##### 









UNITED STATES SECURITIES AND
EXCHANGE

COMMISSION


Washington, D.C. 20549




---

FORM 10-K

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | FOR THE FISCAL YEAR ENDED DECEMBER 31,
    2005                                             
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-14180

LORAL SPACE & COMMUNICATIONS
INC.


(Exact name of registrant specified in the
charter)


Successor registrant to

Loral Space & Communications Ltd.


Jurisdiction of incorporation: Delaware

IRS identification number: 87-0748324

600 Third Avenue

New York, New York 10016


(Address of principal executive
offices)


Telephone:
(212) 697-1105


(Registrants telephone number,
including area code)


Securities registered pursuant to Section 12(b) of the
Act:

|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of each class          |  | Name of each exchange on which registered
|                             |  |                                          
|                            
|                            
|                            
|                            
|Common stock, $.01 par value |  | NASDAQ                                   

Securities registered pursuant to Section 12(g) of the
Act:

Indicate by check mark if the registrant is
well-known seasoned issuer, as defined in Rule 405 of the
Securities
Act.     Yes oNo þ

Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or
Section 15(d) of the
Act.     Yes oNo þ

Indicate by check mark whether the registrant
(1) has 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 registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.    Yes þ        No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.    Yes þ        No o

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one):



|                           |                      |                         
|-------------------------- | -------------------- | ------------------------
|Large accelerated filer  o | Accelerated filer  o | Non-accelerated filer  þ

Indicate by check mark whether the registrant is
a shell company (as defined in Exchange Act Rule 12b-2 of
the
Act).    Yes o        No þ

On November 21, 2005, the predecessor
registrants common stock, par value $0.10 per share,
was cancelled and the registrant issued 20,000,000 shares
of common stock, par value $0.01 per share. At
March 1, 2006, 20,000,000 common shares of the registrant
were outstanding.

As of March 1, 2006, the aggregate market
value of the common stock, the only voting stock of the
registrant currently issued and outstanding, held by
non-affiliates of the registrant, was approximately $345,148,182.

Indicate by a check mark whether the registrant
has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan
confirmed by a
court.    Yes þ        No o



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##### 



PART I



|        |         
|------- | --------
|Item 1. | Business

THE COMPANY

Overview

Loral Space & Communications Inc. (New
Loral) together with its subsidiaries is a leading
satellite communications company with substantial activities in
satellite-based communications services and satellite
manufacturing. New Loral was formed to succeed the business
conducted by its predecessor registrant, Loral Space &
Communications Ltd. (Old Loral), which emerged from
chapter 11 of the federal bankruptcy laws on
November 21, 2005 (the Effective Date).

We adopted fresh start accounting as of October 1, 2005, in
accordance with Statement of Position No. 90-7,
Financial Reporting of Entities in Reorganization Under the
Bankruptcy Code(SOP 90-7). Accordingly,
our financial information disclosed under the heading
Successor Registrant for the period ended and as of
December 31, 2005, is presented on a basis different from,
and is therefore not comparable to, our financial information
disclosed under the heading Predecessor Registrant
for the period ended and as of October 1, 2005 (the date we
adopted fresh start accounting) or for prior periods.

The terms, Loral, the Company,
we, our, and us, when used
in this report with respect to the period prior to our emergence
from Chapter 11, are references to Old Loral, and when used
with respect to the period commencing after our emergence, are
references to New Loral. These references include the
subsidiaries of Old Loral or New Loral, as the case may be,
unless otherwise indicated or the context otherwise requires.

Loral is organized into two operating segments:

Satellite Services, conducted by our subsidiary Loral
Skynet Corporation (Loral Skynet), generates its
revenues and cash flows from leasing satellite capacity on its
four-satellite fleet to commercial and government customers for
video and direct to home (DTH) broadcasting,
high-speed data distribution, Internet access and
communications, as well as providing satellite-based networking
services. It also provides professional services to other
satellite operators including satellite construction oversight
and fleet operating services.

Satellite Manufacturing, conducted by our subsidiary,
Space Systems/ Loral, Inc. (SS/L), generates its
revenues and cash flows from designing and manufacturing
satellites, space systems and space system components for
commercial and government customers whose applications include
fixed satellite services, DTH broadcasting, broadband data
distribution, wireless telephony, digital radio, military
communications, weather monitoring and air traffic management.

Effective March 1, 2006, Bernard L. Schwartz retired from
all officer and director positions he held with the Company and
its subsidiaries and affiliates, including his positions as
chairman of the board and chief executive officer. To succeed
Mr. Schwartz, the Board of Directors has elected Michael B.
Targoff, non-executive vice chairman of the Company, as chief
executive officer, and Dr. Mark H. Rachesky as
non-executive chairman of the Board, both elections effective as
of March 1, 2006.

Reorganization

On July 15, 2003, Old Loral and certain of its subsidiaries
(the Debtor Subsidiaries and collectively with Old
Loral, the Debtors), including Loral
Space & Communications Holdings Corporation (formerly
known as Loral Space & Communications Corporation),
Loral SpaceCom Corporation (Loral SpaceCom), SS/ L
and Loral Orion, Inc. (now known as Loral Skynet Corporation),
filed voluntary petitions for reorganization under
chapter 11 of title 11 (Chapter 11)
of the United States Code (the Bankruptcy Code) in
the U.S. Bankruptcy Court for the Southern District of New
York (the Bankruptcy Court) (Lead Case
No. 03-41710 (RDD), Case Nos. 03-41709
(RDD) through 03-41728 (RDD)) (the Chapter 11
Cases). Also on July 15, 2003, Old Loral and one of
its Bermuda subsidiaries (the Bermuda Group) filed
parallel insolvency proceedings in the Supreme Court of Bermuda
(the Bermuda Court), and, on that

1



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##### 





The Debtors emerged from Chapter 11 on November 21,
2005 pursuant to the terms of their fourth amended joint plan of
reorganization, as modified (the Plan of
Reorganization). The Plan of Reorganization had previously
been confirmed by order (the Confirmation Order) of
the Bankruptcy Court entered on August 1, 2005.

Pursuant to the Plan of Reorganization:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The business and operations of Old Loral have been transferred
    to New Loral, and Loral Skynet and SS/ L have emerged intact as
    separate subsidiaries of reorganized Loral.
|
| |  | Our new common stock has been listed on NASDAQ under the symbol
    LORL.                                                                                                       
|
| |  | SS/ L has emerged debt-free.                                                                                                                                                      
|
| |  | The initial distributions to creditors of Old Loral and its
    subsidiaries have been completed in accordance with the Plan of
    Reorganization as follows:                    



| |   |                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | All holders of allowed claims against SS/ L and Loral SpaceCom
    have been, or will be paid in cash in full, including interest
    from the petition date to the Effective Date.                                                                                                                            
|
| |  | 20 million shares of New Loral common stock were issued to
    our distribution agent on the Effective Date, 18.7 million
    of which have been distributed to creditors.                                                                                                                                     
|
| |  | $200 million of Loral Skynet preferred stock was issued to
    our distribution agent on the Effective Date,
    $197.4 million of which has been distributed to creditors.                                                                                                                                    
|
| |  | The remaining undistributed shares of New Loral common stock and
    Loral Skynet preferred stock have been reserved to cover
    disputed claims and will be distributed quarterly in accordance
    with the Plan of Reorganization upon resolutions of those claims.                                        
|
| |  | Pursuant to a rights offering, Loral Skynet issued on the
    Effective Date $126 million, principal amount, of senior
    secured notes to certain creditors who subscribed for the notes
    and to certain creditors who committed to purchase any
    unsubscribed notes (i.e. backstopped the offering).
|
| |  | Old Loral will be liquidated by the JPLs in Bermuda; the common
    and preferred stock of Old Loral were cancelled on the Effective
    Date, and no distribution was made to the holders of such stock.                                                                                                      

Old Loral shareholders acting on behalf of the self-styled Loral
Stockholders Protective Committee (LSPC) have filed
appeals seeking to revoke the Confirmation Order, to overturn
the Bankruptcy Courts denial of the LSPCs motion to
compel Old Loral to hold a shareholders meeting and to rescind
the approval of the Federal Communications Commission
(FCC) of the transfer of our FCC licenses from Old
Loral to New Loral. We believe that these appeals are completely
without merit and will not have any effect on the completed
reorganization. For further details about these appeals see
Note 19 to the consolidated financial statements.

Segment Overview

Satellite Services Operations

Through Loral Skynet, which manages and operates our Satellite
Services business, we are a global satellite operator, providing
our customers with a wide range of video and data transmission
services. Our four globally-positioned satellites operate in
geosynchronous earth orbit approximately 22,000 miles above
the equator. In this orbit, satellites remain in a fixed
position relative to points on the earths surface. They
provide reliable, high-bandwidth services anywhere in their
coverage areas and serve as the backbone for many forms of
telecommunications. Our satellites operate in the C-band and
Ku-band frequencies, and through our affiliate XTAR, we operate
in X-band.

2



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##### 





| |                    
| | -------------------
| | Transponder Leasing

Customers lease our C- and Ku-band transponder capacity for the
distribution of video and data for television programming,
direct-to-home (DTH) services, business communications,
Internet connectivity and telephony. Our customers include some
of the worlds largest video and data service providers,
including HBO, Disney, Cable & Wireless, Singapore
Telecom (SingTel), Connexion by Boeing, Global Crossing, BT
North America, Globecomm Systems, UPC and China Central
Television (CCTV).



| |                 
| | ----------------
| | Network Services

We also provide our customers with access services and
transmission platforms that enable rapid and reliable networking
solutions. Our hybrid satellite and ground-based network
services capabilities allow our customers to address their
communications requirements quickly and easily through a
combination of applications that include broadband transport,
bandwidth-on-demand, broadcast SCPC (single channel per carrier)
platforms and teleport services. Loral Skynets newest
network services offering is SkyReach(SM), a group of
IP-based services that provide enterprise-level customers with
access to regional and global private networking and public
Internet services, including broadband WAN (wide area network)
extension for terrestrial providers, Internet access for ISPs
(Internet Service Providers), voice over IP (VoIP) and managed
data services. Loral Skynet provides its SkyReach services
through IP (Internet Protocol) hubs at facilities in North
America, Europe and Asia, each with access to major satellite
and terrestrial communications networks.

Loral Skynets network services are provided through an
integrated satellite and fiber network that interconnects
terrestrially with customer networks through points of presence
(POPs) in San Jose, California; Ashburn, Virginia; New
York, New York; and London, England and interconnects via
satellite and VSAT (very small aperture terminals) services
through teleports in Mount Jackson, Virginia; Aflenz, Austria;
Hong Kong; Kapolei, Hawaii; and London, England.



| |                      
| | ---------------------
| | Professional Services

Our team of world-class network architects, engineers, program
managers and satellite operations professionals, provides
customized services tailored to unique customer requirements for
deploying satellites and network services, including providing
other satellite operators with spacecraft operational services
(TT&C), satellite construction oversight services, network
architecture design, regulatory management including orbital
slot acquisition and the coordination and customization of
distribution solutions.



| |                       
| | ----------------------
| | Market and Competition

Loral Skynet operates in a highly competitive market with
larger, well-established satellite service companies including
Intelsat/ PanAmSat, SES Global/ New Skies Satellites and
Eutelsat, as well as regional operators such as Telesat and
AsiaSat. We also compete with companies such as Hughes Network
Systems, Gilat and ViaSat in our network services business.
While we also compete with fiber optic cable and other
terrestrial delivery systems, primarily for point-to-point
applications, Loral Skynet has been able to combine the inherent
advantages of each technology to provide its customers with
complete end-to-end services. Since FSS satellites remain in a
fixed point above the earth, they are considerably more
efficient than terrestrial systems for certain applications,
such as broadcast or point-to-multipoint transmission of video
and broadband data. A satellite offers instant infrastructure.
It can cover large geographic areas, sometimes entire
hemispheres, and can not only deliver services to populated
areas, but can also better serve areas with inadequate
terrestrial infrastructures, low-density populations or
difficult geographic terrain.

Competition in the satellite services market has been intense in
recent years due to a number of factors, including transponder
over-capacity in certain geographic regions and increased
competition from fiber. This competition has put further
pressure on prices already depressed by the telecommunications
industry downturn earlier this decade. A stronger economy and an
increase in capital available for expanded consumer and
enterprise-level services have led to an improvement in demand.
Much of Loral Skynets remaining available capacity,
however, is over geographic regions where the market is
characterized by excess capacity,

3



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##### 









| |                
| | ---------------
| | Satellite Fleet

(1)


|                             |  |              |  |           |  |           |  |                                                                                                               |  |                 |  |                     
|---------------------------- |  | ------------ |  | --------- |  | --------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------- |  | --------------------
|                            
|                             |  | Licensing    |  |          
|Satellite                    |  | Jurisdiction |  | Location  |  | Frequency |  | Coverage                                                                                                      |  | In Service Date |  | Expected End of Life
|                            
|Telstar 10/ ApstarIIR        |  | China        |  | 76.5°E.L. |  | C/Ku-band |  | Asia and portions of Europe, portions of Africa and Australia                                                 |  | December 1997   |  | February 2014       
|                            
|Telstar 12                   |  | U.S.         |  | 15°W.L.   |  | Ku-band   |  | Eastern U.S., SE Canada, Europe, Russia, Middle East, North
    Africa, portions of South and Central America |  | December 1999   |  | September 2016      
|                            
|Telstar 14/ Estrela do Sul-1 |  | Brazil       |  | 63°W.L.   |  | Ku-band   |  | Brazil and portions of Latin America, North America, Atlantic
    Ocean                                       |  | April 2004      |  | July
    2010(2)    
|                            
|Telstar
    18(3)            |  | China/Tonga  |  | 138°E.L.  |  | C/Ku-band |  | India, South East Asia, China, Australia and Hawaii                                                           |  | August 2004     |  | November 2018       
|                            






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We also own and operate Telstar 11 at 37.5°W.L. and Brazil
    1T at 63° W.L., both of which are in inclined orbit and
    generate minimal revenues.                                                                                                                                                                                                                                                                               
|   
|(2) | Estrela do Sul-1 was launched in January 2004 and did not fully
    deploy one of its solar arrays. At the end of March 2004, the
    satellite began commercial service operating 15 of its 41
    transponders. The satellites life expectancy is now
    approximately six years, as compared to its design life of
    15 years. See Managements Discussion and Analysis of
    Financial Condition and Results of Operations.
|   
|(3) | Telstar 18 went into commercial service in September 2004. We
    have entered into a sales-type lease arrangement with an Asian
    satellite services company, initially for the lease of 37
    transponders on the satellite (see Note 8 to the
    consolidated financial statements).                                                                                                                                         



| |                               
| | ------------------------------
| | Satellite Services Performance

|                                                       |  |                |    |   |  |                        |   |     |               |  |   |      |   |  |   |     |  
|------------------------------------------------------ |  | -------------- | -- | - |  | ---------------------- | - | --- | ------------- |  | - | ---- | - |  | - | --- | -
|                                                       |  | Successor      |    |   |  |                       
|                                                       |  | Registrant     |    |   |  | Predecessor Registrant |  
|                                                       |  |                |    |   |  |                        |  
|                                                       |  | For the Period |    |   |  | For the Period         |   |     | For the Years | 
|                                                       |  | October 2,     |    |   |  | January 1,             |   |     | Ending        | 
|                                                       |  | 2005 to        |    |   |  | 2005 to                |   |     | December 31,  | 
|                                                       |  | December 31,   |    |   |  | October 1,             |   |     |               | 
|                                                       |  | 2005           |    |   |  | 2005                   |   |     | 2004          |  |   | 2003 |  
|                                                       |  |                |    |   |  |                        |   |     |               |  |   |      |  
|                                                       |  | (in millions)  |   
|Satellite services revenues                            |  | $              | 37 |   |  |                        | $ | 115 |               |  | $ | 141  |   |  | $ | 154 |  
|Satellite services sales-type lease
    arrangement(1) |  |                |   |   |  |                        |   |    |               |  |   | 87   |   |  |   |    |  
|                                                       |  |                |    |   |  |                        |   |     |               |  |   |      |  
|Total segment revenues                                 |  |                | 37 |   |  |                        |   | 115 |               |  |   | 228  |   |  |   | 154 |  
|Eliminations                                           |  |                | (1 | ) |  |                        |   | (4  | )             |  |   | (5   | ) |  |   | (7  | )
|                                                       |  |                |    |   |  |                        |   |     |               |  |   |      |  
|Revenues from satellite services as reported           |  | $              | 36 |   |  |                        | $ | 111 |               |  | $ | 223  |   |  | $ | 147 |  
|                                                       |  |                |    |   |  |                        |   |     |               |  |   |      |  
|Segment Adjusted EBITDA before
    eliminations(2)     |  | $              | 12 |   |  |                        | $ | 40  |               |  | $ | 23   |   |  | $ | 8   |  
|                                                       |  |                |    |   |  |                        |   |     |               |  |   |      |  

4



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|    |                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 8 to the consolidated financial statements.                                                                                                                                                                                                                                 
|   
|(2) | See Managements Discussion and Analysis of Financial
    Condition and Results of Operations for significant items that
    affect comparability between the periods presented (see
    Note 20 to the consolidated financial statements for the
    definition of Adjusted EBITDA).



Satellite Manufacturing Operations


direct-to


direct-to




| |                       
| | ----------------------
| | Market and Competition



5



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| |                                    
| | -----------------------------------
| | Satellite Manufacturing Performance

|                                                    |  |                |     |   |  |                        |   |     |               |  |   |      |   |  |   |      |  
|--------------------------------------------------- |  | -------------- | --- | - |  | ---------------------- | - | --- | ------------- |  | - | ---- | - |  | - | ---- | -
|                                                    |  | Successor      |     |   |  |                       
|                                                    |  | Registrant     |     |   |  | Predecessor Registrant |  
|                                                    |  |                |     |   |  |                        |  
|                                                    |  | For the Period |     |   |  | For the Period         |   |     | For the Years | 
|                                                    |  | October 2,     |     |   |  | January 1,             |   |     | Ending        | 
|                                                    |  | 2005 to        |     |   |  | 2005 to                |   |     | December 31,  | 
|                                                    |  | December 31,   |     |   |  | October 1,             |   |     |               | 
|                                                    |  | 2005           |     |   |  | 2005                   |   |     | 2004          |  |   | 2003 |  
|                                                    |  |                |     |   |  |                        |   |     |               |  |   |      |  
|                                                    |  | (in millions)  |    
|Total segment revenues                              |  | $              | 162 |   |  |                        | $ | 329 |               |  | $ | 437  |   |  | $ | 474  |  
|Eliminations                                        |  |                | (1  | ) |  |                        |   | (11 | )             |  |   | (137 | ) |  |   | (229 | )
|                                                    |  |                |     |   |  |                        |   |     |               |  |   |      |  
|Revenues from satellite manufacturing as reported   |  | $              | 161 |   |  |                        | $ | 318 |               |  | $ | 300  |   |  | $ | 245  |  
|                                                    |  |                |     |   |  |                        |   |     |               |  |   |      |  
|Segment Adjusted EBITDA before eliminations
    (1) |  | $              | 12  |   |  |                        | $ | 15  |               |  | $ | (14  | ) |  | $ | (159 | )
|                                                    |  |                |     |   |  |                        |   |     |               |  |   |      |  






|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Consolidated Operating Results in Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations for significant items that affect comparability
    between the periods presented (see Note 20 to the
    consolidated financial statements for the definition of Adjusted
    EBITDA).



Investment in Affiliates




| |     
| | ----
| | XTAR



X-band X-band




| |           
| | ----------
| | Globalstar

U.S.-based


6



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| |       
| | ------
| | Satmex

We own 49% of Satelites Mexicanos, S.A. de C.V.
(Satmex), a satellite communications company
providing services in Mexico and Latin America. Satmex has two
satellites in operation and a third, Satmex 6, scheduled
for launch this year. In January 2006, Satmex reached an
agreement in principle with its creditors to restructure its
debt, which is currently in default. As a result, we expect our
ownership in Satmex to be reduced to less than 5%. Separately,
Loral reached a settlement agreement with Satmex in 2005
relating to the construction of the Satmex 6 satellite by SS/ L
whereby Loral will acquire rights, upon launch, to four
transponders on Satmex 6 for the life of the satellite. During
2003, Loral wrote off its remaining investment in Satmex. For
more information on Satmex see Note 9 to the consolidated
financial statements.

7



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REGULATION

Telecommunications Regulation

As an operator of a privately owned global satellite system, we
are subject to: the regulatory authority of the
U.S. government; the regulatory authority of other
countries in which we operate; and the frequency coordination
process of the International Telecommunication Union
(ITU). Our ability to provide satellite services in
a particular country or region is subject also to the technical
constraints of our satellites, international coordination, local
regulatory approval and any limitation to those approvals.



| |                
| | ---------------
| | U.S. Regulation

The FCC regulates our U.S.-licensed satellites as well as our
non-U.S. licensed satellites authorized to operate in the
U.S. We are subject to the FCCs jurisdiction
primarily for the licensing of satellites and earth stations,
avoidance of interference with radio stations and compliance
with FCC rules. Violations of the FCCs rules can result in
various sanctions including fines, loss of authorizations,
forfeiture of bonds, or the denial of new or renewal
authorizations. We are not regulated as a common carrier and,
therefore, are not subject to rate regulation or the obligation
not to discriminate among customers. We must pay FCC filing fees
in connection with our space station and earth station
applications and annual fees to defray the FCCs regulatory
expenses. We must file annual status reports with the FCC and,
to the extent Loral is deemed to be providing
interstate/international telecommunications, we must contribute
funds supporting universal service. Loral has petitioned the FCC
for exemptions from having to pay certain of such fees and
contributions. These petitions are under review by the FCC.



| |                                               
| | ----------------------------------------------
| | Authorization to Launch and Operate Satellites

Pursuant to satellite licensing rules issued in 2003, the FCC
grants satellite authorizations on a first-come, first-served
basis to satellite operators that meet its legal and technical
qualification requirements. The FCC often receives multiple
applications to operate a satellite at a given orbital slot.
There can be no assurance that applications will be granted.
Most satellite authorizations include specific construction and
launch milestones; failure to meet them may result in license
revocation. Under licensing rules, we must post a bond for up to
$3,000,000 when we are granted a satellite authorization. Some
or the entire amount of the bond may be forfeited if we fail to
meet any of the milestones for satellite construction, launch
and commencement of operation. In accordance with the current
licensing rules, the FCC will issue new satellite licenses for
an initial fifteen-year term and will provide a licensee with an
expectancy that a subsequent license will be granted
for the replacement of an authorized satellite using the same
frequencies. At the end of a fifteen-year term, a satellite that
has not been replaced, or that has been relocated to another
orbital location following its replacement, may be allowed to
continue operations for a limited period of time subject to
certain restrictions.

We have final FCC authorization for two existing satellites
which operate in the Ku-band: Telstar 11 at 37.5°W.L. and
Telstar 12 at 15° W.L. In addition, we have final FCC
authorization for a planned satellite which will operate in the
Ku-band at 37.5°W.L and replace Telstar 11. Certain of our
authorizations may be subject to pending petitions for
reconsideration or review submitted to the FCC by third parties.
The final FCC authorizations for certain of the satellites that
are not yet in orbit also do not cover certain possible design
changes and require adherence with FCC milestones stated within
the authorizations. There can be no assurance that any design
changes or milestone extensions which may be sought will be
granted by the FCC. The failure to obtain a requested milestone
extension could result in the loss of the related FCC
authorization. If we are unable to obtain FCC approval to
implement requested technical modifications for any particular
authorization, we will be obligated to operate the related
satellite in accordance with the original authorization.

8



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##### 





| |                          
| | -------------------------
| | Coordination Requirements

The FCC requires applicants to demonstrate that their proposed
satellites would be compatible with the operations of adjacent
satellites. Adjacent satellite operators must coordinate with
one another to minimize frequency conflicts. The FCC reserves
the right to require that an FCC-licensed satellite be relocated
if it deems such a change to be in the public interest.



| |                                                                   
| | ------------------------------------------------------------------
| | Regulation by Non-U.S. National Telecommunications
    Authorities

Foreign laws and regulatory practices governing the provision of
satellite services to licensed entities and directly to
end-users vary substantially from country to country. Some
countries may require us to confirm that we have successfully
completed technical consultation with other satellite service
providers before offering services on a given satellite. In
addition, we may be subject to varying communications and/or
broadcasting laws with respect to our provision of international
satellite services.

Foreign laws and regulatory practices may be applied or changed
in ways that may adversely affect our ability to operate or
provide service. There are no guarantees that other countries
will grant our applications to construct, launch, operate or
provide service via satellites, or extend construction or launch
milestones, or that we will be permitted to retain or renew our
authorizations. As in the U.S., violations of other
countries laws and rules may result in sanctions, fines,
loss of authorizations or denial of applications for new or
renewal authorizations. Application and other administrative
fees may be required in other countries. License terms for
non-U.S. authorizations held by Loral vary but generally
authorize operation for at least the life of the satellite and
include rights to operate a replacement satellite. Lorals
failure to operate or maintain operation of a satellite pursuant
to a non-U.S. authorization may result in revocation.

Many countries have liberalized their regulations for the
provision of voice, data or video services. This trend should
accelerate with the commitments by many World Trade Organization
(WTO) members, in the context of the WTO Agreement
on Basic Telecommunications Services, to open their satellite
markets to competition. Other countries, however, have
maintained strict monopoly regimes. In such markets, the
provision of service from Loral and other U.S.-licensed
satellites may be more complicated.

In addition to the orbital slots licensed by the FCC, Loral has
been assigned orbital slots by certain other countries. For
example, we have been authorized to use numerous C-, Ku- and
Ka-band orbital slots by the Isle of Man government. These Isle
of Man authorizations are (1) at 15° W.L. and 47°
W.L. for use of the Ka-band frequencies, and (2) at
9.9° E.L., 16.1° E.L., 22.3° E.L., 115.5°
E.L., 37.5° W.L., 89° W.L., 97° W.L. and
115° W.L. for the use of C-, Ku- and Ka-band
frequencies. We also have Isle of Man authorizations at
96.5° W.L. and 123.5° W.L. for Broadcast Satellite
Service.

In March 1999, Loral won Brazils auction for its 63°
W.L. Ku-band orbital slot. Telstar 14/Estrela do Sul-1 is
licensed by Brazil and is authorized to operate in the
U.S. by the FCC from this orbital slot. Pursuant to a
lease, Loral operates all of the capacity (with the exception of
one transponder) on the Telstar 10/Apstar IIR C/Ku-band
satellite licensed by China and located at 76.5° E.L. We
also operate the C/extended C-band and Ku-band payloads on
Telstar 18 at 138° E.L. using licenses provided by Tonga
and China, respectively.

Access to certain of these international orbital slots and
authorizations are subject to our payment of various ongoing
fees to the applicable licensee or licensing authority, which in
the case of the Isle of Man authorizations, include a
revenue-based fee that would commence at the time we place a
satellite into an Isle of Man slot.



| |                                       
| | --------------------------------------
| | The ITU Frequency Coordination Process

All satellite systems are subject to ITU frequency coordination
requirements and must obtain appropriate authority to provide
service in a given territory. The required international
coordination process may limit the extent to which all or some
portion of a particular authorized orbital slot may be used for
commercial operations, with a corresponding impact on the
useable capacity of a satellite at that location.

9



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All of our satellite registrations are or will be subject to the
ITU coordination process. There may be more than one ITU filing
submitted for a particular orbital slot, or one adjacent to it,
thus requiring coordination between or among the affected
operators. Loral cannot guarantee successful frequency
coordination for its satellites.

Export Regulation

Commercial communication satellites and certain related items,
technical data and services, are subject to United States export
controls. These laws and regulations affect the export of
products and services to foreign launch providers,
subcontractors, insurers, customers, potential customers, and
business partners, as well as to foreign Loral employees,
foreign regulatory bodies, foreign national telecommunications
authorities and to foreign persons generally. Commercial
communications satellites and certain related items, technical
data and services are on the United States Munitions List and
are subject to the Arms Export Control Act and the International
Traffic in Arms Regulations. Export jurisdiction over these
products and services resides in the U.S. Department of
State. Other Loral exports are subject to the jurisdiction of
the U.S. Department of Commerce, pursuant to the Export
Administration Act and the Export Administration Regulations.

U.S. Government licenses or other approvals generally must
be obtained before satellites and related items, technical data
and services are exported and may be required before they are
re-exported or transferred from one foreign person to another
foreign person. There can be no assurance that such licenses or
approvals will be granted. Also, licenses or approvals may be
granted with limitations, provisos or other requirements imposed
by the U.S. Government as a condition of approval, which
may affect the scope of permissible activity under the license
or approval. See Item 1A  Risk Factors below.

PATENTS AND PROPRIETARY RIGHTS

SS/L relies, in part, on patents, trade secrets and know-how to
develop and maintain its competitive position. It holds 213
patents in the United States and has applications for 12 patents
pending in the United States. SS/ L patents include those
relating to communications, station keeping, power control
systems, antennae, filters and oscillators, phased arrays and
thermal control as well as assembly and inspections technology.
The SS/L patents that are currently in force expire between 2006
and 2022.

Loral Skynet has 13 patents in the United States and has four
patents abroad. Our satellite services segment has six patents
pending in the United States and has one patent pending abroad.
Satellite services patents that are currently in force expire
between 2016 and 2020.

There can be no assurance that any of our pending patent
applications will be issued. Moreover, because the
U.S. patent application process is confidential, there can
be no assurance that third parties, including competitors, do
not have patents pending that could result in issued patents
which we would infringe. In such an event, we could be required
to pay royalties to obtain a license, which could increase costs.

FOREIGN OPERATIONS

Sales to foreign customers, primarily in Asia, Europe and
Mexico, represented 14%, 18% 42% and 39% of our consolidated
revenues for the periods October 2, 2005 to
December 31, 2005, and January 1, 2005 to
October 1, 2005 and for the years ended December 31,
2004 and 2003, respectively. As of December 31, 2005 and
2004, substantially all of our long-lived assets were located in
the United States with the exception of our in-orbit satellites.
See Item 1A  Risk Factors below for a discussion
of the risks related to operating internationally. See
Note 20 to the consolidated financial statements for detail
on our domestic and foreign sales.

EMPLOYEES

As of December 31, 2005, we had approximately
1,700 full-time employees, approximately 2% of whom are
subject to collective bargaining agreements. We consider our
employee relations to be good.

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AVAILABLE INFORMATION


10-K, 10-Q, 8-K,




|         |             
|-------- | ------------
|Item 1A. | Risk Factors



|   |                       
|-- | ----------------------
|I. | Financial Risk Factors

We recently emerged from Chapter 11 and have a history
of losses.




We are a holding company with no operations; we are dependent
on cash flow from our operating subsidiaries to meet our
financial obligations.




The indenture governing Loral Skynets 14% senior
secured notes may restrict our current and future operations.




11



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The Loral Skynet Notes are collateralized by substantially
all of Loral Skynets assets.

A breach of any of the restrictive covenants contained in the
Loral Skynet indenture could result in an event of default,
which would give the noteholders the ability to accelerate
repayment of the Loral Skynet notes. If Loral Skynet is unable
to repay the notes when due, the noteholders will have the right
to proceed against the collateral granted to them to secure the
Loral Skynet Notes, which consists of substantially all of the
assets of Loral Skynet and its subsidiaries.

We may in the future incur significant additional
indebtedness, thereby making us more vulnerable to adverse
developments.

Although the indenture governing the Loral Skynet Notes contains
restrictions on the incurrence of indebtedness by Loral Skynet
and its subsidiaries, these restrictions are subject to a number
of important qualifications and exceptions and the indebtedness
incurred in compliance with these restrictions could be
substantial, and in certain cases, may be secured by the same
assets that secure the Loral Skynet Notes. Moreover, there are
currently no restrictions on the ability of Loral or SS/ L to
incur additional indebtedness. As a result, we may be able to
incur significant additional debt in the future. If new debt is
added, such indebtedness would likely impose more restrictive
covenants, which may include financial ratios. If we incur
significant additional indebtedness, we would be more vulnerable
to, among other things, adverse changes in general economic,
industry and competitive conditions.

XTAR will have significant lease obligations, which may
require us to make additional capital contributions to the
venture.

XTAR has agreed to lease certain transponders on Hisdesats
recently launched Spainsat satellite. These lease obligations
initially amount to $6.2 million per year, growing to
$23 million per year in 2008. XTARs ability to fund
these lease obligations is dependent on it generating a
significant increase in customer orders. If XTAR is unable to do
so, then XTAR would seek to restructure the terms of the
Spainsat lease. If XTAR is unable to do so on terms that are
acceptable to it, then we will be faced with the decision of
either making additional cash contributions to XTAR to enable it
to meet its obligations or allowing XTAR to default under the
lease agreement, which may result in a loss of our investment in
XTAR.

Replacing a satellite upon the end of its useful life will
require us to make significant expenditures.

To ensure no disruption in Loral Skynets business and to
prevent loss of customers, we will be required to commence
construction of a replacement satellite approximately two to
three years prior to the end of life of the satellite then in
orbit. For example, we will be required to commence construction
of a replacement to our Estrela do Sul satellite in 2008 to
ensure a continuation of our business on this satellite. We have
also recently commenced construction of our Telstar 11N
satellite and will incur substantial expenditures in connection
with such effort. Typically, it costs in excess of
$200 million to construct, launch and insure a satellite.
We have in the past funded this cost from a combination of
operating cash flow and financing proceeds. There is no
assurance that we will be able to obtain financing to fund such
expenditures on favorable terms, if at all.

Significant changes in discount rates, actual investment
return on pension assets, and other factors could affect our
statement of operations, equity, and pension contributions in
future periods.

Our statement of operations may be positively or negatively
impacted by the amount of expense we record for our pension and
other postretirement benefit plans. Generally accepted
accounting principles (GAAP) in the United States of
America require that we calculate expense for the plans using
actuarial valuations. These valuations reflect assumptions that
we make relating to financial market and other economic
conditions. Changes in key economic indicators can result in
changes in the assumptions we use. The most significant year-end
assumptions used to estimate pension or other postretirement
expense for the following

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|    |                         
|--- | ------------------------
|II. | Operational Risk Factors



| |                                                      
| | -----------------------------------------------------
| |  Risk Factors Associated With Satellite
    Services

Launch delays or failures have delayed some of our operations
in the past and may do so again in the future.

We depend on third parties in the United States and abroad to
launch our satellites. Delays in launching satellites are not
uncommon and result from construction delays, the unavailability
of appropriate launch vehicles and other factors. For example,
the launch of the XTAR-EUR satellite was significantly delayed
while we waited for Arianespace to complete work on its ECA
launch vehicle.

Satellite launches are risky, and some launch attempts have
ended in complete or partial failure. On January 10, 2004,
for example, our Telstar 14/ Estrela do Sul-1 communications
satellite was launched by Boeing Sea Launch, but only partially
deployed its North solar array. Although the satellite was
insured and we collected insurance proceeds of
$205 million, the failed solar array deployment has
resulted in the availability of only 15 of the satellites
41 Ku-band transponders and a life expectancy of only six years
as compared to a design life of 15 years. This reduced
capacity and life will affect the roll out of our Brazilian
business and will reduce operating revenues pending construction
of a replacement satellite.

We ordinarily insure against launch failures but at considerable
cost. The cost and the availability of insurance vary depending
on market conditions and the launch vehicle used. Replacing a
lost satellite typically requires at least two years from
execution of a manufacturing contract to launch.

After launch, our satellites remain vulnerable to in-orbit
failures which may result in reduced revenues and profits and
other financial consequences.

In-orbit damage to or loss of a satellite before the end of its
expected life results from various causes, some random,
including component failure, degradation of solar panels, loss
of power or fuel, inability to maintain the satellites
position, solar and other astronomical events, and space debris.

Satellites are built with redundant components or additional
components to provide excess performance margins to permit their
continued operation in case of a component failure, an event
that is not uncommon in complex satellites. Certain of our
satellites are currently operating using back-up components
because of the failure of primary components. If the back-up
components fail, however, and we are unable to restore
redundancy, these satellites could lose capacity or be total
losses, which would result in a loss of revenues and profits.

For example, in July 2005, in the course of conducting our
normal operations, we determined that the primary command
receiver on two of our satellites had failed. These satellites,
which are equipped with redundant command receivers designed to
provide full functional capability through the full design life
of the satellite, continue to function normally and service to
customers has not been affected. Moreover, SS/L, the
manufacturer of the satellites, has successfully completed
implementation of a software workaround that fully restored the
redundant command receiver function on both of these satellites.

In addition, three satellites operated by Loral Skynet or its
affiliates that were manufactured by SS/ L have experienced
minor losses of power from their solar arrays. Although we
believe the satellites will fulfill

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Loral Skynet has in the past entered into prepaid leases, sales
contracts and other arrangements relating to transponders on its
satellites. Under the terms of these agreements, Loral Skynet
may be required to replace transponders that do not meet
operating specifications. Failure to replace such transponders
may result in a payment obligation on the part of Loral Skynet.

It may be difficult to obtain full insurance coverage for
satellites that have, or are part of a family of satellites that
has, experienced problems in the past; moreover, not all
satellite-related losses will be covered by our insurance.

While we have in the past typically insured against launch and
in-orbit failure of the satellites in our satellite services
segment, insurance will not protect us against all losses. For
example, insurance will not protect us against business
interruption, lost revenues or delay of revenues. Our existing
launch and in-orbit insurance policies also include, and future
policies are expected to include, specified exclusions,
deductibles and material change limitations. Typically, these
insurance policies exclude coverage for damage arising from acts
of war and other exclusions then customary in the industry. In
addition, they typically exclude coverage for health-related
problems affecting our satellites that are known at the time the
policy is written.

We cannot assure that, upon the expiration of an in-orbit
insurance policy, which typically has a term of one year, that
we will be able to renew the policy on terms acceptable to us.
As noted above, insurers may require either exclusions of
certain components or may place similar limitations on coverage
in connection with insurance renewals for satellites that have
experienced problems in the past. For example, the insurance
coverage for two of our satellites provides for coverage of
losses due to solar array failures only in the event of a
capacity loss of 75% or more for one satellite and 80% or more
for the other. The loss of a satellite would likely have a
material adverse effect on our financial performance and may not
be adequately mitigated by insurance coverage. Moreover, if we
were to determine in the future that the terms of any particular
insurance renewal are uneconomic after taking into account
factors such as cost of the insurance and scope of insurance
exclusions and limitations, we may elect to self-insure against
losses of a satellite. For further details see Note 19 to
the consolidated financial statements.

Like other satellite operators, we are faced with increased
launch and in-orbit insurance premiums.

The cost of obtaining insurance has increased significantly,
primarily due to post-September 2001 insurance industry
developments. This has increased our cost of doing business. For
further details see Note 19 to the consolidated financial
statements.

Our satellite services businesses compete for market share,
customers and orbital slots, against competitors that are
significantly larger than us.

We face significant competition in the transponder leasing
business from companies such as Intelsat/ PanAmSat, SES Global/
New Skies Satellites and Eutelsat, all of which are larger and
better capitalized than we are. We also face competition from
smaller, regional operators, which may enjoy competitive
advantages in their local markets. The supply of satellite
capacity has increased in recent years, making it more difficult
for us to sell our services in certain markets and to maintain
our prices for the capacity that we do sell. Competition may
cause further downward pressure on prices and further reduce the
utilization of our fleet capacity, both of which may have an
adverse effect on our financial performance. Our transponder
leasing business also competes with fiber optic cable and other
terrestrial delivery systems, which have a cost advantage in
point-to-point applications.

Similarly, our network services business faces competition not
only from other satellite-based providers, but also from
providers of land-based data communications services, such as
cable, DSL (digital subscriber

14



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As land-based telecommunications services expand and become more
sophisticated, demand for some satellite-based services may be
reduced. New technology could render satellite-based services
less competitive by satisfying consumer demand in other ways. We
also compete for local regulatory approval in places where more
than one provider may want to operate, and for scarce frequency
assignments and fixed orbital positions.

The content of third-party transmissions over our satellites
may affect us.

Loral Skynet provides satellite capacity for transmissions by
third parties. We do not decide what content is transmitted over
our satellites, although our contracts generally provide us with
rights to prohibit certain types of content or to cease
transmission under certain circumstances. Issues arising from
the content of transmissions by these third parties over our
satellites could affect our future revenues, operations, or our
relationship with certain governments or customers.

Our business is regulated, causing uncertainty and additional
costs.

Multiple authorities regulate our business, including the FCC,
the International Telecommunication Union (ITU) and the
European Union. Regulatory authorities can modify, withdraw or
impose charges or conditions upon, or deny or delay action on
applications for the licenses we need, and so increase our costs.

