements
include, but are not limited to, (i) Iridium's absence of current revenues,
highly leveraged capital structure and significant additional funding needs,
(ii) delays and cost overruns related to the construction, deployment and
operation of the Iridium System, including, but not limited to, the
implementation of satellites, software and subscriber equipment, (iii)
technological risks related to the development and implementation of the various
components of the Iridium System, (iv) customer acceptance of Iridium World
Services, (v) satellite launch, operation and maintenance risks, (vi) risks
associated with the need to obtain operating licenses in the numerous countries
where Iridium assumes it will provide its services, (vii) competition from
satellite and terrestrial communications services and (viii) Iridium's
dependence on Motorola, Inc. ("Motorola"), gateway operators and other members
of the Parent for the construction and operation of the Iridium System and the
distribution and marketing of Iridium World Services. These factors, and other
factors that may materially affect Iridium's operations, are described in
greater detail in the Securities and Exchange Commission filings of IWCL, Parent
and Iridium, including Exhibit 99 to this report and should be carefully
considered by investors and prospective investors in IWCL, Parent or Iridium.

     BACKGROUND

     IWCL was incorporated by Parent as an exempted company under the Companies
Act 1981 of Bermuda on December 12, 1996. IWCL is organized to act as a member
of Parent and to have no other business. On June 13, 1997, IWCL consummated an
initial public offering (the "IWCL IPO") of 12,000,000 shares of its Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock") and applied
the net proceeds of approximately $225 million to purchase 12,000,000 Class 1
Membership Interests in Parent. As of June 30, 1998, IWCL owned approximately
8.5% of the outstanding Class 1 Membership Interests in Parent.

     On July 16, 1997, IWCL, the Parent and Capital, consummated a private
offering of (i) 300,000 units each consisting of (A) $1,000 principal amount of
13% Senior Notes due 2005, Series A of the Parent and Capital (the "Series A
Notes") and (B) one warrant ("Warrant") to purchase 5.2 shares of Class A Common
Stock and (ii) $500,000,000 aggregate principal amount of 14% Senior Notes due
2005, Series B of the Parent and Capital (the "Series B Notes") for aggregate
net proceeds to the Parent of approximately $746


                                       23
<PAGE>   24


million. The Series A Notes and Series B Notes are guaranteed by IP, Roaming and
Facilities, a Delaware Corporation and a wholly-owned subsidiary of Iridium
which holds Iridium's real property.

     In the aggregate, the Warrants entitle the holders thereof to purchase
1,560,000 shares of Class A Common Stock. The exercise price of the Warrants is
$20.90 per share of Class A Common Stock. The Warrants are exercisable at any
time after July 11, 1998, subject to certain conditions. The Warrants expire on
July 15, 2005. In connection with the issuance of the Warrants, the Parent
issued to IWCL warrants to purchase Class 1 Interests (the "Parent Interest
Warrants") having the same tenor and terms as the Warrants. The Parent Interest
Warrants entitle IWCL to purchase, in the aggregate, a number of Class 1
Interests equal to the aggregate number of shares of Class A Common Stock issued
in respect of the Warrants, subject to anti-dilution adjustments. IWCL has
agreed, subject to anti-dilution adjustments, to exercise one such warrant for
each share of Class A Common Stock issued pursuant to the Warrants.

     On October 17, 1997, the Parent and Capital consummated a private offering
of $300,000,000 aggregate principal amount of 11.25% Senior Notes due 2005,
Series C of the Parent and Capital (the "Series C Notes" and together with the
Series A Notes and the Series B Notes, the "Senior Notes") for aggregate net
proceeds to the Parent of approximately $293 million. The Series C Notes are
guaranteed by IP, Roaming and Facilities.

     On May 13, 1998, Iridium and Capital completed an offering of $350 million
principal amount of 10 7/8% Senior Notes due 2005, Series D ("Series D Notes").
The Series D Notes are guaranteed by Roaming, IP and Facilities. The Series D
Notes have substantially the same terms as the Senior Notes other than interest
rate and issue date. The net proceeds received were approximately $341 million.
Interest on the Series D Notes is payable in cash semi-annually on January 15
and July 15 of each year, commencing on July 15, 1998. The Series D Notes are
redeemable at the option of Iridium, in whole or in part, at any time on or
after July 15, 2002. The Series D Notes mature on July 15, 2005.

     Parent was formed as a limited liability company pursuant to the provisions
of the Delaware Limited Liability Company Act (the "Delaware Act") on July 16,
1996. Parent's purpose is to acquire, own and manage the Iridium Communications
System (the "Iridium System").

     Iridium was formed as a limited liability company pursuant to the
provisions of the Delaware Act on October 23, 1997. Iridium is a wholly-owned
subsidiary of Parent and has the same purpose as Parent.

     On December 18, 1997, Parent and Iridium effected an asset drop-down
transaction (the "Asset Drop-Down Transaction") pursuant to which substantially
all of the assets and liabilities of Parent were transferred to Iridium. The
Asset Drop-Down Transaction was effected for the purpose of providing the agent
for the secured lenders under Iridium's $1 billion Secured Bank Facility (as
defined) with an efficient means for obtaining a security interest in the
membership interests in Iridium.

     Capital is a Delaware corporation and a wholly-owned subsidiary of Iridium.
Capital has no business other than serving as a co-issuer of Iridium's $1.45
billion in aggregate principal amount of Senior Notes (as defined) and guarantor
of Iridium's Secured Bank Facility (as defined). Capital has no significant
assets and does not conduct any operations.

     Roaming, a Delaware limited liability company and a wholly-owned subsidiary
of Iridium, is the entity that enters into roaming agreements with other
wireless telecommunications providers on behalf of Iridium. IP, also a Delaware
limited liability company and a wholly-owned subsidiary of Iridium, holds the
worldwide trademark registrations of Iridium. Each of Roaming and IP is a
guarantor of the Senior Notes and the Secured Bank Facility. The Senior Notes
and the Secured Bank Facility also are guaranteed by a new wholly-owned
subsidiary of Iridium, Facilities, a Delaware Corporation. Facilities is the
entity which will hold certain real property of Iridium.

     Iridium Facilities Canada Inc. ("Facilities Canada") is a new, wholly-owned
subsidiary of Iridium. Facilities Canada was formed to hold certain real
property of Iridium located in Canada.

     IWCL acts as a member of Parent and has no other business. The business of
Iridium constitutes substantially all of Parent's business. The business of
Iridium is described below. Any reference below to


                                       24
<PAGE>   25


Iridium relating to any event prior to the Asset Drop-Down Transaction should be
interpreted as a reference to the Parent, as predecessor to Iridium.

     IWCL's sole assets are its Class 1 Interests and its Parent Interest
Warrants, and IWCL's results of operations reflect its proportionate share of
the results of operations of Parent on an equity accounting basis. IWCL has no
operations other than those related to its interest in Parent and, indirectly,
Iridium. Accordingly, management's discussion and analysis addresses the
financial condition and results of operations of Parent and Iridium.

     RECENT DEVELOPMENTS

     Iridium is currently devoting substantially all of its efforts to
establishing and commercializing the Iridium System. As such, Iridium's current
principal activities relate to managing the design, construction and development
of the system and preparing for its day-to-day operations.

     Iridium, Motorola and the various gateway owners have made substantial
progress in the development and implementation of the Iridium System and related
activities and expect to commence commercial service on schedule in September
1998. As of July 20, 1998, Motorola has launched 72 Iridium satellites, 65 of
which are functioning properly. Motorola has contracted for two August 1998
maintenance launches, one with China Great Wall for two satellites and one with
Boeing for five satellites, which should increase the number of operational and
spare satellites to 72.

     Installation of the final satellite software is scheduled to be completed
prior to September 23, 1998, the date commercial service is scheduled to
commence. However, delays in the development of this software have resulted in a
shortened schedule for subscriber trials. The delay in the availability of the
final constellation software has also affected Motorola's and Kyocera's ability
to test handsets, which could result in delays of handset deliveries,
particularly by Kyocera. Iridium believes that Motorola handsets will be
available in sufficient quantities to support the initial demand following
commercial activation, with Kyocera handsets available later in 1998.