To prevent frequency interference, the regulatory process
requires potentially lengthy and costly negotiations with third
parties who operate or intend to operate satellites at or near
the locations of our satellites. For example, as part of our
coordination effort on Telstar 12, we agreed to provide
four 54 MHz transponders on Telstar 12 to Eutelsat for the
life of the satellite and have retained risk of loss with
respect to those transponders. We also granted Eutelsat the
right to acquire, at cost, four transponders on the replacement
satellite for Telstar 12. We continue to discuss coordination
issues with other operators and may need to make additional
financial concessions in connection with future coordination
efforts. The failure to reach an appropriate arrangement with a
third party having priority rights at or near one of our orbital
slots may result in substantial restrictions on the use and
operation of our satellite at that location. In addition, while
the ITU rules require later-in-time systems to coordinate with
us, there can be no assurance that other operators will conduct
their operations so as to avoid transmitting any signals that
would cause harmful interference to the operation of our
satellites.

Failure to successfully coordinate our satellites
frequencies or to resolve other required regulatory approvals
could have an adverse effect on our consolidated financial
position and our results of operations, as well as the value of
our business. For further details see Note 19 to the
consolidated financial statements.

The recent trend toward industry consolidation in the fixed
satellite services industry may adversely affect us.

The recent industry consolidation trend will result in the
formation of competitors with greater financial resources and
increased coverage and scale. While we may pursue strategic
transactions on an opportunistic basis, we may not find or be
able to take advantage of any suitable opportunities. We may
therefore find it difficult to compete with our competitors,
many of whom are substantially larger than we are and enjoy the
benefits of the economies of scale from their fleets of
satellites.



| |                                                           
| | ----------------------------------------------------------
| |  Risk Factors Associated With Satellite
    Manufacturing

The satellite manufacturing market is highly competitive and
fixed costs are high.

SS/L competes with several large, well-capitalized companies
such as Boeing, Lockheed Martin and Orbital Sciences in the
United States, and Alcatel Alenia Space and EADS Astrium in
Europe, nearly all of which are larger and better capitalized
than we are. We may also face competition in the future from
emerging low-cost competitors in India, Russia and China. The
number of annual satellite manufacturing awards varies and is
difficult to predict. In addition, U.S. satellite
manufacturers must contend with export control

15



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SS/L is a large-scale systems integrator, requiring a large
staff of highly-skilled and specialized workforce, as well as
specialized manufacturing and test facilities in order to
perform under its satellite construction contracts. Although
overhead costs at SS/ L were cut substantially during our
bankruptcy proceedings, SS/ L must continuously retain the
services of a core group of specialists in a wide variety of
disciplines for each phase of the design, development,
manufacture and testing of its products in order to maintain its
ability to compete as one of the leading prime contractors for
technologically advanced space satellites.

SS/Ls contracts are subject to adjustments, cost
overruns, risk of non-payment and termination.

SS/Ls major contracts are firm fixed-price contracts under
which work performed and products shipped are paid for at a
fixed price without adjustment for actual costs incurred. While
cost savings under these fixed-price contracts result in gains
to SS/L, cost increases result in reduction of margins or
losses, borne solely by SS/L. Under such contracts, SS/L may
receive progress payments, or it may receive partial payments
upon the occurrence of certain program milestones. If
performance on these milestones is delayed, SS/Ls receipt
of the corresponding payments will also be delayed.

Non-performance, including schedule delays, can increase costs
and subject us to damages claims from customers, including
liquidated damages and termination of the contract for our
default. If a contract is terminated, we could be liable for a
refund of payments made to date, excess re-procurement costs and
other damages incurred by our customer, although SS/L would own
the satellite under construction and attempt to recoup any
losses through resale to another customer. A contract
termination for default could have a material adverse effect on
SS/L and us.

In addition, many of SS/Ls contracts and subcontracts may
be terminated at will by the customer or the prime contractor.
In the event of such a termination, SS/L is normally entitled to
recover the purchase price for delivered items, reimbursement
for allowable costs for work in process, and an allowance for
profit or an adjustment for loss, depending on whether
completion of the project would have resulted in a profit or
loss.

Moreover, many of SS/Ls contracts require SS/L to provide
vendor financing to its customers or, more customarily, for
customers to pay a portion of the purchase price for the
satellite over time subject to performance of the satellite,
i.e., orbital payments, or a combination of these terms. In some
cases these arrangements are provided to customers that are
start-up companies or companies in the early stages of building
their businesses. As of December 31, 2005, SS/L had
recorded vendor financing and orbital receivables of
$99 million (of which $57 million was from start-up or
early stage companies). Of this $57 million, SS/L had
received payments of $49 million as of March 2006. Although
we expect to be paid, there can be no assurance that these
companies or their businesses will be successful and,
accordingly, that they will be able to fulfill their payment
obligations under their contracts with SS/L.

SS/Ls accounting for long-term contracts requires
adjustments to profit and loss based on estimates revised during
the execution of the contract. These adjustments may have a
material effect on our consolidated financial position and our
results of operations in the period in which they are made. The
estimates giving rise to these risks, which are inherent in
long-term, fixed-price contracts, include the forecasting of
costs and schedules, contract revenues related to contract
performance, and the potential for component obsolescence due to
procurement long before assembly.

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SS/L may forfeit payments from customers as a result of
satellite failures or losses after launch, or may be liable for
penalty payments under certain circumstances, and these losses
may be uninsured.

Most of SS/Ls satellite manufacturing contracts provide
that some of the total price is contingently payable as
incentive payments earned over the life of the
satellite, subject to satellite performance. Known as orbitals,
SS/L generally does not insure for these payments and in some
cases agrees with its customers not to insure them.

SS/L records the present value of orbital payments as revenue
during the construction of the satellite. SS/L generally
receives the present value of these incentive payments if there
is a launch failure or a failure caused by customer error. SS/L
forfeits some or all of these payments, however, if the loss is
caused by satellite failure or as a result of its own error. As
of December 31, 2005, SS/L had orbital receivables of
$42 million, payable over 16 years. Since these
orbital receivables could be affected by future satellite
performance, there can be no assurance that SS/L will be able to
collect all or a portion of these receivables.

Some of SS/Ls contracts call for in-orbit delivery,
transferring the launch risk to SS/L. SS/L generally insures
against that exposure. In addition, some of SS/Ls
contracts provide that SS/L may be liable to a customer for
penalty payments under certain circumstances, including late
delivery or that a portion of the price paid by the customer is
subject to warranty payback in the event satellite
anomalies were to develop (see Note 19 to the consolidated
financial statements). These contingent liabilities are not
insured by SS/L. We have recorded reserves in our financial
statements based on our current estimates of SS/Ls
warranty liabilities. There is no assurance that SS/Ls
actual liabilities to its customers in respect of these warranty
liabilities will not be greater than the amount reserved for.

Some satellites built by SS/L, including three satellites
operated by Loral Skynet or other affiliates, have experienced
minor losses of power from their solar arrays.

Twenty satellites built by SS/L have experienced minor losses of
power from their solar arrays. There can be no assurance that
one or more will not experience an additional power loss that
could lead to a loss of transponder capacity and performance
degradation. A partial or complete loss of a satellite could
result in an incurrence of warranty payments by, or a loss of
orbital incentive payments to SS/L. SS/L has instituted remedial
measures that it believes will prevent similar anomalies from
occurring on satellites under construction or in development.
For further details see Note 19 to the consolidated
financial statements.

Some satellites built by SS/L have the same design as another
SS/L-built satellite that has experienced a partial failure.

In November 2004, Intelsat Americas 7 (formerly Telstar
7) experienced an anomaly which caused it to completely
cease operations for several days before it was partially
recovered. Four other satellites manufactured by SS/L for other
customers have designs similar to Intelsat Americas 7 and,
therefore, could be susceptible to similar anomalies in the
future. A partial or complete loss of these satellites could
result in an incurrence of warranty payments by SS/L of up to
$18 million.

We are subject to export controls, which may result in delays
and additional costs.

SS/L is required by the U.S. State Department to obtain
licenses and enter into technical assistance agreements to
export satellites and related equipment, and to disclose
technical data to foreign persons. The delayed receipt of or the
failure to obtain the necessary licenses and agreements may
interrupt the completion of a satellite contract by SS/L and
could lead to a customers cancellation of a contract,
monetary penalties and/or the loss of incentive payments.

Some of our customers and potential customers, along with
insurance underwriters and brokers have raised concerns that
U.S. export control laws and regulations excessively
restrict their access to information about the satellite during
construction and on-orbit. To the extent that our
non-U.S. competitors are not subject to these export
control laws and regulations, they may enjoy a competitive
advantage with foreign customers, and, to the extent that our
foreign competitors continue to gain market share, it could
become

17



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The recent trend toward industry consolidation in the fixed
satellite services industry may adversely affect us.

The recent industry consolidation trend will result in the
formation of satellite operators with greater satellite
resources and increased coverage. This consolidation may reduce
demand for new satellite construction as operators may need
fewer satellites in orbit to provide back-up coverage or to
rationalize the amount of capacity available in certain
geographic regions. It may also result in concentrating
additional bargaining power in the hands of large customers,
which could increase pressure on pricing and other contractual
terms.

The availability of qualified personnel and facility space
may be limited; SS/L will incur costs to upgrade or expand its
facility and these costs may be substantial.

SS/L has recently won a number of satellite construction awards
and its backlog has expanded significantly. In order to complete
construction of all the satellites in backlog, SS/L will need to
and is in the process of hiring additional staff and will likely
require an expansion of its existing facilities. There can be no
assurance that SS/L will be able to hire the employees with the
requisite skills and training or to acquire suitable facility
space and, accordingly, may not be able to perform its contracts
as efficiently as planned.

SS/L is in the process of performing a comprehensive evaluation
of its facility requirements that takes into account various
factors, including its backlog requirements, as well as
expansions or upgrades that may be required to enable the
company to meet its future growth prospects. The costs of such
expansions or upgrades may be substantial.



| |                                                               
| | --------------------------------------------------------------
| |  Risk Associated With Conducting Business
    Internationally

We face risks in conducting business internationally.

For the periods October 2, 2005 to December 31, 2005
and January 1, 2005 to October 1, 2005 and for the
years ended December 31, 2004 and 2003, approximately 14%,
18%, 42% and 39%, respectively, of our revenue was generated
from customers outside of the United States. We could be harmed
financially and operationally by changes in foreign regulations
and telecommunications standards, tariffs or taxes and other
trade barriers that may be imposed on our services, or by
political and economic instability in the countries in which we
conduct business. Almost all of our contracts with foreign
customers require payment in U.S. dollars, and customers in
developing countries could have difficulty obtaining
U.S. dollars to pay us due to currency exchange controls
and other factors. Exchange rate fluctuations may adversely
affect the ability of our customers to pay us in
U.S. dollars. If we need to pursue legal remedies against
our foreign business partners or customers, we may have to sue
them abroad where it could be difficult for us to enforce our
rights.

III     Other Risks

We share control of our affiliates with third parties.

We share control of our affiliates with third parties and as a
result we do not have control over management of these entities.
For example, Hisdesat enjoys substantial approval rights in
regard to XTAR, our X-band joint venture. The rights of these
third parties and fiduciary duties under applicable law could
result in others acting or omitting to act in ways that are not
in our best interest. To the extent that these entities are or
become customers of SS/L, further conflicts of interest between
us and these affiliates are likely to arise.

We rely on key personnel.

We need highly qualified personnel. Michael Targoff, our chief
executive officer, has an employment contract expiring in
December 2010, and several of our key officers have two-year
employment contracts expiring in November 2007. See
Item 11  Executive Compensation 
Employment Contracts, Change in

18



---



##### 





MHR is our controlling shareholder and may have conflicts of
interest with us in the future.

MHR Fund Management LLC (MHR), through its
affiliated funds, beneficially owns approximately 35.9% of our
common stock and is the largest single holder of our common
stock. MHR also owns 38.3% of Loral Skynets preferred
stock and 44.6% of Loral Skynets senior secured notes.
Moreover, representatives of MHR occupy three of the nine seats
on our board of directors, and two additional directors were
selected by the creditors committee in our Chapter 11
Cases, in which MHR served as the chairman. Conflicts of
interests may arise in the future between us and MHR. For
example, MHR and its affiliated funds are in the business of
making investments in companies and may acquire and hold
interests in businesses that compete directly or indirectly with
us.

Compliance with the Sarbanes-Oxley Act increases our
operating expenses.

The Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the Securities and Exchange Commission
(SEC), have required changes to some of our
corporate governance practices. These changes include developing
financial and disclosure processes that satisfy Section 404
of the Sarbanes-Oxley Act. We expect that these rules and
regulations will continue to make some activities more
difficult, time-consuming and costly. We also expect that these
rules and regulations could make it more difficult for us to
attract and retain qualified members of our Board of Directors,
particularly to serve on our audit committee, and to attract and
retain qualified executive officers. If we are unable to comply
with the Sarbanes-Oxley Act and related rules and regulations,
our business could be materially adversely affected.

The future use of tax attributes is limited upon emergence
from bankruptcy.

As of December 31, 2005, Loral had net operating loss
carryforwards, or NOLs, of approximately $1.1 billion that
are available to offset future taxable income. Since our
reorganization on the Effective Date constituted an
ownership change under Section 382 of the
Internal Revenue Code, our ability to use these NOLs, as well as
certain other tax attributes existing at the Effective Date, is
subject to an annual limitation of approximately
$32 million, subject to modification based on certain
factors. If New Loral experiences an additional ownership
change during any three-year period after the Effective
Date, future use of these tax attributes may become further
limited. An ownership change would be triggered if shareholders
owning five percent or more of our total equity value dispose of
their holdings during a three-year period by more than
50 percent in the aggregate. Since Lorals charter
contains no restriction on the transfer of equity interests, if
our existing significant shareholders were to dispose of all of
their equity interests in New Loral during this three-year
period, an additional ownership change will have
occurred.

There is a thin trading market for our common stock.

Our common stock was first issued and listed on the NASDAQ
National Market in December 2005. Since that time, trading
activity in our stock has generally been light. Moreover, over
50% of our common stock is effectively held by MHR and two other
shareholders. If any of our significant shareholders should sell
some or all of their holdings, it will likely have an adverse
effect on our share price. Funds affiliated with MHR have
registration rights in respect of the securities they hold in
Loral and Loral Skynet, including our common stock.

The market for our stock could be adversely affected by
future issuance of significant amounts of our common stock.

As of December 31, 2005, 20,000,000 shares of our
common stock were outstanding. On that date, there were
1,390,452 stock options outstanding which will become vested and
exercisable over the next four years. In addition, in March
2006, subject to stockholder approval at an annual or special
meeting of our

19



---



##### 











|   |                        
|-- | -----------------------
|IV | Litigation and Disputes

We are involved in a number of ongoing lawsuits.




An appeal has been filed seeking to overturn the settlement
agreement we entered into with Globalstar, L.P.




20



---



##### 





|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments





|        |           
|------- | ----------
|Item 2. | Properties



| |          
| | ---------
| | Corporate





| |                   
| | ------------------
| | Satellite Services





| |                        
| | -----------------------
| | Satellite Manufacturing







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

10-K




|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



PART II




|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|    |                                      
|--- | -------------------------------------
|(a) | Market Price and Dividend Information

New Loral Common
Stock




21



---



##### 



non-assessable.


when-issued


|                                          |  |      |       |  |     |   |       | 
|----------------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|                                          |  | High |       |  | Low |  
|                                          |  |      |       |  |     |  
|Year ended December 31, 2005              |  |      |       |  |     |   |       | 
|October 1, 2005 through December 31, 2005 |  | $    | 29.40 |  |     | $ | 21.75 | 
|July 27, 2005 through September 30, 2005  |  | $    | 28.70 |  |     | $ | 26.50 | 

Old Loral Common
Stock




|                                          |  |      |      |  |     |   |      | 
|----------------------------------------- |  | ---- | ---- |  | --- | - | ---- | 
|                                          |  | High |      |  | Low |  
|                                          |  |      |      |  |     |  
|Year ended December 31, 2005              |  |      |      |  |     |   |      | 
|October 1, 2005 through November 21, 2005 |  | $    | 0.43 |  |     | $ | 0.04 | 
|Quarter ended September 30, 2005          |  |      | 0.30 |  |     |   | 0.04 | 
|Quarter ended June 30, 2005               |  |      | 0.53 |  |     |   | 0.16 | 
|Quarter ended March 31, 2005              |  |      | 0.23 |  |     |   | 0.11 | 
|Year ended December 31, 2004              |  |      |      |  |     |   |      | 
|Quarter ended December 31, 2004           |  | $    | 0.19 |  |     | $ | 0.03 | 
|Quarter ended September 30, 2004          |  |      | 0.18 |  |     |   | 0.03 | 
|Quarter ended June 30, 2004               |  |      | 0.61 |  |     |   | 0.12 | 
|Quarter ended March 31, 2004              |  |      | 1.20 |  |     |   | 0.31 | 



|    |                                              
|--- | ---------------------------------------------
|(b) | Approximate Number of Holders of Common Stock





|    |          
|--- | ---------
|(c) | Dividends



22



---



##### 









|    |                                               
|--- | ----------------------------------------------
|(d) | Sales of Unregistered Securities by Registrant





|    |                                                                       
|--- | ----------------------------------------------------------------------
|(e) | Securities Authorized for Issuance under Equity Compensation
    Plans





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data





90-7


10-K.




23



---



##### 



10-K.


LORAL SPACE & COMMUNICATIONS INC.


(In thousands, except per share data)


|                                                                                                                                            |                                                                                                                           |                |         |       |                        |   |           |                          |  |   |          |       |   |      |          |       |      |   |            |        |   |   |          |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ----- | ---------------------- | - | --------- | ------------------------ |  | - | -------- | ----- | - | ---- | -------- | ----- | ---- | - | ---------- | ------ | - | - | -------- | ------ | -
|                                                                                                                                            |                                                                                                                           | Successor      |         |       |                       
|                                                                                                                                            |                                                                                                                           | Registrant     |         |       | Predecessor Registrant |  
|                                                                                                                                            |                                                                                                                           |                |         |       |                        |  
|                                                                                                                                            |                                                                                                                           | For the Period |         |       | For the Period         |   |           |                         
|                                                                                                                                            |                                                                                                                           | October 2,     |         |       | January 1,             |   |           |                         
|                                                                                                                                            |                                                                                                                           | 2005 to        |         |       | 2005 to                |   |           | Years Ended December 31, | 
|                                                                                                                                            |                                                                                                                           | December 31,   |         |       | October 1,             |   |           |                          | 
|                                                                                                                                            |                                                                                                                           | 2005           |         |       | 2005                   |   |           | 2004                     |  |   | 2003     |       |   | 2002 |          |       | 2001 |  
|                                                                                                                                            |                                                                                                                           |                |         |       |                        |   |           |                          |  |   |          |       |   |      |          |       |      |  
|Statement of operations data:                                                                                                               |                                                                                                                           |                |         |       |                        |   |           |                          |  |   |          |       |   |      |          |       |      |   |            |        |   |   |          |       
|Revenues                                                                                                                                    |                                                                                                                           | $              | 197,165 |       |                        | $ | 429,183   |                          |  | $ | 522,127  |       |   | $    | 392,043  |       |      | $ | 900,527    |        |   | $ | 845,725  |       
|Operating loss from continuing operations                                                                                                   |                                                                                                                           |                | (4,945  | )     |                        |   | (67,095   | )                        |  |   | (214,345 | )     |   |      | (388,873 | )     |      |   | (208,368   | )      |   |   | (158,593 | )     
|Gain on discharge of pre-petition obligations and fresh-start
    adjustments                                                               |                                                                                                                           |                |        |       |                        |   | 1,101,453 | (1)                      |  |   |         |       |   |      |         |       |      |   |           |        |   |   |         |       
|(Loss) income from continuing operations before income taxes,
    equity income (losses) in affiliates and minority interest                |                                                                                                                           |                | (5,395  | )     |                        |   | 1,022,651 |                          |  |   | (207,852 | )     |   |      | (368,355 | )     |      |   | (237,540   | )      |   |   | (229,851 | )     
|Income tax (provision) benefit                                                                                                              |                                                                                                                           |                | (1,752  | )     |                        |   | 10,901    |                          |  |   | (13,284  | ) (2) |   |      | 6,330    |       |      |   | (322,422   | ) (2)  |   |   | 40,096   |       
|(Loss) income from continuing operations before equity income
    (losses) in affiliates and minority interest                              |                                                                                                                           |                | (7,147  | )     |                        |   | 1,033,552 |                          |  |   | (221,136 | )     |   |      | (362,025 | )     |      |   | (559,962   | )      |   |   | (189,755 | )     
|Equity (losses) income in affiliates
    (3)                                                                                                |                                                                                                                           |                | (5,447  | )     |                        |   | (2,796    | )                        |  |   | 46,654   |       |   |      | (51,153  | )     |      |   | (76,280    | )      |   |   | (66,677  | )     
|Minority interest                                                                                                                           |                                                                                                                           |                | (2,667  | )     |                        |   | 126       |                          |  |   | 135      |       |   |      | 20       |       |      |   | (226       | )      |   |   | 461      |       
|(Loss) income from continuing operations                                                                                                    |                                                                                                                           |                | (15,261 | )     |                        |   | 1,030,882 |                          |  |   | (174,347 | )     |   |      | (413,158 | )     |      |   | (636,468   | )      |   |   | (255,971 | )     
|(Loss) income from discontinued operations, net of taxes                                                                                    |                                                                                                                           |                |        |       |                        |   |          |                          |  |   | (2,348   | )     |   |      | 18,803   |       |      |   | 57,566     |        |   |   | 61,252   |       
|Gain on sale of discontinued operations, net of taxes                                                                                       |                                                                                                                           |                |        |       |                        |   | 13,967    |                          |  |   |         |       |   |      |         |       |      |   |           |        |   |   |         |       
|(Loss) income before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |                                                                                                                           |                | (15,261 | )     |                        |   | 1,044,849 |                          |  |   | (176,695 | )     |   |      | (394,355 | )     |      |   | (578,902   | )      |   |   | (194,719 | )     
|Cumulative effect of change in accounting principle, net of taxes                                                                           |                                                                                                                           |                |        |       |                        |   |          |                          |  |   |         |       |   |      | (1,970   | )     |      |   | (890,309   | ) (4)  |   |   | (1,741   | )     
|Extraordinary gain on acquisition of minority interest                                                                                      |                                                                                                                           |                |        |       |                        |   |          |                          |  |   |         |       |   |      | 13,615   |       |      |   |           |        |   |   |         |       
|Net (loss) income                                                                                                                           |                                                                                                                           |                | (15,261 | )     |                        |   | 1,044,849 |                          |  |   | (176,695 | )     |   |      | (382,710 | )     |      |   | (1,469,211 | )      |   |   | (196,460 | )     
|Preferred dividends                                                                                                                         |                                                                                                                           |                |        |       |                        |   |          |                          |  |   |         |       |   |      | (6,719   | )     |      |   | (89,186    | )      |   |   | (80,743  | )     
|Net (loss) income applicable to common stockholders                                                                                         |                                                                                                                           |                | (15,261 | )     |                        |   | 1,044,849 |                          |  |   | (176,695 | )     |   |      | (389,429 | )     |      |   | (1,558,397 | )      |   |   | (277,203 | )     
|Basic and diluted (loss) earnings per share:                                                                                                |                                                                                                                           |                |         |       |                        |   |           |                          |  |   |          |       |   |      |          |       |      |   |            |        |   |   |          |       
|                                                                                                                                            | Continuing operations                                                                                                     |                | $       | (0.76 | )                      |   | $         | 23.37                    |  |   | $        | (3.96 | ) |      | $        | (9.58 | )    |   | $          | (19.47 | ) |   | $        | (10.40 | )
|                                                                                                                                            | Discontinued operations                                                                                                   |                |         |      |                        |   |           | 0.32                     |  |   |          | (0.05 | ) |      |          | 0.43  |      |   |            | 1.55   |   |   |          | 1.89   |  
|                                                                                                                                            |                                                                                                                           |                |         |       |                        |   |           |                          |  |   |          |       |   |      |          |       |      |  
|                                                                                                                                            | Before cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest |                |         | (0.76 | )                      |   |           | 23.69                    |  |   |          | (4.01 | ) |      |          | (9.15 | )    |   |            | (17.92 | ) |   |          | (8.51  | )
|                                                                                                                                            | Cumulative effect of change in accounting principle                                                                       |                |         |      |                        |   |           |                         |  |   |          |      |   |      |          | (0.05 | )    |   |            | (23.89 | ) |   |          | (0.05  | )
|                                                                                                                                            | Extraordinary gain on acquisition of minority interest                                                                    |                |         |      |                        |   |           |                         |  |   |          |      |   |      |          | 0.31  |      |   |            |       |   |   |          |       |  
|                                                                                                                                            |                                                                                                                           |                |         |       |                        |   |           |                          |  |   |          |       |   |      |          |       |      |  
|                                                                                                                                            | (Loss) earnings per share                                                                                                 |                | $       | (0.76 | )                      |   | $         | 23.69                    |  |   | $        | (4.01 | ) |      | $        | (8.89 | )    |   | $          | (41.81 | ) |   | $        | (8.56  | )
|                                                                                                                                            |                                                                                                                           |                |         |       |                        |   |           |                          |  |   |          |       |   |      |          |       |      |  

24



---



##### 



|                                                  |  |                |         |   |                        |   |          |                          |  |   |          |   |  |      |          |   |      |   |          |   |  |   |          |  
|------------------------------------------------- |  | -------------- | ------- | - | ---------------------- | - | -------- | ------------------------ |  | - | -------- | - |  | ---- | -------- | - | ---- | - | -------- | - |  | - | -------- | -
|                                                  |  | Successor      |         |   |                       
|                                                  |  | Registrant     |         |   | Predecessor Registrant |  
|                                                  |  |                |         |   |                        |  
|                                                  |  | For the Period |         |   | For the Period         |   |          |                         
|                                                  |  | October 2,     |         |   | January 1,             |   |          |                         
|                                                  |  | 2005 to        |         |   | 2005 to                |   |          | Years Ended December 31, | 
|                                                  |  | December 31,   |         |   | October 1,             |   |          |                          | 
|                                                  |  | 2005           |         |   | 2005                   |   |          | 2004                     |  |   | 2003     |   |  | 2002 |          |   | 2001 |  
|                                                  |  |                |         |   |                        |   |          |                          |  |   |          |   |  |      |          |   |      |  
|Deficiency of earnings to cover fixed charges     |  | $              | 8,062   |   |                        | $ | 65,570   |                          |  | $ | 208,809  |   |  | $    | 389,218  |   |      | $ | 337,019  |   |  | $ | 315,708  |  
|Cash flow data:                                   |  |                |         |   |                        |   |          |                          |  |   |          |   |  |      |          |   |      |   |          |   |  |   |          |  
|(Used in) provided by operating
    activities(5) |  |                | (38,531 | ) |                        |   | (143,827 | )                        |  |   | 66,129   |   |  |      | 232,653  |   |      |   | 192,670  |   |  |   | 169,818  |  
|(Used in) provided by investing
    activities(6) |  |                | (5,089  | ) |                        |   | 194,707  |                          |  |   | 906,887  |   |  |      | (157,484 | ) |      |   | (138,824 | ) |  |   | (248,672 | )
|Provided by (used in) equity transactions         |  |                |        |   |                        |   |         |                          |  |   |         |   |  |      | 3,852    |   |      |   | (32,737  | ) |  |   | (35,687  | )
|(Used in) provided by financing transactions      |  |                | 120,763 |   |                        |   |         |                          |  |   | (966,887 | ) |  |      | (3,313   | ) |      |   | (115,122 | ) |  |   | (119,555 | )
|Dividends paid per common share                   |  |                |        |   |                        |   |         |                          |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  

|                                                                                                    |  |              |           |              |                        |   |            |         |  |   |            |   |  |         |           |   |  |   |           | 
|--------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ------------ | ---------------------- | - | ---------- | ------- |  | - | ---------- | - |  | ------- | --------- | - |  | - | --------- | 
|                                                                                                    |  | Successor    |           |              |                       
|                                                                                                    |  | Registrant   |           |              | Predecessor Registrant |  
|                                                                                                    |  |              |           |              |                        |  
|                                                                                                    |  |              |           | December 31, |                       
|                                                                                                    |  | December 31, |           |              |                        |  
|                                                                                                    |  | 2005         |           |              | 2004(7)                |   |            | 2003(7) |  |   | 2002(2)(4) |   |  | 2001(8) |          
|                                                                                                    |  |              |           |              |                        |   |            |         |  |   |            |   |  |         |          
|Balance sheet data:                                                                                 |  |              |           |              |                        |   |            |         |  |   |            |   |  |         |           |   |  |   |           | 
|Cash and cash equivalents                                                                           |  | $            | 275,796   |              |                        | $ | 147,773    |         |  | $ | 141,644    |   |  | $       | 65,936    |   |  | $ | 159,949   | 
|Total assets                                                                                        |  |              | 1,678,977 |              |                        |   | 1,218,733  |         |  |   | 2,463,813  |   |  |         | 2,692,802 |   |  |   | 4,426,187 | 
|Debt, including current portion                                                                     |  |              | 128,191   |              |                        |   |           |         |  |   |           |   |  |         | 2,236,497 |   |  |   | 2,352,956 | 
|Non-current liabilities and minority interest                                                       |  |              | 603,374   |              |                        |   | 84,677     |         |  |   | 72,932     |   |  |         | 354,475   |   |  |   | 272,302   | 
|Convertible redeemable preferred stock                                                              |  |              |          |              |                        |   |           |         |  |   |           |   |  |         | 125,081   |   |  |   |          | 
|Liabilities subject to compromise (see Notes 5 and 11
    to the consolidated financial statements) |  |              |          |              |                        |   | 1,916,000  |         |  |   | 2,921,680  |   |  |         |          |   |  |   |          | 
|Shareholders equity (deficit)                                                                      |  |              | 627,164   |              |                        |   | (1,044,101 | )       |  |   | (855,670   | ) |  |         | (354,227  | ) |  |   | 1,350,868 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In connection with our emergence from Chapter 11 and our
    adoption of fresh-start accounting on October 1, 2005 we
    recognized a gain on discharge of pre-petition obligations and
    fresh-start adjustments of $1.101 billion, related interest
    expense of $13.2 million related to the holders of claims
    to be paid in cash and a tax benefit of $15.4 million, each
    of which is reflected separately in our statement of operations
    (see Note 4 to the consolidated financial statements).                                                                                                                        
|   
|(2) | 2004 includes an $11 million increase to the deferred tax
    valuation allowance relating to the reversal of deferred tax
    liabilities arising from the write-off of our investment in
    Globalstar, L.P.s $500 million credit facility, upon
    Globalstar, L.P.s dissolution in June 2004. 2002 includes
    an increase in the deferred tax valuation allowance of
    $390 million, based upon managements assessment that
    insufficient positive evidence existed substantiating
    recoverability of our loss carryforwards and other deferred tax
    assets (see Note 14 to the consolidated financial
    statements).
|   
|(3) | Our principal affiliate is XTAR. Loral also has investments in
    joint ventures providing Globalstar service, which are accounted
    for under the equity method. During 2004, we recorded
    $47 million of equity income on the reversal of vendor
    financing liabilities that were non-recourse to SS/L in the
    event of non-payment by Globalstar, L.P. (see Note 9 to the
    consolidated financial statements). During 2003, we wrote off
    our remaining investment of $29 million in Satmex.                                                                                                                            
|   
|(4) | On January 1, 2002, in compliance with the adoption of
    SFAS 142, we recorded a charge of $890 million to
    write off all of our goodwill as the cumulative effect of change
    in accounting principle.                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(5) | Cash flow(used in) provided by operating activities includes
    cash flow from operating activities provided by discontinued
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(6) | Cash flow (used in) provided by investing activities includes
    cash flow provided by (used in) investing activities of
    discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(7) | As a result of our Chapter 11 filing, our debt obligations,
    preferred stock obligations and certain other liabilities
    existing at July 15, 2003, were classified as liabilities
    subject to compromise on our balance sheets at December 31,
    2004 and 2003. These obligations have been extinguished as of
    the Effective Date (see Note 11 to the consolidated
    financial statements).                                                                                                                                                                                                                                 

25



---



##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | On December 21, 2001, Loral Orion, Inc. (now
    known as Loral Skynet Corporation) completed exchange offers and
    consent solicitations by issuing $613 million principal
    amount of new senior notes guaranteed by Old Loral and
    0.6 million five year warrants to purchase Old Loral common
    stock in exchange for a total of $841 million principal
    amount of Loral Orion senior notes due 2007 and senior discount
    notes due 2007. These obligations have been extinguished as of
    the Effective Date.



|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.

The following discussion and analysis should be read in
conjunction with our consolidated financial statements (the
financial statements) included in Item 15 of
this Annual Report on Form 10-K.

Loral Space & Communications Inc. (New
Loral) was formed to succeed the business conducted by its
predecessor registrant, Loral Space & Communications
Ltd. (Old Loral), which emerged from Chapter 11
of the federal bankruptcy laws on November 21, 2005 (the
Effective Date) pursuant to the terms of the fourth
amended joint plan of reorganization of Old Loral and its debtor
subsidiaries, as modified (the Plan of
Reorganization).

We adopted fresh start accounting as of October 1, 2005, in
accordance with Statement of Position No. 90-7,
Financial Reporting of Entities in Reorganization Under the
Bankruptcy Code(SOP 90-7). Accordingly,
our financial information disclosed under the heading
Successor Registrant for the period ended and as of
December 31, 2005, is presented on a basis different from,
and is therefore not comparable to, our financial information
disclosed under the heading Predecessor Registrant
for the period ended and as of October 1, 2005 (the date we
adopted fresh-start accounting) or for prior periods.

The terms, Loral, the Company,
we, our and us, when used in
this report with respect to the period prior to our emergence
from Chapter 11, are references to Old Loral, and when used
with respect to the period commencing after our emergence, are
references to New Loral. These references include the
subsidiaries of Old Loral or New Loral, as the case may be,
unless otherwise indicated or the context otherwise requires.

References to full-year 2005 financial information throughout
this discussion combine the periods of January 1, 2005 to
October 1, 2005 with October 2, 2005 to
December 31, 2005. A reconciliation is provided to that
effect. Management believes that providing this financial
information is the most relevant and useful method for making
comparisons to the year ended December 31, 2004.

Disclosure Regarding Forward-Looking Statements

Except for the historical information contained in the
following discussion and analysis, the matters discussed below
are not historical facts, but are forward-looking
statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. In addition, we or our
representatives have made and may continue to make
forward-looking statements, orally or in writing, in other
contexts. These forward-looking statements can be identified by
the use of words such as believes,
expects, plans, may,
will, would, could,
should, anticipates,
estimates, project, intend,
or outlook or other variations of these words. These
statements are not guarantees of future performance and involve
risks and uncertainties that are difficult to predict or
quantify. Actual events or results may differ materially as a
result of a wide variety of factors and conditions, many of
which are beyond our control. For a detailed discussion of these
and other factors and conditions, please refer to the
Commitments and Contingencies section below and to our other
periodic reports filed with the Securities and Exchange
Commission (SEC). We operate in an industry sector
in which the value of securities may be volatile and may be
influenced by economic and other factors beyond our control. We
undertake no obligation to update any forward-looking
statements.

Overview

Businesses

Loral is a leading satellite communications company organized
into two operating segments: Satellite Services and Satellite
Manufacturing.

26



---



##### 





| |                   
| | ------------------
| | Satellite Services

Through Loral Skynet Corporation (Loral Skynet) we
provide satellite capacity and networking infrastructure to our
commercial and government customers for a wide range of video
and data transmission services, including video and
direct-to-home (DTH) broadcasting, high-speed data
distribution, Internet access, communications and networking
services. While we compete with fiber optic cable and other
terrestrial delivery systems, primarily for point-to-point
applications, Loral Skynet has been able to combine the inherent
advantages of each technology to provide its customers with
complete end-to-end services. Since FSS satellites remain in a
fixed point above the earths equator, they are
considerably more efficient than terrestrial systems for certain
applications, such as broadcast or point-to-multipoint
transmission of video and broadband data. A satellite offers
instant infrastructure. It can cover large geographic areas,
sometimes entire hemispheres, and can not only provide services
to populated areas, but can also better serve areas with
inadequate terrestrial infrastructures, low-density populations
or difficult geographic terrain.

The satellite services business is capital intensive and the
build-out of a satellite fleet requires substantial time and
investment. Once these investments are made, however, the costs
to maintain and operate the fleet are relatively low. The
upfront investments are earned back through the leasing of
transponders to customers over the life of the satellite. Given
the harsh and unpredictable environment in which the satellites
operate, another major cost factor is in-orbit insurance. Annual
receipts from this business are fairly predictable because they
are derived from an established base of long-term customer
contracts and high contract renewal rates.

On March 17, 2004, we consummated the sale of our North
American satellites and related assets to certain affiliates of
Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (collectively,
Intelsat). The North American satellites and related
assets sold to Intelsat have been accounted for as a
discontinued operation. Commencing on March 18, 2006, Loral
Skynet resumed marketing of satellite services to the North
American market, a region in which it was precluded from doing
business for two years pursuant to the terms of its sale of
satellites to Intelsat in March 2004 (see Note 5 to the
consolidated financial statements).

Competition in the satellite services market has been intense in
recent years due to a number of factors, including transponder
over-capacity in certain geographic regions and increased
competition from fiber. This competition has put further
pressure on prices already depressed by the telecommunications
industry downturn earlier this decade. A stronger economy and an
increase in capital available for expanded consumer and
enterprise-level services have led to an improvement in demand.
Much of Loral Skynets remaining available capacity,
however, is over geographic regions where the market is
characterized by excess capacity, coupled with weak demand, or
where regulatory obstacles are such that we find ourselves at a
competitive disadvantage versus local operators. Loral
Skynets growth depends on its ability to successfully
market the capacity available on its international fleet of
satellites, to differentiate itself from its competition through
customized product offerings and its superior customer service
and to fund additional satellite acquisitions.



| |                        
| | -----------------------
| | Satellite Manufacturing

Space Systems/ Loral, Inc. (SS/ L) designs and
manufactures satellites, space systems and space systems
components for commercial and government customers who use the
satellites for applications such as fixed satellite services,
DTH broadcasting, broadband data distribution, wireless
telephony, digital radio, military communications, weather
monitoring and air traffic management.

While its requirement for ongoing capital investment is
relatively low, the satellite manufacturing industry is a
knowledge-intensive business, the success of which relies
heavily on its technological heritage and the skills of its
workforce. The breadth and depth of talent and experience
resident in SS/ Ls workforce of approximately 1,400
employees is one of our key competitive resources.

Satellite manufacturers have high fixed costs relating primarily
to labor and overhead. Based on its current cost structure, we
estimate that SS/ L covers its fixed costs with an average of
three to four satellite awards a year depending on the size,
power and complexity of the satellite. Cash flow in the
satellite manufacturing business, however, tends to be uneven.
It takes two to three years to complete a satellite project

27



---



##### 





Satellites are extraordinarily complex devices designed to
operate in the very hostile environment of space. This
complexity may lead to unanticipated costs during the design,
manufacture and testing of a satellite. SS/ L establishes
provisions for costs based on historical experience and program
complexity to cover anticipated costs. Since most of SS/
Ls contracts are fixed price, cost increases in excess of
the provisions reduce profitability and may result in losses
borne solely by SS/ L, which may be material. The highly
competitive satellite manufacturing industry is just now
recovering from a several-year period when order levels reached
an unprecedented low level, resulting in manufacturing
over-capacity. Buyers, as a result, have had the advantage over
suppliers in negotiating prices, terms and conditions resulting
in reduced margins and increased assumptions of risk by SS/ L.
SS/ L was further handicapped while it was in Chapter 11,
because of buyers reluctance to purchase satellites from a
company in bankruptcy.

Bankruptcy
Reorganization

The sustained and unprecedented decline in demand for our
satellites and the transponder over-capacity in our satellite
services business exacerbated Lorals already strained
financial condition brought on primarily by the investments we
had previously made in Globalstar, L.P. and subsequently
wrote-off. On July 15, 2003, Old Loral and certain of its
subsidiaries (the Debtor Subsidiaries and
collectively with Old Loral, the Debtors) filed
voluntary petitions for reorganization (the
Chapter 11 Cases) under chapter 11 of
title 11 (Chapter 11) of the United States
Code (the Bankruptcy Code). During the ensuing
two-and-a-half year period we further increased our emphasis on
cash conservation by reducing operating expenses and closely
monitoring capital expenditures.