     Motorola has completed construction of the terrestrial facilities necessary
to command the in-space movements of the Iridium System's satellites, including
the Satellite and Network Operations Center and the associated tracking,
telemetry and command facilities. Iridium expects to provide virtually global
service initially through up to 12 gateways and 15 business offices. The
construction of the 12 gateway facilities is complete and the telecommunications
equipment has been installed at 11 locations. Equipment for the gateway in China
has been shipped and its installation has commenced. Gateway ground stations and
business office testing continues on the satellites, network, telephony, paging
and billing systems. Operations trials for voice services have been completed
successfully in 10 gateway territories. Business systems hardware and software
has been installed in 14 of the 15 business offices and nine business offices
have completed software acceptance testing.

     Iridium has commenced the initial phase of the alpha trials, which focus on
business scenarios, including subscriber provisioning, SIM card validation and
call detail record processing. Constellation-based "network" alpha trials began
at 3 gateways on August 1, 1998. Beta tests, with subscriber participation, are
scheduled to commence in mid-September, and Iridium expects such tests to
continue through the scheduled commencement of commercial service.

     In addition, Iridium has begun its $200 million 1998 global advertising
program. The global advertising program is designed to increase international
recognition of the Iridium brand and generate initial demand for Iridium
services.

     Iridium has made significant progress to date in securing the worldwide
regulatory approvals necessary to build and operate the Iridium System. The
space segment of the Iridium System has been licensed by the United States, and
Iridium believes that international coordination has been completed successfully
between the Iridium System and all existing or planned systems that have been
identified through the coordination process. No other action is required from
any other country to license the space segment. With respect to the 12 gateways,
eight licenses and four experimental licenses to build and operate gateways have
been received. With respect to the subscriber units, each country in which
Iridium intends


                                       25
<PAGE>   26


to operate must authorize use of Iridium subscriber equipment, including
allocation of subscriber link frequencies. The FCC licensed the operation of
handsets in the United States and, as of July 9, 1998, all or a substantial
portion of the authorizations necessary to operate the Iridium System had been
granted in an additional 88 jurisdictions. Iridium's gateway owners are
dedicating substantial effort to obtaining licensing for Iridium services in the
countries in their service territories with particular focus on obtaining
licenses by the commencement of commercial operations in those countries which
are expected to account for most of the demand for and usage of Iridium
services.

     Iridium also has made significant progress in securing service providers
and roaming partners. As of June 30, 1998, Iridium or its gateway operators had
entered into over 200 service provider agreements and roaming agreements, which
collectively cover markets that make up a majority of Iridium's business plan.

LIQUIDITY AND CAPITAL RESOURCES

FUNDING REQUIREMENTS

     Iridium expects to commence commercial operations on September 23, 1998.
Iridium currently estimates that aggregate cash funding requirements from the
commencement of development (June 1991) through the anticipated commencement of
commercial operations will be approximately $4.5 billion. At June 30, 1997 and
1998, Iridium had expended approximately $2.72 billion (or 60%) and
approximately $3.95 billion (or 88%), respectively, of such $4.5 billion
estimate. Iridium estimates aggregate cash funding requirements of approximately
$5.5 billion (net of assumed revenues following commencement of commercial
operations) through year-end 1999, the last year in which Iridium projects
negative cash flow and a net increase in year-end borrowings. At June 30, 1997
and 1998, Iridium had expended, since inception, approximately $2.72 billion (or
49%) and approximately $3.95 billion (or 72%), respectively, of such $5.5
billion estimate. While Iridium has raised sufficient funds to meet its expected
pre-commercial operations project costs, Iridium expects to require significant
additional funding after commencement of commercial operations. These
projections of aggregate funding needs assume that Iridium will not be required
to make any payments under the Standby Equipment Purchase Commitments (as
defined below). In addition, such projections are forward looking and could
vary, perhaps substantially, from actual results, due to events outside of the
control of Iridium, including without limitation unforeseen construction,
systems integration or regulatory delays, launch failures and lower than
anticipated customer demand.

     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 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 is being used and will continue to be used to make payments to
Motorola under the Space System Contract and, to a lesser extent, the
Terrestrial Network Development Contract. The Space System Contract provides for
a fixed price of $3.45 billion (subject to certain adjustments), scheduled to be
paid by Iridium to Motorola over approximately a five-year period for completion
of milestones under the contract. Payments under the Operations and Maintenance
Contract will be payable quarterly and are expected to aggregate approximately
$2.88 billion over such contract's initial five-year term (assuming commencement
of commercial operations on September 23, 1998 and no excusable delays), in
addition to the cost of certain spare satellites at the completion of the
contract. The payments increase each year, ranging from quarterly payments of
$129.4 million in 1998 to $157.4 million in 2003 to $171.4 million in 2005. If
Iridium exercises its option to extend the Operations and Maintenance Contract
for an additional two years, the payments due for that two-year extension are
expected to aggregate approximately $1.33 billion (assuming commencement of
commercial operations on September 23, 1998 and no excusable delays). The
Terrestrial Network Development Contract provides for payments aggregating
approximately $321 million. As a result of technological developments, changes
in the product mix of Iridium World Services, and scheduling adjustments,
including the implementation of Iridium World Cellular Services into Iridium's
service offerings, there have been, and Iridium anticipates there will be,
amendments and interpretations of the Space System Contract, the Terrestrial
Network Development Contract and the Operations and Maintenance Contract and
other agreements and letters with Motorola which may increase the total costs of
these contracts. While Iridium's estimate of the cost of anticipated amendments
and interpretations is


                                       26
<PAGE>   27


reflected in Iridium's estimates of its funding requirements, there can be no
assurance that any such amendments or interpretations will not affect the price
and terms of those agreements in a manner not reflected in Iridium's funding
estimates.

     Through June 30, 1998, the Parent and Iridium incurred expenditures
totaling $3.2 billion to Motorola under the Space System Contract in respect of
completed milestones and expenditures totaling $157 million under the
Terrestrial Network Development Contract. Based on estimates and the planned
schedule as of June 30, 1998, Iridium's expected future cash requirements by
year under the contracts through December 31, 1999 are approximately as follows
(in millions):


<TABLE>
<CAPTION>
                                                                             1998        1999
                                                                             ----        ----
           <S>                                                               <C>         <C>
           Space System Contract......................................       $345        $  -
           Terrestrial Network Development Contract...................         48         117
           Operations and Maintenance Contract........................        129         537
</TABLE>

     Iridium will also require funds for working capital, business software
development, interest on anticipated borrowings, financing costs and operating
expenses until some time after the commencement of commercial operations.

       In an effort to ensure that sufficient quantities of hand-held phones and
pagers are available for distribution in advance of the commencement of
commercial operations, Iridium has entered into with Motorola, and intends to
enter into with Kyocera Corporation, standby commitments to purchase an
aggregate of up to $400 million in subscriber equipment (the "Standby Equipment
Purchase Commitments"). These Commitments would be triggered on or after January
1, 1999, but only to the extent such subscriber equipment is not purchased by
and shipped to gateway operators or service providers prior to January 1, 1999.
See "SOURCES OF FUNDING."

     Iridium's interest expense will increase significantly as a result of its
financing plan. Prior to the receipt of revenues from commercial operations,
Iridium expects to service its interest expense out of available cash and
borrowings. From approximately the time of commencement of commercial operations
through approximately year-end 1999 (the last year in which Iridium projects
negative cash flow and a net increase in year-end outstanding borrowings)
Iridium expects to service its interest expense partly from available cash and
bank facilities and partly from revenues from operations. During
commercialization, Iridium will be required to make payments to Motorola under
the Operations and Maintenance Contract. After December 31, 1999, Iridium's
obligations related to the Operations and Maintenance Contract, funds needed for
working capital, capital expenditures and debt service are anticipated to be
funded through operations.