On August 1, 2005, the Bankruptcy Court entered its
Confirmation Order confirming the Plan of Reorganization. On
September 30, 2005, the FCC approved the transfer of FCC
licenses from Old Loral to New Loral, which represented
satisfaction of the last material condition precedent to
emergence. The Debtors emerged from their reorganization
proceeding under Chapter 11 on November 21, 2005
pursuant to the Plan of Reorganization. Pursuant to
SOP 90-7 we adopted fresh-start accounting as of
October 1, 2005 (see Notes 2 and 4 to the financial
statements).

Future Outlook

Following our recent emergence from Chapter 11, we have
focused primarily on taking advantage of the years of experience
and superior expertise of our professional senior management
team to capture opportunities in our markets and maintain an
efficient stream-lined operation.

We have reorganized around SS/ Ls satellite manufacturing
operations and Loral Skynets international fleet of
satellites. We consider these operations to be a viable
foundation for the further expansion of our company.

Construction of Telstar 11N, a powerful new multi-region Ku-band
communications satellite, has begun at SS/ L and upon completion
will be launched into the 37.5 degree W.L. orbital location.
Scheduled to enter service in 2008, Telstar 11N will provide
commercial and governmental customers with broadband
connectivity within and among the American, European and African
regions. Our customers will use Telstar 11N for video
distribution and high-speed, IP-based data and voice services.

Critical success factors for both of our segments include
maintaining our reputation for reliability, quality and superior
customer service. These factors are vital to securing new
customers and retaining current ones. At the same time, we must
continue to contain costs, and maximize efficiencies. Loral
Skynet is focused on increasing the capacity utilization of its
satellite fleet and successfully rolling out new value-added
services to

28



---



##### 





See Part 1, Item 1 of this Annual Report on
Form 10-K, for a complete description of Lorals
businesses, the Chapter 11 Cases and our Plan of
Reorganization.

Consolidated Operating Results

Please refer to Critical Accounting Matters set forth below in
this section.

The following discussion of revenues and Adjusted EBITDA (see
Note 20 to the financial statements) reflects the results
of our operating business segments for 2005, 2004 and 2003. The
balance of the discussion relates to our consolidated results,
unless otherwise noted. As previously discussed, we emerged from
Chapter 11 on November 21, 2005 and adopted
fresh-start accounting as of October 1, 2005. As a result
of the adoption of fresh-start accounting, the Successor
Registrants financial statements are not comparable with
the Predecessor Registrants financial statements.
References to full-year 2005 financial information throughout
this discussion combine the periods of January 1, 2005 to
October 1, 2005 with October 2, 2005 to
December 31, 2005. A reconciliation is provided to that
effect. Management believes that presenting the financial
information in this way is the most relevant and useful method
for making comparisons to the year ended December 31, 2004.

The sale of our North American satellites and related assets to
Intelsat in March 2004, has been accounted for as a discontinued
operation, resulting in our historical statements of operations
and statements of cash flows reflecting such discontinued
operations separately from continuing operations (see
Note 5 to the financial statements).

Revenues:

|                                                                                        |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | -------------- | ----- | -------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                        |  | For the Period |       | For the Period |  |                          |       |      |  |     
|                                                                                        |  | October 2,     |       | January 1,     |  |                         
|                                                                                        |  | 2005 to        |       | 2005 to        |  | Years Ended December 31,
|                                                                                        |  | December 31,   |       | October 1,     |  |                         
|                                                                                        |  | 2005           |       | 2005           |  | 2005                     |       | 2004 |  | 2003
|                                                                                        |  |                |       |                |  |                          |       |      |  |     
|                                                                                        |  |               
|                                                                                        |  | (in millions) 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Satellite Services                                                                      |  | $              | 37.0  |                |  | $                        | 114.5 |      |  | $    | 151.5 |   |  | $ | 141.2  |   |  | $ | 154.3  |  
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Revenues from sales-type lease arrangement (see
    Note 8 to the financial statements) |  |                |      |                |  |                          |      |      |  |      |      |   |  |   | 87.2   |   |  |   |       |  
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Satellite Manufacturing                                                                 |  |                | 161.8 |                |  |                          | 329.5 |      |  |      | 491.3 |   |  |   | 436.6  |   |  |   | 474.0  |  
|                                                                                        |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |        |   |  |   |        |  
|Segment revenues                                                                        |  |                | 198.8 |                |  |                          | 444.0 |      |  |      | 642.8 |   |  |   | 665.0  |   |  |   | 628.3  |  
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Eliminations(2)                                                                         |  |                | (1.6  | )              |  |                          | (14.8 | )    |  |      | (16.4 | ) |  |   | (142.9 | ) |  |   | (236.3 | )
|                                                                                        |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |        |   |  |   |        |  
|Revenues as reported(3)                                                                 |  | $              | 197.2 |                |  | $                        | 429.2 |      |  | $    | 626.4 |   |  | $ | 522.1  |   |  | $ | 392.0  |  
|                                                                                        |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |        |   |  |   |        |  

29



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##### 



Adjusted EBITDA:

|                                                                                             |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | -------------- | ----- | -------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  | - | ------ | -
|                                                                                             |  | For the Period |       | For the Period |  |                          |       |      |  |     
|                                                                                             |  | October 2,     |       | January 1,     |  |                         
|                                                                                             |  | 2005 to        |       | 2005 to        |  | Years Ended December 31,
|                                                                                             |  | December 31,   |       | October 1,     |  |                         
|                                                                                             |  | 2005           |       | 2005           |  | 2005                     |       | 2004 |  | 2003
|                                                                                             |  |                |       |                |  |                          |       |      |  |     
|                                                                                             |  |               
|                                                                                             |  | (in millions) 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Satellite Services(4)                                                                        |  | $              | 11.5  |                |  | $                        | 39.8  |      |  | $    | 51.3  |   |  | $ | 15.6  |   |  | $ | 7.5    |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Satellite Services sales-type lease arrangement
    (see Note 8 to the financial statements) |  |                |      |                |  |                          |      |      |  |      |      |   |  |   | 7.7   |   |  |   |       |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Satellite Manufacturing(5)                                                                   |  |                | 11.8  |                |  |                          | 15.2  |      |  |      | 27.0  |   |  |   | (13.5 | ) |  |   | (158.6 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Corporate expenses(6)                                                                        |  |                | (11.0 | )              |  |                          | (17.3 | )    |  |      | (28.3 | ) |  |   | (34.9 | ) |  |   | (36.0  | )
|                                                                                             |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Segment Adjusted EBITDA before eliminations                                                  |  |                | 12.3  |                |  |                          | 37.7  |      |  |      | 50.0  |   |  |   | (25.1 | ) |  |   | (187.1 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Eliminations(2)                                                                              |  |                | (1.2  | )              |  |                          | (12.3 | )    |  |      | (13.5 | ) |  |   | (24.0 | ) |  |   | (41.9  | )
|                                                                                             |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Adjusted EBITDA                                                                              |  | $              | 11.1  |                |  | $                        | 25.4  |      |  | $    | 36.5  |   |  | $ | (49.1 | ) |  | $ | (229.0 | )
|                                                                                             |  |                |       |                |  |                          |       |      |  |      |       |   |  |   |       |   |  |   |        |  

30



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##### 



Reconciliation of Adjusted EBITDA to Net Loss:


|                                                                                                                                            |  |                |       |   |                |   |         |                          |  |   |         |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | - | -------------- | - | ------- | ------------------------ |  | - | ------- | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                            |  | For the Period |       |   | For the Period |   |         |                          |  |   |         |  
|                                                                                                                                            |  | October 2,     |       |   | January 1,     |   |         |                         
|                                                                                                                                            |  | 2005 to        |       |   | 2005 to        |   |         | Years Ended December 31, | 
|                                                                                                                                            |  | December 31,   |       |   | October 1,     |   |         |                          | 
|                                                                                                                                            |  | 2005           |       |   | 2005           |   |         | 2005                     |  |   | 2004    |   |  | 2003 |       
|                                                                                                                                            |  |                |       |   |                |   |         |                          |  |   |         |   |  |      |       
|                                                                                                                                            |  | (in millions)  |      
|Adjusted EBITDA                                                                                                                             |  | $              | 11.1  |   |                | $ | 25.4    |                          |  | $ | 36.5    |   |  | $    | (49.1  | ) |  | $ | (229.0 | )
|Depreciation and
    amortization(7)                                                                                                        |  |                | (16.0 | ) |                |   | (61.3   | )                        |  |   | (77.3   | ) |  |      | (134.8 | ) |  |   | (134.6 | )
|Reorganization expenses due to bankruptcy                                                                                                   |  |                |      |   |                |   | (31.2   | )                        |  |   | (31.2   | ) |  |      | (30.4  | ) |  |   | (25.3  | )
|                                                                                                                                            |  |                |       |   |                |   |         |                          |  |   |         |   |  |      |       
|Operating loss from continuing operations                                                                                                   |  |                | (4.9  | ) |                |   | (67.1   | )                        |  |   | (72.0   | ) |  |      | (214.3 | ) |  |   | (388.9 | )
|Gain on discharge of pre-petition obligations and fresh-start
    adjustments
    (1)                                                       |  |                |      |   |                |   | 1,101.5 |                          |  |   | 1,101.5 |   |  |      |       |   |  |   |       |  
|Interest and investment income                                                                                                              |  |                | 4.1   |   |                |   | 6.4     |                          |  |   | 10.5    |   |  |      | 9.9    |   |  |   | 15.2   |  
|Interest expense                                                                                                                            |  |                | (4.4  | ) |                |   | (17.2   | )                        |  |   | (21.6   | ) |  |      | (2.9   | ) |  |   | (14.1  | )
|Other income (expense)                                                                                                                      |  |                | (0.2  | ) |                |   | (0.9    | )                        |  |   | (1.1    | ) |  |      | (0.5   | ) |  |   | 1.5    |  
|Gain on investments                                                                                                                         |  |                |      |   |                |   |        |                          |  |   |        |   |  |      |       |   |  |   | 17.9   |  
|Income tax (provision) benefit                                                                                                              |  |                | (1.8  | ) |                |   | 10.9    |                          |  |   | 9.1     |   |  |      | (13.2  | ) |  |   | 6.4    |  
|Equity (losses) income in affiliates                                                                                                        |  |                | (5.4  | ) |                |   | (2.8    | )                        |  |   | (8.2    | ) |  |      | 46.6   |   |  |   | (51.2  | )
|Minority interest                                                                                                                           |  |                | (2.7  | ) |                |   | 0.1     |                          |  |   | (2.6    | ) |  |      | 0.1    |   |  |   |       |  
|                                                                                                                                            |  |                |       |   |                |   |         |                          |  |   |         |   |  |      |       
|(Loss) income from continuing operations                                                                                                    |  |                | (15.3 | ) |                |   | 1,030.9 |                          |  |   | 1,015.6 |   |  |      | (174.3 | ) |  |   | (413.2 | )
|Income (loss) from discontinued operations, net of taxes                                                                                    |  |                |      |   |                |   | 14.0    |                          |  |   | 14.0    |   |  |      | (2.4   | ) |  |   | 18.8   |  
|                                                                                                                                            |  |                |       |   |                |   |         |                          |  |   |         |   |  |      |       
|(Loss) income before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |  |                | (15.3 | ) |                |   | 1,044.9 |                          |  |   | 1,029.6 |   |  |      | (176.7 | ) |  |   | (394.4 | )
|Cumulative effect of change in accounting principle                                                                                         |  |                |      |   |                |   |        |                          |  |   |        |   |  |      |       |   |  |   | (1.9   | )
|Extraordinary gain on acquisition of minority interest                                                                                      |  |                |      |   |                |   |        |                          |  |   |        |   |  |      |       |   |  |   | 13.6   |  
|Preferred dividends                                                                                                                         |  |                |      |   |                |   |        |                          |  |   |        |   |  |      |       |   |  |   | (6.7   | )
|                                                                                                                                            |  |                |       |   |                |   |         |                          |  |   |         |   |  |      |       
|Net (loss) income applicable to common shareholders                                                                                         |  | $              | (15.3 | ) |                | $ | 1,044.9 |                          |  | $ | 1,029.6 |   |  | $    | (176.7 | ) |  | $ | (389.4 | )
|                                                                                                                                            |  |                |       |   |                |   |         |                          |  |   |         |   |  |      |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In connection with our emergence from Chapter 11 and our
    adoption of fresh-start accounting on October 1, 2005 we
    recognized a gain on discharge of pre-petition obligations and
    fresh-start adjustments of $1.101 billion, related interest
    expense of $13.2 million and a tax benefit of
    $15.4 million, each of which is reflected separately in our
    statement of operations (see Note 4 to the financial
    statements).                           
|   
|(2) | Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for wholly owned subsidiaries and in 2003,
    the reversal of cumulative satellite manufacturing sales of
    $83 million and cost of satellite manufacturing of
    $73 million on a satellite program that was changed to a
    lease arrangement in the third quarter of 2003 (see Note 8
    to the financial statements).
|   
|(3) | Includes revenues from affiliates of $4.1 million,
    $10.0 million, $7.8 million and $27.7 million for
    the periods October 2, 2005 to December 31, 2005 and
    January 1, 2005 to October 1, 2005 and the years ended
    December 31, 2004 and 2003, respectively.                                                                                                                                                                                                     
|   
|(4) | In 2004, includes an impairment charge of $12 million for
    our Telstar 14/ Estrela do Sul-1 Satellite (see Note 8 to
    the financial statements).                                                                                                                                                                                                                                                                                                                         

31



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##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Excludes charges of $24 million for 2004, as a result of
    the settlement of all orbital receivables on satellites sold to
    Intelsat. This settlement had the effect of reducing future
    orbital receipts by $25 million, including $15 million
    relating to a satellite under construction in 2004. Consistent
    with our internal reporting for satellite manufacturing, this
    decrease in contract value for the satellite under construction
    is not being reflected as a decrease in 2004 satellite
    manufacturing revenues. These charges had no effect on our
    consolidated results.

|                                                                        |                                                                  |                          |      |       |      |   |       |       |   |   |        |       |  
|----------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------ | ---- | ----- | ---- | - | ----- | ----- | - | - | ------ | ----- | -
|                                                                        |                                                                  | Years Ended December 31, |     
|                                                                        |                                                                  |                          |     
|                                                                        |                                                                  | 2005                     |      |       | 2004 |   |       | 2003  |  
|                                                                        |                                                                  |                          |      |       |      |   |       |       |  
|                                                                        |                                                                  | (in millions)            |     
|Satellite Manufacturing includes:                                       |                                                                  |                          |      |       |      |   |       |       |   |   |        |      
|                                                                        | Adjusted EBITDA before specific identified charges               |                          | $    | 45.1  |      |   | $     | 10.8  |   |   | $      | (21.3 | )
|                                                                        | Accrued warranty obligations                                     |                          |      | (14.5 | )    |   |       | (9.7  | ) |   |        | (2.2  | )
|                                                                        | Write-off of long-term receivables due to contract modifications |                          |      |      |      |   |       | (11.3 | ) |   |        | (20.2 | )
|                                                                        | Provisions for inventory obsolescence                            |                          |      | (3.6  | )    |   |       | (3.3  | ) |   |        | (49.5 | )
|                                                                        | Loss on cancellation of deposits                                 |                          |      |      |      |   |       |      |   |   |        | (23.5 | )
|                                                                        | Accrual for Alcatel settlement                                   |                          |      |      |      |   |       |      |   |   |        | (13.0 | )
|                                                                        | Loss on acceleration of receipt of long-term receivables         |                          |      |      |      |   |       |      |   |   |        | (10.9 | )
|                                                                        | Valuation allowance on vendor financing receivables              |                          |      |      |      |   |       |      |   |   |        | (10.0 | )
|                                                                        | Settlement of satellite contract dispute                         |                          |      |      |      |   |       |      |   |   |        | (8.0  | )
|                                                                        |                                                                  |                          |      |       |      |   |       |       |  
|Satellite Manufacturing segment Adjusted EBITDA before
    eliminations |                                                                  | $                        | 27.0 |       |      | $ | (13.5 | )     |   | $ | (158.6 | )    
|                                                                        |                                                                  |                          |      |       |      |   |       |       |  



|    |                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Represents corporate expenses incurred in support of our
    operations and for the period October 2, 2005 to
    December 31, 2005 includes $3.9 million of continuing
    expenses related to the run out of bankruptcy related matters,
    which after the adoption of fresh-start accounting are
    classified as corporate expenses.
|   
|(7) | Includes additional depreciation expense of $9 million and
    $14 million for 2004 and 2003, respectively, due to
    accelerating the estimated end of depreciable life of our
    Telstar 11 satellite to June 2004 from March 2005.                                                                                                    

2005 Compared with 2004 and 2004 Compared with 2003




| |                                 
| | --------------------------------
| | Revenues from Satellite Services

|                                             |  |               |     |            |      |   |     |            |  |   |      |   |  |      |     |    |  |  |    |   
|-------------------------------------------- |  | ------------- | --- | ---------- | ---- | - | --- | ---------- |  | - | ---- | - |  | ---- | --- | -- |  |  | -- | --
|                                             |  |               |     |            |      |   |     | % Increase | 
|                                             |  |               |     | (Decrease) |     
|                                             |  | Years Ended   |     |            |      |  
|                                             |  | December 31,  |     |            | 2005 |   |     | 2004       | 
|                                             |  |               |     |            | vs.  |   |     | vs.        | 
|                                             |  | 2005          |     |            | 2004 |   |     | 2003       |  |   | 2004 |   |  | 2003 |    
|                                             |  |               |     |            |      |   |     |            |  |   |      |   |  |      |    
|                                             |  | (in millions) |     |            |      |   |    
|Revenues from Satellite Services             |  | $             | 152 |            |      | $ | 141 |            |  | $ | 154  |   |  |      | 7   | %  |  |  | (8 | )%
|Revenues from sales-type lease arrangement   |  |               |    |            |      |   | 87  |            |  |   |     |   |  |      |     |    |  |  |    |   
|Eliminations                                 |  |               | (5  | )          |      |   | (5  | )          |  |   | (7   | ) |  |      |    |    |  |  | 29 | % 
|                                             |  |               |     |            |      |   |     |            |  |   |      |   |  |      |    
|Revenues from Satellite Services as reported |  | $             | 147 |            |      | $ | 223 |            |  | $ | 147  |   |  |      | (34 | )% |  |  | 51 | % 
|                                             |  |               |     |            |      |   |     |            |  |   |      |   |  |      |    



32



---



##### 



Revenues from Satellite Services as reported increased
$76 million in 2004 as compared to 2003, primarily because
of the $87 million of revenues recognized in connection
with the sales-type lease arrangement for satellite capacity
(see Note 8 to the financial statements) and from higher
customer lease termination and settlement fees of
$7 million. This was offset by a $17 million decrease
in transponder and network utilization and a $2 million
decrease due to lower rates for services.

Revenues from Satellite
Manufacturing

|                                                  |  |               |     |            |  |      |      |            |  |      |      |   |  |  |    |   |  |  |    |   
|------------------------------------------------- |  | ------------- | --- | ---------- |  | ---- | ---- | ---------- |  | ---- | ---- | - |  |  | -- | - |  |  | -- | --
|                                                  |  |               |     |            |  |      |      |           
|                                                  |  |               |     |            |  |      |      | % Increase
|                                                  |  |               |     | (Decrease)
|                                                  |  | Years Ended   |     |           
|                                                  |  | December 31,  |     | 2005       |  | 2004
|                                                  |  |               |     | vs.        |  | vs. 
|                                                  |  | 2005          |     | 2004       |  | 2003 |      | 2004       |  | 2003
|                                                  |  |               |     |            |  |      |      |            |  |     
|                                                  |  |              
|                                                  |  | (in millions)
|                                                 
|                                                 
|                                                 
|                                                 
|Revenues from Satellite Manufacturing             |  | $             | 491 |            |  | $    | 437  |            |  | $    | 474  |   |  |  | 13 | % |  |  | (8 | )%
|                                                 
|                                                 
|                                                 
|                                                 
|Eliminations                                      |  |               | (11 | )          |  |      | (137 | )          |  |      | (229 | ) |  |  | 91 | % |  |  | 40 | % 
|                                                  |  |               |     |            |  |      |      |            |  |      |      |   |  |  |    |   |  |  |    |   
|Revenues from Satellite Manufacturing as reported |  | $             | 480 |            |  | $    | 300  |            |  | $    | 245  |   |  |  | 61 | % |  |  | 22 | % 
|                                                  |  |               |     |            |  |      |      |            |  |      |      |   |  |  |    |   |  |  |    |   

Revenues from Satellite Manufacturing before eliminations
increased by $54 million in 2005 as compared to 2004.
Revenues in 2005 include $165 million of revenues from new
satellite awards of $824 million in 2005 and
$326 million of revenues from existing backlog. Revenues in
2004 include $57 million of revenues from new satellite
awards of $385 million in 2004 and $380 million of
revenues from existing backlog. Eliminations consist primarily
of revenues from satellites under construction by SS/L for
Satellite Services, and in 2004 include satellites under
construction which have been completed. As a result, revenues
from Satellite Manufacturing as reported increased
$180 million in 2005 as compared to 2004.

Revenues from Satellite Manufacturing before eliminations
decreased by $37 million in 2004 as compared to 2003,
primarily resulting from a $213 million decrease in
revenues from satellite programs nearing completion under the
percentage of completion method, offset by a $167 million
increase in revenues from new satellite orders received in 2003
and a $9 million decrease in write-offs of long-term
receivables due to contract modifications. Eliminations consist
primarily of revenues from satellites under construction by SS/L
for Satellite Services, and, in 2003, include the reversal of
$83 million of cumulative sales on a satellite program that
was changed to a lease arrangement in 2003 (see Note 8 to
the financial statements). As a result, revenues from Satellite
Manufacturing as reported increased $55 million in 2004 as
compared to 2003.

Cost
of Satellite Services

|                                                                                 |                                                                   |               |     |            |  |      |     |            |  |      |     |     |  |  |     |     |    |  |    |     |   
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------- | --- | ---------- |  | ---- | --- | ---------- |  | ---- | --- | --- |  |  | --- | --- | -- |  | -- | --- | --
|                                                                                 |                                                                   |               |     |            |  |      |     |           
|                                                                                 |                                                                   |               |     |            |  |      |     | % Increase
|                                                                                 |                                                                   |               |     | (Decrease)
|                                                                                 |                                                                   | Years Ended   |     |           
|                                                                                 |                                                                   | December 31,  |     | 2005       |  | 2004
|                                                                                 |                                                                   |               |     | vs.        |  | vs. 
|                                                                                 |                                                                   | 2005          |     | 2004       |  | 2003 |     | 2004       |  | 2003
|                                                                                 |                                                                   |               |     |            |  |      |     |            |  |     
|                                                                                 |                                                                   |               |     |            |  |     
|                                                                                 |                                                                   | (in millions) |     |            |  |     
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Cost of Satellite Services includes:                                             |                                                                   |               |     |            |  |      |     |            |  |      |     |     |  |  |     |     |    |  |    |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of Satellite Services before specific
    identified charges |               | $   | 59         |  |      | $   | 65         |  |      | $   | 85  |  |  |     | (10 | )% |  |    | (23 | )%
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Depreciation and amortization                                     |               |     | 61         |  |      |     | 112        |  |      |     | 107 |  |  |     | (44 | )% |  |    | 4   | % 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Impairment charge for Telstar 14/ Estrela do
    Sul-1 satellite  |               |     |           |  |      |     | 12         |  |      |     |    |  |  |     |     |    |  |    |     |   
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of sales-type lease arrangement                              |               |     |           |  |      |     | 80         |  |      |     |    |  |  |     |     |    |  |    |     |   
|                                                                                 |                                                                   |               |     |            |  |      |     |            |  |      |     |     |  |  |     |     |    |  |    |    
|Cost of Satellite Services                                                       |                                                                   | $             | 120 |            |  | $    | 269 |            |  | $    | 192 |     |  |  | (55 | )%  |    |  | 40 | %  
|                                                                                 |                                                                   |               |     |            |  |      |     |            |  |      |     |     |  |  |     |     |    |  |    |    
|Cost of Satellite Services as a % of Satellite
    Services revenues as reported |                                                                   |               | 82  | %          |  |      | 121 | %          |  |      | 130 | %   |  |  |     |     |    |  |    |    

33



---



##### 



Cost of Satellite Services was $26 million and
$94 million for the periods October 2, 2005 to
December 31, 2005 and January 1, 2005 to
October 1, 2005, respectively, totaling $120 million
for 2005. Cost of Satellite Services before specific identified
charges decreased $6 million in 2005 as compared to 2004,
primarily because external satellite capacity costs declined
$7 million and headcount and other costs declined
$4 million. These decreases were partially offset by an
increase in satellite insurance expense of $3 million due
to higher premiums and higher ground operations costs of
$2 million. Depreciation and amortization expense decreased
by $51 million in 2005 as compared to 2004, primarily
resulting from a reduction of $42 million related to our
Telstar 11 satellite which was fully depreciated in 2004 and the
net effect of the fair value adjustments in connection with the
adoption of fresh-start accounting on October 1, 2005.
Depreciation and amortization for 2005 includes reduced charges
of depreciation and amortization of $7 million for fixed
assets and a $1 million credit for amortization of
intangibles primarily resulting from the adoption of fresh-start
accounting. In 2004, we incurred $80 million of costs for a
sales-type lease arrangement and recognized an impairment charge
of $12 million for the Telstar 14/ Estrela do Sul-1
satellite and related assets to reduce the carrying values to
the expected proceeds from insurance of $250 million (see
Note 8 to the financial statements). As a result, cost of
Satellite Services decreased $149 million in 2005 as
compared to 2004.

Cost of Satellite Services before specific identified charges
decreased $20 million in 2004 as compared to 2003,
primarily due to reduced external satellite capacity costs of
$10 million, lower costs of $5 million due to
headcount and other cost reductions and decreased insurance
costs of $5 million primarily resulting from non-renewal of
insurance for Telstar 11 in the fourth quarter of 2003 and from
the lower premium on renewal for Telstar 10/ Apstar IIR due
to changes to coverage, offset by the insurance cost for Telstar
18 which commenced service at the beginning of September 2004.
Depreciation and amortization expense increased $5 million
in 2004 as compared to 2003, primarily resulting from higher
depreciation expense of $12 million for our Telstar
14/Estrela do Sul-1 satellite which commenced service at the end
of March 2004 and our Telstar 18 satellite, offset in part by a
reduction of $6 million due to our Telstar 11 satellite
being fully depreciated in 2004 and a reduction of
$1 million due to the timing of assets placed in service
and assets that became fully depreciated. In 2004, we incurred
$80 million of costs for a sales-type lease arrangement and
recognized an impairment charge of $12 million for the
Telstar 14/Estrela do Sul-1 satellite and related assets to
reduce the carrying values to the expected proceeds from
insurance of $250 million (see Note 8 to the financial
statements). As a result, cost of Satellite Services increased
$77 million in 2004 as compared to 2003.

34



---



##### 



Cost
of Satellite Manufacturing

|                                                                                           |                                                                        |               |     |            |  |      |     |            |  |      |     |     |   |  |    |     |    |  |     |     |   
|------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------- | ------------- | --- | ---------- |  | ---- | --- | ---------- |  | ---- | --- | --- | - |  | -- | --- | -- |  | --- | --- | --
|                                                                                           |                                                                        |               |     |            |  |      |     |           
|                                                                                           |                                                                        |               |     |            |  |      |     | % Increase
|                                                                                           |                                                                        |               |     | (Decrease)
|                                                                                           |                                                                        | Years Ended   |     |           
|                                                                                           |                                                                        | December 31,  |     | 2005       |  | 2004
|                                                                                           |                                                                        |               |     | vs.        |  | vs. 
|                                                                                           |                                                                        | 2005          |     | 2004       |  | 2003 |     | 2004       |  | 2003
|                                                                                           |                                                                        |               |     |            |  |      |     |            |  |     
|                                                                                           |                                                                        |               |     |            |  |     
|                                                                                           |                                                                        | (in millions) |     |            |  |     
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Cost of Satellite Manufacturing includes:                                                  |                                                                        |               |     |            |  |      |     |            |  |      |     |     |   |  |    |     |    |  |     |    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Cost of Satellite Manufacturing before specific
    identified charges |               | $   | 396        |  |      | $   | 271        |  |      | $   | 330 |   |  |    | 46  | %  |  |     | (18 | )%
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Depreciation and amortization                                          |               |     | 15         |  |      |     | 23         |  |      |     | 27  |   |  |    | (34 | )% |  |     | (16 | )%
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Accrued warranty obligations                                           |               |     | 15         |  |      |     | 10         |  |      |     | 2   |   |  |    | 50  | %  |  |     |     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Write-off of long-term receivables due to
    contract modifications   |               |     |           |  |      |     | 11         |  |      |     | 20  |   |  |    |     |    |  |     | (44 | )%
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Provisions for inventory obsolescence                                  |               |     | 4          |  |      |     | 3          |  |      |     | 50  |   |  |    |     |    |  |     |     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Loss on cancellation of deposits                                       |               |     |           |  |      |     |           |  |      |     | 24  |   |  |    |     |    |  |     |     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Accrual for Alcatel settlement                                         |               |     |           |  |      |     |           |  |      |     | 13  |   |  |    |     |    |  |     |     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Loss on acceleration of receipt of long-term
    receivables           |               |     |           |  |      |     |           |  |      |     | 11  |   |  |    |     |    |  |     |     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Valuation allowance on vendor financing
    receivables                |               |     |           |  |      |     |           |  |      |     | 10  |   |  |    |     |    |  |     |     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Settlement of satellite contract dispute                               |               |     |           |  |      |     |           |  |      |     | 8   |   |  |    |     |    |  |     |     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Reversal of costs on a satellite program changed
    to a lease        |               |     |           |  |      |     |           |  |      |     | (73 | ) |  |    |     |    |  |     |     |   
|                                                                                           |                                                                        |               |     |            |  |      |     |            |  |      |     |     |   |  |    |     |    |  |     |    
|Cost of Satellite Manufacturing                                                            |                                                                        | $             | 430 |            |  | $    | 318 |            |  | $    | 422 |     |   |  | 36 | %   |    |  | (25 | )% 
|                                                                                           |                                                                        |               |     |            |  |      |     |            |  |      |     |     |   |  |    |     |    |  |     |    
|Cost of Satellite Manufacturing as a % of
    Satellite Manufacturing revenues as reported |                                                                        |               | 90  | %          |  |      | 106 | %          |  |      | 172 | %   |   |  |    |     |    |  |     |    

Cost of Satellite Manufacturing was $139 million and
$291 million for the periods October 2, 2005 to
December 31, 2005 and January 1, 2005 to
October 1, 2005, respectively, totaling $430 million
for 2005. Cost of Satellite Manufacturing increased
$112 million in 2005 as compared to 2004. The Cost of
Satellite Manufacturing before specific identified charges
increased $125 million in 2005 as compared to 2004,
primarily due to the increase in sales for the period, partially
offset by the effect of improved factory performance. The Cost
of Satellite Manufacturing increase was also offset by lower
depreciation and amortization expense of $8 million
primarily resulting from the effects of reduced capital spending
and the adoption of fresh-start accounting on October 1,
2005. Depreciation and amortization for the Successor Registrant
includes a $5 million credit due to amortization of
contract valuation adjustments, partially offset by a
$3 million amortization charge for intangibles established
in connection with the adoption of fresh-start accounting.

Cost of Satellite Manufacturing decreased $104 million in
2004 as compared to 2003. Cost of Satellite Manufacturing before
specific identified charges decreased $59 million in 2004
as compared to 2003, primarily due to lower overall volume as
satellite programs neared completion under the percentage of
completion method and lower costs due to headcount reductions,
offset in part by $141 million of increased costs for the
satellite orders received in the fourth quarter of 2003. Cost of
Satellite Manufacturing also decreased in 2004 as compared to
2003, due to lower depreciation expense of $4 million
primarily resulting from reduced capital spending and the
charges incurred in 2003 as compared to those in 2004, as
detailed in the above table. These decreases were partially
offset by the reversal of $73 million of costs on a
satellite program that was changed to a lease arrangement in
2003 (see Note 8 to the financial statements).

35



---



##### 



Selling,
General and Administrative Expenses


|                                             |  |               |     |            |      |   |     |            |  |   |      |   |  |      |    |    |  |  |     |   
|-------------------------------------------- |  | ------------- | --- | ---------- | ---- | - | --- | ---------- |  | - | ---- | - |  | ---- | -- | -- |  |  | --- | --
|                                             |  |               |     |            |      |   |     | % Increase | 
|                                             |  |               |     | (Decrease) |     
|                                             |  | Years Ended   |     |            |      |  
|                                             |  | December 31,  |     |            | 2005 |   |     | 2004       | 
|                                             |  |               |     |            | vs.  |   |     | Vs.        | 
|                                             |  | 2005          |     |            | 2004 |   |     | 2003       |  |   | 2004 |   |  | 2003 |   
|                                             |  |               |     |            |      |   |     |            |  |   |      |   |  |      |   
|                                             |  | (in millions) |     |            |      |   |    
|Selling, general and administrative expenses |  | $             | 116 |            |      | $ | 119 |            |  | $ | 142  |   |  |      | (2 | )% |  |  | (16 | )%
|% of revenues as reported                    |  |               | 19  | %          |      |   | 23  | %          |  |   | 36   | % |  |      |    |    |  |  |     |   





Reorganization Expenses Due to
Bankruptcy


|                                          |  |               |    |  |                  |            |    |            |  |   |      |  |  |      |   |   |  |  |    |  
|----------------------------------------- |  | ------------- | -- |  | ---------------- | ---------- | -- | ---------- |  | - | ---- |  |  | ---- | - | - |  |  | -- | -
|                                          |  |               |    |  |                  |            |    | % Increase | 
|                                          |  |               |    |  |                  | (Decrease) |   
|                                          |  | Year Ended    |    |  |                  |            |    |           
|                                          |  | December 31,  |    |  | July 15, 2003 to |            |    | 2005       |  |   | 2004 | 
|                                          |  |               |    |  | December 31,     |            |    | vs.        |  |   | vs.  | 
|                                          |  | 2005          |    |  | 2004             |            |    | 2003       |  |   | 2004 |  |  | 2003 |  
|                                          |  |               |    |  |                  |            |    |            |  |   |      |  |  |      |  
|                                          |  | (in millions) |    |  |                  |            |   
|Reorganization Expenses Due to Bankruptcy |  | $             | 31 |  |                  | $          | 30 |            |  | $ | 25   |  |  |      | 3 | % |  |  | 20 | %





Gain on Discharge of
Pre-petition Obligations and Fresh-start Adjustments




36



---



##### 



Interest and Investment
Income

|                               |  |               |    |      |  |      |    |  |  |   |    | 
|------------------------------ |  | ------------- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|                               |  |              
|                               |  | Years Ended  
|                               |  | December 31, 
|                               |  |              
|                               |  | 2005          |    | 2004 |  | 2003
|                               |  |               |    |      |  |     
|                               |  |              
|                               |  | (in millions)
|                              
|                              
|                              
|                              
|Interest and investment income |  | $             | 11 |      |  | $    | 10 |  |  | $ | 15 | 

Interest income is primarily derived from our orbital incentives
on satellites in orbit manufactured by SS/L.

Interest Expense

|                                          |  |               |    |      |  |      |    |   |  |   |     |  
|----------------------------------------- |  | ------------- | -- | ---- |  | ---- | -- | - |  | - | --- | -
|                                          |  |              
|                                          |  | Years Ended  
|                                          |  | December 31, 
|                                          |  |              
|                                          |  | 2005          |    | 2004 |  | 2003
|                                          |  |               |    |      |  |     
|                                          |  |              
|                                          |  | (in millions)
|                                         
|                                         
|                                         
|                                         
|Interest cost before capitalized interest |  | $             | 22 |      |  | $    | 4  |   |  | $ | 28  |  
|                                         
|                                         
|                                         
|                                         
|Capitalized interest                      |  |               |   |      |  |      | (1 | ) |  |   | (14 | )
|                                          |  |               |    |      |  |      |    |   |  |   |     |  
|Interest expense                          |  | $             | 22 |      |  | $    | 3  |   |  | $ | 14  |  
|                                          |  |               |    |      |  |      |    |   |  |   |     |  

Interest cost before capitalized interest increased
$18 million in 2005 as compared to 2004, primarily due to
$13 million of interest expense relating to payments to
pre-petition creditors in accordance with our Plan of
Reorganization and $3 million of interest expense
recognized on the Loral Skynet 14% senior secured notes
issued in connection with our Plan of Reorganization.

Interest expense decreased $11 million in 2004 as compared
to 2003, primarily attributable to the fact that subsequent to
our voluntary petitions for reorganization on July 15,
2003, we stopped recognizing and paying interest on all
outstanding prepetition debt obligations (except our secured
bank debt, for which a portion of interest expense is included
in discontinued operations) and preferred stock. Capitalized
interest decreased to $1 million in 2004, which was due to
us no longer incurring interest expense on our secured bank debt
that we repaid in March 2004. Interest cost was minimal while we
were in Chapter 11.

Other Income (Expense)

Other income (expense) represents gains and (losses) on foreign
currency transactions.



| |                    
| | -------------------
| | Gain on Investments

During 2003, we realized an $18 million gain from the sale
of all 59 million shares of common stock of Sirius
Satellite Radio Inc. received by us in settlement of the vendor
financing owed to SS/ L by Sirius.



| |                               
| | ------------------------------
| | Income Tax (Provision) Benefit

During 2005, 2004 and 2003, we continued to maintain the 100%
valuation allowance that had been established at
December 31, 2002 against our net deferred tax assets.
However, upon emergence from bankruptcy in 2005, we reversed our
valuation allowance relating to $2.0 million of deferred
tax assets for AMT credit carryforwards. The valuation allowance
was $337.3 million at December 31, 2005 and
$336.9 million at October 1, 2005. If, in the future
we were to determine that we will be able to realize all or a
portion of the benefit from our deferred tax assets, a reduction
to the valuation allowance as of October 1, 2005 will first
reduce goodwill, then other intangible assets with any excess
treated as an increase to paid-in-capital.

For 2005, we recorded a current tax provision of
$7.0 million and a deferred tax benefit of
$16.1 million, resulting in a net benefit of
$9.1 million on pre-tax income of $1.017 billion,
which included a gain on discharge of pre-petition obligations
and fresh-start adjustments of $1.101 billion. For 2004, we
recorded a current tax provision of $1.1 million and a
deferred tax provision of $12.2 million, resulting in a
total provision

37



---



##### 





The increase to our current provision for 2005 as compared to
2004 and 2003 was primarily attributable to additional foreign
income taxes, primarily Brazil on our lease income from Estrela
do Sul-1, and accruals of tax contingency reserves for potential
audit issues.

In connection with our emergence from bankruptcy, Old Loral
realized cancellation of debt income (COD) on its
federal income tax return of approximately $439 million.
COD realized while in bankruptcy is excluded from federal
taxable income. We are required to reduce certain of our tax
attributes, and to the extent sufficient attributes are not
available on a separate company basis, reduce the tax basis in
our assets, by an amount equal to the COD excluded by Old Loral
from its taxable income. This adjustment resulted in a reduction
to our deferred tax assets and the related valuation allowance.
Also, as part of our fresh-start accounting and plan of
reorganization adjustments, we recognized a net income tax
benefit of $15.4 million, which includes a net deferred tax
benefit of $16.5 million. See Notes 4 and 14 to the
financial statements.

For 2004, the deferred income tax provision of
$12.1 million related to an additional valuation allowance
which was required when we reversed the following deferred tax
liabilities from accumulated other comprehensive loss:
(i) With the dissolution of Globalstar on June 29,
2004, we wrote-off the remaining book value of our investment in
Globalstars $500 million credit facility and reduced
to zero the unrealized gains and related deferred tax
liabilities previously reflected in accumulated other
comprehensive loss. The reversal of this deferred tax liability
resulted in a net deferred tax asset of $11.4 million
against which we recorded a full valuation allowance.
(ii) We also reduced the balance for certain deferred gains
on derivative transactions and the related deferred tax
liability included in accumulated other comprehensive loss. The
reversal of this deferred tax liability also resulted in a net
deferred tax asset of $0.7 million against which we
recorded a full valuation allowance. See Notes 6 and 9 to
the financial statements.