SOURCES OF FUNDING

     As of June 30, 1998, Iridium had indirectly received $1.94 billion from
equity investments in the Parent, and has the right to receive approximately $50
million due from South Pacific Iridium Holdings Limited pursuant to the terms of
a definitive purchase agreement. Iridium's indebtedness for borrowed money
equaled approximately $2.1 billion, including $1.45 billion in aggregate
principal amount of Senior Notes (as defined), approximately $65 million of
borrowings under the $275 million Guaranteed Bank Facility (as defined) and
approximately $350 million of borrowings under the Secured Bank Facility (as
defined).

     On May 13, 1998, Iridium and Capital completed an offering of $350 million
principal amount of 10 7/8% Senior Notes due 2005, Series D. The Series D Notes
are guaranteed by Roaming, IP and Facilities. The net proceeds received were
approximately $341 million. Interest on the Series D Notes is payable in cash
semi-annually on January 15 and July 15 of each year, commencing on July 15,
1998. The Series D Notes are redeemable at the option of Iridium, in whole or in
part, at any time on or after July 15, 2002. The Series D Notes mature on July
15, 2005.

     As of June 30, 1998, Iridium had drawn $65 million under a $275 million
unsecured borrowing facility with a syndicate of banks (the "Guaranteed Bank
Facility"). Borrowings under the Guaranteed Bank


                                       27
<PAGE>   28


Facility are guaranteed by Motorola (the "Motorola Guarantee"). On May 13, 1998,
in connection with the issuance of the Series D Notes, the commitment of the
bank lenders under the Guaranteed Bank Facility was further permanently reduced
from $450 million to $275 million. Depending on market conditions, Iridium may
make additional senior note offerings in order to further reduce the Guaranteed
Bank Facility or for other purposes. However, there can be no assurance that
Iridium will be able to complete additional senior note offerings even if
favorable market conditions exist. The Guaranteed Bank Facility matures on June
30, 1999.

     On December 18, 1997, pursuant to the Asset Drop-Down Transaction,
substantially all of the assets and liabilities of Parent were transferred to
Iridium, including, without limitation, the Senior Notes and the Guaranteed Bank
Facility, and the Parent was released from such liabilities.

     Pursuant to the Memorandum of Understanding, dated May 11, 1998, among
Iridium, Parent and Motorola (the "Motorola MOU"), in addition to the Motorola
Guarantee, Motorola has conditionally agreed that it will (i) guarantee up to
$350 million of additional indebtedness (including principal and interest) under
the Guaranteed Bank Facility or another credit facility on identical terms (the
"Motorola Additional Guarantee"), provided that borrowings under such additional
indebtedness are made on or prior to February 28, 1999, (ii) guarantee up to
approximately $175 million of additional indebtedness (including principal and
interest) under the Guaranteed Bank Facility or a credit agreement having the
identical terms as the Guaranteed Bank Facility (other than maturity) to be used
by Iridium only for payments to Motorola in respect of Motorola Standby
Commitments and amounts overdue to Motorola (the "Motorola Equipment
Guarantee"). Borrowings under the Guaranteed Bank Facility mature on June 30,
1999. Pursuant to the Motorola MOU, Motorola has agreed to extend the Motorola
Guarantee (including the Motorola Additional Guarantee, if committed) until
after July 15, 2005, if the Guaranteed Bank Facility is so extended. Iridium
believes it would be able to amend the Guaranteed Bank Facility to increase its
amount to the extent of the Motorola Additional Guarantee and to extend its
maturity until after July 15, 2005, if it so requests. There can be no
assurance, however, that the bank lenders will agree to increase the amount of
the Guaranteed Bank Facility or to extend the term of the Guaranteed Bank
Facility, if so requested by Iridium, or that any such other identical credit
facility would be available.