For 2003, the deferred income tax benefit of $7.3 million
related to an $11.0 million reclassification of a tax
provision to income from discontinued operations partially
offset by a provision of $3.7 million for certain foreign
entities.



| |                                     
| | ------------------------------------
| | Equity Income (Losses) in Affiliates

|                                                            |  |                          |      |      |  |      |      |  |  |   |       |  
|----------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- |  |  | - | ----- | -
|                                                            |  |                         
|                                                            |  | Years Ended December 31,
|                                                            |  |                         
|                                                            |  | 2005                     |      | 2004 |  | 2003
|                                                            |  |                          |      |      |  |     
|                                                            |  |                         
|                                                            |  | (in millions)           
|                                                           
|                                                           
|                                                           
|                                                           
|XTAR                                                        |  | $                        | (8.1 | )    |  | $    | 0.1  |  |  | $ | (0.2  | )
|                                                           
|                                                           
|                                                           
|                                                           
|Satmex                                                      |  |                          |     |      |  |      |     |  |  |   | (51.7 | )
|                                                           
|                                                           
|                                                           
|                                                           
|Globalstar and Globalstar service provider
    partnerships |  |                          | (0.1 | )    |  |      | 46.5 |  |  |   | 0.7   |  
|                                                            |  |                          |      |      |  |      |      |  |  |   |       |  
|                                                            |  | $                        | (8.2 | )    |  | $    | 46.6 |  |  | $ | (51.2 | )
|                                                            |  |                          |      |      |  |      |      |  |  |   |       |  

XTAR commenced commercial operations in 2005 with the launch of
its satellite in February 2005. The increase in equity losses in
XTAR in 2005 represents our share of higher XTAR losses incurred
in connection with its start-up, as well as, the elimination of
profit related to the construction of the Spainsat satellite by
SS/L for Hisdesat, which was successfully launched on
March 11, 2006.

In connection with Globalstar, L.P.s dissolution in June
2004, we recorded equity income of $47 million relating to
Globalstar, L.P. on the reversal of vendor financing that was
non-recourse to SS/ L in the event of non-payment by Globalstar,
L.P. During 2004, we did not provide for our allocated share of
net losses of Satélites Mexicanos, S.A. de C.V.
(Satmex), due to our write-off of our remaining
investment in Satmex in 2003. Our equity losses in Satmex in
2003 of $52 million include the write-off of our remaining
investment in Satmex of $29 million (see Note 9 to the
financial statements).

38



---



##### 





| |                  
| | -----------------
| | Minority Interest





| |                        
| | -----------------------
| | Discontinued Operations



Accounting for
the Impairment or Disposal of Long-Lived Assets




| |                                                    
| | ---------------------------------------------------
| | Cumulative Effect of Change in Accounting Principle





| |                                                       
| | ------------------------------------------------------
| | Extraordinary Gain on Acquisition of Minority Interest





| |                    
| | -------------------
| | Preferred Dividends





| |        
| | -------
| | Backlog



|                                     |                                   |      |     |       |      |   |     |       | 
|------------------------------------ | --------------------------------- | ---- | --- | ----- | ---- | - | --- | ----- | 
|                                     |                                   | 2005 |     |       | 2004 |  
|                                     |                                   |      |     |       |      |  
|Satellite Services                   |                                   | $    | 453 |       |      | $ | 544 |      
|Satellite Manufacturing              |                                   |      | 815 |       |      |   | 483 |      
|                                     |                                   |      |     |       |      |  
|                                     | Total backlog before eliminations |      |     | 1,268 |      |   |     | 1,027 | 
|Satellite Services eliminations      |                                   |      | (20 | )     |      |   | (33 | )    
|Satellite Manufacturing eliminations |                                   |      |    |       |      |   | (12 | )    
|                                     |                                   |      |     |       |      |  
|                                     | Total backlog                     |      | $   | 1,248 |      |   | $   | 982   | 
|                                     |                                   |      |     |       |      |  

39



---



##### 



Critical Accounting Matters

The preparation of financial statements in conformity with
U.S. GAAP requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the amounts of revenues and
expenses reported for the period. Actual results could differ
from estimates.



| |                       
| | ----------------------
| | Fresh-Start Accounting

In connection with our emergence from Chapter 11 we adopted
fresh-start accounting as of October 1, 2005, which
requires all of our assets and liabilities to be stated at
estimated fair value. We engaged an independent appraisal firm
to assist in determining such fair values (see Note 4 to
the financial statements). Significant judgment is exercised by
both the appraisal firm and by management in estimating the fair
values. We expect to finalize these fair values in the first
half of 2006, as additional information becomes available.



| |                    
| | -------------------
| | Revenue recognition

Most of our Satellite Manufacturing revenue is associated with
long-term fixed-price contracts. Revenue and profit from
satellite sales under these long-term contracts are recognized
using the cost-to-cost percentage of completion method, which
requires significant estimates. We use this method because
reasonably dependable estimates can be made based on historical
experience and various other assumptions that are believed to be
reasonable under the circumstances. These estimates include
forecasts of costs and schedules, estimating contract revenue
related to contract performance (including estimated amounts for
penalties, performance incentives and orbital incentives that
will be received as the satellite performs on orbit) and the
potential for component obsolescence in connection with
long-term procurements. These estimates are assessed continually
during the term of the contract and revisions are reflected when
the conditions become known. Provisions for losses on contracts
are recorded when estimates determine that a loss will be
incurred on a contract at completion. Under firm fixed-price
contracts, work performed and products shipped are paid for at a
fixed price without adjustment for actual costs incurred in
connection with the contract; accordingly, favorable changes in
estimates in a period will result in additional revenue and
profit, and unfavorable changes in estimates will result in a
reduction of revenue and profit or the recording of a loss that
will be borne solely by us.



| |             
| | ------------
| | Depreciation

Depreciation is provided for on the straight-line method for
satellites over the estimated useful life of the satellite,
which is determined by engineering analyses performed at the
satellites in-service date and re-evaluated periodically.
A decrease in the useful life of a satellite would result in
increased depreciation expense.



| |                                                                   
| | ------------------------------------------------------------------
| | Billed receivables, vendor financing and long-term
    receivables

We are required to estimate the collectibility of our billed
receivables, vendor financing and long-term receivables. A
considerable amount of judgment is required in assessing the
collectibility of these receivables, including the current
creditworthiness of each customer and related aging of the past
due balances. Charges for (recoveries of) bad debts recorded to
the income statement on billed receivables during the periods
October 2, 2005 to December 31, 2005 and
January 1, 2005 to December 31, 2005 and for the years
ended December 31, 2004, and 2003 were $1.0 million,
$(2.9) million, $(2.1) million and $7.2 million,
respectively. At December 31, 2005 and 2004, billed
receivables were net of allowances for doubtful accounts of
$5.5 million and $6.4 million, respectively. We
evaluate specific accounts when we become aware of a situation
where a customer may not be able to meet its financial
obligations due to a deterioration of its financial condition,
credit ratings or bankruptcy. The reserve requirements are based
on the best facts available to us and are re-evaluated
periodically.

40



---



##### 





| |            
| | -----------
| | Inventories

Inventories are reviewed for estimated obsolescence or unusable
items and, if appropriate, are written down to the net
realizable value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions
are less favorable than those we project, additional inventory
write-downs may be required. These are considered permanent
adjustments to the cost basis of the inventory. Charges for
inventory obsolescence recorded to the income statement during
the periods October 2, 2005 to December 31, 2005 and
January 1, 2005 to October 1, 2005 and for the years
ended December 31, 2004, and 2003 were $1.5 million,
$2.1 million, $3.3 million and $49.5 million,
respectively.



| |                                                                        
| | -----------------------------------------------------------------------
| | Evaluation of Satellites and Other Long-Lived Assets For
    Impairment

We periodically evaluate potential impairment loss relating to
our satellites and other long-lived assets, when a change in
circumstances occurs, by assessing whether the carrying amount
of these assets can be recovered over their remaining lives
through future undiscounted expected cash flows generated by
those assets (excluding financing costs). If the expected
undiscounted future cash flows are less than the carrying value
of the long-lived asset, an impairment charge would be recorded
based on such assets estimated fair value. Changes in
estimates of future cash flows could result in a write-down of
the asset in a future period. Estimated future cash flows could
be impacted by, among other things:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | Changes in estimates of the useful life of the satellite                           
|
| |  | Changes in estimates of our ability to operate the satellite at
    expected levels
|
| |  | Changes in the manner in which the satellite is to be used                         
|
| |  | The loss of one or several significant customer contracts on the
    satellite     

If an impairment loss was indicated for a satellite, such amount
would be recognized in the period of occurrence, net of any
insurance proceeds to be received so long as such amounts are
determinable and receipt is probable. If no impairment loss was
indicated in accordance with SFAS 144, and we received
insurance proceeds, the proceeds would be recognized in our
consolidated statement of operations.



| |         
| | --------
| | Taxation

New Loral, as a Delaware company, is subject to
U.S. federal, state and local income taxation on its
worldwide income. Prior to the Effective Date, Old Loral, as a
Bermuda company, was subject to U.S. taxation on any income
that was effectively connected with the conduct of a
U.S. trade or business as well as a withholding tax on
dividends and interest received from its U.S. subsidiaries.
Our U.S subsidiaries continue to be subject to
U.S. taxation on their worldwide income and foreign taxes
on certain income from sources outside the United States. Our
foreign subsidiaries are subject to taxation in local
jurisdictions.

We use the liability method in accounting for taxes whereby
income taxes are recognized during the year in which
transactions enter into the determination of financial statement
income or loss. Deferred taxes reflect the future tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial and income tax reporting and are
measured by applying statutory tax rates in effect for the year
during which the differences are expected to reverse. We assess
the recoverability of our deferred tax assets and, based upon
this analysis, record a valuation allowance against the deferred
tax assets to the extent recoverability does not satisfy the
more likely than not recognition criteria in
SFAS 109. Based upon this analysis, we concluded during the
fourth quarter of 2002 that, due to insufficient positive
evidence substantiating recoverability, a 100% valuation
allowance should be established for our net deferred tax assets.
As of December 31, 2005, we had gross deferred tax assets
of approximately $558.8 million, which when offset by our
deferred tax liabilities of $234.4 million and our
valuation allowance of $337.3 million, resulted in a net
deferred tax liability of $12.9 million on our consolidated
balance sheet.

For the period October 2, 2005 to December 31, 2005,
we continued to maintain the 100% valuation allowance against
our net deferred tax assets, other than the $2.0 million
asset for our AMT credit carryforwards, increasing the valuation
allowance at October 1, 2005 of $336.9 million by
$0.4 million to a

41



---



##### 





Our policy is to establish tax contingency liabilities for
potential audit issues. The tax contingency liabilities are
based on our estimate of the probable amount of additional taxes
that may be due in the future. Any additional taxes due would be
determined only upon completion of current and future federal,
state and international tax audits. At December 31, 2005,
the Company had $41.8 million and $0.4 million of tax
contingency liabilities included in long-term liabilities and
income taxes payable, respectively. At December 31, 2004,
the Company had $38.9 million of tax contingency
liabilities included in liabilities subject to compromise (see
Notes 3, 11 and 14 to the financial statements).



| |                                    
| | -----------------------------------
| | Pension and other employee benefits

We maintain a pension plan and a supplemental retirement plan.
These plans are defined benefit pension plans. In addition to
providing pension benefits, we provide certain health care and
life insurance benefits for retired employees and dependents.
These pension and other employee benefit costs are developed
from actuarial valuations. Inherent in these valuations are key
assumptions, including the discount rate and expected long-term
rate of return on plan assets. Material changes in these pension
and other employee postretirement benefit costs may occur in the
future due to changes in these assumptions, as well as our
actual experience.

The discount rate is subject to change each year, consistent
with changes in applicable high-quality long-term corporate bond
indices, such as the Moodys AA Corporate Bond Index. The
discount rate determined on this basis was 5.75% as of
December 31, 2005, a decline of 25 basis points from
December 31, 2004. This had the effect of increasing our
accumulated benefit obligations (ABO) for pensions
by $10.7 million and for other employee benefits by
$2.3 million as of December 31, 2005, as compared with
December 31, 2004 .

The expected long-term rate of return on pension plan assets is
selected by taking into account the expected duration of the
plans projected benefit obligation, asset mix and the fact
that its assets are actively managed to mitigate risk. Allowable
investment types include equity investments and fixed income
investments. Pension plan assets are managed by Russell
Investment Corp. (Russell), which allocates the
assets into specified Russell-designed funds as we direct. Each
specified Russell fund is then managed by investment managers
chosen by Russell. The targeted short and long-term allocation
of our pension plan assets is 60% in equity investments and 40%
in fixed income investments. Based on this target allocation,
the fifteen-year historical return of our investment managers
has been 10.5%. The expected long-term rate of return on plan
assets determined on this basis was 9.0% for 2005, 2004 and 2003.

These pension and other employee postretirement benefit costs
are expected to decrease to approximately $20 million in
2006 from $24 million in 2005, primarily due to reduced
amortization expense as a result of the recognition of
cumulative actuarial losses in connection with our adoption of
fresh-start accounting on October 1, 2005. Lowering the
discount rate, and the expected long-term rate of return each by
0.5%, would have increased these pensions and other employee
postretirement benefits costs by approximately $2.1 million
and $1.2 million, respectively, in 2005.

The Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (MMA) requires a federal subsidy for
sponsors of retiree health care benefit plans that provide a
benefit that is at least actuarially equivalent to Medicare
Part D. These subsidy payments will first be payable to
plan sponsors in 2006. In May 2004, the FASB released Financial
Accounting Standards Board Position 106-2 (FSP
106-2) to provide guidance on accounting and disclosure
requirements related to MMA. We adopted FSP 106-2 effective as
of the beginning of the fourth quarter of 2004, the earliest the
required actuarial information was available. As a result of the
adoption of FSP 106-2 our net periodic cost for 2005 and the
fourth quarter of 2004 was reduced by $1.1 million and
$0.2 million, respectively, and we estimate that it will
reduce the 2006 net periodic cost by

42



---



##### 





The ABO for the pension plan exceeded the fair value of plan
assets by $120 million at December 31, 2005 (the
unfunded ABO). This was primarily due to the
negative returns on the pension funds in previous years arising
from the overall decline in the equity markets, and a decline in
the discount rate used to estimate the pension liability as a
result of declining interest rates. Therefore, Loral was
previously required to establish a minimum liability and record
an additional $19.0 million during 2004, for a total charge
to equity of $88.3 million as of December 31, 2004,
for the unfunded ABO, to the extent not already reflected as a
liability. As a result of the adoption of fresh-start accounting
as of October 1, 2005, we increased our recorded liability
by $78 million, net of the charge to equity previously
recorded, offset by a reorganization adjustment of
$19 million due to a reduction of certain benefits. The ABO
was measured using a discount rate of 5.75% as of
December 31, 2005 and October 1, 2005 and 6.0% as of
December 31, 2004. Lowering the discount rate by 0.5% would
have increased the ABO by approximately $21 million. Market
conditions and interest rates significantly affect future assets
and liabilities of Lorals pension plans.



| |                         
| | ------------------------
| | Stock-Based Compensation

Effective October 1, 2005, in connection with our adoption
of fresh-start accounting, we adopted the fair value method of
accounting for stock options for all options granted by us after
October 1, 2005 pursuant to the prospective method
provisions of SFAS No. 123(R), Share-Based Payment
(SFAS 123R). We use the
Black-Scholes-Merton option-pricing model to measure fair value
of these stock option awards. This is the same method we used in
prior years for disclosure purposes. The Black-Scholes-Merton
model requires us to make significant judgments regarding the
assumptions used within the model, the most significant of which
are the stock price volatility assumption, the expected life of
the option award, the risk-free rate of return and dividends
during the expected term. We emerged from bankruptcy on
November 21, 2005, and as a result, we do not have
sufficient stock price history upon which to base our volatility
assumption. In determining the volatility used in our model, we
considered the volatility of the stock prices of selected
companies in the satellite industry, the nature of those
companies, our emergence from bankruptcy and other factors in
determining our stock price volatility. For 2005, we used a
stock price volatility assumption of 27%. We based our estimate
of the average life of a stock option of 4.75 years using
the midpoint between the vesting and expiration dates as allowed
by SEC Staff Accounting Bulletin No. 107 based upon
the vesting period of 4 years and the option term of seven
years. Our risk-free rate of return assumption for options
granted in 2005, of 4.4%, was based on the quoted yield for
five-year U.S. treasury bonds as of the date of grant (see
Note 15 to the financial statements). We assumed no
dividends during the expected term.

Prior to October 1, 2005, we followed the disclosure-only
provisions of SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and
Disclosure (SFAS 148) an amendment of
SFAS No. 123, Accounting for Stock-Based
Compensation(SFAS 123). We accounted for
stock-based compensation for employees using the intrinsic value
method (as defined below) as prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25), and related
interpretations. Under APB 25, no compensation expense was
recognized for employee share option grants because the exercise
price of the options granted equalled the market price of the
underlying shares on the date of grant (the intrinsic
value method).



| |                      
| | ---------------------
| | Deferred Compensation

Pursuant to the Plan of Reorganization we entered into deferred
compensation arrangements for certain key employees that vest
generally over four years and expire after seven years. The
initial deferred compensation awards were calculated by
multiplying $9.44 by the number of stock options granted to
these key employees (see Note 15 to the financial
statements). We are accreting the liability by charges to income
over the vesting period. The deferred compensation cost charged
against income, net of estimated forfeitures, was
$0.2 million for the period October 2, 2005 to
December 31, 2005. As of December 31, 2005, there was
an additional $6.6 million of unrecognized deferred
compensation (not including an additional $5.8 million for
which recognition of the awards were delayed to 2006) that will
be charged to income over the remaining

43



---



##### 







| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets

Goodwill represents the amount by which the Companys
reorganization equity value exceeded the fair value of its
tangible assets and identified intangible assets less its
liabilities allocated in accordance with the provisions of
SFAS 141 as of December 31, 2005. Pursuant to the
provisions of SFAS 142, goodwill is not amortized and is
subject to an annual impairment test which we perform in the
fourth quarter of each fiscal year. Our 2005 test of goodwill
impairment did not result in any goodwill impairment.

Intangible assets consist primarily of backlog, internally
developed software and technology, orbital slots, trade names
and customer relationships all of which were recorded in
connection with the adoption of fresh-start accounting. We used
the work of an independent appraiser to assist us in determining
the fair value of our intangible assets. The fair values were
calculated using several approaches that encompassed the use of
excess earnings, relief from royalty and the build-up methods.
The excess earnings, relief from royalty and build-up approaches
are variations of the income approach. The income approach, more
commonly known as the discounted cash flow approach, estimates
fair value based on the cash flows that an asset can be expected
to generate over its useful life. Identifiable intangible assets
with finite useful lives are generally amortized on a
straight-line basis over the estimated useful lives of the
assets (see Note 10 to the financial statements).



| |              
| | -------------
| | Contingencies

Contingencies by their nature relate to uncertainties that
require management to exercise judgment both in assessing the
likelihood that a liability has been incurred as well as in
estimating the amount of potential loss, if any. The most
important contingencies affecting our financial statements are
detailed in Note 19 to the financial statements,
Commitments and Contingencies.

Liquidity and Capital Resources



| |                          
| | -------------------------
| | Cash and Available Credit

As of December 31, 2005, we had $276 million of
available cash and $12 million of restricted cash
($2 million included in other current assets and
$10 million included in other assets on our consolidated
balance sheet). The Company believes that cash as of
December 31, 2005 and net cash provided by operating
activities will be adequate to meet its expected cash
requirement through at least the next 12 months.

Cash required to pay the remaining claims from the Plan of
Reorganization and the expenses associated with completing the
reorganization activity, in the aggregate approximately
$54 million, will be paid from existing cash on hand.

Cash flow from Satellite Services is fairly predictable because
it is derived from an existing base of long-term customer
contracts. The Company believes that the Satellite Services cash
flow from operations will be sufficient to provide for its
maintenance capital requirements and pay its interest and
preferred dividend obligations. Cash required to fund the
construction of the Telstar 11N satellite that is not available
from operations will be funded from cash on hand within the
Company or through financing activity.

Cash requirements at Satellite Manufacturing are driven
primarily by working capital requirements to fund long-term
receivables associated with satellite contracts and capital
spending required to maintain and expand the manufacturing
facility. The Company believes that the Satellite Manufacturing
cash flow from operations is sufficient to fund the capital
required to maintain the current manufacturing operations and
working capital associated with typical satellite contracts.
Capital requirements to expand the manufacturing facility beyond
its current capabilities, and offer customer financing terms
beyond standard terms, will be funded by cash on hand within the
Company or through financing activity.

On November 21, 2005, Loral Skynet completed the sale of
$126 million of Senior Secured Notes (the Loral
Skynet Notes) at par. The Loral Skynet Notes mature on
November 15, 2015 and bear interest at

44



---



##### 









Contractual Obligations and Other Commercial Commitments




Contractual
Obligations:


|                                           |  |                        |         |           |        |   |         |           |           |   |           |  |  |         |        |  |  |   |         | 
|------------------------------------------ |  | ---------------------- | ------- | --------- | ------ | - | ------- | --------- | --------- | - | --------- |  |  | ------- | ------ |  |  | - | ------- | 
|                                           |  | Payments Due by Period |        
|                                           |  |                        |        
|                                           |  |                        |         | Less than |        |   |         |           | More than |  
|                                           |  | Total                  |         |           | 1 Year |   |         | 1-3 Years |           |   | 4-5 Years |  |  | 5 Years |       
|                                           |  |                        |         |           |        |   |         |           |           |   |           |  |  |         |       
|Debt(1)                                    |  | $                      | 126,000 |           |        | $ |        |           |           | $ |          |  |  | $       |       |  |  | $ | 126,000 | 
|Interest on
    debt(1)                    |  |                        | 176,106 |           |        |   | 10,780  |           |           |   | 35,280    |  |  |         | 35,280 |  |  |   | 94,766  | 
|Operating
    leases(2)                    |  |                        | 123,767 |           |        |   | 22,225  |           |           |   | 35,095    |  |  |         | 26,634 |  |  |   | 39,813  | 
|Unconditional purchase obligations
    (3) |  |                        | 346,270 |           |        |   | 285,941 |           |           |   | 59,270    |  |  |         | 1,059  |  |  |   |        | 
|Other long-term
    obligations(4)         |  |                        | 83,894  |           |        |   | 28,739  |           |           |   | 30,774    |  |  |         | 20,704 |  |  |   | 3,677   | 
|                                           |  |                        |         |           |        |   |         |           |           |   |           |  |  |         |       
|Total contractual cash obligations         |  | $                      | 856,037 |           |        | $ | 347,685 |           |           | $ | 160,419   |  |  | $       | 83,677 |  |  | $ | 264,256 | 
|                                           |  |                        |         |           |        |   |         |           |           |   |           |  |  |         |       



| |                              
| | -----------------------------
| | Other Commercial Commitments:

|                                 |  |           |       |                                            |           |   |       |           |  |           |   |         |  |   |   |  |  |   |   | 
|-------------------------------- |  | --------- | ----- | ------------------------------------------ | --------- | - | ----- | --------- |  | --------- | - | ------- |  | - | - |  |  | - | - | 
|                                 |  |           |       | Amount of Commitment Expiration Per Period
|                                 |  | Total     |       |                                            |          
|                                 |  | Amounts   |       |                                            | Less than |   |       |           |  | More than
|                                 |  | Committed |       |                                            | 1 Year    |   |       | 1-3 Years |  | 4-5 Years |   | 5 Years
|                                 |  |           |       |                                            |           |   |       |           |  |           |   |        
|Standby letters of
    credit(5) |  | $         | 2,427 |                                            |           | $ | 2,427 |           |  | $         |  |         |  | $ |  |  |  | $ |  | 
|                                 |  |           |       |                                            |           |   |       |           |  |           |   |         |  |   |  






|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents cash obligations for principal payments and interest
    payments on Loral Skynet 14% senior secured notes (see
    Note 12 to the financial statements for further detail on
    our debt obligations).       
|   
|(2) | Represents future minimum payments under operating leases with
    initial or remaining terms of one year or more, net of sub-lease
    rentals of $0.3 million.                                                          
|   
|(3) | SS/ L has entered into various purchase commitments with
    suppliers due to the long lead times required to produce
    purchased parts.                                                                                
|   
|(4) | Primarily represents vendor financing related amounts owed to
    subcontractors and amounts due to APT, representing Lorals
    share of the project cost of Telstar 18 and commitments under
    employment agreements.
|   
|(5) | Letters of credit have a maturity of one year and are renewed
    annually.                                                                                                                                               

45



---



##### 





| |                                                                   
| | ------------------------------------------------------------------
| | Net Cash (Used in) Provided by Continuing Operating
    Activities



contracts-in


Net Cash Provided by Operating
Activities of Discontinued Operations




Net Cash (Used in) Provided By
Investing Activities






Net Cash Provided by (Used in)
Financing Activities






Other




Affiliate Matters




46



---



##### 





|                                                                                                      |  |                |      |   |                        |   |      |              |  |   |      |   |  |   |      |  
|----------------------------------------------------------------------------------------------------- |  | -------------- | ---- | - | ---------------------- | - | ---- | ------------ |  | - | ---- | - |  | - | ---- | -
|                                                                                                      |  | Successor      |      |   |                       
|                                                                                                      |  | Registrant     |      |   | Predecessor Registrant |  
|                                                                                                      |  |                |      |   |                        |  
|                                                                                                      |  | For the Period |      |   | For the Period         |   |      |             
|                                                                                                      |  | October 2,     |      |   | January 1,             |   |      | Years Ended  | 
|                                                                                                      |  | 2005 to        |      |   | 2005 to                |   |      | December 31, | 
|                                                                                                      |  | December 31,   |      |   | October 1,             |   |      |              | 
|                                                                                                      |  | 2005           |      |   | 2005                   |   |      | 2004         |  |   | 2003 |  
|                                                                                                      |  |                |      |   |                        |   |      |              |  |   |      |  
|Revenues                                                                                              |  | $              | 4.1  |   |                        | $ | 10.0 |              |  | $ | 7.8  |   |  | $ | 27.7 |  
|Elimination of Lorals proportionate share of (profits)
    losses relating to affiliate transactions |  |                | (2.9 | ) |                        |   | 0.6  |              |  |   | 2.4  |   |  |   | 4.4  |  
|Profits (losses) relating to affiliate transactions not
    Eliminated                                |  |                | 2.3  |   |                        |   | (0.5 | )            |  |   | (1.9 | ) |  |   | (3.6 | )

Commitments and Contingencies






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk



| |                 
| | ----------------
| | Foreign Currency



|                                            |  |              |       |  |       |   |      | 
|------------------------------------------- |  | ------------ | ----- |  | ----- | - | ---- | 
|                                            |  | Japanese Yen |       |  | U.S.$ |  
|                                            |  |              |       |  |       |  
|Future revenues                             |  | ¥            | 324   |  |       | $ | 2.7  | 
|Future expenditures                         |  |              | 2,178 |  |       |   | 18.5 | 
|Contracts-in-process (unbilled receivables) |  |              | 69    |  |       |   | 0.6  | 







| |         
| | --------
| | Interest





47



---



##### 









|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure





|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



| |                                                 
| | ------------------------------------------------
| | Evaluation of Disclosure Controls and Procedures

13a-15(e) 15d-15(e)




| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over Financial
    Reporting

13a-15(f) Internal Control  Integrated Framework




| |                                                      
| | -----------------------------------------------------
| | Changes in Internal Controls Over Financial Reporting





| |                                                  
| | -------------------------------------------------
| | Inherent Limitations on Effectiveness of Controls



48



---



##### 





49



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Internal Control 
Integrated Framework








Internal
Control  Integrated Framework Internal Control  Integrated
Framework




50



---



##### 



90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code Share-Based
Payment.


DELOITTE &
TOUCHE LLP






51



---



##### 





|         |                  
|-------- | -----------------
|Item 9B. | Other Information

None.

PART III



|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

Directors

Loral has three classes of directors, with the term of the
initial Class 1 directors expiring at the first annual
meeting of stockholders after the Effective Date, the term of
the initial Class 2 directors expiring at the second annual
meeting of stockholders after the Effective Date, and the term
of the initial Class 3 directors expiring at the third
annual meeting of stockholders after the Effective Date.
Thereafter, each director will serve for a term of three years
from the date of his election. The following sets forth
information concerning Lorals directors as of
March 10, 2006.

|                     |  |                                                                                                                                                                                                                            
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Michael B. Targoff   |  |                                                                                                                                                                                                                            
|                     |  |                                                                                                                                                                                                                            
|                    
|Age:                 |  | 61                                                                                                                                                                                                                         
|                    
|                    
|                    
|                    
|Director Since:      |  | November 2005                                                                                                                                                                                                              
|                    
|                    
|                    
|                    
|Class:               |  | Class II                                                                                                                                                                                                                   
|                    
|                    
|                    
|                    
|Business Experience: |  | Mr. Targoff is Chief Executive Officer of
    Loral since March 1, 2006 and Vice Chairman of Loral since
    November 21, 2005. Prior to that, Mr. Targoff was
    founder and principal of Michael B.
    Targoff & Co.   
|                    
|                    
|                    
|                    
|Other Directorships: |  | Chairman of the Board and Chairman of the Audit
    Committee of Communication Power Industries, a director and
    Chairman of the Audit Committee of Leap Wireless International,
    Inc. and a director of ViaSat, Inc.
|                    
|Sai S. Devabhaktuni  |  |                                                                                                                                                                                                                            
|                     |  |                                                                                                                                                                                                                            
|                    
|Age:                 |  | 34                                                                                                                                                                                                                         
|                    
|                    
|                    
|                    
|Director Since:      |  | November 2005                                                                                                                                                                                                              
|                    
|                    
|                    
|                    
|Class:               |  | Class III                                                                                                                                                                                                                  
|                    
|                    
|                    
|                    
|Business Experience: |  | Mr. Devabhaktuni is a managing principal of
    MHR Fund Management LLC and affiliates.                                                                                                                                    
|                    
|Hal Goldstein        |  |                                                                                                                                                                                                                            
|                     |  |                                                                                                                                                                                                                            
|                    
|Age:                 |  | 40                                                                                                                                                                                                                         
|                    
|                    
|                    
|                    
|Director Since:      |  | November 2005                                                                                                                                                                                                              
|                    
|                    
|                    
|                    
|Class:               |  | Class III                                                                                                                                                                                                                  
|                    
|                    
|                    
|                    
|Business Experience: |  | Mr. Goldstein is a co-founder and managing
    principal of MHR Fund Management LLC and affiliates.                                                                                                                        
|                    
|                    
|                    
|                    
|Other Directorships: |  | Director of GF Health Products Inc.                                                                                                                                                                                        
|                    
|John D. Harkey, Jr.  |  |                                                                                                                                                                                                                            
|                     |  |                                                                                                                                                                                                                            
|                    
|Age:                 |  | 45                                                                                                                                                                                                                         
|                    
|                    
|                    
|                    
|Director Since:      |  | November 2005                                                                                                                                                                                                              
|                    
|                    
|                    
|                    
|Class:               |  | Class I                                                                                                                                                                                                                    
|                    
|                    
|                    
|                    
|Business Experience: |  | Mr. Harkey is Chairman and Chief Executive
    Officer of Consolidated Restaurant Companies, Inc.                                                                                                                          
|                    
|                    
|                    
|                    
|Other Directorships: |  | Director and member of the Audit Committees of
    Leap Wireless International, Inc., Energy Transfer Partners,
    L.L.C. and Pizza Inn.                                                                                  

52



---



##### 



|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Dean Olmstead          |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|                      
|Age:                   |  | 50                                                                                                                                                                                                                                                                                                                                                                                                    
|                      
|                      
|                      
|                      
|Director Since:        |  | November 2005                                                                                                                                                                                                                                                                                                                                                                                         
|                      
|                      
|                      
|                      
|Class:                 |  | Class II                                                                                                                                                                                                                                                                                                                                                                                              
|                      
|                      
|                      
|                      
|Business Experience:   |  | Mr. Olmstead is President of Arrowhead
    Global Solutions, Inc. and founder and Chairman of Satellite
    Development LLC since October 2004. From November 2001 to
    September 2004, Mr. Olmstead was President and Chief
    Executive Officer of SES Americom and a member of the SES Global
    Executive Committee. Prior to that, he was a member of the SES
    Astra Management Committee.
|                      
|                      
|                      
|                      
|Other Directorships:   |  | Chairman of the Board of Satellite Development
    LLC (dba BBSat)                                                                                                                                                                                                                                                                                                                                    
|                      
|Mark H. Rachesky, M.D. |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|                      
|Age:                   |  | 47                                                                                                                                                                                                                                                                                                                                                                                                    
|                      
|                      
|                      
|                      
|Director Since:        |  | November 2005                                                                                                                                                                                                                                                                                                                                                                                         
|                      
|                      
|                      
|                      
|Class:                 |  | Class III                                                                                                                                                                                                                                                                                                                                                                                             
|                      
|                      
|                      
|                      
|Business Experience:   |  | Dr. Rachesky is non-executive Chairman of
    the Board of Directors of Loral since March 1, 2006.
    Dr. Rachesky is a co-founder and President of MHR Fund
    Management LLC and affiliates                                                                                                                                                                                                       
|                      
|                      
|                      
|                      
|Other Directorships:   |  | Director of Leap Wireless International, Inc.,
    Neose Technologies, Inc., NationsHealth Inc. and Emisphere
    Technologies, Inc.                                                                                                                                                                                                                                                                  
|                      
|Arthur L. Simon        |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|                      
|Age:                   |  | 74                                                                                                                                                                                                                                                                                                                                                                                                    
|                      
|                      
|                      
|                      
|Director Since:        |  | November 2005*                                                                                                                                                                                                                                                                                                                                                                                        
|                      
|                      
|                      
|                      
|Class:                 |  | Class I                                                                                                                                                                                                                                                                                                                                                                                               
|                      
|                      
|                      
|                      
|Business Experience:   |  | Mr. Simon is an independent part-time
    consultant.                                                                                                                                                                                                                                                                                                                                                 
|                      
|                      
|                      
|                      
|Other Directorships:   |  | Director and member of the Audit and Governance
    Committees of L-3 Communications Corporation                                                                                                                                                                                                                                                                                                      

The Plan of Reorganization provided that the initial composition
of the Board of Directors would be comprised of
Mr. Schwartz (who retired from Loral on March 1,
2006), Mr. Targoff, two persons designated by
Mr. Schwartz and five persons designated by the
creditors committee appointed in the Chapter 11 Cases
of Old Loral. Mr. Simon, along with Mr. Robert Hodes,
a director of Old Loral, were selected by Mr. Schwartz, and
Messrs. Devabhaktuni, Goldstein, Harkey, Olmstead and
Rachesky were selected by the creditors committee.
Mr. Hodes resigned from the Board of Directors on
February 28, 2006. As provided in Lorals Certificate
of Incorporation, the vacancies on the Board resulting from
Mr. Schwartzs retirement and Mr. Hodes
resignation will be filled by the Board of Directors.



---



|  |                                                                             
|- | ----------------------------------------------------------------------------
|* | Prior to November 21, 2005, Mr. Simon served as a
    director of Old Loral.

Audit Committee

The Board of Directors has a standing Audit Committee, the
current members of which are Messrs. Harkey and Simon.
Mr. Simon is the Chairman of the Committee.
Mr. Targoff was a member of the Audit Committee between
November 21, 2005 and February 9, 2006, when he
resigned after agreeing to become Chief Executive Officer on
March 1, 2006 upon Mr. Schwartzs retirement. The
Board of Directors has determined that Mr. Simon meets the
requirements of a financial expert within the meaning of
Section 401(h) of Regulation S-K because of, among
other things, Mr. Simons business experience as a
former partner of Coopers & Lybrand L.L.P., Certified
Public Accountants. The Board of Directors has further
determined that all members of the committee are independent,
within the meaning of Schedule 14A

53



---



##### 





In March 2006, the Company received a NASDAQ Staff Deficiency
Letter indicating that, as a result of the appointment of
Mr. Targoff as Chief Executive Officer of the Company and
his related resignation from the Companys Audit Committee,
the Company was not in compliance with NASDAQs audit
committee requirements which require listed companies to have
audit committees composed of at least three independent
directors. The NASDAQ letter further indicated that the Company
has a cure period until the earlier of the Companys next
annual stockholders meeting or February 9, 2007 to
regain compliance. The Company is currently considering the
composition of its Audit Committee and intends to appoint a
third independent member thereto within the specified cure
period.

Executive Officers of the Registrant

The following table sets forth information concerning the
executive officers of Loral as of March 10, 2006.

|                     |  |     |    |          |  |                                                                                                                                                                                                                                                                                                                                                                                  
|-------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|                    
|                    
|                    
|                    
|Michael B. Targoff   |  |     | 61 |          |  | Chief Executive Officer since March 1, 2006;
    Vice Chairman of the Board of Directors since November 2005.
    Prior to that, founder of Michael B. Targoff & Co.                                                                                                                                                                                                             
|                    
|                    
|                    
|                    
|Eric J. Zahler       |  |     | 55 |          |  | President and Chief Operating Officer since
    November 2005. President and Chief Operating Officer of Old
    Loral since February 2000.                                                                                                                                                                                                                                       
|                    
|                    
|                    
|                    
|Richard J. Townsend  |  |     | 55 |          |  | Executive Vice President and Chief Financial
    Officer since November 2005. Executive Vice President and Chief
    Financial Officer of Old Loral since March 2003. Prior to that,
    Senior Vice President and Chief Financial Officer of Old Loral
    since October 1998.                                                                                                  
|                    
|                    
|                    
|                    
|Patrick K. Brant     |  |     | 54 |          |  | Vice President since November 2005. President of
    Loral Skynet since November 2005 and President of Loral Skynet,
    a division of Loral SpaceCom, since August 2004. Senior Vice
    President of Iridium Satellite LLC from July 2004 to August
    2004. From June 2003 to July 2004 consultant and prior to that,
    Chief Operating Officer of Loral Skynet since 1999.
|                    
|                    
|                    
|                    
|C. Patrick DeWitt    |  |     | 59 |          |  | Vice President since November 2005. Vice
    President of Old Loral since January 2002. President of SS/L
    since November 2001. Prior to that, Executive Vice President of
    SS/L since 1996.                                                                                                                                                                               
|                    
|                    
|                    
|                    
|Avi Katz             |  |     | 47 |          |  | Vice President, General Counsel and Secretary
    since November 2005. Vice President, General Counsel and
    Secretary of Old Loral since November 1999.                                                                                                                                                                                                                       
|                    
|                    
|                    
|                    
|Richard P. Mastoloni |  |     | 41 |          |  | Vice President and Treasurer since November 2005.
    Vice President and Treasurer of Old Loral since February 2002.
    Prior to that, Vice President since September 2001 and Assistant
    Treasurer since August 2000.                                                                                                                                                       
|                    
|                    
|                    
|                    
|Harvey B. Rein       |  |     | 52 |          |  | Vice President and Controller since November
    2005. Vice President and Controller of Old Loral since April
    1996.                                                                                                                                                                                                                                                          

In addition to being officers and directors of Old Loral and
certain of its subsidiaries which filed in July 2003 voluntary
petitions for reorganization under Chapter 11 of the
Bankruptcy Code, Messrs. Zahler, Townsend, Katz, Mastoloni
and Rein either currently serve or have previously served as
executive officers of Globalstar and certain of its
subsidiaries, Loral/ Qualcomm Satellite Services, L.P., the
managing general partner of Globalstar, its general partner,
Loral/ Qualcomm Partnership, L.P., and certain of Lorals
subsidiaries that served as general partners of Loral/ Qualcomm
Partnership, L.P.

54



---



##### 



Procedure for Stockholder Nominations of Directors

As provided in Lorals Amended and Restated Bylaws,
nominations of persons for election to the Board of Directors
may be made at a meeting of stockholders only (a) pursuant
to the Companys notice of meeting (or any supplement
thereto), (b) by or at the direction of the Board of
Directors or any committee thereof or (c) by any
stockholder of the Company who was a stockholder of record when
the notice of proposed nomination is delivered to the Company,
who is entitled to vote at the meeting and who complies with the
notice procedures set forth in the bylaws. Only such persons who
are nominated in accordance with the procedures set forth in the
bylaws are eligible to be selected at an annual or special
meeting of stockholders of the Company to serve as directors.
For a complete description of the procedure for stockholder
nominations of directors, see the Companys Amended and
Restated Bylaws, filed as Exhibit 3.2 to this
Form 10-K.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a) of the Exchange Act, requires our executive
officers, directors and persons who own more than 10% of our
common stock, to file reports with the SEC. An initial
distribution of New Loral common stock pursuant to the Plan of
Reorganization occurred on December 7, 2005. Based solely
on a review of the copies of reports furnished to us, Loral
believes that during 2005, all filing requirements were met on a
timely basis.