     Iridium has entered into a Credit Agreement with Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and Barclays Capital, the investment
banking division of Barclays Bank PLC, and a syndicate of lenders (the "Secured
Lenders") for a senior bank facility in a principal amount of $1.0 billion (the
"Secured Bank Facility"). As of June 30, 1998, Iridium had drawn $350 million
under this Secured Bank Facility. The availability of the Secured Bank Facility
is subject to significant conditions, including technical conditions relating to
the Iridium System, conditions relating to regulatory approvals and conditions
relating to other financing sources. The final $250 million of the Secured Bank
Facility is not available prior to the defined commercial activation date. The
Secured Bank Facility is secured by substantially all of Iridium's assets. The
Secured Bank Facility is further secured by the Reserve Capital Call (as
defined) of the Parent and all of the membership interests in Iridium. In
addition, each of Iridium's subsidiaries has guaranteed Iridium's obligations
thereunder. The Reserve Capital Call is the contractual commitment by 17 of
Parent's investors to purchase up to 18,206,550 Class 1 Interests at $13.33 per
interest (an aggregate of approximately $243 million).

     Borrowings under the Secured Bank Facility mature on December 31, 1998;
Iridium executed its right to extend such maturity until December 31, 1998.
Iridium demonstrated that it has sufficient available or committed funds for its
budgeted project costs through such extended maturity. Assuming approximately
$270 million of borrowings under the Guaranteed Bank Facility and $630 million
of borrowings under the Secured Bank Facility, Iridium expects to have
sufficient cash to meet its anticipated funding requirements through September
23, 1998, the date on which Iridium expects to commence commercial operations.
Iridium expects to seek other senior secured bank financing in order to meet its
expected funding requirements through at least year-end 1999, the last year in
which Iridium projects negative cash flow and a net increase in year-end
borrowing.

     Additional financing may also need to be obtained through the issuance of
equity or debt securities in the public or private markets. The availability and
terms of any such financing are uncertain and are dependent, in part, on market
conditions existing at the time of any proposed financing. Iridium's estimated
funding requirements will increase, perhaps substantially, in the event of
unexpected cost increases or


                                       28
<PAGE>   29


schedule delays. Additional equity financing, if pursued, may be raised either
privately from strategic or financial investors, or through additional public
offerings. Depending on market conditions, Iridium may make additional senior
note offerings. However, there can be no assurance that Iridium will be able to
complete additional senior note offerings even if favorable market conditions
exist.

     In the event Iridium is required to make significant purchases pursuant to
the Standby Purchase Commitments, it expects to use borrowings guaranteed by the
Motorola Equipment Guarantee (in respect of purchases from Motorola) and the
Kyocera Equipment Guarantee (in respect of purchases from Kyocera). Pursuant to
the Motorola Equipment Guarantee, Motorola would guarantee up to approximately
$175 million of additional indebtedness in respect of equipment purchases from
Motorola and, pursuant to the Kyocera Equipment Guarantee, Kyocera would
guarantee up to approximately $122.5 million of additional indebtedness in
respect of equipment purchases from Kyocera. Accordingly, the Standby Equipment
Purchase Commitments exceed the aggregate amounts of such Equipment Guarantees
by approximately $102.5 million. If Iridium's obligations under the Standby
Equipment Purchase Commitments exceed the amounts of the Equipment Guarantees,
there can be no assurance that Iridium will have sufficient funds, or be able to
secure sufficient financing, to satisfy its equipment purchase obligations.

     As a result of Iridium's outstanding debt and the expected incurrence of
significant additional indebtedness required to meet its capital requirements,
Iridium will have substantial indebtedness. The debt instruments governing
Iridium's indebtedness are likely to contain restrictions on, among other
things, the incurrence of indebtedness, the granting of liens and the payment of
cash dividends. Iridium's ability to meet all of its debt service obligations
when due will require it to generate significant cash flow from operations or,
if necessary, make additional borrowings to refinance its outstanding
indebtedness. No assurance can be made that Iridium will be able to generate
sufficient cash flow to meet its debt service obligations or that it will be
able to refinance indebtedness. In addition, the debt instruments governing
future indebtedness are likely to contain restrictions on, among other things,
the incurrence of indebtedness.