Code of Ethics

Loral has adopted a Code of Ethics for all of its employees,
including all of its executive officers. This Code of Ethics is
available on Lorals web site at www.loral.com. Any
amendments or waivers to this Code of Ethics with respect to
Lorals principal executive officer, principal financial
officer, principal accounting officer or controller (or persons
performing similar functions) will be posted on such web site.
One may also obtain, without charge, a copy of this Code of
Ethics by contacting our Investor Relations Department at
(212) 338-5347.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Executive Compensation

The following table summarizes the compensation paid to the
named executive officers set forth below (NEOs). For
the period prior to November 21, 2005, such compensation
was paid by Loral SpaceCom

55



---



##### 





|                          |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |   |        |     |  |  |  |  |  |         |        |  |   |         |         | 
|------------------------- | ------------------------ | ---- | ---- | ------------------- |  | ------------ | --------- | ------------ | --- | ---------- | ------- | --------- | --- | --------------- | - | ------ | --- |  |  |  |  |  | ------- | ------ |  | - | ------- | ------- | 
|                          |                          |      |      |                     |  |              |           |              |     |            |         |          
|                          |                          |      |      |                     |  |              |           |              |     | Long Term  |         |          
|                          |                          |      |      |                     |  | Compensation |           |             
|                          |                          |      |      | Annual Compensation |  |              |           |             
|                          |                          |      |      |                     |  |              |           | Securities   |     |           
|                          |                          |      |      |                     |  | Other        |           | Restricted   |     | Underlying |         |          
|Name &                    |                          |      |      |                     |  | Annual       |           | Stock        |     | Stock      |         | All Other
|Principal Position        |                          | Year |      | Salary              |  | Bonus        |           | Compensation |     | Awards     |         | Options   |     | Compensation(b)
|                          |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                
|Bernard L. Schwartz,      |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |   |        |     |  |  |  |  |  |         |        |  |   |         |        
|                         
|                         
|                         
|                         
|                          | Chairman of the Board of |      |      | 2005                |  |              | $         | 1,869,214    |     |            | $       | 1,043,051 |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 32,560  | 
|                          | Directors and Chief      |      |      | 2004                |  |              | $         | 1,518,767    | (c) |            | $       | 0         |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 32,380  | 
|                         
|                         
|                         
|                         
|                          | Executive Officer(a)     |      |      | 2003                |  |              | $         | 292,150      | (c) |            | $       | 0         |     |                 | $ | 42,763 | (d) |  |  |  |  |  |         | 0      |  |   | $       | 32,200  | 
|Eric J. Zahler, President |                          |      | 2005 |                     |  | $            | 1,232,308 |              |     | $          | 648,960 |           |     | $               | 0 |        |     |  |  |  |  |  | 120,000 |        |  | $ | 466,806 |        
|                          | and Chief Operating      |      |      | 2004                |  |              | $         | 1,142,308    |     |            | $       | 480,000   |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 191,626 | 
|                         
|                         
|                         
|                         
|                          | Officer                  |      |      | 2003                |  |              | $         | 1,000,000    |     |            | $       | 400,000   |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 53,946  | 
|Richard J. Townsend,      |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |   |        |     |  |  |  |  |  |         |        |  |   |         |        
|                          | Executive Vice President |      |      | 2005                |  |              | $         | 870,831      |     |            | $       | 470,063   |     |                 | $ | 0      |     |  |  |  |  |  |         | 85,000 |  |   | $       | 351,795 | 
|                          | and Chief Financial      |      |      | 2004                |  |              | $         | 838,462      |     |            | $       | 360,000   |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 131,615 | 
|                         
|                         
|                         
|                         
|                          | Officer                  |      |      | 2003                |  |              | $         | 770,000      |     |            | $       | 360,000   |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 21,435  | 
|C. Patrick DeWitt, Vice   |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |   |        |     |  |  |  |  |  |         |        |  |   |         |        
|                          | President and President  |      |      | 2005                |  |              | $         | 476,415      |     |            | $       | 391,000   |     |                 | $ | 0      |     |  |  |  |  |  |         | 75,000 |  |   | $       | 133,112 | 
|                          | of Space Systems/        |      |      | 2004                |  |              | $         | 447,435      |     |            | $       | 271,109   |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 139,305 | 
|                         
|                         
|                         
|                         
|                          | Loral, Inc.              |      |      | 2003                |  |              | $         | 426,675      |     |            | $       | 0         | (e) |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 14,751  | 
|Avi Katz, Vice President, |                          |      | 2005 |                     |  | $            | 433,901   |              |     | $          | 227,785 |           |     | $               | 0 |        |     |  |  |  |  |  | 50,000  |        |  | $ | 168,156 |        
|                          | General Counsel and      |      |      | 2004                |  |              | $         | 420,390      |     |            | $       | 170,000   |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 66,726  | 
|                         
|                         
|                         
|                         
|                          | Secretary                |      |      | 2003                |  |              | $         | 400,404      |     |            | $       | 150,000   |     |                 | $ | 0      |     |  |  |  |  |  |         | 0      |  |   | $       | 15,921  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Mr. Schwartz retired from Loral effective
    March 1, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(b) | For 2005, includes (i) annual Board of
    Directors fee from Old Loral in the amount of $25,000 to each of
    Messrs. Schwartz and Zahler, (ii) Company matching
    contributions to the Savings Plan in the amount of $7,560 for
    each of Messrs. Schwartz, Zahler, Townsend and Katz and
    $8,112 for Mr. DeWitt and (iii) the value of
    supplemental life insurance premiums in the amounts of $21,746,
    $14,235 and $8,721 for Messrs. Zahler, Townsend and Katz,
    respectively. Also includes payments of $412,500, $330,000,
    $125,000 and $151,875 to Messrs. Zahler, Townsend, Dewitt
    and Katz, respectively, under Old Lorals Key Employee
    Retention Plan (KERP) approved by the Bankruptcy
    Court in December 2003.
|   
|(c) | At Mr. Schwartzs request, Old
    Lorals Compensation Committee agreed to amend his
    employment agreement to provide for no base salary for the
    twelve-month period commencing March 1, 2003. Salary paid
    in 2003 is for the period of January 1, 2003 through
    February 28, 2003. Salary paid in 2004 is for the period
    March 1, 2004 through December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                          
|   
|(d) | Represents the aggregate incremental cost to Old
    Loral for use of Old Lorals corporate jet by
    Mr. Schwartz.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(e) | Mr. DeWitt received a $125,000 payment under
    the KERP in 2004 in lieu of his 2003 bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Employment Contracts, Change in Control and Other
Compensation Arrangements

As of the November 21, 2005, the effective date of the Plan
of Reorganization, (i) Loral entered into employment
agreements with Bernard L. Schwartz and the following NEOs (the
Loral Executives): Avi Katz, Richard J. Townsend and
Eric J. Zahler; and (ii) SS/ L entered into an employment
agreement with its President, C. Patrick DeWitt.



| |                    
| | -------------------
| | Bernard L. Schwartz

Effective March 1, 2006, Mr. Schwartz retired from all
officer and director positions he held with the Company and its
subsidiaries and affiliates, including his positions as Chairman
of the Board and Chief Executive Officer of the Company.
Accordingly, the Company has no further obligations to
Mr. Schwartz under his employment agreement. The following
is a summary of the terms of Mr. Schwartzs employment
agreement in effect prior to his retirement.

56



---



##### 



















| |                   
| | ------------------
| | Michael B. Targoff





57



---



##### 





four-year 1 2 1 2






gross-up




58



---



##### 



Mr. Targoffs employment agreement also provides for
the reimbursement of his attorneys fees in connection with
the negotiation of the employment agreement and a tax gross-up
payment to cover his taxes for any such reimbursement.

Loral Skynet and SS/ L guarantee the payment and performance of
Lorals obligations under the employment contract with
Mr. Targoff.

The above description of Mr. Targoffs employment
agreement is not intended to be complete and is qualified in its
entirety by reference to the full text of the agreement attached
to this report as Exhibit 10.10.



| |                               
| | ------------------------------
| | Other Named Executive Officers

Each of the employment agreements with the Loral Executives and
the employment agreement with Mr. C. Patrick DeWitt
(Mr. DeWitt, together with the Loral Executives, the
Executives and each an Executive) are
substantially identical.

Each of the employment agreements with the Executives is for an
initial term of two years and sets forth the Executives
position and duties, annual salary, target annual bonus
opportunity, and entitlement to an initial stock option grant
(as summarized in the table below). In addition, each Executive
is entitled to participate in employee benefits generally
provided to similarly situated employees.

|                    |  |                                                          |  |               |           |            |  |                |      |  |  |  |         | 
|------------------- |  | -------------------------------------------------------- |  | ------------- | --------- | ---------- |  | -------------- | ---- |  |  |  | ------- | 
|                    |  |                                                          |  |               |           | Target     |  |               
|                    |  |                                                          |  |               |           | Annual     |  |               
|                    |  |                                                          |  |               |           | Bonus as a |  |               
|                    |  |                                                          |  |               |           | Percentage |  | Initial Option
|Executive           |  | Position                                                 |  | Annual Salary |           | of Salary  |  | Grant         
|                    |  |                                                          |  |               |           |            |  |               
|Eric J. Zahler      |  | President and Chief Operating Officer                    |  | $             | 1,248,000 |            |  |                | 40.0 |  |  |  | 120,000 | 
|                   
|                   
|                   
|                   
|Richard J. Townsend |  | Executive Vice President and Chief Financial
    Officer |  | $             | 881,920   |            |  |                | 41.0 |  |  |  | 85,000  | 
|                   
|                   
|                   
|                   
|C. Patrick DeWitt   |  | Vice President, and President of SS/L                    |  | $             | 485,040   |            |  |                | 50.0 |  |  |  | 75,000  | 
|                   
|                   
|                   
|                   
|Avi Katz            |  | Vice President, General Counsel and Secretary            |  | $             | 438,048   |            |  |                | 40.0 |  |  |  | 50,000  | 

Upon any Executives termination of employment on account
of death or permanent disability during the contract term, such
Executive is entitled to, among other payments, (i) such
Executives accrued and unpaid bonus for the preceding
year, (ii) a pro rated annual bonus for the year of
termination, (iii) accelerated vesting of stock options
that would have vested on the next vesting date, and
(iv) in the case of such Executives death, salary
through the end of the month of his death.

In the event that, during the contract term, an Executives
employment is terminated by Loral without cause or
the Executive resigns for good reason (as such terms
are defined in the employment contract), the Executive will be
entitled to a severance payment, in a lump sum, of the greater
of (i) a specified percentage of the Executives 2003
salary, plus one weeks pay for each year of service with
Loral and Old Loral (Base Severance Amount), or
(ii) the salary the Executive would have earned from the
date the Executive terminates employment through
November 21, 2007. The Base Severance Amount for each of
the Executives as of November 21, 2005, is as follows:
Mr. Zahler ($1,750,000), Mr. Townsend ($1,400,000),
Mr. Katz ($708,750) and Mr. DeWitt ($425,040). Each
Executive will also be entitled to any accrued and unpaid annual
bonus for the preceding year and a prorated annual bonus for the
year in which any such termination of employment occurs, and to
be fully vested in all outstanding stock options and deferred
compensation relating thereto. In addition, the Executive will
be entitled to coverage under Lorals medical, dental and
life insurance plans in effect immediately prior to such
termination until the earlier of (i) the expiration of a
period determined by dividing the Executives lump sum
severance payment by the Executives monthly salary rate
and (ii) the date the Executive commences new employment
and is eligible for comparable benefits. Severance payments and
benefits are contingent upon the execution of a release.

During the term of an Executives employment agreement and
for a twelve-month period following a termination of employment
during the term of the agreement, each Executive is restricted
from (i) engaging

59



---



##### 





Loral Skynet and SS/ L guarantee the payment and performance
obligations of Loral under the employment agreements for the
Loral Executives.

The above description of the Executives employment
agreements is not intended to be complete and is qualified in
its entirety by reference to the full text of the agreements
attached to this report as Exhibits 10.11 through 10.14.



| |                   
| | ------------------
| | Other Arrangements

Prior to 2005, the Company established a Supplemental Life
Insurance Plan for certain key employees including
Messrs. Zahler, Townsend, DeWitt and Katz. For
Messrs. Zahler, Townsend, DeWitt and Katz, the Plan is
funded with universal life insurance policies with
death benefit amounts of $1,500,000, $1,000,000, $250,000 and
$1,000,000, respectively.

Option Grants in Last Fiscal Year

In December 2005, Loral granted an aggregate of 1,390,452 stock
options to all employees. The following table presents the
number of such options issued to the NEOs.

|                    |  |                   |         |              |  |             |      |                 |  |                 |        |  |  |  |                   |  |  |   |         | 
|------------------- |  | ----------------- | ------- | ------------ |  | ----------- | ---- | --------------- |  | --------------- | ------ |  |  |  | ----------------- |  |  | - | ------- | 
|                    |  |                  
|                    |  | Individual Grants
|                    |  |                  
|                    |  |                   |         | % of Total   |  |            
|                    |  | Number of         |         | Options      |  |            
|                    |  | Securities        |         | Granted to   |  |             |      | Grant Date     
|                    |  | Underlying        |         | Employees in |  | Exercise or |      |                 |  | Present Value $
|Name                |  | Options Granted   |         | Fiscal Year  |  | Base Price  |      | Expiration Date |  | (a)            
|                    |  |                   |         |              |  |             |      |                 |  |                
|Bernard L. Schwartz |  |                   |        |              |  |             |     |                 |  |                 |       |  |  |  |                  |  |  |   |        | 
|                   
|                   
|                   
|                   
|Eric J. Zahler      |  |                   | 120,000 | (b)(c)       |  |             | 8.63 | %               |  | $               | 28.441 |  |  |  | December 21, 2012 |  |  | $ | 818,400 | 
|                   
|                   
|                   
|                   
|Richard J. Townsend |  |                   | 85,000  | (b)(c)       |  |             | 6.11 | %               |  | $               | 28.441 |  |  |  | December 21, 2012 |  |  | $ | 579,700 | 
|                   
|                   
|                   
|                   
|C. Patrick DeWitt   |  |                   | 75,000  | (b)(c)       |  |             | 5.39 | %               |  | $               | 28.441 |  |  |  | December 21, 2012 |  |  | $ | 511,500 | 
|                   
|                   
|                   
|                   
|Avi Katz            |  |                   | 50,000  | (b)(c)       |  |             | 3.60 | %               |  | $               | 28.441 |  |  |  | December 21, 2012 |  |  | $ | 341,000 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Option grant date present value is calculated
    using the Black-Scholes-Merton method assuming: (1) a
    risk-free rate of return of 4.4%; (2) a 48-month vesting
    schedule; (3) expected volatility of the market price of
    the common stock of 27%; (4) a seven-year option term; and
    (5) an expected option life of 4.75 years. These
    assumptions are the same assumptions used to determine
    stock-based compensation expense included in the Companys
    financial statements for 2005.
|   
|(b) | One-fourth of such options vests on
    November 21, 2006 and one-fourth of such options vest on
    each successive anniversary through November 21, 2009.                                                                                                                                                                                                                                                                                                                                                       
|   
|(c) | On December 21, 2005, a deferred
    compensation account was established for each individual
    crediting such accounts with an amount equal to the number of
    options granted above multiplied by $9.441 (difference between
    $19.00 and the market value at December 21, 2005). These
    deferred compensation awards vest according to the same vesting
    schedule for the options as described in footnote (b) above.                                                                              

60



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##### 



Option exercises and Year-End Value Table

There were no option exercises by the NEOs in 2005. The
following table presents the year-end values of options held by
the NEOs at the end of 2005.

Aggregated Option Exercises In Last Fiscal Year and Fiscal
Year-End Option Values

|                    |  |                            |   |                              |  |             |         |               |  |  |   |  |  |  |   | 
|------------------- |  | -------------------------- | - | ---------------------------- |  | ----------- | ------- | ------------- |  |  | - |  |  |  | - | 
|                    |  |                            |   |                             
|                    |  | Number of Securities       |   | Value of Unexercised In-the-
|                    |  | Underlying Unexercised     |   | Money Options at Fiscal     
|                    |  | Options at Fiscal Year-End |   | Year-End                    
|                    |  |                            |   |                             
|Name                |  | Exercisable                |   | Unexercisable                |  | Exercisable |         | Unexercisable
|                    |  |                            |   |                              |  |             |         |              
|                   
|                   
|                   
|                   
|Bernard L. Schwartz |  |                            |  |                              |  |             |        |               |  |  |  |  |  |  |  | 
|                   
|                   
|                   
|                   
|Eric J. Zahler      |  |                            |  |                              |  |             | 120,000 |               |  |  |  |  |  |  |  | 
|                   
|                   
|                   
|                   
|Richard J. Townsend |  |                            |  |                              |  |             | 85,000  |               |  |  |  |  |  |  |  | 
|                   
|                   
|                   
|                   
|C. Patrick DeWitt   |  |                            |  |                              |  |             | 75,000  |               |  |  |  |  |  |  |  | 
|                   
|                   
|                   
|                   
|Avi Katz            |  |                            |  |                              |  |             | 50,000  |               |  |  |  |  |  |  |  | 

Pension Plan

Loral maintains a defined benefit pension plan and trust (the
Pension Plan) that is qualified under
Section 401(a) of the Internal Revenue Code. The Pension
Plan provides retirement benefits for eligible employees of
Loral and its operating affiliates, including executive
officers. Executive officers also participate in a supplemental
executive retirement plan (the SERP) which provides
supplemental retirement benefits to cover certain reductions in
retirement benefits under the Pension Plan that are caused by
various limitations imposed by the Internal Revenue Code. Loral
recognizes all credited service, contributory service and
compensation of Old Loral for purposes of these benefits. The
benefit formulas differ by operating affiliate. Compensation
used in determining benefits under the Pension Plan and SERP
includes annual salary and bonus for executives employed by
Loral and Loral Skynet and annual salary only for employees of
SS/ L. Compensation is the same salary and bonus as disclosed in
the summary compensation table except for employees of SS/ L.
For these employees, the salary on December 31 is
annualized and recognized as compensation for that year.

The benefit formula for executive officers employed by Loral,
such as Messrs. Schwartz, Zahler, Townsend and Katz, for
the period ending December 31, 1996 will generally provide
an annual benefit equal to the greater of (A) or (B), where
(A) equals (i) 1.2% of compensation up to the Social
Security Wage Base and 1.45% of compensation in excess of the
Social Security Wage Base for each year prior to the calendar
year in which a participant completes 15 years of
employment, plus (ii) 1.5% of compensation up to the Social
Security Wage Base and 1.75% of compensation in excess of the
Social Security Wage Base for the calendar year in which the
participant has completed 15 years of employment and for
each year thereafter; and (B) equals (i) 1.2% of
average annual compensation paid during 1992-1996 up to the 1996
Social Security Wage Base and 1.45% of average annual
compensation paid during 1992-1996 in excess of the 1996 Social
Security Wage Base for each year prior to the calendar year in
which a participant completes 15 years of employment, plus
(ii) 1.5% of average annual compensation paid during
1992-1996 up to the 1996 Social Security Wage Base and 1.75% of
average annual compensation paid during 1992-1996 in excess of
the 1996 Social Security Wage Base for the calendar year in
which the participant has completed 15 years of employment
and for each year thereafter. The benefit for periods subsequent
to December 31, 1996 will be based on (A) above. The
estimated credited years of service through December 31,
2005 for Messrs. Schwartz, Zahler, Townsend and Katz are
33.75, 13.75, 7.25 and 9.37, respectively.

For executive officers employed by SS/ L, such as
Mr. DeWitt, the benefit formula for contributory service
(in which a 1% post-tax contribution is required) provides an
annual benefit equal to 1.3% of the final five year average
salary times years of contributory service plus 0.45% of final
five year average salary over 150% of the Social Security
Covered Compensation for each year up to 35 years. The
benefit formula for non-contributory service provides an annual
benefit of $252 for each year of credited service. (See also the

61



---



##### 





|                     |  |                               |        |    |  |    |         |    |  |    |         |    |  |   |         |  |  |   |         |  |  |   |         | 
|-------------------- |  | ----------------------------- | ------ | -- |  | -- | ------- | -- |  | -- | ------- | -- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                     |  |                              
|                     |  | Years of Contributory Service
|                     |  |                              
|Final Average Salary |  | 10                            |        | 15 |  | 20 |         | 25 |  | 30 |         | 35
|                     |  |                               |        |    |  |    |         |    |  |    |         |   
|$100,000             |  | $                             | 14,350 |    |  | $  | 21,530  |    |  | $  | 28,700  |    |  | $ | 35,880  |  |  | $ | 43,050  |  |  | $ | 50,230  | 
|                    
|                    
|                    
|                    
|125,000              |  |                               | 18,730 |    |  |    | 28,090  |    |  |    | 37,450  |    |  |   | 46,810  |  |  |   | 56,180  |  |  |   | 65,540  | 
|                    
|                    
|                    
|                    
|150,000              |  |                               | 23,100 |    |  |    | 34,650  |    |  |    | 46,200  |    |  |   | 57,750  |  |  |   | 69,300  |  |  |   | 80,850  | 
|                    
|                    
|                    
|                    
|175,000              |  |                               | 27,480 |    |  |    | 41,210  |    |  |    | 54,950  |    |  |   | 68,690  |  |  |   | 82,430  |  |  |   | 96,160  | 
|                    
|                    
|                    
|                    
|200,000              |  |                               | 31,850 |    |  |    | 47,780  |    |  |    | 63,700  |    |  |   | 79,630  |  |  |   | 95,550  |  |  |   | 111,480 | 
|                    
|                    
|                    
|                    
|225,000              |  |                               | 36,230 |    |  |    | 54,340  |    |  |    | 72,450  |    |  |   | 90,560  |  |  |   | 108,680 |  |  |   | 126,790 | 
|                    
|                    
|                    
|                    
|250,000              |  |                               | 40,600 |    |  |    | 60,900  |    |  |    | 81,200  |    |  |   | 101,500 |  |  |   | 121,800 |  |  |   | 142,100 | 
|                    
|                    
|                    
|                    
|275,000              |  |                               | 44,980 |    |  |    | 67,460  |    |  |    | 89,950  |    |  |   | 112,440 |  |  |   | 134,930 |  |  |   | 157,410 | 
|                    
|                    
|                    
|                    
|300,000              |  |                               | 49,350 |    |  |    | 74,030  |    |  |    | 98,700  |    |  |   | 123,380 |  |  |   | 148,050 |  |  |   | 172,730 | 
|                    
|                    
|                    
|                    
|350,000              |  |                               | 58,100 |    |  |    | 87,150  |    |  |    | 116,200 |    |  |   | 145,250 |  |  |   | 174,300 |  |  |   | 203,350 | 
|                    
|                    
|                    
|                    
|400,000              |  |                               | 66,850 |    |  |    | 100,280 |    |  |    | 133,700 |    |  |   | 167,130 |  |  |   | 200,550 |  |  |   | 233,980 | 
|                    
|                    
|                    
|                    
|450,000              |  |                               | 75,600 |    |  |    | 113,400 |    |  |    | 151,200 |    |  |   | 189,000 |  |  |   | 226,800 |  |  |   | 264,600 | 
|                    
|                    
|                    
|                    
|500,000              |  |                               | 84,350 |    |  |    | 126,530 |    |  |    | 168,700 |    |  |   | 210,880 |  |  |   | 253,050 |  |  |   | 295,230 | 

The table above shows estimated benefits payable under the Plan
and SERP including amounts attributable to employee
contributions, determined on a straight life annuity basis. Such
estimated benefits shown have been offset by Social Security
Covered Compensation.

Annual Benefits



| |                    
| | -------------------
| | Bernard L. Schwartz

Bernard L. Schwartz is a participant in the Pension Plan as well
as the SERP. Effective April 1, 1997 and prior to
March 1, 2004 (the Suspension Date), under the
minimum distribution rules prescribed by the Internal Revenue
Code, Mr. Schwartz began receiving an annual benefit under
the Pension Plan and SERP of $2,165,700, determined on a joint
and 50% survivor basis. Effective as of the Suspension Date,
benefits payable to Mr. Schwartz under the SERP were
suspended, but his annual Pension Plan benefit of $166,633
continued. In connection with the Plan of Reorganization,
Mr. Schwartz and Loral agreed to amend the SERP to provide
for a reduction of Mr. Schwartzs benefit under the
SERP to $250,000 annually (the Reduced Rate). This
amendment was effective as of the Suspension Date. Pursuant to
this amendment, the monthly annuity benefit payable to
Mr. Schwartz under the SERP resumed at the Reduced Rate
commencing on the first normal monthly benefit payment date
under the SERP following November 21, 2005, the date on
which Loral emerged from Chapter 11 (the Resumption
Date). The first such monthly payment included a lump sum
payment equal to the benefit amounts owed to Mr. Schwartz
under the SERP at the Reduced Rate from the Suspension Date
through the Resumption Date. In addition, to the extent that, at
the time of his death, Mr. Schwartz has received
$1.5 million or more in benefits under the SERP after the
Suspension Date (the Minimum Amount), neither his
estate nor his beneficiaries will be entitled to any
post-retirement death benefits or any other benefits under the
SERP following Mr. Schwartzs death. To the extent
that Mr. Schwartz has received less than the Minimum Amount
from the Suspension Date through the date of his death,
following his death his beneficiaries shall be entitled to the
post-retirement death benefits provided for under the SERP in an
aggregate amount not to exceed the excess of the Minimum Amount
over the amount actually received by Mr. Schwartz from the
Suspension Date through the date of his death. This amendment
relates solely to the participation of and benefits payable to
Mr. Schwartz under the SERP and has no effect on the
participation of or benefits payable to any other participant
under the SERP.

62



---



##### 







| |                               
| | ------------------------------
| | Other Named Executive Officers



Director Compensation






out-of






63



---



##### 



Indemnification of Directors and Officers



| |                           
| | --------------------------
| | Indemnification Agreements

As of November 21, 2005, the effective date of the Plan of
Reorganization, Loral entered into Officers and
Directors Indemnification Agreements (each, an
Indemnification Agreement) with the NEOs and other
officers of Loral who entered into employment agreements with
Loral. In addition, Loral entered into Indemnification
Agreements with each director of Loral as of the date such
person became a director (each officer and director with an
Indemnification Agreement, an Indemnitee). The
Indemnification Agreement requires Loral to indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be
made a party to or is otherwise involved in any Proceeding (as
that term is used in the Indemnification Agreement), except with
regard to any Proceeding by or in the right of Loral to procure
a judgment in its favor, against all Expenses and Losses (as
those terms are used in the Indemnification Agreement),
including judgments, fines, penalties and amounts paid in
settlement, subject to certain conditions, actually and
reasonably incurred in connection with such Proceeding, if the
Indemnitee acted in good faith for a purpose which he or she
reasonably believed to be in or not opposed to the best
interests of Loral. With regard to Proceedings by or in the
right of Loral, the Indemnification Agreement provides similar
terms of indemnification; however no indemnification will be
made with respect to any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable to Loral,
unless a court determines that the Indemnitee is entitled to
indemnification for such portion of the Expenses as the court
deems proper, all as detailed further in the Indemnification
Agreement. The Indemnification Agreement also requires Loral to
indemnify an Indemnitee where the Indemnitee is successful, on
the merits or otherwise, in the defense of any claim, issue or
matter therein, as well as in other circumstances delineated in
the Indemnification Agreement. The indemnification provided for
by the Indemnification Agreement is subject to certain
exclusions detailed therein. SS/ L and Loral Skynet both
guarantee the due and punctual payment of all of Lorals
obligations under the Indemnification Agreement. This brief
description of the Indemnification Agreement is not intended to
be complete and is qualified in its entirety by reference to the
full text of the form of Indemnification Agreement attached as
Exhibit 10.15 to this Form 10-K.

As of November 21, 2005, SS/ L entered into an
Officers and Directors Indemnification Agreement
with Mr. DeWitt, its President, attached hereto as
Exhibit 10.16 and incorporated by reference herein. The
Indemnification Agreement for Mr. DeWitt is substantially
identical to the Indemnification Agreement entered into with the
Loral officers and directors.



| |              
| | -------------
| | D&O Insurance

We have purchased insurance from various insurance companies
insuring us against obligations we might incur as a result of
our indemnification of officers and directors for certain
liabilities they might incur, and insuring such officers and
directors for additional liabilities for which they might not be
indemnified by us. The cost to Loral for the annual insurance
premiums covering the period ending November 2006 was
approximately $1,548,000.

Compensation Committee Interlocks and Insider
Participation

The Board of Directors has a standing Compensation Committee,
consisting of Dr. Mark Rachesky, as Chairman, and
Mr. Harkey. None of the members of the Compensation
Committee of the Company are present or former officers or
employed by the Company or its subsidiaries. Michael B. Targoff
was a member of this committee between November 21, 2005
and March 1, 2006, when he resigned after becoming Chief
Executive Officer upon Mr. Schwartzs retirement.
Mr. Hodes was a member of the Compensation Committee prior
to his resignation on February 28, 2006. The members of the
Compensation Committee of the Board of Directors of Old Loral
were Donald H. Shapiro, as Chairman, and Arthur L. Simon and
Sally Minard. None of the members of the Compensation Committee
of Old Loral were present or former officers or employed by Old
Loral or its subsidiaries.

64



---



##### 





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

The following table shows, based upon filings made with the
Company, certain information concerning persons who may be
deemed beneficial owners of 5% or more of the outstanding shares
of Loral common stock because they possessed or shared voting or
investment power with respect to the shares of Loral common
stock:

|                                                                 |                                                         |                                 |           |            |  |  |      |   | 
|---------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------- | --------- | ---------- |  |  | ---- | - | 
|                                                                 |                                                         | Amount and Nature of Beneficial |           | Percent of
|Name and Address                                                 |                                                         | Ownership                       |           | Class(1)  
|                                                                 |                                                         |                                 |           |           
|Various funds affiliated with MHR Fund Management
    LLC(2)     |                                                         |                                 | 7,180,629 |            |  |  | 35.9 | %
|                                                                 | 40 West 57th Street, 24th Floor,
    New York, NY 10019 |                                 |           |            |  |  |      |   | 
|                                                                
|                                                                
|                                                                
|                                                                
|MacKay Shields LLC(3)                                            |                                                         |                                 | 1,500,122 |            |  |  | 7.5  | %
|                                                                 | 9 West 57th Street, New York, NY 10019                  |                                 |           |            |  |  |      |   | 
|                                                                
|                                                                
|                                                                
|                                                                
|EchoStar Communications Corporation and Charles
    W. Ergen (4) |                                                         |                                 | 1,401,485 |            |  |  | 7.0  | %
|                                                                 | 9601 S. Meridian Blvd., Englewood,
    Colorado 80112   |                                 |           |            |  |  |      |   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Percent of class refers to percentage of class
    beneficially owned as the term beneficial ownership is defined
    in Rule 13d-3 under the Exchange Act and is based upon the
    20,000,000 shares of Loral common stock issued pursuant to
    the Plan of Reorganization. An initial distribution of
    18,668,177 shares of Loral common stock occurred on
    December 7, 2005. The remaining balance of the
    20,000,000 shares will be distributed in accordance with
    the Plan of Reorganization upon resolution of disputed claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | Information based on a Schedule 13D and
    Form 3, filed with the SEC on November 30, 2005 and
    November 22, 2005, respectively, relating to securities
    held for the accounts of MHR Capital Partners (500) LP
    (1,040,153 shares), MHR Capital Partners (100) LP
    (138,927 shares), MHR Institutional Partners II LP
    (Institutional Partners II)
    (958,132 shares), MHR Institutional Partners IIA, LP
    (2,413,827 shares), MHR Institutional Partners, LP
    (2,119,585 shares), MHRA LP (205,073 shares) and MHRM
    LP (304,932 shares), each a Delaware limited partnership.
    MHR Advisors LLC, MHR Institutional Advisors II LLC, MHR
    Institutional Advisors LLC and Institutional Partners II
    serve as the general partner of one or more of the above-named
    partnerships and, accordingly, may be deemed to be the
    beneficial owner of securities held by the partnerships.
    Similarly, Dr. Mark Rachesky may be deemed to be a
    beneficial owner of such securities because he is a managing
    member of each of such general partner entities. According to
    the Schedule 13D, (i) each of the reporting persons
    has sole dispositive and voting power with respect to the shares
    reported and (ii) the total number of shares of Loral
    common stock described therein represent the number of shares of
    Loral common stock expected to be issued to the reporting
    persons pursuant to the Plan of Reorganization.
|   
|(3) | Information based solely on a Schedule 13G,
    filed with the SEC on January 11, 2005, by MacKay Shields
    LLC. MacKay Shields, an investment adviser registered under
    Section 203 of the Investment Advisers Act of 1940, is
    deemed to be the beneficial owner of such shares as a result of
    its acting as investment adviser to various clients. According
    to the Schedule 13G, MacKay Shields has sole voting and
    dispositive power with respect to all of the shares set forth in
    the table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | Information based solely on a Schedule 13G,
    filed with the SEC on December 19, 2005, by EchoStar
    Communications Corporation (EchoStar) and Charles W.
    Ergen. The Schedule 13G provides that Mr. Ergen is the
    beneficial owner of 1,401,485 shares, of which EchoStar
    owns 1,350,532 of such shares. According to the
    Schedule 13G, each reporting person has sole voting and
    dispositive power with respect to the shares of common stock
    indicated to be held by such person.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

65



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##### 



The following table presents the number of shares of Loral
common stock beneficially owned by the directors, the NEOs and
all directors, NEOs and all other executive officers as a group
as of March 10, 2006. Individuals have sole voting and
dispositve power over the stock unless otherwise indicated in
the footnotes:

|                                                                             |  |                                 |           |            |  |  |       |  
|---------------------------------------------------------------------------- |  | ------------------------------- | --------- | ---------- |  |  | ----- | -
|                                                                             |  | Amount and Nature of Beneficial |           | Percent of
|Name of Individual                                                           |  | Ownership                       |           | Class(2)  
|                                                                             |  |                                 |           |           
|Bernard L. Schwartz                                                          |  |                                 |           |            |  |  |       | %
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Patrick K. Brant                                                             |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|C. Patrick DeWitt                                                            |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Sai S. Devabhaktuni                                                          |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Hal Goldstein                                                                |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|John D. Harkey, Jr                                                           |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Robert B. Hodes(3)                                                           |  |                                 | 72        |            |  |  | *     |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Avi Katz                                                                     |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Richard P. Mastoloni                                                         |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Dean Olmstead                                                                |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Mark H. Rachesky, M.D.                                                       |  |                                 | 7,180,629 | (1)        |  |  | 35.9% |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Harvey Rein                                                                  |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Arthur L. Simon                                                              |  |                                 | 72        |            |  |  | *     |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Michael B. Targoff                                                           |  |                                 | 35,961    |            |  |  | *     |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Richard J. Townsend                                                          |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Eric J. Zahler                                                               |  |                                 |           |            |  |  |       |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|All directors, NEOS and other executive officers
    as a group (16 persons) |  |                                 | 7,216,734 |            |  |  | 36.1% |  



---



|  |                                              
|- | ---------------------------------------------
|* | Represents holdings of less than one percent.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Dr. Rachesky is deemed to be the beneficial
    owner of 7,180,629 shares of Loral common stock by virtue
    of his status as a managing principal of various entities
    affiliated with funds that hold such shares. See discussion in
    Footnote 2 of the table above.                                                                                                                                                                                                                                                                                           
|   
|(2) | Percent of class refers to percentage of class
    beneficially owned as the term beneficial ownership is defined
    in Rule 13d-3 under the Securities Exchange Act of 1934 and
    is based upon the 20,000,000 shares of Loral common stock
    issued pursuant to the Plan of Reorganization. An initial
    distribution of 18,668,177 shares of Loral common stock
    occurred on December 7, 2005. The remaining balance of the
    20,000,000 shares will be distributed in accordance with
    the Plan of Reorganization upon resolution of disputed claims.
|   
|(3) | Mr. Hodes resigned from the Board of
    Directors effective February 28, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Securities Authorized for Issuance Under Equity
Compensation Plans

Equity Compensation Plan Information

|                                                               |       |                   |           |                  |  |                      |        |        |  |  |   |   | 
|-------------------------------------------------------------- | ----- | ----------------- | --------- | ---------------- |  | -------------------- | ------ | ------ |  |  | - | - | 
|                                                               |       |                   |           |                  |  | Number of           
|                                                               |       |                   |           |                  |  | securities          
|                                                               |       |                   |           |                  |  | remaining available 
|                                                               |       | Number of         |           | Weighted-        |  | for future issuance 
|                                                               |       | securities to be  |           | average exercise |  | under equity        
|                                                               |       | issued upon       |           | price of         |  | compensation        
|                                                               |       | exercise of       |           | outstanding      |  | plans (excluding    
|                                                               |       | outstanding       |           | options,         |  | securities reflected
|                                                               |       | options, warrants |           | warrants and     |  | in column (a))      
|Plan Category                                                  |       | and rights (a)    |           | rights (b)       |  | (c)                 
|                                                               |       |                   |           |                  |  |                     
|Equity compensation plans approved by security
    holders     |       |                   |           |                  |  |                      |        |        |  |  |   |  
|                                                              
|                                                              
|                                                              
|                                                              
|Equity compensation plans not approved by
    security holders |       |                   | 1,390,452 |                  |  | $                    | 28.441 |        |  |  | 0 |  
|                                                               |       |                   |           |                  |  |                      |        |        |  |  |   |  
|                                                               | Total |                   |           | 1,390,452        |  |                      | $      | 28.441 |  |  |   | 0 | 
|                                                               |       |                   |           |                  |  |                      |        |        |  |  |   |  

66



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##### 



Equity Compensation Plan Not Approved by Security Holders:
2005 Stock Incentive Plan

On November 21, 2005, the Loral Space &
Communications Inc. 2005 Stock Incentive Plan (the Stock
Incentive Plan) became effective pursuant to the Plan of
Reorganization. The purpose of the Stock Incentive Plan is to
attract, retain, motivate and reward employees, directors and
other service providers who are providing substantial services
to Loral and to promote the creation of long-term value for
stockholders of Loral.

The Stock Incentive Plan allows for the grant of several forms
of stock-based compensation awards including stock options,
stock appreciation rights, restricted stock, restricted stock
units, stock bonuses and other stock-based awards (collectively,
the Awards). The total number of shares of Loral
common stock reserved and available for delivery in connection
with Awards under the Stock Incentive Plan is
1,390,452 shares; provided, however, that the number of
shares available is subject to adjustment for recapitalization,
merger and other similar events. In addition, shares of Loral
common stock that expire, are forfeited or canceled, or withheld
in payment of the exercise price or taxes relating to an Award,
will again be available for Awards under the Stock Incentive
Plan.

The Compensation Committee of Loral (the Compensation
Committee) administers the Stock Incentive Plan. The
Compensation Committee may select persons to receive Awards,
determine the type, size and terms of such Awards and determine
the number of shares covered by the Awards; provided, however,
that in no event may options or stock appreciation rights be
granted to any one individual in any calendar year in excess of
500,000 shares. The Compensation Committee also has the
authority to interpret and construe the Stock Incentive Plan and
any Award agreements and will make all other decisions necessary
or advisable for the administration of the Stock Incentive Plan.

The Stock Incentive Plan provided for an automatic initial grant
of options (the Automatic Option Grant) to
purchase 1,390,452 shares of Loral common stock to
certain designated individuals on the date that was thirty
(30) days following the date on which Loral emerged from
Chapter 11. Accordingly, on December 21, 2005 (the
Grant Date), Loral granted options to purchase a
total of 1,390,452 shares of Common Stock to certain
executives and employees and the Vice Chairman of the Board.
Twenty-five percent (25%) of the Automatic Option Grant vests on
each of the first four anniversaries of the date on which Loral
emerged from Chapter 11, subject to earlier vesting upon
certain corporate transactions, as discussed below, or upon a
termination of employment without Cause or for Good Reason,
each, as defined in the Award holders employment
agreement, if such Award holder is party to an employment
agreement, and if not, as defined in the Stock Incentive Plan.
The Automatic Option Grant has an exercise price per share equal
to $28.441 which was the fair market value of a share of Loral
common stock on the Grant Date determined pursuant to the Stock
Incentive Plan. The Automatic Option Grant expires seven years
following the Grant Date, subject to earlier expiration, in
accordance with the Stock Incentive Plan, following the Award
holders termination of employment.

If Loral undergoes a Change of Control (as defined in the Stock
Incentive Plan), all outstanding Awards will become immediately
vested and exercisable, any restrictions on such Awards will
lapse and all such Awards will become immediately payable or
subject to settlement. In the event of a Change in Control, the
Compensation Committee may cancel any or all outstanding Awards
in exchange for a cash payment to each Award holder having a
value equal to the value of each such Award at the time of such
Change in Control (or without any payment in the event that an
outstanding Award has no value at the time of such Change in
Control).