OPERATIONS

     Iridium is a development stage company and, as such, will not generate any
revenues from operations until the Iridium System is constructed and deployed,
and commercial operations commence, which is currently anticipated to be in
September 1998. From the commencement of development (June 1991) through June
30, 1998, Iridium had expended approximately $3.95 billion on the development,
construction and commercialization of the Iridium System, representing 88% of
Iridium's estimate of its cash funding requirements through the anticipated
commencement of commercial operations (September 23, 1998) and 72% of Iridium's
estimate of its cash funding requirements (net of assumed revenues following
commencement of commercial operations) through year-end 1999, the last year in
which Iridium projects negative cash flow and a net increase in year-end
borrowings.

     As of June 30, 1998, Iridium's only source of income was interest income on
the cash and investment balances from the proceeds of equity commitments in
Parent, which amounted to approximately $20.5 million from July 29, 1993 (the
"Initial Capital Contribution Date") to June 30, 1998. During the same period,
Iridium recorded a net loss of approximately $861 million. In addition, during
the periods ended December 31, 1991 and 1992, and the period from January 1,
1993 to the Initial Capital Contribution Date, aggregate costs of $14.8 million
were incurred by Motorola. Such costs were paid by Parent to Motorola pursuant
to a reimbursement agreement.

     From June 30, 1997 to June 30, 1998, Iridium's net loss increased
substantially from $84 million to $448 million, respectively. This was primarily
the result of the following increases: $48 million for sales, general and
administrative expenses, $225 million for depreciation expense and $91 million
for interest expense. See "CAPITALIZATION OF COSTS", "OPERATING EXPENSES" and
"INTEREST EXPENSE."

     As a development stage company, Iridium has incurred losses since inception
of its predecessor companies and will continue to do so for the foreseeable
future. Iridium's ability to become profitable and generate positive cash flow
is dependent on the successful and timely commencement of the operation of the
Iridium System, wide subscriber acceptance and numerous other factors.


                                       29
<PAGE>   30


CAPITALIZATION OF COSTS

     All payments by Iridium under the Space System Contract are being
capitalized. These capitalized costs are then 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. 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 $3.3 billion through June 30, 1998. In addition, costs
incurred in connection with the issuance by Parent of Class 1 Interests are
reflected as a reduction of Parent'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 will be capitalized
through the date of commencement of commercial operations.

     A portion of the payments made under the Operations and Maintenance
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 Operations and Maintenance Contract not capitalized will be
expensed as incurred.

OPERATING EXPENSES

     For the period from the Initial Capital Contribution Date through June 30,
1998, total operating expenses were approximately $778 million. During the
period prior to the Initial Capital Contribution Date, total accumulated
expenditures of approximately $14.8 million were incurred, primarily to
reimburse Motorola for expenses associated with operating Iridium during the
period from its incorporation in 1991 through the Initial Capital Contribution
Date. Iridium expects a substantial increase in future operating expenditures
relating to sales, marketing and other costs associated with commercialization.

INTEREST EXPENSE

     Iridium expects to finance a significant portion of its capital
requirements through borrowings. As a result of these borrowings, Iridium will
have significant interest costs. Interest costs are being capitalized while the
Iridium System is under construction and will be depreciated thereafter. This
has resulted in all interest costs being capitalized during 1995, 1996, and
1997. For the six months ended June 30, 1998, $160,628,000 of interest cost was
incurred. Interest expensed for the six months ended June 30, 1998 was
$90,857,000 with the remaining interest capitalized to the system under
construction. It is likely that a meaningful portion of interest cost will be
expensed in 1998 and all interest cost will be expensed beginning in 1999. 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 and Parent's consolidated balance sheets.

INCOME TAXES

     Each of Parent and 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 taxed directly.

ITEM 3.               QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

            Not Applicable


                                       30

<PAGE>   31

PART II

ITEM 1.                 LEGAL PROCEEDINGS

            Not Applicable

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

            The Annual General Meeting of IWCL was held on May 21, 1998. All of
the members of the Board of Directors of IWCL were reelected as a slate for an
additional one-year term upon the following vote: For, 10,503,146 shares;
against/authority withheld, 24,188 shares; and abstain/exceptions, 2,850 shares.