Following a sale of all or substantially all of the common stock
or assets of Loral Skynet (a Skynet Sale Event) or
SS/ L (a SS/ L Sale Event), all outstanding Awards
held by employees or service providers of Loral Skynet or SS/ L,
as applicable, will become immediately vested and exercisable,
any restrictions on such Awards will lapse and all such Awards
will become immediately payable or subject to settlement. In
addition, options held by employees or service providers of
Loral Skynet or SS/ L, as applicable, will remain exercisable
following the sale for the shorter of (i) one year
following the sale or (ii) the remaining term of the stock
option as set forth in the applicable Award Agreement. For
employees of Loral assigned to Lorals corporate
headquarters, if the Skynet Sale Event or SS/ L Sale Event
occurs on or prior to the first anniversary of the

67



---



##### 





The Board of Directors may amend the Stock Incentive Plan at any
time, provided, that any such amendment may not increase the
maximum number of shares of Loral common stock that may be
issued (other than as a result of an adjustment for
recapitalization, merger, and other similar events) without
shareholder approval. Additionally, amendments may not impair
the rights of any Award holder without such Award holders
written consent. The Stock Incentive Plan will terminate on the
day before the tenth anniversary of the date the plan was
adopted by the Board of Directors; however, the Stock Incentive
Plan will continue to be administered with respect to
outstanding Awards until all such Awards have been fully
exercised, paid or otherwise expire by their terms.

The Stock Incentive Plan provided that if the fair market value
of a share of Loral common stock on the Grant Date is greater
than $19, an individual selected to receive an Automatic Option
Grant would receive an additional deferred compensation award in
an amount equal to (i) the difference between the fair
market value of a share of Loral common stock on the Grant Date
and $19, multiplied by (ii) the number of shares of Loral
common stock underlying such individuals Automatic Option
Grant. Accordingly, on December 21, 2005, concurrently with
the Automatic Option Grant, the Company established deferred
compensation bookkeeping accounts on behalf of each Award holder
and credited to such accounts $9.441 multiplied by the number of
shares of Loral common stock underlying such Award holders
Automatic Option Grant.

In March 2006, we adopted an amendment to the Stock Incentive
Plan to increase by 825,000 the number of shares available for
grant thereunder and to increase to 1,000,000 the number of
shares that may be granted to any one employee during any
calendar year. This amendment is subject to stockholder approval
at an annual or special meeting of our stockholders.

The description of the Stock Incentive Plan is not intended to
be complete and is qualified in its entirety by reference to the
full text of the Stock Incentive Plan and Form of Non-Qualified
Stock Option Agreement under the Stock Incentive Plan for Senior
Management attached as Exhibits 10.19 and 10.20,
respectively, to this Form 10-K.



|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions

K&F Industries, Inc.

In 2005, we provided administrative and certain other services
to K&F Industries, Inc. (K&F), a subsidiary
of K&F Industries Holdings, Inc., and a company of which
Bernard L. Schwartz was Chairman of the Board. K&F paid us a
fee based on the cost of such services plus out of pocket
expenses. For the periods October 2, 2005 to
December 31, 2005 and January 1, 2005 to
October 1, 2005, we billed K&F $12,000 and $146,000,
respectively.

In addition, K&F charged us $44,000 and $108,000 for the
periods October 2, 2005 to December 31, 2005 and
January 1, 2005 to October 1, 2005, respectively, for
certain expenses and services.

MHR Fund Management LLC

Pursuant to the Plan of Reorganization, on November 21,
2005, Loral and Loral Skynet entered into a registration rights
agreement with seven affiliated funds of MHR Fund Management LLC
(MHR). Pursuant to the Plan of Reorganization, each
holder of an Allowed Claim, as that term is used in the Plan of
Reorganization, that receives a distribution pursuant to the
plan of ten percent (10%) or greater of any of (i) Loral
common stock, (ii) Loral Skynet preferred stock or
(iii) Loral Skynet notes (collectively, the
Registrable Securities) is entitled to receive
certain registration rights under the registration rights

68



---



##### 





Pursuant to the Plan of Reorganization, holders of certain
claims at Loral Orion, Inc. were entitled to subscribe for up to
$120 million of Loral Skynet notes. MHR and P. Schoenfeld
Asset Management LLC agreed to backstop 95% and 5%,
respectively, of the rights offering, in consideration of a
$6 million fee, paid in additional Loral Skynet notes, as
well as reimbursement of certain related costs and expenses. In
connection with this backstop agreement, MHR received
$5.7 million principal amount of Loral Skynet notes for its
backstop commitment.

We have reimbursed fees and out-of-pocket expenses incurred by
legal counsel to MHR in connection with our reorganization.

Dr. Rachesky and Mr. Goldstein are co-founders and
managing principals of MHR. Mr. Devabhaktuni is also a
managing principal of MHR. Dr. Rachesky, Mr. Goldstein
and Mr. Devabhaktuni are directors of Loral.

Other Relationships

During 2005, we incurred $176,000 of expenses paid or payable to
companies associated with Mr. Schwartz in connection with
our use of his corporate jet.

Robert B. Hodes, a director and a member of the Compensation
Committee until his resignation from the Board of Directors on
February 28, 2006, is counsel to the law firm of Willkie
Farr & Gallagher LLP, which acts as counsel to us.

For the year ended December 31, 2005, we paid fees and
disbursements in the amount of approximately $91,000 for
corporate communications consultations and related services to
Kekst & Company Incorporated, of which company Gershon
Kekst is President and principal stockholder. Prior to
November 21, 2005, Mr. Kekst was a director of Old
Loral.



|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services

During 2005 and 2004, Deloitte & Touche LLP, the member
firms of Deloitte Touche Tohmatsu, and their respective
affiliates (collectively, the Deloitte Entities)
billed or expected to bill the amounts listed below for each
category of professional services rendered to us:

|                      |  |      |           |      |  |   |           | 
|--------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                      |  | 2005 |           | 2004
|                      |  |      |           |     
|Audit Fees(a)         |  | $    | 6,258,000 |      |  | $ | 3,366,000 | 
|                     
|                     
|                     
|                     
|Audit Related Fees(b) |  |      | 75,900    |      |  |   | 352,000   | 
|                     
|                     
|                     
|                     
|Tax Consultation Fees |  |      | 194,000   |      |  |   | 167,000   | 
|                     
|                     
|                     
|                     
|All Other Fees(c)     |  |      | 380,000   |      |  |   | 574,000   | 
|                      |  |      |           |      |  |   |           | 
|Total                 |  | $    | 6,907,900 |      |  | $ | 4,459,000 | 
|                      |  |      |           |      |  |   |           | 



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Includes professional services rendered for the
    audit of our annual consolidated financial statements for the
    fiscal years ended December 31, 2005 and 2004, for the
    reviews of the condensed consolidated financial statements
    included in our Quarterly Reports on Form 10-Q for the 2005
    and 2004 fiscal years, stand-alone and statutory audits of our
    subsidiaries and accounting research and consultation related to
    the audits and reviews.
|   
|(b) |  | Relates primarily to research and consultation on
    a transfer of interest transaction and various other filings
    with the Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                            
|   
|(c) |  | Relates primarily to our Chapter 11 filing
    and related filings and activities.                                                                                                                                                                                                                                                                                                                                                                                             

69



---



##### 





PART IV




|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules



|                                                               |                                                                                                                                                                                                                                                                      |  |     |      | 
|-------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | ---- | 
|Index to Financial Statements and Financial Statement Schedule |                                                                                                                                                                                                                                                                      |  | F-1 |     
|Loral Space & Communications Inc. and
    Subsidiaries         |                                                                                                                                                                                                                                                                      |  |     |     
|                                                               | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                              |  |     | F-2  | 
|                                                               | Consolidated Balance Sheets as of December 31, 2005
    (Successor Registrant) and 2004 (Predecessor Registrant)                                                                                                                                                     |  |     | F-4  | 
|                                                               | Consolidated Statements of Operations for the period
    October 2, 2005 to December 31, 2005 (Successor
    Registrant), January 1, 2005 to October 1, 2005 and
    for the years ended December 31, 2004 and 2003 (Predecessor
    Registrant)                     |  |     | F-5  | 
|                                                               | Consolidated Statements of Shareholders (Deficit) Equity
    for the period October 2, 2005 to December 31, 2005
    (Successor Registrant), January 1, 2005 to October 1,
    2005 and for the years ended December 31, 2004 and 2003
    (Predecessor Registrant) |  |     | F-6  | 
|                                                               | Consolidated Statements of Cash Flows for the period
    October 2, 2005 to December 31, 2005 (Successor
    Registrant), January 1, 2005 to October 1, 2005 and
    for the years ended December 31, 2004 and 2003 (Predecessor
    Registrant)                     |  |     | F-7  | 
|                                                               | Notes to Consolidated Financial Statements                                                                                                                                                                                                                           |  |     | F-8  | 
|                                                              
|                                                               | (a) 2. Financial Statement Schedules                                                                                                                                                                                                                                 |  |     |      | 
|                                                               | Schedule I                                                                                                                                                                                                                                                           |  |     | F-69 | 
|                                                               | Schedule II                                                                                                                                                                                                                                                          |  |     | F-73 | 

70



---



##### 



INDEX TO EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Debtors Fourth Amended Joint Plan of Reorganization Under
    Chapter 11 of the Bankruptcy Code dated June 3, 2005(1)                                                                                                                                                                                                                                                    
|       
|        | 2  | .2          |  | Modification to Debtors Fourth Amended Plan of
    Reorganization Under Chapter 11 of the Bankruptcy Code
    dated August 1, 2005(2)                                                                                                                                                                                                                                    
|       
|        | 3  | .1          |  | Restated Certificate of Incorporation of Loral Space &
    Communications Inc. dated November 21, 2005(3)                                                                                                                                                                                                                                                                 
|       
|        | 3  | .2          |  | Loral Space & Communications Inc. Amended and Restated
    Bylaws dated November 21, 2005(3)                                                                                                                                                                                                                                                                              
|       
|        | 10 | .1          |  | Restated Certificate of Incorporation of Loral Skynet
    Corporation dated November 21, 2005(3)                                                                                                                                                                                                                                                                          
|       
|        | 10 | .2          |  | Indenture in respect of Loral Skynet Corporations
    14% Senior Secured Cash/ PIK Notes Due 2015 dated
    November 21, 2005(3)                                                                                                                                                                                                                                         
|       
|        | 10 | .3          |  | Security Agreement in respect of Loral Skynet Corporations
    14% Senior Secured Cash/ PIK Notes due 2015 dated
    November 21, 2005(3)                                                                                                                                                                                                                                
|       
|        | 10 | .4          |  | Hong Kong Security Agreement in respect of Loral Skynet
    Corporations 14% Senior Secured Cash/ PIK Notes due
    2015 dated November 21, 2005(3)                                                                                                                                                                                                                      
|       
|        | 10 | .5          |  | Registration Rights Agreement among Loral Space &
    Communications Inc., Loral Skynet Corporation, MHR Capital
    Partners (500) LP, MHR Capital Partners (100) LP, MHR
    Institutional Partners II LP, MHR Institutional Partners
    LP, MHR Institutional Partner III LP, MHR Institutional
    Partner IIA LP, MHRM LP and MHRA LP dated November 21,
    2005(3)
|       
|        | 10 | .6          |  | Lease Agreement by and between Loral Asia Pacific Satellite
    (HK) Limited and APT Satellite Company Limited dated as of
    August 18, 1999(4)                                                                                                                                                                                                                         
|       
|        | 10 | .7          |  | Consent Agreement among the United States Department of State,
    Loral Space & Communications Ltd. and Space Systems/
    Loral, Inc. dated January 9, 2002(5)                                                                                                                                                                                                          
|       
|        | 10 | .8          |  | Form of Conformed as Amended Apstar V Satellite Agreement
    between APT Satellite company Limited and Loral Orion, Inc.
    dated as of November 16, 2003(6)                                                                                                                                                                                                            
|       
|        | 10 | .9          |  | Employment Agreement between Loral Space &
    Communications Inc. and Bernard L. Schwartz dated
    November 21, 2005(3)                                                                                                                                                                                                                                                
|       
|        | 10 | .10         |  | Employment Agreement between Loral Space &
    Communications Inc. and Michael B. Targoff dated March 28,
    2006                                                                                                                                                                                                                                                      
|       
|        | 10 | .11         |  | Employment Agreement between Loral Space &
    Communications Inc. and Eric J. Zahler dated November 21,
    2005                                                                                                                                                                                                                                                       
|       
|        | 10 | .12         |  | Employment Agreement between Loral Space &
    Communications Inc. and Richard J. Townsend dated
    November 21, 2005                                                                                                                                                                                                                                                  
|       
|        | 10 | .13         |  | Employment Agreement between Loral Space &
    Communications Inc. and Avi Katz dated November 21,
    2005                                                                                                                                                                                                                                                             
|       
|        | 10 | .14         |  | Employment Agreement between Space Systems/ Loral, Inc. and C.
    Patrick DeWitt dated November 21, 2005(3)                                                                                                                                                                                                                                                             
|       
|        | 10 | .15         |  | Form of Officers and Directors Indemnification
    Agreement between Loral Space & Communications Inc. and
    Loral Executives(3)                                                                                                                                                                                                                                     
|       
|        | 10 | .16         |  | Officers and Directors Indemnification Agreement
    between Space/ Systems Loral, Inc. and C. Patrick DeWitt
    dated November 21, 2005(3)                                                                                                                                                                                                                           
|       
|        | 10 | .17         |  | Space Systems/ Loral, Inc. Supplemental Executive Retirement
    Plan dated January 7, 2003                                                                                                                                                                                                                                                                             
|       
|        | 10 | .18         |  | Amendment to the Space Systems/ Loral, Inc. Supplemental
    Executive Retirement Plan dated November 21, 2005(3)                                                                                                                                                                                                                                                        
|       
|        | 10 | .19         |  | Loral Space & Communications Inc. 2005 Stock Incentive
    Plan(3)                                                                                                                                                                                                                                                                                                       
|       
|        | 10 | .20         |  | Form of Non-Qualified Stock Option Agreement under Loral
    Space & Communications Inc. 2005 Stock Incentive Plan
    for Senior Management(3)                                                                                                                                                                                                                          

71



---



##### 



|        |    |             |  |                                                                                                                                                                               
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .21         |  | Non-Qualified Stock Option Agreement under Loral
    Space & Communications Inc. 2005 Stock Incentive Plan
    for Michael B. Targoff dated March 28, 2006                  
|       
|        | 10 | .22         |  | $20,000,000 Amended and Restated Letter of Credit Reimbursement
    Agreement between Space Systems/ Loral, Inc. and JP Morgan Chase
    Bank, N.A. dated November 21, 2005(3)
|       
|        | 10 | .23         |  | Amended and Restated Cash Collateral Agreement dated
    November 21, 2005(3)                                                                                                 
|       
|        | 12 | .1          |  | Statement Re: Computation of Ratios                                                                                                                                          
|       
|        | 14 | .1          |  | Code of Conduct(3)                                                                                                                                                            
|       
|        | 21 | .1          |  | List of Subsidiaries of the Registrant                                                                                                                                       
|       
|        | 31 | .1          |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 302 of the Sarbanes-Oxley Act of 2002                                
|       
|        | 31 | .2          |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 302 of the Sarbanes-Oxley Act of 2002                                
|       
|        | 32 | .1          |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002                                
|       
|        | 32 | .2          |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002                                






|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from the Companys Current Report
    on Form 8-K filed
    on June 8, 2005.                      
|   
|(2) | Incorporated by reference from the Companys Current Report
    on Form 8-K filed
    on August 5, 2005.                    
|   
|(3) | Incorporated by reference from the Companys Current Report
    on Form 8-K filed
    on November 23, 2005.                 
|   
|(4) | Incorporated by reference from the Companys Current Report
    on Form 8-K filed
    on August 23, 1999.                   
|   
|(5) | Incorporated by reference from the Companys Current Report
    on Form 8-K filed
    on January 9, 2002.                   
|   
|(6) | Incorporated by reference from the Companys Annual Report
    on Form 10-K for
    the fiscal year ended December 31, 2003.



| |   |                              
| | - | -----------------------------
| |  | Filed herewith.              
|
| |  | Management compensation plan.

72



---



##### 



SIGNATURES






| |                                  
| | ---------------------------------
| | LORAL SPACE & COMMUNICATIONS INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ MICHAEL B. TARGOFF

| |                        
| | -----------------------
| |                        
| | Michael B. Targoff     
| | Chief Executive Officer
| | Dated: March 28, 2006  



|                                                     |  |                                                                |  |                |  |     
|---------------------------------------------------- |  | -------------------------------------------------------------- |  | -------------- |  | ----
|                                                     |  | Signatures                                                     |  | Title          |  | Date
|                                                     |  |                                                                |  |                |  |     
|                                                    
|/s/ MICHAEL B. TARGOFFMichael B. Targoff             |  | Vice Chairman of the Board and Chief Executive Officer         |  | March 28, 2006
|                                                    
|/s/ MARK H. RACHESKY,
    M.D.Mark H. Rachesky, M.D. |  | Director, Non-Executive Chairman of the Board                  |  | March 28, 2006
|                                                    
|/s/ SAI S. DEVABHAKTUNISai S. Devabhaktuni           |  | Director                                                       |  | March 28, 2006
|                                                    
|/s/ HAL GOLDSTEINHal Goldstein                       |  | Director                                                       |  | March 28, 2006
|                                                    
|/s/ JOHN D. HARKEY, JR.John D. Harkey, Jr.           |  | Director                                                       |  | March 28, 2006
|                                                    
|/s/ DEAN OLMSTEADDean Olmstead                       |  | Director                                                       |  | March 28, 2006
|                                                    
|/s/ ARTHUR L. SIMONArthur L. Simon                   |  | Director                                                       |  | March 28, 2006
|                                                    
|/s/ RICHARD J. TOWNSENDRichard J. Townsend           |  | Executive Vice President and CFO (Principal Financial Officer) |  | March 28, 2006
|                                                    
|/s/ HARVEY B. REINHarvey B. Rein                     |  | Vice President and Controller (Principal Accounting Officer)   |  | March 28, 2006

73



---



##### 



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE


|                                                       |                                                                                                                                                                                                                                                                      |  |  |      | 
|------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Loral Space & Communications Inc. and
    Subsidiaries |                                                                                                                                                                                                                                                                      |  |  |     
|                                                       | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                              |  |  | F-2  | 
|                                                       | Consolidated Balance Sheets as of December 31, 2005
    (Successor Registrant) and 2004 (Predecessor Registrant)                                                                                                                                                     |  |  | F-4  | 
|                                                       | Consolidated Statements of Operations for the period
    October 2, 2005 to December 31, 2005 (Successor
    Registrant), January 1, 2005 to October 1, 2005 and
    for the years ended December 31, 2004 and 2003 (Predecessor
    Registrant)                     |  |  | F-5  | 
|                                                       | Consolidated Statements of Shareholders (Deficit) Equity
    for the period October 2, 2005 to December 31, 2005
    (Successor Registrant), January 1, 2005 to October 1,
    2005 and for the years ended December 31, 2004 and 2003
    (Predecessor Registrant) |  |  | F-6  | 
|                                                       | Consolidated Statements of Cash Flows for the period
    October 2, 2005 to December 31, 2005 (Successor
    Registrant), January 1, 2005 to October 1, 2005 and
    for the years ended December 31, 2004 and 2003 (Predecessor
    Registrant)                     |  |  | F-7  | 
|                                                       | Notes to Consolidated Financial Statements                                                                                                                                                                                                                           |  |  | F-8  | 
|                                                       | Schedule I                                                                                                                                                                                                                                                           |  |  | F-69 | 
|                                                       | Schedule II                                                                                                                                                                                                                                                          |  |  | F-73 | 

F-1



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders of Loral Space & Communications
Inc.








Internal Control 
Integrated Framework


90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code,


Share-Based
Payment,


Accounting for the Impairment or Disposal of
Long-Lived Assets.


F-2



---



##### 



Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,








F-3



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


CONSOLIDATED BALANCE SHEETS


(in thousands, except par value)


|                                                                                                         |                                                                                                                                    |                                                      |         |         |              |  |         |            |            |  
|-------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ------- | ------------ |  | ------- | ---------- | ---------- | -
|                                                                                                         |                                                                                                                                    | Successor                                            |         |         | Predecessor  | 
|                                                                                                         |                                                                                                                                    | Registrant                                           |         |         | Registrant   | 
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|                                                                                                         |                                                                                                                                    | December 31,                                         |         |         | December 31, | 
|                                                                                                         |                                                                                                                                    | 2005                                                 |         |         | 2004         | 
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|ASSETS                                                                                                  
|Current assets:                                                                                          |                                                                                                                                    |                                                      |         |         |              |  |         |           
|                                                                                                         | Cash and cash equivalents                                                                                                          |                                                      | $       | 275,796 |              |  | $       | 147,773    |           
|                                                                                                         | Accounts receivable, net                                                                                                           |                                                      |         | 59,347  |              |  |         | 12,132     |           
|                                                                                                         | Contracts-in-process                                                                                                               |                                                      |         | 73,584  |              |  |         | 19,040     |           
|                                                                                                         | Inventories                                                                                                                        |                                                      |         | 51,871  |              |  |         | 37,412     |           
|                                                                                                         | Other current assets                                                                                                               |                                                      |         | 31,066  |              |  |         | 21,096     |           
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|                                                                                                         |                                                                                                                                    | Total current assets                                 |         |         | 491,664      |  |         |            | 237,453    |  
|Property, plant and equipment, net                                                                       |                                                                                                                                    |                                                      | 520,503 |         |              |  | 798,908 |           
|Long-term receivables                                                                                    |                                                                                                                                    |                                                      | 48,155  |         |              |  | 74,851  |           
|Investments in and advances to affiliates                                                                |                                                                                                                                    |                                                      | 104,616 |         |              |  | 49,181  |           
|Deposits                                                                                                 |                                                                                                                                    |                                                      | 9,840   |         |              |  | 9,832   |           
|Goodwill                                                                                                 |                                                                                                                                    |                                                      | 340,094 |         |              |  |        |           
|Other assets                                                                                             |                                                                                                                                    |                                                      | 164,105 |         |              |  | 48,508  |           
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|                                                                                                         |                                                                                                                                    | Total assets                                         |         | $       | 1,678,977    |  |         | $          | 1,218,733  |  
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                          
|Current liabilities:                                                                                     |                                                                                                                                    |                                                      |         |         |              |  |         |           
|                                                                                                         | Accounts payable                                                                                                                   |                                                      | $       | 72,594  |              |  | $       | 33,248     |           
|                                                                                                         | Accrued employment costs                                                                                                           |                                                      |         | 35,277  |              |  |         | 34,385     |           
|                                                                                                         | Customer advances and billings in excess of costs and profits                                                                      |                                                      |         | 172,995 |              |  |         | 164,981    |           
|                                                                                                         | Deferred gain on sale of assets (Note 5)                                                                                           |                                                      |         |        |              |  |         | 10,545     |           
|                                                                                                         | Income taxes payable                                                                                                               |                                                      |         | 2,177   |              |  |         | 2,359      |           
|                                                                                                         | Accrued interest and preferred dividends                                                                                           |                                                      |         | 4,881   |              |  |         |           |           
|                                                                                                         | Other current liabilities                                                                                                          |                                                      |         | 32,324  |              |  |         | 16,639     |           
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|                                                                                                         |                                                                                                                                    | Total current liabilities                            |         |         | 320,248      |  |         |            | 262,157    |  
|                                                                                                         | Pension and other postretirement liabilities (Note 17)                                                                             |                                                      |         | 237,948 |              |  |         | 942        |           
|                                                                                                         | Long-term debt                                                                                                                     |                                                      |         | 128,191 |              |  |         |           |           
|                                                                                                         | Long-term liabilities                                                                                                              |                                                      |         | 165,426 |              |  |         | 81,355     |           
|                                                                                                         | Liabilities subject to compromise (Note 11)                                                                                        |                                                      |         |        |              |  |         | 1,916,000  |           
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|                                                                                                         |                                                                                                                                    | Total liabilities                                    |         |         | 851,813      |  |         |            | 2,260,454  |  
|Minority interest (Note 15)                                                                              |                                                                                                                                    |                                                      | 200,000 |         |              |  | 2,380   |           
|Commitments and contingencies (Notes 2, 8, 9, 11,
    17, 18 and 19)
    Shareholders equity (deficit): |                                                                                                                                    |                                                      |         |         |              |  |         |           
|                                                                                                         | Common stock, $.10 par value; 125,000,000 shares
    authorized, 44,125,202 shares issued and outstanding at
    December 31, 2004 |                                                      |         |        |              |  |         | 4,413      |           
|                                                                                                         | Common stock, $.01 par value; 40,000,000 shares
    authorized, 20,000,000 shares issued and outstanding at
    December 31, 2005  |                                                      |         | 200     |              |  |         |           |           
|                                                                                                         | Paid-in capital                                                                                                                    |                                                      |         | 642,210 |              |  |         | 3,392,825  |           
|                                                                                                         | Treasury stock, at cost; 17,420 shares at December 31,
    2004                                                                    |                                                      |         |        |              |  |         | (3,360     | )         
|                                                                                                         | Unearned compensation                                                                                                              |                                                      |         |        |              |  |         | (87        | )         
|                                                                                                         | Retained deficit                                                                                                                   |                                                      |         | (15,261 | )            |  |         | (4,348,231 | )         
|                                                                                                         | Accumulated other comprehensive income (loss)                                                                                      |                                                      |         | 15      |              |  |         | (89,661    | )         
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|                                                                                                         |                                                                                                                                    | Total shareholders equity (deficit)                 |         |         | 627,164      |  |         |            | (1,044,101 | )
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 
|                                                                                                         |                                                                                                                                    | Total liabilities and shareholders equity (deficit) |         | $       | 1,678,977    |  |         | $          | 1,218,733  |  
|                                                                                                         |                                                                                                                                    |                                                      |         |         |              | 



F-4



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share amounts)


|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |        |   |   |          |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------ | ---------------------- | - | --------- | ------------ |  | - | -------- | ------ | - | - | -------- | ------ | -
|                                                                                                                                                                                                    |                                                                                                                                             | Successor      |         |        |                       
|                                                                                                                                                                                                    |                                                                                                                                             | Registrant     |         |        | Predecessor Registrant |  
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |  
|                                                                                                                                                                                                    |                                                                                                                                             | For the Period |         |        | For the Period         |   |           |             
|                                                                                                                                                                                                    |                                                                                                                                             | October 2,     |         |        | January 1,             |   |           | Years Ended  | 
|                                                                                                                                                                                                    |                                                                                                                                             | 2005 to        |         |        | 2005 to                |   |           | December 31, | 
|                                                                                                                                                                                                    |                                                                                                                                             | December 31,   |         |        | October 1,             |   |           |              | 
|                                                                                                                                                                                                    |                                                                                                                                             | 2005           |         |        | 2005                   |   |           | 2004         |  |   | 2003     |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Revenues from satellite services                                                                                                                                                                    |                                                                                                                                             | $              | 36,096  |        |                        | $ | 110,596   |              |  | $ | 135,319  |        |   | $ | 147,156  |       
|Revenues from sales-type lease arrangement  satellite
    services (Note 8)                                                                                                                        |                                                                                                                                             |                |        |        |                        |   |          |              |  |   | 87,200   |        |   |   |         |       
|Revenues from satellite manufacturing                                                                                                                                                               |                                                                                                                                             |                | 161,069 |        |                        |   | 318,587   |              |  |   | 299,608  |        |   |   | 244,887  |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Total revenues                                                                                                                                                                                      |                                                                                                                                             |                | 197,165 |        |                        |   | 429,183   |              |  |   | 522,127  |        |   |   | 392,043  |       
|Cost of satellite services                                                                                                                                                                          |                                                                                                                                             |                | 26,386  |        |                        |   | 94,169    |              |  |   | 189,330  |        |   |   | 191,989  |       
|Cost of sales-type lease arrangement  satellite
    services (Note 8)                                                                                                                              |                                                                                                                                             |                |        |        |                        |   |          |              |  |   | 79,543   |        |   |   |         |       
|Cost of satellite manufacturing                                                                                                                                                                     |                                                                                                                                             |                | 138,882 |        |                        |   | 291,454   |              |  |   | 318,295  |        |   |   | 422,091  |       
|Selling, general and administrative expenses                                                                                                                                                        |                                                                                                                                             |                | 36,842  |        |                        |   | 79,419    |              |  |   | 118,848  |        |   |   | 141,552  |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Loss from continuing operations before reorganization expenses
    due to bankruptcy                                                                                                                |                                                                                                                                             |                | (4,945  | )      |                        |   | (35,859   | )            |  |   | (183,889 | )      |   |   | (363,589 | )     
|Reorganization expenses due to bankruptcy                                                                                                                                                           |                                                                                                                                             |                |        |        |                        |   | (31,236   | )            |  |   | (30,456  | )      |   |   | (25,284  | )     
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Operating loss from continuing operations                                                                                                                                                           |                                                                                                                                             |                | (4,945  | )      |                        |   | (67,095   | )            |  |   | (214,345 | )      |   |   | (388,873 | )     
|Gain on discharge of pre-petition obligations and fresh-start
    adjustments                                                                                                                       |                                                                                                                                             |                |        |        |                        |   | 1,101,453 |              |  |   |         |        |   |   |         |       
|Interest and investment income                                                                                                                                                                      |                                                                                                                                             |                | 4,128   |        |                        |   | 6,438     |              |  |   | 9,953    |        |   |   | 15,203   |       
|Interest expense (contractual interest was $36,610 for the
    period ended October 1, 2005 and $46,451 and $34,020 for
    the years ended December 31, 2004 and 2003, respectively
    (Note 12)) |                                                                                                                                             |                | (4,408  | )      |                        |   | (17,214   | )            |  |   | (2,947   | )      |   |   | (14,080  | )     
|Other income (expense)                                                                                                                                                                              |                                                                                                                                             |                | (170    | )      |                        |   | (931      | )            |  |   | (513     | )      |   |   | 1,495    |       
|Gain on investments                                                                                                                                                                                 |                                                                                                                                             |                |        |        |                        |   |          |              |  |   |         |        |   |   | 17,900   |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|(Loss) income from continuing operations before income taxes,
    equity (losses) income in affiliates and minority interest                                                                        |                                                                                                                                             |                | (5,395  | )      |                        |   | 1,022,651 |              |  |   | (207,852 | )      |   |   | (368,355 | )     
|Income tax (provision) benefit                                                                                                                                                                      |                                                                                                                                             |                | (1,752  | )      |                        |   | 10,901    |              |  |   | (13,284  | )      |   |   | 6,330    |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|(Loss) income from continuing operations before equity income
    (losses) in affiliates and minority interest                                                                                      |                                                                                                                                             |                | (7,147  | )      |                        |   | 1,033,552 |              |  |   | (221,136 | )      |   |   | (362,025 | )     
|Equity (losses) income in affiliates                                                                                                                                                                |                                                                                                                                             |                | (5,447  | )      |                        |   | (2,796    | )            |  |   | 46,654   |        |   |   | (51,153  | )     
|Minority interest                                                                                                                                                                                   |                                                                                                                                             |                | (2,667  | )      |                        |   | 126       |              |  |   | 135      |        |   |   | 20       |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|(Loss) income from continuing operations                                                                                                                                                            |                                                                                                                                             |                | (15,261 | )      |                        |   | 1,030,882 |              |  |   | (174,347 | )      |   |   | (413,158 | )     
|(Loss) income from discontinued operations, net of taxes                                                                                                                                            |                                                                                                                                             |                |        |        |                        |   |          |              |  |   | (2,348   | )      |   |   | 18,803   |       
|Gain on sale of discontinued operations, net of taxes
    (Note 5)                                                                                                                                  |                                                                                                                                             |                |        |        |                        |   | 13,967    |              |  |   |         |        |   |   |         |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|(Loss) income before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest                                                         |                                                                                                                                             |                | (15,261 | )      |                        |   | 1,044,849 |              |  |   | (176,695 | )      |   |   | (394,355 | )     
|Cumulative effect of change in accounting principle (Note 3)                                                                                                                                        |                                                                                                                                             |                |        |        |                        |   |          |              |  |   |         |        |   |   | (1,970   | )     
|Extraordinary gain on acquisition of minority interest                                                                                                                                              |                                                                                                                                             |                |        |        |                        |   |          |              |  |   |         |        |   |   | 13,615   |       
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Net (loss) income                                                                                                                                                                                   |                                                                                                                                             |                | (15,261 | )      |                        |   | 1,044,849 |              |  |   | (176,695 | )      |   |   | (382,710 | )     
|Preferred dividends                                                                                                                                                                                 |                                                                                                                                             |                |        |        |                        |   |          |              |  |   |         |        |   |   | (6,719   | )     
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Net (loss) income applicable to common shareholders                                                                                                                                                 |                                                                                                                                             | $              | (15,261 | )      |                        | $ | 1,044,849 |              |  | $ | (176,695 | )      |   | $ | (389,429 | )     
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Basic and diluted (loss) earnings per share (Note 16):                                                                                                                                              |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |        |   |   |          |       
|                                                                                                                                                                                                    | Continuing operations                                                                                                                       |                | $       | (0.76  | )                      |   | $         | 23.37        |  |   | $        | (3.96  | ) |   | $        | (9.58  | )
|                                                                                                                                                                                                    | Discontinued operations                                                                                                                     |                |         |       |                        |   |           | 0.32         |  |   |          | (0.05  | ) |   |          | 0.43   |  
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|                                                                                                                                                                                                    | (Loss) income before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |                |         | (0.76  | )                      |   |           | 23.69        |  |   |          | (4.01  | ) |   |          | (9.15  | )
|                                                                                                                                                                                                    | Cumulative effect of change in accounting principle                                                                                         |                |         |       |                        |   |           |             |  |   |          |       |   |   |          | (0.05  | )
|                                                                                                                                                                                                    | Extraordinary gain on acquisition of minority interest                                                                                      |                |         |       |                        |   |           |             |  |   |          |       |   |   |          | 0.31   |  
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|                                                                                                                                                                                                    | (Loss) earnings per share                                                                                                                   |                | $       | (0.76  | )                      |   | $         | 23.69        |  |   | $        | (4.01  | ) |   | $        | (8.89  | )
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       
|Weighted average shares outstanding:                                                                                                                                                                |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |        |   |   |          |       
|                                                                                                                                                                                                    | Basic and diluted                                                                                                                           |                |         | 20,000 |                        |   |           | 44,108       |  |   |          | 44,108 |   |   |          | 43,819 |  
|                                                                                                                                                                                                    |                                                                                                                                             |                |         |        |                        |   |           |              |  |   |          |       



F-5



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS
(DEFICIT) EQUITY


(in thousands, except per share amounts)


|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |            |       |  
|----------------------------------------------------------------------------------------- | -------------------------------- | -------------------- | ------ | - | ------------ | - | ------- | ------ |  |  | ------- | -------- |  | ------- | ----------- | ----- | ------------- | ------- | ---------- | ------------- | -------- | - | ------- | ------ |  | ------ | --------- | - | ------ | - | ---------- | - |  | - | ------- | - |  | - | ---------- | ----- | -
|                                                                                          |                                  | 6% Series C&D        |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |           
|                                                                                          |                                  | Convertible          |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |           
|                                                                                          |                                  | Redeemable Preferred |        |   |              |   |         |        |  |  |         |          |  |         | Accumulated |       |               |        
|                                                                                          |                                  | Stock                |        |   | Common Stock |   |         |        |  |  |         |          |  |         |             | Other |               |         | Total      |              
|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         | Unearned |  |         |             |       | Comprehensive |         |            | Shareholders |         
|                                                                                          |                                  | Shares               |        |   |              |   | Shares  |        |  |  |         | Paid-In  |  |         | Treasury    |       |               | Compen- |            |               | Retained |   |         | Income |  |        | (Deficit) |  
|                                                                                          |                                  | Issued               |        |   | Amount       |   |         | Issued |  |  | Amount  |          |  | Capital |             |       | Stock         |         |            | sation        |          |   | Deficit |        |  | (Loss) |           |   | Equity |  
|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |  
|Predecessor Registrant                                                                    |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |            |      
|Balance, January 1, 2003                                                                  |                                  |                      | 4,479  |   |              | $ | 95,296  |        |  |  | 42,926  |          |  | $       | 4,293       |       |               | $       | 3,389,035  |               |          | $ | (3,360  | )      |  | $      | (151      | ) |        | $ | (3,782,107 | ) |  | $ | (57,233 | ) |  | $ | (354,227   | )    
|Shares issued:                                                                            |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |            |      
|                                                                                          | Employee savings plan            |                      |        |   |              |   |         |        |  |  |         | 1,167    |  |         |             | 117   |               |         |            | 3,880         |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |            | 3,997 |  
|                                                                                          | Restricted stock option exercise |                      |        |   |              |   |         |        |  |  |         | 30       |  |         |             | 3     |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |            | 3     |  
|                                                                                          | Reverse stock split              |                      |        |   |              |   |         |        |  |  |         | 2        |  |         |             |       |               |         |            | (109          | )        |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |            | (109  | )
|Reclassification of preferred stock on adoption of SFAS 150                               |                                  |                      | (4,479 | ) |              |   | (95,296 | )      |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | (95,296    | )    
|Amortization of unearned compensation                                                     |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        | 75        |   |        |   |            |   |  |   |         |   |  |   | 75         |      
|Costs associated with conversion of preferred stock to common
    stock                   |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         | (42        | )             |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | (42        | )    
|Restricted stock grant                                                                    |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         | 92         |               |          |   |         |        |  |        | (92       | ) |        |   |            |   |  |   |         |   |  |   |           |      
|Unearned compensation on grants to non-employees, including
    mark-to-market adjustment |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         | (27        | )             |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | (27        | )    
|Preferred dividends $3.00 per share                                                       |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   | (6,719     | ) |  |   |         |   |  |   | (6,719     | )    
|Net loss                                                                                  |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   | (382,710   | ) |  |   |         |   |  |   |            |      
|Other comprehensive loss                                                                  |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   | (20,615 | ) |  |   |            |      
|Comprehensive loss                                                                        |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | (403,325   | )    
|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |  
|Balance, December 31, 2003                                                                |                                  |                      |       |   |              |   |        |        |  |  | 44,125  |          |  |         | 4,413       |       |               |         | 3,392,829  |               |          |   | (3,360  | )      |  |        | (168      | ) |        |   | (4,171,536 | ) |  |   | (77,848 | ) |  |   | (855,670   | )    
|Amortization of unearned compensation                                                     |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        | 81        |   |        |   |            |   |  |   |         |   |  |   | 81         |      
|Cost associated with conversion of preferred stock to common
    stock                    |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         | (4         | )             |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | (4         | )    
|Net loss                                                                                  |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   | (176,695   | ) |  |   |         |   |  |   |            |      
|Other comprehensive loss                                                                  |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   | (11,813 | ) |  |   |            |      
|Comprehensive loss                                                                        |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | (188,508   | )    
|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |  
|Balance, December 31, 2004                                                                |                                  |                      |       |   |              |   |        |        |  |  | 44,125  |          |  |         | 4,413       |       |               |         | 3,392,825  |               |          |   | (3,360  | )      |  |        | (87       | ) |        |   | (4,348,231 | ) |  |   | (89,661 | ) |  |   | (1,044,101 | )    
|Amortization of unearned compensation                                                     |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        | 60        |   |        |   |            |   |  |   |         |   |  |   | 60         |      
|Net income                                                                                |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   | 1,044,849  |   |  |   |         |   |  |   |            |      
|Other comprehensive loss                                                                  |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   | (808    | ) |  |   |            |      
|Comprehensive income                                                                      |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | 1,044,041  |      
|Cancellation of Predecessor Registrant common stock                                       |                                  |                      |        |   |              |   |         |        |  |  | (44,125 | )        |  |         | (4,413      | )     |               |         | 4,413      |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |           |      
|Issuance of common stock to creditors                                                     |                                  |                      |        |   |              |   |         |        |  |  | 20,000  |          |  |         | 200         |       |               |         | 642,068    |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | 642,268    |      
|Fresh-start adjustment                                                                    |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         | (3,397,238 | )             |          |   | 3,360   |        |  |        | 27        |   |        |   | 3,303,382  |   |  |   | 90,469  |   |  |   |           |      
|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |  
|Balance, October 1, 2005                                                                  |                                  |                      |       |   |              |   |        |        |  |  | 20,000  |          |  |         | 200         |       |               |         | 642,068    |               |          |   |        |        |  |        |          |   |        |   |           |   |  |   |        |   |  |   | 642,268    |      
|Successor Registrant                                                                      |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   |            |      
|Net loss                                                                                  |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   | (15,261    | ) |  |   |         |   |  |   |            |      
|Other comprehensive loss                                                                  |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   | 15      |   |  |   |            |      
|Comprehensive loss                                                                        |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | (15,246    | )    
|Amortization of stock option compensation                                                 |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         | 142        |               |          |   |         |        |  |        |           |   |        |   |            |   |  |   |         |   |  |   | 142        |      
|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |  
|Balance, December 31, 2005                                                                |                                  |                      |       |   |              | $ |        |        |  |  | 20,000  |          |  | $       | 200         |       |               | $       | 642,210    |               |          | $ |        |        |  | $      |          |   |        | $ | (15,261    | ) |  | $ | 15      |   |  | $ | 627,164    |      
|                                                                                          |                                  |                      |        |   |              |   |         |        |  |  |         |          |  |         |             |       |               |         |            |               |          |   |         |        |  |        |           |   |        |  