            An amendment to the Iridium Option Plan was approved upon the
following vote: For, 2,905,789 shares; against, 1,081,433 shares; abstain, 
70,644 shares; and broker non-votes, 6,472,318 shares.

            The appointment of KPMG Peat Marwick as independent auditors of IWCL
for 1998 was approved upon the following vote: For, 10,468,436 shares; against,
29,329 shares; and abstain, 32,419 shares.

ITEM 5.                 OTHER INFORMATION

            Not Applicable

ITEM 6.                 EXHIBITS AND REPORTS ON FORM 8-K

                        (a)   Exhibits

<TABLE>
<CAPTION>
                        Exhibit No.      Description
                        -----------      -----------
                        <S>              <C>
                           10.1          Standby Purchase Agreement dated as of May 13,1998 by and between
                                         Iridium Operating LLC and Motorola, Inc.

                           11.1          Computation of Loss Per Class A Common Share

                           11.2          Computation of Loss per Class 1 Interest

                           99.1          Certain of the Factors Which May Affect Forward
                                         Looking Statements
</TABLE>

                        (b)   Reports on Form 8-K

                              Not Applicable


                                       31
<PAGE>   32

                                   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/ Edward F. Staiano
                            ---------------------
                            Dr. Edward F. Staiano
                            Chairman and Chief Executive Officer


                            /s/ Roy T. Grant
                            ----------------
                            Roy T. Grant
                            Chief Financial Officer

                            IRIDIUM LLC

                            /s/ Edward F. Staiano
                            ---------------------
                            Dr. Edward F. Staiano
                            Vice Chairman and Chief Executive Officer

                            /s/ Roy T. Grant
                            ----------------
                            Roy T. Grant
                            Vice President and Chief Financial Officer

                            IRIDIUM OPERATING LLC

                            /s/ Edward F. Staiano
                            ---------------------
                            Dr. Edward F. Staiano
                            Vice Chairman and Chief Executive Officer

                            /s/ Roy T. Grant
                            ----------------
                            Roy T. Grant
                            Vice President and Chief Financial Officer

                            IRIDIUM CAPITAL CORPORATION

                            /s/ Edward F. Staiano
                            ---------------------
                            Dr. Edward F. Staiano
                            Chairman and Chief Executive Officer

                            /s/ Roy T. Grant
                            ----------------
                            Roy T. Grant
                            Chief Financial Officer



                                       32
<PAGE>   33


                            IRIDIUM IP LLC

                            /s/ Edward F. Staiano
                            ---------------------
                            Dr. Edward F. Staiano
                            Acting Vice Chairman and Acting Chief Executive 
                            Officer

                            /s/ Roy T. Grant
                            ----------------
                            Roy T. Grant
                            Acting Chief Financial Officer

                            IRIDIUM ROAMING LLC

                            /s/ Edward F. Staiano
                            ---------------------
                            Dr. Edward F. Staiano
                            Acting Vice Chairman and Acting Chief Executive 
                            Officer

                            /s/ Roy T. Grant
                            ----------------
                            Roy T. Grant
                            Acting Chief Financial Officer

                            IRIDIUM FACILITIES CORPORATION

                            /s/ Edward F. Staiano
                            ---------------------
                            Dr. Edward F. Staiano
                            Chairman and Chief Executive Officer

                            /s/ Roy T. Grant
                            ----------------
                            Roy T. Grant
                            Chief Financial Officer


Date: August 12, 1998




                                       33
<PAGE>   34

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                                         SEQUENTIALLY
EXHIBIT                                                                                    NUMBERED
NUMBER                         DESCRIPTION OF EXHIBIT                                        PAGE
------                         ----------------------                                        ----
<S>                 <C>                                                                  <C>
10.1                Standby Purchase Agreement dated as of May 13,
                    1998 by and between Iridium Operating LLC and
                    Motorola, Inc.                                                            35

11.1                Computation of Loss Per Class A Common Share                              44

11.2                Computation of Loss per Class 1 Interest                                  45

99.1                Certain of the Factors Which May Affect Forward
                    Looking Statements                                                        46

27                  Financial Data Schedule                                                   54
</TABLE>





                                       34