F-6



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)


|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |          |         |   |          |          |         |  
|---------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------------------------------------- | ------- | ------- | ---------------------- | ----------- | --------- | ------------ | ---------- | - | -------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                                                   |                                                   | Successor                                                                     |         |         |                       
|                                                                                   |                                                   | Registrant                                                                    |         |         | Predecessor Registrant |            
|                                                                                   |                                                   |                                                                               |         |         |                        |            
|                                                                                   |                                                   |                                                                               |         |         |                        | Years ended |          
|                                                                                   |                                                   | For the Period                                                                |         |         | For the Period         |             |           | December 31, |           
|                                                                                   |                                                   | October 2, 2005 to                                                            |         |         | January 1, 2005 to     |             |           |              |           
|                                                                                   |                                                   | December 31, 2005                                                             |         |         | October 1, 2005        |             |           | 2004         |            |   | 2003     |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Operating activities:                                                              |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |          |         |   |          |         
|Net (loss) income                                                                  |                                                   | $                                                                             | (15,261 | )       |                        | $           | 1,044,849 |              |            | $ | (176,695 | )        |         | $ | (382,710 | )       
|Non-cash items:                                                                    |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |          |         |   |          |         
|                                                                                   |                                                   | Gain on discharge of pre-petition obligations and fresh-start
    adjustments |         |         |                       |             |           |              | (1,101,453 | ) |          |          |         |   |          |          |         |  
|                                                                                   |                                                   | Gain on sale of discontinued operations, net of tax,
    (Note 5)             |         |         |                       |             |           |              | (13,967    | ) |          |          |         |   |          |          |         |  
|                                                                                   |                                                   | (Income) loss from discontinued operations, net of taxes                      |         |         |                       |             |           |              |           |   |          |          | 2,348   |   |          |          | (18,803 | )
|                                                                                   |                                                   | Cumulative effect of change in accounting principle                           |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | 1,970   |  
|                                                                                   |                                                   | Extraordinary gain on acquisition of minority interest                        |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | (13,615 | )
|                                                                                   |                                                   | Equity losses (income) in affiliates                                          |         |         | 5,447                  |             |           |              | 2,796      |   |          |          | (46,654 | ) |          |          | 51,153  |  
|                                                                                   |                                                   | Minority interest                                                             |         |         | 2,667                  |             |           |              | (126       | ) |          |          | (135    | ) |          |          | (20     | )
|                                                                                   |                                                   | Deferred taxes                                                                |         |         |                       |             |           |              | (16,134    | ) |          |          | 12,153  |   |          |          | (7,321  | )
|                                                                                   |                                                   | Depreciation and amortization                                                 |         |         | 16,024                 |             |           |              | 61,277     |   |          |          | 134,796 |   |          |          | 134,663 |  
|                                                                                   |                                                   | Write-off of long-term receivables due to contract modifications              |         |         |                       |             |           |              |           |   |          |          | 11,265  |   |          |          | 20,177  |  
|                                                                                   |                                                   | Impairment charge on satellite and related assets                             |         |         |                       |             |           |              |           |   |          |          | 11,989  |   |          |          |        |  
|                                                                                   |                                                   | Profit on sales-type lease arrangement (Note 8)                               |         |         |                       |             |           |              |           |   |          |          | (7,657  | ) |          |          |        |  
|                                                                                   |                                                   | Provisions for inventory obsolescence                                         |         |         | 1,525                  |             |           |              | 2,127      |   |          |          | 3,324   |   |          |          | 49,546  |  
|                                                                                   |                                                   | Valuation allowance on vendor financing receivables                           |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | 10,008  |  
|                                                                                   |                                                   | Warranty accruals                                                             |         |         | 2,704                  |             |           |              | 11,850     |   |          |          | 9,692   |   |          |          | 2,200   |  
|                                                                                   |                                                   | Loss on cancellation of deposits                                              |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | 23,500  |  
|                                                                                   |                                                   | Loss on acceleration of receipt of long-term receivables                      |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | 10,893  |  
|                                                                                   |                                                   | Charge on conversion of sales arrangement to lease arrangement
    (Note 8)   |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | 10,098  |  
|                                                                                   |                                                   | Accrual for Alcatel settlement                                                |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | 8,000   |  
|                                                                                   |                                                   | (Recoveries of) provisions for bad debts on billed receivables                |         |         | 953                    |             |           |              | (2,880     | ) |          |          | (2,144  | ) |          |          | 7,221   |  
|                                                                                   |                                                   | Adjustment to revenue straightlining assessment                               |         |         | 46                     |             |           |              | 1,031      |   |          |          | 1,149   |   |          |          | 9,034   |  
|                                                                                   |                                                   | Loss on equipment disposals                                                   |         |         |                       |             |           |              | 3,456      |   |          |          | 394     |   |          |          | 4,804   |  
|                                                                                   |                                                   | Gain on investments                                                           |         |         |                       |             |           |              |           |   |          |          |        |   |          |          | (17,900 | )
|                                                                                   |                                                   | Non cash net interest and (gain) loss on foreign currency
    transactions    |         |         |                       |             |           |              | 693        |   |          |          | (2,808  | ) |          |          | 4,887   |  
|Changes in operating assets and liabilities:                                       |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |          |         |   |          |         
|                                                                                   | Accounts receivable, net                          |                                                                               |         | 1,855   |                        |             |           | 557          |            |   |          | 10,423   |         |   |          | (1,478   | )      
|                                                                                   | Contracts-in-process                              |                                                                               |         | 42,459  |                        |             |           | (76,464      | )          |   |          | 29,082   |         |   |          | 33,988   |        
|                                                                                   | Inventories                                       |                                                                               |         | (7,899  | )                      |             |           | (10,212      | )          |   |          | 1,720    |         |   |          | 3,731    |        
|                                                                                   | Long-term receivables                             |                                                                               |         | (13,833 | )                      |             |           | (22,361      | )          |   |          | 2,911    |         |   |          | 60,774   |        
|                                                                                   | Deposits                                          |                                                                               |         | (35     | )                      |             |           |             |            |   |          |         |         |   |          | 25,750   |        
|                                                                                   | Other current assets and other assets             |                                                                               |         | (9,914  | )                      |             |           | 11,981       |            |   |          | 7,533    |         |   |          | 35,930   |        
|                                                                                   | Accounts payable                                  |                                                                               |         | (13,250 | )                      |             |           | (1,285       | )          |   |          | 1,755    |         |   |          | 41,148   |        
|                                                                                   | Accrued expenses and other current liabilities    |                                                                               |         | (64,039 | )                      |             |           | 21,573       |            |   |          | (948     | )       |   |          | 1,139    |        
|                                                                                   | Customer advances                                 |                                                                               |         | 5,739   |                        |             |           | (62,212      | )          |   |          | 35,249   |         |   |          | 38,632   |        
|                                                                                   | Income taxes payable                              |                                                                               |         | 1,389   |                        |             |           | 3,079        |            |   |          | (2,814   | )       |   |          | 1,847    |        
|                                                                                   | Pension and other postretirement liabilities      |                                                                               |         | 3,077   |                        |             |           | (3,650       | )          |   |          | 10,503   |         |   |          | 13,245   |        
|                                                                                   | Long-term liabilities                             |                                                                               |         | 335     |                        |             |           | 1,844        |            |   |          | (7,080   | )       |   |          | (11,927  | )      
|                                                                                   | Other                                             |                                                                               |         | 1,480   |                        |             |           | (196         | )          |   |          | 216      |         |   |          | 501      |        
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash (used in) provided by operating activities of
    continuing operations   |                                                   |                                                                               | (38,531 | )       |                        |             | (143,827  | )            |            |   | 39,567   |          |         |   | 151,065  |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash provided by operating activities of discontinued
    operations           |                                                   |                                                                               |        |         |                        |             |          |              |            |   | 26,562   |          |         |   | 81,588   |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash (used in) provided by operating activities                                |                                                   |                                                                               | (38,531 | )       |                        |             | (143,827  | )            |            |   | 66,129   |          |         |   | 232,653  |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Investing activities:                                                              |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |          |         |   |          |         
|                                                                                   | Capital expenditures for continuing operations    |                                                                               |         | (4,972  | )                      |             |           | (4,649       | )          |   |          | (24,786  | )       |   |          | (115,362 | )      
|                                                                                   | (Increase) decrease in restricted cash restricted |                                                                               |         | (54     | )                      |             |           | 1,566        |            |   |          | (5,049   | )       |   |          | (7,628   | )      
|                                                                                   | Insurance proceeds received                       |                                                                               |         |        |                        |             |           | 205,000      |            |   |          |         |         |   |          |         |        
|                                                                                   | Proceeds from the sale of investments             |                                                                               |         |        |                        |             |           |             |            |   |          |         |         |   |          | 45,908   |        
|                                                                                   | Investments in and advances to affiliates         |                                                                               |         | (63     | )                      |             |           | (7,354       | )          |   |          | (5,712   | )       |   |          | (19,200  | )      
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash (used in) provided by investing activities of
    continuing operations   |                                                   |                                                                               | (5,089  | )       |                        |             | 194,563   |              |            |   | (35,547  | )        |         |   | (96,282  | )       
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Proceeds from the sale of assets, net of expenses (Note 5)                         |                                                   |                                                                               |        |         |                        |             | 144       |              |            |   | 953,619  |          |         |   |         |         
|Capital expenditures for discontinued operations                                   |                                                   |                                                                               |        |         |                        |             |          |              |            |   | (11,185  | )        |         |   | (61,202  | )       
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash provided by (used in) investing activities of
    discontinued operations |                                                   |                                                                               |        |         |                        |             | 144       |              |            |   | 942,434  |          |         |   | (61,202  | )       
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash (used in) provided by investing activities                                |                                                   |                                                                               | (5,089  | )       |                        |             | 194,707   |              |            |   | 906,887  |          |         |   | (157,484 | )       
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Financing activities:                                                              |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |          |         |   |          |         
|                                                                                   | Proceeds from Skynet Notes                        |                                                                               |         | 120,763 |                        |             |           |             |            |   |          |         |         |   |          |         |        
|                                                                                   | Repayments of term loans                          |                                                                               |         |        |                        |             |           |             |            |   |          | (576,500 | )       |   |          | (32,500  | )      
|                                                                                   | Repayments of revolving credit facilities         |                                                                               |         |        |                        |             |           |             |            |   |          | (390,387 | )       |   |          |         |        
|                                                                                   | Borrowings under revolving credit facilities      |                                                                               |         |        |                        |             |           |             |            |   |          |         |         |   |          | 71,387   |        
|                                                                                   | Interest payments on 10% senior notes             |                                                                               |         |        |                        |             |           |             |            |   |          |         |         |   |          | (30,635  | )      
|                                                                                   | Repayments of export-import facility              |                                                                               |         |        |                        |             |           |             |            |   |          |         |         |   |          | (6,434   | )      
|                                                                                   | Proceeds from other stock issuances               |                                                                               |         |        |                        |             |           |             |            |   |          |         |         |   |          | 3,852    |        
|                                                                                   | Payment of bank amendment costs                   |                                                                               |         |        |                        |             |           |             |            |   |          |         |         |   |          | (5,131   | )      
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash provided by (used in) financing activities of
    continuing operations   |                                                   |                                                                               | 120,763 |         |                        |             |          |              |            |   | (966,887 | )        |         |   | 539      |         
|Net cash provided by financing activities of discontinued
    operations           |                                                   |                                                                               |        |         |                        |             |          |              |            |   |         |          |         |   |         |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Net cash provided by (used in) financing activities                                |                                                   |                                                                               | 120,763 |         |                        |             |          |              |            |   | (966,887 | )        |         |   | 539      |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Increase in cash and cash equivalents                                              |                                                   |                                                                               | 77,143  |         |                        |             | 50,880    |              |            |   | 6,129    |          |         |   | 75,708   |         
|Cash and cash equivalents  beginning of period                                    |                                                   |                                                                               | 198,653 |         |                        |             | 147,773   |              |            |   | 141,644  |          |         |   | 65,936   |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         
|Cash and cash equivalents  end of period                                          |                                                   | $                                                                             | 275,796 |         |                        | $           | 198,653   |              |            | $ | 147,773  |          |         | $ | 141,644  |         
|                                                                                   |                                                   |                                                                               |         |         |                        |             |           |              |            |   |          |         



F-7



---



##### 



LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|   |                                    
|-- | -----------------------------------
|1. | Organization and Principal Business

Loral Space & Communications Inc. (New
Loral) together with its subsidiaries is a leading
satellite communications company with substantial activities in
satellite-based communications services and satellite
manufacturing. New Loral was formed to succeed the business
conducted by its predecessor registrant, Loral Space &
Communications Ltd. (Old Loral), which emerged from
chapter 11 of the federal bankruptcy laws on
November 21, 2005 (the Effective Date).

We adopted fresh-start accounting as of October 1, 2005, in
accordance with Statement of Position No. 90-7,
Financial Reporting of Entities in Reorganization Under the
Bankruptcy Code(SOP 90-7). Accordingly,
our financial information disclosed under the heading
Successor Registrant for the period ended and as of
December 31, 2005, is presented on a basis different from,
and is therefore not comparable to, our financial information
disclosed under the heading Predecessor Registrant
for the period ended and as of October 1, 2005 (the date we
adopted fresh-start accounting) or for prior periods.

The terms, Loral, the Company,
we, our and us, when used in
this report with respect to the period prior to our emergence,
are references to Old Loral, and when used with respect to the
period commencing after our emergence, are references to New
Loral. These references include the subsidiaries of Old Loral or
New Loral, as the case may be, unless otherwise indicated or the
context otherwise requires.

Loral is organized into two operating segments:

Satellite Services,conducted by our subsidiary Loral
Skynet Corporation (Loral Skynet), generates its
revenues and cash flows from leasing satellite capacity on its
four-satellite fleet to commercial and governmental customers
for video and direct to home (DTH) broadcasting,
high-speed data distribution, Internet access and
communications, as well as providing satellite-based networking
services. It also provides professional services to other
satellite operators including satellite construction oversight
and fleet operating services.

Satellite Manufacturing,conducted by our subsidiary,
Space Systems/ Loral, Inc. (SS/ L), generates its
revenues and cash flows from designing and manufacturing
satellites, space systems and space system components for
commercial and government customers whose applications include
fixed satellite services, DTH broadcasting, broadband data
distribution, wireless telephony, digital radio, military
communications, weather monitoring and air traffic management.



|   |                                      
|-- | -------------------------------------
|2. | Bankruptcy Filings and Reorganization



| |                   
| | ------------------
| | Bankruptcy Filings

On July 15, 2003, Old Loral and certain of its subsidiaries
(the Debtor Subsidiaries and collectively with Old
Loral, the Debtors), including Loral
Space & Communications Holdings Corporation (formerly
known as Loral Space & Communications Corporation),
Loral SpaceCom Corporation (Loral SpaceCom), SS/ L
and Loral Orion, Inc. (now known as Loral Skynet Corporation),
filed voluntary petitions for reorganization under
chapter 11 of title 11 (Chapter 11)
of the United States Code (the Bankruptcy Code) in
the U.S. Bankruptcy Court for the Southern District of New
York (the Bankruptcy Court) (Lead Case
No. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through
03-41728 (RDD)) (the Chapter 11 Cases). Also on
July 15, 2003, Old Loral and one of its Bermuda
subsidiaries (the Bermuda Group) filed parallel
insolvency proceedings in the Supreme Court of Bermuda (the
Bermuda Court), and, on that date, the Bermuda Court
entered an order appointing certain partners of KPMG as Joint
Provisional Liquidators (JPLs) in respect of the
Bermuda Group (see Basis of Presentation Note 3).

As a result of our voluntary petitions for reorganization, all
of our prepetition debt obligations were accelerated (see below
and Note 11). On July 15, 2003, we also suspended
interest payments on all of our

F-8



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

prepetition unsecured debt obligations. A creditors
committee (the Creditors Committee) was
appointed in the Chapter 11 Cases to represent all
unsecured creditors, including all debt holders. On
March 29, 2005, the United States Trustee for the Southern
District of New York appointed an official committee of equity
security holders (the Equity Committee) (as amended
on April 7, 2005 and April 11, 2005). In accordance
with the provisions of the Bankruptcy Code, both the
Creditors Committee and the Equity Committee had the right
to be heard on all matters that came before the Bankruptcy Court.

Reorganization

The Debtors emerged from Chapter 11 on November 21,
2005 pursuant to the terms of their fourth amended joint plan of
reorganization, as modified (the Plan of
Reorganization). The Plan of Reorganization had previously
been confirmed by order (the Confirmation Order) of
the Bankruptcy Court entered on August 1, 2005.

Pursuant to the Plan of Reorganization:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The business and operations of Old Loral have been transferred
    to New Loral, and Loral Skynet and SS/ L have emerged intact as
    separate subsidiaries of reorganized Loral.
|
| |  | Our new common stock has been listed on NASDAQ under the symbol
    LORL.                                                                                                       
|
| |  | SS/ L has emerged debt-free.                                                                                                                                                      
|
| |  | The initial distributions to creditors of Old Loral and its
    subsidiaries have been completed in accordance with the Plan of
    Reorganization as follows:                    



| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | All holders of allowed claims against SS/ L and Loral SpaceCom
    have been, or will be paid in cash in full, including interest
    from the petition date to the Effective Date.                                                                                                                                                       
|
| |  | 20 million shares of New Loral common stock were issued to
    our distribution agent on the Effective Date, 18.7 million
    of which have been distributed to creditors.                                                                                                                                                                
|
| |  | $200 million of Loral Skynet preferred stock was issued to
    our distribution agent on the Effective Date,
    $197.4 million of which has been distributed to creditors.                                                                                                                                                               
|
| |  | The remaining undistributed shares of New Loral common stock and
    Loral Skynet preferred stock have been reserved to cover
    disputed claims and will be distributed quarterly in accordance
    with the Plan of Reorganization upon resolutions of those claims.                                                                   
|
| |  | Pursuant to a rights offering, Loral Skynet issued on the
    Effective Date, $126 million of senior secured notes (the
    Loral Skynet Notes, see Note 12) to certain
    creditors who subscribed for the notes and to certain creditors
    who committed to purchase any unsubscribed notes (i.e.,
    backstopped the offering).
|
| |  | Old Loral will be liquidated; the common and preferred stock of
    Old Loral were cancelled on the Effective Date, and no
    distribution was made to the holders of such stock.                                                                                                                                                        

Old Loral shareholders acting on behalf of the self-styled Loral
Stockholders Protective Committee (LSPC) have filed
appeals seeking to revoke the Confirmation Order, to overturn
the Bankruptcy Courts denial of the LSPCs motion to
compel Old Loral to hold a shareholders meeting and to
rescind the approval of the Federal Communications Commission
(FCC) of the transfer of our FCC licenses from Old
Loral to New Loral (the Appeals). We believe that
the Appeals are completely without merit and will not have any
effect on the completed reorganization. For further details
about the Appeals see Note 19.

F-9



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                      
|-- | ---------------------
|3. | Basis of Presentation

Loral has a December 31 year end. The consolidated
financial statements for the periods October 2, 2005 to
December 31, 2005 and January 1, 2005 to
October 1, 2005, and for each of the two years in the
period ended December 31, 2004, include the results of
Loral and its subsidiaries and have been prepared in accordance
with U.S. generally accepted accounting principles
(U.S. GAAP). All intercompany transactions have
been eliminated. References in these consolidated financial
statements to the Predecessor Registrant refer to Loral until
October 1, 2005 and references to the Successor Registrant
refer to Loral after October 1, 2005 and after giving
effect to the adoption of fresh-start accounting.

The accompanying consolidated financial statements for the
Predecessor Registrant have been prepared in accordance with
SOP 90-7 and on a going concern basis, which contemplates
continuing operations, realization of assets and liquidation of
liabilities in the ordinary course of business. SOP 90-7
requires us to distinguish prepetition liabilities subject to
compromise from postpetition liabilities in our consolidated
balance sheets. The caption liabilities subject to
compromise reflects the carrying value of prepetition
claims that were restructured in our Chapter 11 Cases. In
addition, the consolidated statements of operations of the
Predecessor Registrant portray our results of operations during
the Chapter 11 proceedings. As a result, any revenue,
expenses, realized gains and losses, and provision for losses
resulting directly from the reorganization and restructuring of
the organization are reported separately as reorganization
items, except those required to be reported as discontinued
operations and extraordinary items in conformity with Statement
of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets(SFAS 144) and
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections(SFAS 145). We
did not prepare combining financial statements for Loral and its
Debtor Subsidiaries, since the subsidiaries that did not file
voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code were immaterial to our consolidated
financial statements.

As noted above, we emerged from bankruptcy on November 21,
2005 and pursuant to SOP 90-7, we adopted fresh-start
accounting as of October 1, 2005. We engaged an independent
appraisal firm to assist us in determining the fair value of our
assets and liabilities. Upon emergence, our reorganization
enterprise value as determined by the Bankruptcy Court was
approximately $970 million, which after reduction for the
fair value of the Loral Skynet Notes and Series A Preferred
Stock (see Notes 12 and 15), results in a reorganization
equity value of approximately $642 million. This
reorganization enterprise value was allocated to our assets and
liabilities (see Note 4). Our assets and liabilities were
stated at fair value in accordance with SFAS No. 141,
Business Combinations(SFAS 141). In
addition, our accumulated deficit was eliminated, and our new
debt and equity were recorded in accordance with distributions
pursuant to the Plan of Reorganization.

Investments in XTAR, L.L.C. (XTAR), as well as other
affiliates, are accounted for using the equity method, due to
our inability to control significant operating decisions. Income
and losses of affiliates are recorded based on our beneficial
interest. Intercompany profit arising from transactions with
affiliates is eliminated to the extent of our beneficial
interest. Advances to affiliates generally consist of amounts
due under extended payment terms. Equity in losses of affiliates
is not recognized after the carrying value of an investment,
including advances and loans, has been reduced to zero, unless
guarantees or other obligations exist. We capitalize interest
cost on our investments, until such entities commence commercial
operations. Capitalized interest on investments is amortized
over the life of the primary asset of the affiliate. Certain of
our affiliates are subject to the risks associated with new
businesses (see Note 9).



| |                                                        
| | -------------------------------------------------------
| | Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of

F-10



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses reported for
the period. Actual results could differ from estimates.

Most of our satellite manufacturing revenue is associated with
long-term contracts which require significant estimates. These
estimates include forecasts of costs and schedules, estimating
contract revenue related to contract performance (including
orbital incentives) and the potential for component obsolescence
in connection with long-term procurements. Significant estimates
also include the estimated useful lives of our satellites.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and highly
liquid investments with original maturities of three months or
less. As of December 31, 2005, we had $276 million of
available cash and $12 million of restricted cash
($2 million included in other current assets and
$10 million included in other assets on our consolidated
balance sheet). As of December 31, 2004, we had
$148 million of available cash and $13 million of
restricted cash ($1 million included in other current
assets and $12 million included in other assets on our
consolidated balance sheet).



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments which potentially subject us to
concentrations of credit risk consist principally of cash and
cash equivalents, foreign exchange contracts,
contracts-in-process, long-term receivables and advances and
loans to affiliates (see Note 9). Our cash and cash
equivalents are maintained with high-credit-quality financial
institutions. Historically, our customers have been primarily
large multinational corporations and U.S. and foreign
governments for which the creditworthiness was generally
substantial. In recent years, we have added commercial customers
which include companies in emerging markets or the development
stage, some of which are highly leveraged or partially funded.
Management believes that its credit evaluation, approval and
monitoring processes combined with negotiated billing
arrangements mitigate potential credit risks with regard to our
current customer base.



| |            
| | -----------
| | Receivables

As of December 31, 2005 and 2004, billed receivables
(including accounts receivable) were reduced by an allowance for
doubtful accounts of $5.5 million and $6.4 million,
respectively.



| |            
| | -----------
| | Inventories

Inventories consist principally of parts and subassemblies used
in the manufacture of satellites which have not been
specifically identified to contracts-in-process, and are valued
at the lower of cost or market. Cost is determined using the
first-in-first-out (FIFO) or average cost method. As of
December 31, 2005 and 2004, inventory was reduced by an
allowance for obsolescence of $33.7 million and
$34.0 million, respectively.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

As of October 1, 2005, we adopted fresh-start accounting
and our property, plant and equipment were recorded at their
fair values based upon the appraised values of such assets. We
used the work of an independent appraisal firm to assist us in
determining the fair value of our property, plant and equipment.
We and the independent appraiser determined the fair value of
our property, plant and equipment using the planned future use
of each asset or group of assets, quoted market prices for
assets where a market exists for such assets, the expected
future revenue and profitability of the business unit utilizing
such assets and the expected future life of such assets. In our
determination of fair value, we also considered whether an asset
would be sold either individually or with other assets and the
proceeds we expected to receive from such a sale.

F-11



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Assumptions relating to the expected future use of individual
assets could affect the fair value of such assets and the
depreciation expense recorded related to such assets in the
future. Depreciation is provided on the straight-line method for
satellites and related equipment over the estimated useful lives
of the related assets. Depreciation is provided primarily on an
accelerated method and straight line for other owned assets over
the estimated useful life of the related assets. Leasehold
improvements are amortized over the shorter of the lease term or
the estimated useful life of the improvements. Below are the
estimated useful lives of our property, plant and equipment as
of December 31, 2005:

|                                  |  |       |          | 
|--------------------------------- |  | ----- | -------- | 
|                                  |  | Years
|                                  |  |      
|Land improvements                 |  |       | 20       | 
|                                 
|                                 
|                                 
|                                 
|Buildings                         |  |       | 25 to 45 | 
|                                 
|                                 
|                                 
|                                 
|Leasehold improvements            |  |       | 5 to 25  | 
|                                 
|                                 
|                                 
|                                 
|Satellites-in-orbit               |  |       | 5 to 13  | 
|                                 
|                                 
|                                 
|                                 
|Earth stations                    |  |       | 5 to 15  | 
|                                 
|                                 
|                                 
|                                 
|Equipment, furniture and fixtures |  |       | 3 to 20  | 

Costs incurred in connection with the construction and
successful deployment of Loral Skynet satellites and related
equipment are capitalized. Such costs include direct contract
costs, allocated indirect costs, launch costs, launch and
in-orbit test insurance and construction period interest.
Capitalized interest related to the construction of satellites
for 2005, 2004 and 2003 was zero, $0.5 million and
$12.9 million, respectively. All capitalized satellite
costs are amortized over the estimated useful life of the
related satellite. The estimated useful life of the satellites
was determined by engineering analyses performed at the
satellites in-service date. Satellite lives are
reevaluated periodically. Losses from unsuccessful launches and
in-orbit failures of our satellites, net of insurance proceeds
(so long as such amounts are determinable and receipt is
probable), are recorded in the period a loss occurs (see
Valuation of Satellites, Long-Lived Assets and Investments in
and Advances to Affiliates below).



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Valuation of Satellites, Long-Lived Assets and Investments in
    and Advances to Affiliates

The carrying value of our satellites, long-lived assets and
investments in and advances to affiliates is reviewed for
impairment in accordance with SFAS 144 and Accounting
Principles Board (APB) Opinion No. 18,
Equity Method of Accounting for Investments in Common
Stock, respectively. We periodically evaluate potential
impairment loss relating to our satellites and other long-lived
assets, when a change in circumstances occurs, by assessing
whether the carrying amount of these assets can be recovered
over their remaining lives through future undiscounted expected
cash flows generated by those assets (excluding financing
costs). If the expected undiscounted future cash flows were less
than the carrying value of the long-lived asset, an impairment
charge would be recorded based on such assets estimated
fair value. Changes in estimates of future cash flows could
result in a write-down of the asset in a future period.
Estimated future cash flows from our satellites could be
impacted by, among other things:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | Changes in estimates of the useful life of the satellite                           
|
| |  | Changes in estimates of our ability to operate the satellite at
    expected levels
|
| |  | Changes in the manner in which the satellite is to be used                         
|
| |  | The loss of one or several significant customer contracts on the
    satellite     

If an impairment loss was indicated for a satellite, such amount
would be recognized in the period of occurrence, net of any
insurance proceeds to be received so long as such amounts are
determinable and receipt is probable. If no impairment loss was
indicated in accordance with SFAS 144, and we received
insurance proceeds, the proceeds would be recognized in our
consolidated statement of operations.

F-12



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |         
| | --------
| | Deposits

Deposits primarily represent prepaid amounts on satellite launch
vehicles.



| |            
| | -----------
| | Investments

Investments in publicly traded common stock are classified as
available-for-sale, and are recorded at fair value, with the
resulting unrealized gain or loss excluded from net loss and
reported as a component of other comprehensive loss until
realized (see Notes 6 and 18). Our Predecessor
Registrants investment in Globalstar, L.P.s
$500 million credit facility was accounted for at fair
value, with changes in the value (net of tax) recorded as a
component of other comprehensive loss (see Note 9).

On March 7, 2003, Sirius Satellite Radio, Inc.
(Sirius) completed its recapitalization plan and as
part of this recapitalization, SS/L converted its entire vendor
financing receivables of approximately $76 million into
59 million shares of common stock of Sirius. For the year
ended December 31, 2003, SS/L realized net proceeds of
$46 million from the sale of all of the shares of Sirius
common stock that it received in the recapitalization, and
realized gains on such sales of $18 million. In the first
quarter of 2003, SS/L recorded a charge on the vendor financing
receivables due from Sirius of $10 million, representing
the difference between the carrying value of SS/Ls
receivables of $38 million, and the value of the common
shares received by SS/L based on the trading price of
Siriuss common stock on March 7, 2003 of
$28 million.



| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets

Goodwill represents the amount by which the Companys
reorganization equity value exceeded the fair value of its
tangible assets and identified intangible assets less its
liabilities allocated in accordance with the provisions of
SFAS 141, as of October 1, 2005. Pursuant to the
provisions of SFAS No. 142, Goodwill and Other
Intangible Assets(SFAS 142), goodwill is
not amortized and is subject to an annual impairment test which
the Company performs on an annual basis in the fourth quarter of
each fiscal year. Our test of goodwill impairment for 2005 did
not result in any goodwill impairment. Goodwill was allocated to
our reporting unit level (operating segment or one level below
an operating segment). SFAS 142 requires the Company to
compare the fair value of the reporting unit to its carrying
amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than
its carrying value, an impairment loss is recorded to the extent
that the implied fair value of the goodwill within the reporting
unit is less than its carrying value (see Note 4).

Intangible assets consist primarily of backlog, internally
developed software and technology, orbital slots, trade names
and customer relationships, all of which were recorded in
connection with the adoption of fresh-start accounting. We used
the work of an independent appraiser to assist us in determining
the fair value of our intangible assets. The fair values were
calculated using several approaches that encompassed the use of
excess earnings, relief from royalty and the build-up methods.
The excess earnings, relief from royalty and build-up approaches
are variations of the income approach. The income approach, more
commonly known as the discounted cash flow approach, estimates
fair value based on the cash flows that an asset can be expected
to generate over its useful life. Identifiable intangible assets
with finite useful lives are amortized on a straight-line basis
over the estimated useful lives of the assets.



| |                    
| | -------------------
| | Revenue Recognition

Revenue from satellite sales under long-term fixed-price
contracts is recognized following the provisions of Statement of
Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts,
using the cost-to-cost percentage-of-completion method. Revenue
includes the basic contract price and estimated amounts for
penalties and incentive payments, including award fees,
performance incentives, and estimated orbital incentives
discounted to their present value at launch date. Costs include
the

F-13



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

development effort required for the production of
high-technology satellites, non-recurring engineering and design
efforts in early periods of contract performance, as well as the
cost of qualification testing requirements. Contracts are
typically subject to termination for convenience or for default.
If a contract is terminated for convenience by a customer or due
to a customers default, we are generally entitled to our
costs incurred plus a reasonable profit.

Revenue under cost-reimbursable type contracts is recognized as
costs are incurred; incentive fees are estimated and recognized
over the contract term.

U.S. government contract risks include dependence on future
appropriations and administrative allotment of funds and changes
in government policies. Costs incurred under
U.S. government contracts are subject to audit. Management
believes the results of such audits will not have a material
effect on Lorals financial position or its results of
operations.

Losses on contracts are recognized when determined. Revisions in
profit estimates are reflected in the period in which the
conditions that require the revision become known and are
estimable. In accordance with industry practice,
contracts-in-process include unbilled amounts relating to
contracts and programs with long production cycles, a portion of
which may not be billable within one year.

We provide satellite capacity and network services under lease
agreements that generally provide for the use of satellite
transponders and, in certain cases, earth stations and other
terrestrial communications equipment for periods generally
ranging from one year to the end of life of the satellite. Some
of these agreements have certain obligations, including
providing spare or substitute capacity, if available, in the
event of satellite failure. If no spare or substitute capacity
is available, the agreement may be terminated. Revenue under
transponder lease and network services agreements is recognized
as services are performed, provided that a contract exists, the
price is fixed or determinable and collectibility is reasonably
assured. Revenues under contracts that include fixed lease
payment increases are recognized on a straight-line basis over
the life of the lease.

Lease contracts qualifying for capital lease treatment are
accounted for as sales-type leases.

Other terrestrial communications equipment represents network
elements (antennas, transmission equipment, etc.) necessary to
enable communication between multiple terrestrial locations
through a customer-selected satellite communications service
provider. Revenue from equipment sales is primarily recognized
upon acceptance by the customer, provided that a contract
exists, the price is fixed or determinable and collectibility is
reasonably assured. Revenue from equipment sales under long-term
fixed price contracts is recognized using the cost-to-cost
percentage-of-completion method. Losses on contracts are
recognized when determined and revisions in profit estimates are
reflected in the period in which the conditions that require the
revision become known and are estimable. Revenues under
arrangements that include both services and equipment elements
are allocated based on the relative fair values of the elements
of the arrangement; otherwise, revenue is recognized as services
are provided over the life of the arrangement.



| |                         
| | ------------------------
| | Research and Development

Independent research and development costs, which are expensed
as incurred, were $7 million and $5 million for the
periods January 1, 2005 to October 1, 2005 and from
October 2, 2005 to December 31, 2005, respectively,
and $9 million and $9 million for 2004 and 2003,
respectively, and are included in selling, general and
administrative expenses.



| |                           
| | --------------------------
| | Foreign Exchange Contracts

We enter into foreign exchange contracts as hedges against
exchange rate fluctuations of future accounts receivable and
accounts payable under contracts-in-process which are
denominated in foreign currencies. We

F-14



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

follow SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133) as amended by
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which among
other things requires that all derivative instruments be
recorded on the balance sheet at their fair value.



| |                         
| | ------------------------
| | Stock-Based Compensation

Effective October 1, 2005, in connection with our adoption
of fresh-start accounting, we adopted the fair value method of
accounting for stock options for all options granted by us after
October 1, 2005 pursuant to the prospective method
provisions of SFAS No. 123(R), Share-Based Payment(SFAS 123R). We use the
Black-Scholes-Merton option-pricing model to measure fair value
of these stock option awards. This is the same method we used in
prior years for disclosure purposes. The Black-Scholes-Merton
model requires us to make significant judgments regarding the
assumptions used within the model, the most significant of which
are the stock price volatility assumption, the expected life of
the option award, the risk-free rate of return and dividends
during the expected term. We emerged from bankruptcy on
November 21, 2005, and as a result, we do not have
sufficient stock price history upon which to base our volatility
assumption. In determining the volatility used in our model, we
considered the volatility of the stock prices of selected
companies in the satellite industry, the nature of those
companies, our emergence from bankruptcy and other factors in
determining our stock price volatility. For 2005, we used a
stock price volatility assumption of 27%. We based our estimate
of the average life of a stock option of 4.75 years using
the midpoint between the vesting and expiration dates as allowed
by SEC Staff Accounting Bulletin No. 107, Share-Based
Payment, based upon the vesting period of 4 years and the
option term of seven years. Our risk-free rate of return
assumption for options granted in 2005 of 4.4% was based on the
quoted yield for five-year U.S. treasury bonds as of the
date of grant (see Note 15). We assumed no dividends during
the expected term.

Prior to October 1, 2005, we followed the disclosure-only
provisions of SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure (SFAS 148) an amendment of
SFAS No. 123, Accounting for Stock-Based
Compensation(SFAS 123). We accounted for
stock-based compensation for employees using the intrinsic value
method (as defined below) as prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25), and related
interpretations. Under APB 25, no compensation expense was
recognized for employee share option grants because the exercise
price of the options granted equaled the market price of the
underlying shares on the date of grant (the intrinsic
value method). We used the Black-Scholes-Merton option
pricing model to determine the pro forma effect with the
following weighted average assumptions in our calculations:
expected life, six to twelve months following vesting; stock
volatility, 90%; risk free interest rate, 2.4% to 6.6% based on
date of grant; and dividends, none during the expected term. Our
calculations were based on a multiple option valuation approach
and forfeitures were recognized as they occurred. The following
table summarizes what our pro

F-15



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                                                  |  |                        |         |  |              |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- |  | ------------ | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                                                                  |  | Predecessor Registrant |        
|                                                                                                                                                                                  |  |                        |        
|                                                                                                                                                                                  |  | For the Period         |         |  |             
|                                                                                                                                                                                  |  | January 1,             |         |  | Years Ended  |  
|                                                                                                                                                                                  |  | 2005 to                |         |  | December 31, |  
|                                                                                                                                                                                  |  | October 1,             |         |  |              |  
|                                                                                                                                                                                  |  | 2005                   |         |  | 2004         |   |        | 2003 | 
|                                                                                                                                                                                  |  |                        |         |  |              |   |        |      | 
|Reported income (loss) from continuing operations                                                                                                                                 |  | $                      | 1,030.9 |  |              | $ | (174.3 | )    |  | $ | (413.2 | )
|Less: Total stock based employee benefit
    (compensation) determined under the fair value method for
    all awards                                                             |  |                        |        |  |              |   | (0.6   | )    |  |   | 7.6    |  
|                                                                                                                                                                                  |  |                        |         |  |              |   |        |      | 
|Pro forma income (loss) from continuing operations                                                                                                                                |  |                        | 1,030.9 |  |              |   | (174.9 | )    |  |   | (405.6 | )
|(Loss) income from discontinued operations, net of taxes                                                                                                                          |  |                        |        |  |              |   | (2.3   | )    |  |   | 18.8   |  
|Gain on sale of discontinued operations, net of taxes                                                                                                                             |  |                        | 14.0    |  |              |   |       |      |  |   |       |  
|                                                                                                                                                                                  |  |                        |         |  |              |   |        |      | 
|Pro forma net income (loss) before cumulative effect of change
    in accounting principle and extraordinary gain on acquisition of
    minority interest                         |  |                        | 1,044.9 |  |              |   | (177.2 | )    |  |   | (386.8 | )
|Cumulative effect of change in accounting principle                                                                                                                               |  |                        |        |  |              |   |       |      |  |   | (2.0   | )
|Extraordinary gain on acquisition of minority interest                                                                                                                            |  |                        |        |  |              |   |       |      |  |   | 13.6   |  
|                                                                                                                                                                                  |  |                        |         |  |              |   |        |      | 
|Pro forma net income (loss)                                                                                                                                                       |  |                        | 1,044.9 |  |              |   | (177.2 | )    |  |   | (375.2 | )
|Preferred dividends                                                                                                                                                               |  |                        |        |  |              |   |       |      |  |   | (6.7   | )
|                                                                                                                                                                                  |  |                        |         |  |              |   |        |      | 
|Pro forma net income (loss) applicable to common shareholders                                                                                                                     |  | $                      | 1,044.9 |  |              | $ | (177.2 | )    |  | $ | (381.9 | )
|                                                                                                                                                                                  |  |                        |         |  |              |   |        |      | 
|Reported basic and diluted income (loss) per share from
    continuing operations                                                                                                 |  | $                      | 23.37   |  |              | $ | (3.96  | )    |  | $ | (9.58  | )
|Pro forma basic and diluted income (loss) per share from
    continuing operations                                                                                                |  |                        | 23.37   |  |              |   | (3.97  | )    |  |   | (9.41  | )
|Reported basic and diluted income (loss) per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest  |  |                        | 23.69   |  |              |   | (4.01  | )    |  |   | (9.15  | )
|Pro forma basic and diluted income (loss) per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest |  |                        | 23.69   |  |              |   | (4.02  | )    |  |   | (8.98  | )
|Reported income (loss) per share applicable to common
    shareholders                                                                                                            |  |                        | 23.69   |  |              |   | (4.01  | )    |  |   | (8.89  | )
|Pro forma income (loss) per share applicable to common
    shareholders                                                                                                           |  |                        | 23.69   |  |              |   | (4.02  | )    |  |   | (8.72  | )





| |                      
| | ---------------------
| | Deferred Compensation



F-16



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of unrecognized deferred compensation (not including an
additional $5.8 million for which recognition of the awards
were delayed to 2006) that will be charged to income over the
remaining vesting period. The value of the deferred compensation
fluctuates depending on stock price performance, within a
defined range, and vesting will accelerate if there is a change
of control as defined.



| |                                                       
| | ------------------------------------------------------
| | Extraordinary Gain on Acquisition of Minority Interest

On June 30, 2003, Loral entered into a master settlement
agreement with Alcatel Space and Alcatel Space Industries
(collectively, Alcatel) which resolved all claims
among the parties. In connection with that agreement, Loral,
among other things, acquired Alcatels minority interest in
CyberStar, resulting in the recognition in the second quarter of
2003 of an extraordinary gain of $14 million, which
represents the extinguishment of the minority interest liability
less the fair value of the acquired net assets.



| |             
| | ------------
| | Income Taxes

Deferred income taxes reflect the future tax effect of temporary
differences between the carrying amount of assets and
liabilities for financial and income tax reporting and are
measured by applying statutory tax rates in effect for the year
during which the differences are expected to reverse. Deferred
tax assets are reduced by a valuation allowance to the extent it
is more likely than not that the deferred tax assets will not be
realized (see Note 14).

In addition, our policy is to establish tax contingency
liabilities for potential audit issues. The tax contingency
liabilities are based on our estimate of the probable amount of
additional taxes that may be due in the future. Any additional
taxes due would be determined only upon completion of current
and future federal, state and international tax audits. At
December 31, 2005, the Company had $41.8 million and
$0.4 million of tax contingency liabilities included in
long-term liabilities and income taxes payable, respectively. At
December 31, 2004, the Company had $38.9 million of
tax contingency liabilities included in liabilities subject to
compromise.

F-17



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                 
| | --------------------------------
| | Additional Cash Flow Information



|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |         |         |   |   |         |        |  
|------------------------- | -------------------------------------------------------------------------------------- | ------------------------ | - | ------ | ---------------------- | - | - | ------------ | ------- | - | ---- | ------- | ------- | - | - | ------- | ------ | -
|                          |                                                                                        | Successor                |   |        |                       
|                          |                                                                                        | Registrant               |   |        | Predecessor Registrant |  
|                          |                                                                                        |                          |   |        |                        |  
|                          |                                                                                        | For the Period           |   |        | For the Period         |   |   |             
|                          |                                                                                        | October 2,               |   |        | January 1,             |   |   | Years Ended  |        
|                          |                                                                                        | 2005 to                  |   |        | 2005 to                |   |   | December 31, |        
|                          |                                                                                        | December 31,             |   |        | October 1,             |   |   |              |        
|                          |                                                                                        | 2005                     |   |        | 2005                   |   |   | 2004         |         |   | 2003 |        
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|Non-cash activities:      |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |         |         |   |   |        
|                          | Minimum pension liability adjustment                                                   |                          |   |        |                        |   | $ |             |         |   | $    | (19,049 | )       |   | $ | (4,526  | )     
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          | Unrealized gains (losses) on available-for-sale securities, net
    of taxes           |                          |   |        |                        |   | $ | (99          | )       |   | $    | 8,142   |         |   | $ | (16,815 | )     
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          | Unrealized net losses on derivatives, net of taxes                                     |                          |   |        |                        |   | $ | (487         | )       |   | $    | (1,046  | )       |   | $ | (244    | )     
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          | Increase in restricted cash related to debt proceeds                                   |                          |   |        |                        |   | $ | 98,736       |         |   |      |         |         |   |   |         |       
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          | Insurance proceeds receivable recorded for satellite loss and
    warranty obligations |                          |   |        |                        |   |   |              |         |   |      |         |         |   | $ | 122,770 |       
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          | Accrual of preferred dividends                                                         |                          |   |        |                        |   |   |              |         |   |      |         |         |   | $ | 6,719   |       
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|Supplemental information: |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |         |         |   |   |        
|                          | Interest paid, net of capitalized interest                                             |                          | $ | 15,548 |                        |   | $ |             |         |   | $    | 23,550  |         |   | $ | 83,062  |       
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          | Taxes paid, net of refunds                                                             |                          | $ | (418   | )                      |   | $ | 2,166        |         |   | $    | 4,318   |         |   | $ | 1,342   |       
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          | Cash (paid) received for reorganization items:                                         |                          |   |        |                        |   |   |              |         |   |      |         |         |   |   |         |       
|                          |                                                                                        | Professional fees        |   | $      | (9,650                 | ) |   | $            | (17,533 | ) |      | $       | (18,745 | ) |   | $       | (7,598 | )
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          |                                                                                        | Employee retention costs |   | $      | (4,790                 | ) |   | $            |        |   |      | $       | (6,468  | ) |   | $       | (2,680 | )
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          |                                                                                        | Severance costs          |   |        |                        |   |   | $            |        |   |      | $       | (1,722  | ) |   |         |        |  
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          |                                                                                        | Restructuring costs      |   |        |                        |   |   | $            | (55     | ) |      |         |         |   |   |         |        |  
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        
|                          |                                                                                        | Interest income          |   |        |                        |   |   | $            | 2,536   |   |      | $       | 1,740   |   |   | $       | 708    |  
|                          |                                                                                        |                          |   |        |                        |   |   |              |         |   |      |        



F-18



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                              
| | -----------------------------
| | New Accounting Pronouncements



| |         
| | --------
| | FSP 13-1

13-1 13-1), Accounting for Rental Costs Incurred during a Construction
Period, 90-7. 13-1




| |       
| | ------
| | FIN 47

Accounting for Conditional Asset Retirement Obligations 90-7.




| |         
| | --------
| | SFAS 154

Accounting Changes and Error Corrections,




| |         
| | --------
| | SFAS 153

Exchange of Nonmonetary Assets,




| |         
| | --------
| | SFAS 150

Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity


F-19



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |         
| | --------
| | SFAS 151

Inventory Costs,




| |          
| | ---------
| | FSP 109-1

Accounting
for Income Taxes to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004




|   |                       
|-- | ----------------------
|4. | Fresh-Start Accounting

90-7


F-20



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATED BALANCE
SHEET(a)


|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |          |       |   |         |       |       | 
|---------------------------------------------- | ------------------------------------------------------------- | ------------------------------------ | ------- | -------- | -------------- | - | -------- | -------------- | ------- | - | ---------- | -------- | ----- | - | ------- | ----- | ----- | 
|                                               |                                                               | Predecessor                          |         |          | Plan           |   |          | Fresh-Start    |         |   | Successor  |         
|                                               |                                                               | October 1,                           |         |          | Reorganization |   |          | Valuation      |         |   | October 1, |         
|                                               |                                                               | 2005                                 |         |          | Adjustments    |   |          | Adjustments(e) |         |   | 2005       |         
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                               |                                                               | (in millions)                        |        
|ASSETS                                        
|Current assets:                                |                                                               |                                      |         |          |                |   |          |                |         |   |            |          |       |   |         |      
|                                               | Cash and cash equivalents                                     |                                      | $       | 198.7    |                |   | $        |               |         |   | $          |         |       |   | $       | 198.7 |      
|                                               | Accounts receivable, net                                      |                                      |         | 14.4     |                |   |          |               |         |   |            |         |       |   |         | 14.4  |      
|                                               | Contracts-in-process                                          |                                      |         | 91.4     |                |   |          |               |         |   |            | (14.3    | )     |   |         | 77.1  |      
|                                               | Inventories                                                   |                                      |         | 45.5     |                |   |          |               |         |   |            |         |       |   |         | 45.5  |      
|                                               | Other current assets                                          |                                      |         | 41.3     |                |   |          | 97.5           | (b)     |   |            | 3.4      |       |   |         | 142.2 |      
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                               |                                                               | Total current assets                 |         |          | 391.3          |   |          |                | 97.5    |   |            |          | (10.9 | ) |         |       | 477.9 | 
|Property, plant and equipment, net             |                                                               |                                      | 536.5   |          |                |   | (3.5     | )(i)           |         |   | 0.2        |          |       |   | 533.2   |      
|Long-term receivables                          |                                                               |                                      | 67.6    |          |                |   |         |                |         |   | (23.8      | )        |       |   | 43.8    |      
|Investments in and advances to affiliates      |                                                               |                                      | 53.7    |          |                |   |         |                |         |   | 56.3       |          |       |   | 110.0   |      
|Deposits                                       |                                                               |                                      | 9.8     |          |                |   |         |                |         |   |           |          |       |   | 9.8     |      
|Goodwill                                       |                                                               |                                      |        |          |                |   |         |                |         |   | 340.1      | (g)      |       |   | 340.1   |      
|Other assets                                   |                                                               |                                      | 42.1    |          |                |   | 2.1      | (b)(j)         |         |   | 126.7      |          |       |   | 170.9   |      
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                               |                                                               | $                                    | 1,101.0 |          |                | $ | 96.1     |                |         | $ | 488.6      |          |       | $ | 1,685.7 |      
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                              
|LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY
|Current liabilities:                           |                                                               |                                      |         |          |                |   |          |                |         |   |            |          |       |   |         |      
|                                               | Accounts payable                                              |                                      | $       | 36.1     |                |   | $        | 45.1           | (c)(h)  |   | $          | 1.2      |       |   | $       | 82.4  |      
|                                               | Accrued employment costs                                      |                                      |         | 33.9     |                |   |          | 0.5            | (c)     |   |            |         |       |   |         | 34.4  |      
|                                               | Customer advances and billings in excess of costs and profits |                                      |         | 108.4    |                |   |          | 24.9           | (c)(h)  |   |            | (3.2     | )     |   |         | 130.1 |      
|                                               | Interest payable                                              |                                      |         |         |                |   |          | 19.1           | (c)(h)  |   |            |         |       |   |         | 19.1  |      
|                                               | Vendor financing payable                                      |                                      |         |         |                |   |          | 37.1           | (c)(h)  |   |            |         |       |   |         | 37.1  |      
|                                               | Income taxes payable                                          |                                      |         |         |                |   |          | 0.8            | (c)     |   |            |         |       |   |         | 0.8   |      
|                                               | Other current liabilities                                     |                                      |         | 25.5     |                |   |          | 17.9           | (c)(h)  |   |            | (1.7     | )     |   |         | 41.7  |      
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                               |                                                               | Total current liabilities            |         |          | 203.9          |   |          |                | 145.4   |   |            |          | (3.7  | ) |         |       | 345.6 | 
|Pension and other postretirement liabilities   |                                                               |                                      |        |          |                |   | 156.6    | (c)            |         |   | 78.2       |          |       |   | 234.8   |      
|Long-term liabilities                          |                                                               |                                      | 84.5    |          |                |   | 34.6     | (c)            |         |   | 40.5       |          |       |   | 159.6   |      
|Long-term debt                                 |                                                               |                                      |        |          |                |   | 103.4    | (b)            |         |   |           |          |       |   | 103.4   |      
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                               |                                                               | Total liabilities                    |         |          | 288.4          |   |          |                | 440.0   |   |            |          | 115.0 |   |         |       | 843.4 | 
|Liabilities subject to compromise              |                                                               |                                      | 1,914.0 |          |                |   | (1,914.0 | ) (c)          |         |   |           |          |       |   |        |      
|Minority interest                              |                                                               |                                      | 2.3     |          |                |   | 200.0    | (b)            |         |   | (2.3       | )        |       |   | 200.0   |      
|Shareholders equity:                          |                                                               |                                      |         |          |                |   |          |                |         |   |            |          |       |   |         |      
|                                               | Common stock, par value $.01 and Paid-in capital              |                                      |         | 3,397.2  |                |   |          | 642.3          | (d)     |   |            | (3,397.2 | )(f)  |   |         | 642.3 |      
|                                               | Other                                                         |                                      |         | (93.8    | )              |   |          |               |         |   |            | 93.8     | (f)   |   |         |      |      
|                                               | Retained (deficit) earnings                                   |                                      |         | (4,407.1 | )              |   |          | 727.8          | (c)(d)  |   |            | 3,679.3  | (f)   |   |         |      |      
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                               |                                                               | Total shareholders (deficit) equity |         |          | (1,103.7       | ) |          |                | 1,370.1 |   |            |          | 375.9 |   |         |       | 642.3 | 
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         
|                                               |                                                               | $                                    | 1,101.0 |          |                | $ | 96.1     |                |         | $ | 488.6      |          |       | $ | 1,685.7 |      
|                                               |                                                               |                                      |         |          |                |   |          |                |         |   |            |         






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The Condensed Consolidated Balance Sheet reflects a
    reorganization enterprise value of $970 million based on
    the Bankruptcy Courts determination (see Note 2),
    which, after reduction for the fair value of the Loral Skynet
    Notes and Series A Preferred

F-21



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Stock (see Notes 12 and 15),
    results in a reorganization equity value of approximately
    $642 million. This results in goodwill equal to the excess
    of reorganization equity value over fair value of identifiable
    net assets.                                                                                                                                  
|   
|(b) | Reflects $98.7 million of
    proceeds from the rights offering of Loral Skynet Notes held in
    escrow as of October 1, 2005, and the related deferred debt
    issuance costs of $4.7 million and $200 million of
    Loral Skynet Preferred Stock pursuant to the Plan of
    Reorganization (see Notes 12 and 15).                                                       
|   
|(c) | Reflects the discharge of
    prepetition liabilities in accordance with the Plan of
    Reorganization and the reclassification of the remaining
    liabilities subject to compromise to the appropriate liability
    accounts in accordance with the Plan of Reorganization.
    Discharge of Lorals pre-petition liabilities is summarized
    as follows (in millions):

|                                     |  |   |         | 
|------------------------------------ |  | - | ------- | 
|To be exchanged for stock            |  | $ | 1,298.0 | 
|To be cancelled                      |  |   | 292.2   | 
|To be reinstated and/or paid in cash |  |   | 323.8   | 
|                                     |  |   |        
|                                     |  | $ | 1,914.0 | 
|                                     |  |   |        





|    |                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) | Reflects the issuance of New Loral common stock to pre-petition
    creditors and the gain on the discharge of liabilities subject
    to compromise.                   
|   
|(e) | Reflects changes to carrying values of assets and liabilities to
    reflect estimated fair values.                                                                     
|   
|(f) | Reflects the revaluation gain and the elimination of the
    retained deficit and other equity balances.                                                                
|   
|(g) | Reflects goodwill equal to the excess of reorganization equity
    value over the estimated fair value of identifiable net assets.                                      
|   
|(h) | Amounts payable upon emergence are included in current
    liabilities.                                                                                                 
|   
|(i) | Reflects agreement to return certain fixed assets in settlement
    of certain pre-petition obligations.                                                                
|   
|(j) | Reflects elimination of deferred charges related to the Old
    Loral debt and preferred stock, which were discharged in
    accordance with the Plan of Reorganization.



|                                                                                     |                                                                                                                                           |   |       |         | 
|------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------- | - | ----- | ------- | 
|Gain on discharge of pre-petition obligations                                        |                                                                                                                                           | $ | 727.8 |        
|Gain on fresh-start valuation adjustments                                            |                                                                                                                                           |   | 375.9 |        
|                                                                                     |                                                                                                                                           |   |      
|                                                                                     | Total gain on discharge of pre-petition obligations and
    fresh-start adjustments                                                       |   |       | 1,103.7 | 
|Add interest expense to holders of claims paid in cash                               |                                                                                                                                           |   | 13.2  |        
|Less tax benefit on Plan of Reorganization and fresh-start
    valuation adjustments |                                                                                                                                           |   | (15.4 | )      
|                                                                                     |                                                                                                                                           |   |      
|                                                                                     | Total gain on discharge of pre-petition obligations and
    fresh-start adjustments excluding interest expense and income
    tax benefit |   | $     | 1,101.5 | 
|                                                                                     |                                                                                                                                           |   |      



|   |                        
|-- | -----------------------
|5. | Discontinued Operations



F-22



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                    |  |                        |        |  |              |   |         |      |  |   |         |  
|--------------------------------------------------- |  | ---------------------- | ------ |  | ------------ | - | ------- | ---- |  | - | ------- | -
|                                                    |  | Predecessor Registrant |       
|                                                    |  |                        |       
|                                                    |  | For the Period         |        |  |             
|                                                    |  | January 1,             |        |  | Years Ended  |  
|                                                    |  | 2005 to                |        |  | December 31, |  
|                                                    |  | October 1,             |        |  |              |  
|                                                    |  | 2005                   |        |  | 2004         |   |         | 2003 | 
|                                                    |  |                        |        |  |              |   |         |      | 
|                                                    |  | (in thousands)         |       
|Revenues of discontinued operations                 |  | $                      |       |  |              | $ | 29,149  |      |  | $ | 143,564 |  
|Operating income                                    |  | $                      |       |  |              | $ | 22,408  |      |  | $ | 78,958  |  
|Interest expense on secured bank debt (Note 12)     |  |                        |       |  |              |   | (24,756 | )    |  |   | (49,178 | )
|Income (loss) before income taxes                   |  |                        |       |  |              |   | (2,348  | )    |  |   | 29,780  |  
|Income tax provision                                |  |                        |       |  |              |   |        |      |  |   | (10,977 | )
|Gain on sale of discontinued operations, net of tax |  |                        | 13,967 |  |              |   |        |      |  |   |        |  
|Income (loss) from discontinued operations          |  | $                      | 13,967 |  |              | $ | (2,348  | )    |  | $ | 18,803  |  



F-23



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                              
|-- | ---------------------------------------------
|6. | Accumulated Other Comprehensive Income (Loss)



|                                                                             |                                                                                                                                      |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |      |      |   |         |        |   |   |         |      |  
|---------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | -- |  | ------------------------------------ | -------------- | ------- | ------------ | -------------- | - | ---------------------- | ------------ |  | ---- | ---- | ---- | ---- | - | ------- | ------ | - | - | ------- | ---- | -
|                                                                             |                                                                                                                                      | Consolidated Balance Sheet |    |  | Consolidated Statement of Operations |               
|                                                                             |                                                                                                                                      |                            |    |  |                                      |               
|                                                                             |                                                                                                                                      | Successor                  |    |  | Predecessor                          |                |         | Successor    |                |   |                       
|                                                                             |                                                                                                                                      | Registrant                 |    |  | Registrant                           |                |         | Registrant   |                |   | Predecessor Registrant |             
|                                                                             |                                                                                                                                      |                            |    |  |                                      |                |         |              |                |   |                        |             
|                                                                             |                                                                                                                                      |                            |    |  |                                      | For the Period |         |              | For the Period |   |                        |             
|                                                                             |                                                                                                                                      |                            |    |  |                                      | October 2,     |         |              | January 1,     |   |                        | Years Ended  | 
|                                                                             |                                                                                                                                      |                            |    |  |                                      | 2005 to        |         |              | 2005 to        |   |                        | December 31, | 
|                                                                             |                                                                                                                                      | December 31,               |    |  | December 31,                         |                |         | December 31, |                |   | October 1,             |              |  |      |     
|                                                                             |                                                                                                                                      | 2005                       |    |  | 2004                                 |                |         | 2005         |                |   | 2005                   |              |  | 2004 |      |      | 2003 |  
|                                                                             |                                                                                                                                      |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |      |      |  
|Cumulative translation adjustment                                            |                                                                                                                                      | $                          | 15 |  |                                      | $              | (799    | )            |                | $ | 15                     |              |  | $    | (222 | )    |      | $ | 140     |        |   | $ | 970     |     
|Derivatives classified as cash flow hedges, net of taxes:                    |                                                                                                                                      |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |      |      |   |         |        |   |   |         |     
|                                                                             | Net (decrease) increase in foreign currency exchange contracts                                                                       |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |     |      |   |         |       |   |   |         | 551  |  
|                                                                             | Reclassifications into revenues, cost of sales and income taxes
    from other comprehensive income                                  |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      | (487 | )    |   |         | (1,046 | ) |   |         | (355 | )
|                                                                             | Reclassifications into interest expense from other comprehensive
    income for anticipated transactions that are no longer probable |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |     |      |   |         |       |   |   |         | (440 | )
|                                                                             |                                                                                                                                      |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |      |      |  
|Unrealized net gains (losses) on derivatives                                 |                                                                                                                                      |                            |    |  |                                      |                | (604    | )            |                |   |                        |              |  |      | (487 | )    |      |   | (1,046  | )      |   |   | (244    | )   
|Unrealized (losses) gains on available-for-sale securities, net
    of taxes |                                                                                                                                      |                            |    |  |                                      |                |        |              |                |   |                        |              |  |      | (99  | )    |      |   | 8,142   |        |   |   | (16,815 | )   
|Minimum pension liability adjustment                                         |                                                                                                                                      |                            |    |  |                                      |                | (88,258 | )            |                |   |                        |              |  |      |      |      |      |   | (19,049 | )      |   |   | (4,526  | )   
|                                                                             |                                                                                                                                      |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |      |      |  
|Accumulated other comprehensive income (loss)                                |                                                                                                                                      | $                          | 15 |  |                                      | $              | (89,661 | )            |                | $ | 15                     |              |  | $    | (808 | )    |      | $ | (11,813 | )      |   | $ | (20,615 | )   
|                                                                             |                                                                                                                                      |                            |    |  |                                      |                |         |              |                |   |                        |              |  |      |      |      |      |  



F-24



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                   
|-- | --------------------------------------------------
|7. | Contracts-in-Process
    and Long-Term Receivables



| |                     
| | --------------------
| | Contracts-in-Process

Contracts-in


|                           |                      |              |        |        |             |   |        |       | 
|-------------------------- | -------------------- | ------------ | ------ | ------ | ----------- | - | ------ | ----- | 
|                           |                      | Successor    |        |        | Predecessor |  
|                           |                      | Registrant   |        |        | Registrant  |  
|                           |                      |              |        |        |             |  
|                           |                      | December 31, |       
|                           |                      |              |       
|                           |                      | 2005         |        |        | 2004        |  
|                           |                      |              |        |        |             |  
|U.S. government contracts: |                      |              |        |        |             |   |        |      
|                           | Amounts billed       |              | $      | 124    |             |   | $      | 1,936 | 
|                           | Unbilled receivables |              |        | 4,287  |             |   |        | 4,818 | 
|                           |                      |              |        |        |             |  
|                           |                      |              | 4,411  |        |             |   | 6,754  |      
|                           |                      |              |        |        |             |  
|Commercial contracts:      |                      |              |        |        |             |   |        |      
|                           | Amounts billed       |              |        | 38,789 |             |   |        | 6,210 | 
|                           | Unbilled receivables |              |        | 30,384 |             |   |        | 6,076 | 
|                           |                      |              |        |        |             |  
|                           |                      |              | 69,173 |        |             |   | 12,286 |      
|                           |                      |              |        |        |             |  
|                           |                      | $            | 73,584 |        |             | $ | 19,040 |      
|                           |                      |              |        |        |             |  

contracts-in






| |                      
| | ---------------------
| | Long-Term Receivables



F-25



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                       |  |             |         |  
|------------------------------------------------------ |  | ----------- | ------- | -
|                                                       |  | Long-Term   |        
|                                                       |  | Receivables |        
|                                                       |  |             |        
|2006                                                   |  | $           | 50,214  |  
|2007                                                   |  |             | 10,255  |  
|2008                                                   |  |             | 734     |  
|2009                                                   |  |             | 2,024   |  
|2010                                                   |  |             | 2,437   |  
|Thereafter                                             |  |             | 32,705  |  
|                                                       |  |             |        
|                                                       |  |             | 98,369  |  
|Less, current portion included in contracts-in-process |  |             | (50,214 | )
|                                                       |  |             |        
|Long-term receivables                                  |  | $           | 48,155  |  
|                                                       |  |             |        







|   |                                           
|-- | ------------------------------------------
|8. | Property, Plant and Equipment (see Note 3)



|                                                                                                                                        |  |              |         |   |             |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ----------- | - | --------- | -
|                                                                                                                                        |  | Successor    |         |   | Predecessor |  
|                                                                                                                                        |  | Registrant   |         |   | Registrant  |  
|                                                                                                                                        |  |              |         |   |             |  
|                                                                                                                                        |  | December 31, |        
|                                                                                                                                        |  |              |        
|                                                                                                                                        |  | 2005         |         |   | 2004        |  
|                                                                                                                                        |  |              |         |   |             |  
|Land and land improvements                                                                                                              |  | $            | 27,833  |   |             | $ | 24,827    |  
|Buildings                                                                                                                               |  |              | 52,873  |   |             |   | 87,133    |  
|Leasehold improvements                                                                                                                  |  |              | 6,352   |   |             |   | 15,638    |  
|Satellites in-orbit, including satellite transponder rights of
    $116.7 million and $279.6 million in 2005 and 2004,
    respectively |  |              | 366,196 |   |             |   | 1,093,951 |  
|Satellites under construction                                                                                                           |  |              | 197     |   |             |   |          |  
|Earth stations                                                                                                                          |  |              | 17,710  |   |             |   | 82,577    |  
|Equipment, furniture and fixtures                                                                                                       |  |              | 61,937  |   |             |   | 276,948   |  
|Other construction in progress                                                                                                          |  |              | 5,096   |   |             |   | 2,337     |  
|                                                                                                                                        |  |              |         |   |             |  
|                                                                                                                                        |  |              | 538,194 |   |             |   | 1,583,411 |  
|Accumulated depreciation and amortization                                                                                               |  |              | (17,691 | ) |             |   | (784,503  | )
|                                                                                                                                        |  |              |         |   |             |  
|                                                                                                                                        |  | $            | 520,503 |   |             | $ | 798,908   |  
|                                                                                                                                        |  |              |         |   |             |  



F-26



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












F-27



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|           |  |   |         | 
|---------- |  | - | ------- | 
|2006       |  | $ | 109,570 | 
|2007       |  |   | 70,293  | 
|2008       |  |   | 61,565  | 
|2009       |  |   | 55,809  | 
|2010       |  |   | 40,967  | 
|Thereafter |  |   | 95,019  | 
|           |  |   |        
|           |  | $ | 433,223 | 
|           |  |   |        



|   |                                          
|-- | -----------------------------------------
|9. | Investments in and Advances to Affiliates



|                       |  |              |         |  |             |   |        | 
|---------------------- |  | ------------ | ------- |  | ----------- | - | ------ | 
|                       |  | Successor    |         |  | Predecessor |  
|                       |  | Registrant   |         |  | Registrant  |  
|                       |  |              |         |  |             |  
|                       |  | December 31, |        
|                       |  |              |        
|                       |  | 2005         |         |  | 2004        |  
|                       |  |              |         |  |             |  
|XTAR equity investment |  | $            | 104,616 |  |             | $ | 49,181 | 



|                                                              |  |                |        |                        |                |   |        |              |  |   |        |  |  |   |         |      
|------------------------------------------------------------- |  | -------------- | ------ | ---------------------- | -------------- | - | ------ | ------------ |  | - | ------ |  |  | - | ------- | -----
|                                                              |  |                |        | Predecessor Registrant |               
|                                                              |  |                |        |                        |               
|                                                              |  | For the Period |        |                        | For the Period |   |        |             
|                                                              |  | October 2,     |        |                        | January 1,     |   |        | Years Ended  | 
|                                                              |  | 2005 to        |        |                        | 2005 to        |   |        | December 31, | 
|                                                              |  | DeSuccessor,   |        |                        | October 1,     |   |        |              | 
|                                                              |  | Registrant     |        |                        | 2005           |   |        | 2004         |  |   | 2003   | 
|                                                              |  |                |        |                        |                |   |        |              |  |   |        | 
|XTAR                                                          |  | $              | (5,384 | )                      |                | $ | (2,796 | )            |  | $ | 87     |  |  | $ | (230    | )    
|Satmex                                                        |  |                |       |                        |                |   |       |              |  |   |       |  |  |   | (51,699 | ) (1)
|Globalstar, L.P. and Globalstar service provider partnerships |  |                |       |                        |                |   |       |              |  |   | 46,567 |  |  |   | 776     |      
|Other                                                         |  |                | (63    | )                      |                |   |       |              |  |   |       |  |  |   |        |      
|                                                              |  |                |        |                        |                |   |        |              |  |   |        | 
|                                                              |  | $              | (5,447 | )                      |                | $ | (2,796 | )            |  | $ | 46,654 |  |  | $ | (51,153 | )    
|                                                              |  |                |        |                        |                |   |        |              |  |   |        | 






|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the write-off of our remaining investment in
    Satélites Mexicanos, S.A. de C.V. (Satmex) of
    $29 million due to the financial difficulties that Satmex
    is having (see below).

F-28



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                      |  |                |        |   |                        |            |   |        |              |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---------------------- | ---------- | - | ------ | ------------ |  | - | ------ | - |  | - | ------ | -
|                                                                                                      |  |                |        |   | Predecessor Registrant |           
|                                                                                                      |  |                |        |   |                        |           
|                                                                                                      |  |                |        |   | For the                |            |   |       
|                                                                                                      |  | For the Period |        |   |                        | Period     |   |        |             
|                                                                                                      |  | October 2,     |        |   |                        | January 1, |   |        | Years Ended  | 
|                                                                                                      |  | 2005 to        |        |   |                        | 2005 to    |   |        | December 31, | 
|                                                                                                      |  | DSuccessor1,   |        |   |                        | October 1, |   |        |              | 
|                                                                                                      |  | Registrant     |        |   |                        | 2005       |   |        | 2004         |  |   | 2003   |  
|                                                                                                      |  |                |        |   |                        |            |   |        |              |  |   |        |  
|Revenues                                                                                              |  | $              | 4,148  |   |                        |            | $ | 10,025 |              |  | $ | 7,779  |   |  | $ | 27,716 |  
|Investment income                                                                                     |  |                |       |   |                        |            |   |       |              |  |   |       |   |  |   | 886    |  
|Interest expense capitalized on development stage enterprises                                         |  |                |       |   |                        |            |   |       |              |  |   | 478    |   |  |   | 1,196  |  
|Elimination of Lorals proportionate share of
    (profits) losses relating to affiliate transactions |  |                | (2,949 | ) |                        |            |   | 593    |              |  |   | 2,440  |   |  |   | 4,444  |  
|Profits (losses) relating to affiliate transactions not
    eliminated                                |  |                | 2,318  |   |                        |            |   | (466   | )            |  |   | (1,917 | ) |  |   | (3,621 | )
|Amortization of deferred credit and profits relating to
    investments in affiliates                 |  |                |       |   |                        |            |   |       |              |  |   |       |   |  |   | (783   | )



| |     
| | ----
| | XTAR











F-29



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


paid-in








|               |  |              |      |  
|-------------- |  | ------------ | ---- | -
|               |  | Year Ended   |     
|               |  | December 31, |     
|               |  | 2005         |     
|               |  |              |     
|Revenues       |  | $            | 9.4  |  
|Operating loss |  |              | (5.4 | )
|Net loss       |  |              | (9.6 | )



|                      |  |              |       | 
|--------------------- |  | ------------ | ----- | 
|                      |  | December 31, |      
|                      |  | 2005         |      
|                      |  |              |      
|Current assets        |  | $            | 7.4   | 
|Total assets          |  |              | 142.8 | 
|Current liabilities   |  |              | 21.1  | 
|Long-term liabilities |  |              | 30.2  | 
|Members equity        |  |              | 91.5  | 



| |       
| | ------
| | Satmex



F-30



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

shares, which would result in Loral losing nearly all of its
investment stake in Satmex. A small portion of our ownership is
comprised of direct equity interests in Satmex and such interest
has not been pledged.

On June 30, 2004, Satmexs floating rate notes came
due and Satmex did not make the required principal payment of
$203.4 million. On November 1, 2004, the fixed rate
notes came due and Satmex did not make the required principal
payment of $320.0 million. Also, Satmex did not make the
August 1, 2003, February 1, 2004, and August 1,
2004 interest payments on the fixed rate notes or the interest
due on maturity of the fixed rate notes. The aggregate amount of
interest payment due was $56.7 million.

On December 29, 2004, the Government Obligation of
approximately $125.1 million plus accrued interest of
approximately $63 million came due and Servicios did not
make payment of such amounts. As a result of the payment
defaults under the Government Obligation, the Mexican government
could initiate proceedings against Servicios, which may include
foreclosure on the joint venture shares held by Loral and
Principia which would result in a change of control of Satmex.
The Mexican government is seeking to commence an involuntary
proceeding against Servicios under applicable Mexican bankruptcy
laws.

As a consequence of the defaults described above, on
May 25, 2005, certain holders of Satmex fixed rate notes
and the floating rate notes (the Petitioning
Creditors) filed an involuntary petition (the
Involuntary Petition) commencing a Chapter 11
case under the Bankruptcy Code against Satmex in the
U.S. Bankruptcy Court. On June 29, 2005, Satmex filed
a petition for reorganization in Mexico (the Concurso
Mercantil). On July 7, 2005, Satmex filed a motion in
the U.S. Bankruptcy Court to dismiss the bankruptcy filing
for Satmex made by its U.S. creditors. Satmex subsequently
reached a settlement agreement with the Petitioning Creditors
premised upon, among other things, the parties consenting to
Satmex commencing a case under section 304 of the
Bankruptcy Code in the Bankruptcy Court, as a case ancillary to
the Concurso Mercantil, and the voluntary dismissal of the
involuntary Chapter 11 case commenced by the Petitioning
Creditors. In January 2006, Satmex reached an agreement in
principle with its creditors to restructure its debt, which is
currently in default. As a result, we expect our ownership in
Satmex to be reduced to less than five percent.

As of December 31, 2005, we had a 49% indirect economic
interest in Satmex. We account for Satmex using the equity
method. In the third quarter of 2003, we wrote off our remaining
investment in Satmex of $29 million (as an increase to its
equity loss), due to the financial difficulties that Satmex was
having. As a result, and because we have no future funding
requirements relating to this investment, there is no
requirement for us to provide for our allocated share of
Satmexs net losses subsequent to September 30, 2003.
In addition, Loral recorded reductions in estimated contract
revenues from Satmex, resulting in an increase to our operating
loss of approximately $24 million in 2003.

As a result of writing off our remaining investment in Satmex in
the third quarter of 2003, the following table presents summary
statement of operations data for Satmex for the nine months
ended September 30, 2003 (in thousands):

|                                           |  |               |         |  
|------------------------------------------ |  | ------------- | ------- | -
|                                           |  | Nine Months  
|                                           |  | Ended        
|                                           |  | September 30,
|                                           |  | 2003         
|                                           |  |              
|Revenues                                   |  | $             | 59,212  |  
|                                          
|                                          
|                                          
|                                          
|Operating (loss) income                    |  |               | (4,195  | )
|                                          
|                                          
|                                          
|                                          
|Net loss                                   |  |               | (31,687 | )
|                                          
|                                          
|                                          
|                                          
|Net loss applicable to common stockholders |  |               | (32,818 | )



| |                            
| | ---------------------------
| | Satmex Settlement Agreement

On June 14, 2005, Loral Space & Communications
Holdings Corporation (LSCC), Loral SpaceCom, a
division of Loral SpaceCom, Loral Skynet Network Services, Inc.
(LSNS) and SS/L (collectively the

F-31



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


C-band conciliador




| |                              
| | -----------------------------
| | Globalstar Related Activities









F-32



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


U.S.-based




|    |                                                    
|--- | ---------------------------------------------------
|10. | Accounting for Goodwill and Other Intangible Assets



| |         
| | --------
| | Goodwill





| |                        
| | -----------------------
| | Other Intangible Assets



|                                             |       |                      |    |  |                   |                        |      |              |                   |   |      |        |   |  |              |      |      |  |   |       |       |  
|-------------------------------------------- | ----- | -------------------- | -- |  | ----------------- | ---------------------- | ---- | ------------ | ----------------- | - | ---- | ------ | - |  | ------------ | ---- | ---- |  | - | ----- | ----- | -
|                                             |       | Successor Registrant |    |  |                   | Predecessor Registrant |     
|                                             |       |                      |    |  |                   |                        |     
|                                             |       | Weighted Average     |    |  | December 31, 2005 |                        |      |              | December 31, 2004 |  
|                                             |       | Remaining            |    |  |                   |                        |      |              |                   |  
|                                             |       | Amortization Period  |    |  | Gross             |                        |      | Accumulated  |                   |   |      | Gross  |   |  | Accumulated  |     
|                                             |       | (Years)              |    |  | Amount            |                        |      | Amortization |                   |   |      | Amount |   |  | Amortization |     
|                                             |       |                      |    |  |                   |                        |      |              |                   |   |      |        |   |  |              |     
|Internally developed software and technology |       |                      | 5  |  |                   | $                      | 59.8 |              |                   | $ | (2.7 | )      |   |  | $            |     |      |  | $ |      |      
|Orbital slots                                |       |                      | 7  |  |                   |                        | 15.8 |              |                   |   | (0.8 | )      |   |  |              | 20.0 |      |  |   | (5.8  | )    
|Trade names                                  |       |                      | 20 |  |                   |                        | 13.2 |              |                   |   | (0.2 | )      |   |  |              |     |      |  |   |      |      
|Customer relationships                       |       |                      | 14 |  |                   |                        | 20.0 |              |                   |   | (0.3 | )      |   |  |              |     |      |  |   |      |      
|Customer contracts                           |       |                      | 7  |  |                   |                        | 32.0 |              |                   |   | (2.1 | )      |   |  |              |      |      |  |   |       |      
|Regulatory fees                              |       |                      |    |  |                   |                        |     |              |                   |   |     |        |   |  |              | 2.5  |      |  |   | (1.9  | )    
|Other intangibles                            |       |                      | 4  |  |                   |                        | 2.7  |              |                   |   | (0.1 | )      |   |  |              | 13.0 |      |  |   | (12.0 | )    
|                                             |       |                      |    |  |                   |                        |      |              |                   |   |      |        |   |  |              |     
|                                             | Total |                      |    |  |                   |                        | $    | 143.5        |                   |   | $    | (6.2   | ) |  |              | $    | 35.5 |  |   | $     | (19.7 | )
|                                             |       |                      |    |  |                   |                        |      |              |                   |   |      |        |   |  |              |     



|     |  |   |      | 
|---- |  | - | ---- | 
|2006 |  | $ | 20.8 | 
|2007 |  |   | 19.9 | 
|2008 |  |   | 19.3 | 
|2009 |  |   | 18.3 | 
|2010 |  |   | 14.6 | 



|    |                                                               
|--- | --------------------------------------------------------------
|11. | Liabilities Subject to Compromise  Predecessor
    Registrant



F-33



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                   |  |              |           | 
|-------------------------------------------------- |  | ------------ | --------- | 
|                                                   |  | December 31, |          
|                                                   |  | 2004         |          
|                                                   |  |              |          
|Debt obligations (see Note 12)                     |  | $            | 1,269,977 | 
|Accounts payable                                   |  |              | 52,728    | 
|Accrued employment costs                           |  |              | 542       | 
|Customer advances                                  |  |              | 30,837    | 
|Accrued interest and preferred dividends           |  |              | 40,428    | 
|Income taxes payable                               |  |              | 38,934    | 
|Pension and other postretirement liabilities       |  |              | 178,647   | 
|Other liabilities                                  |  |              | 79,926    | 
|6% Series C convertible redeemable preferred stock |  |              | 187,274   | 
|6% Series D convertible redeemable preferred stock |  |              | 36,707    | 
|                                                   |  |              |          
|                                                   |  | $            | 1,916,000 | 
|                                                   |  |              |          



|    |                 
|--- | ----------------
|12. | Debt Obligations



|                                                                                     |                                                                          |              |         |   |  |              |   |           |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------ | ------------ | ------- | - |  | ------------ | - | --------- | ------- | 
|                                                                                     |                                                                          | Successor    |         |   |  | Predecessor  |  
|                                                                                     |                                                                          | Registrant   |         |   |  | Registrant   |  
|                                                                                     |                                                                          | December 31, |         |   |  | December 31, |  
|                                                                                     |                                                                          | 2005         |         |   |  | 2004         |  
|                                                                                     |                                                                          |              |         |   |  |              |  
|Loral Skynet 14.0% senior secured notes due 2015 (principal
    amount $126 million) |                                                                          | $            | 128,191 |   |  |              | $ |          |        
|Loral Orion 10.0% senior notes due 2006:                                             |                                                                          |              |         |   |  |              |   |           |        
|                                                                                     | Principal amount                                                         |              |         |  |  |              |   |           | 612,704 | 
|                                                                                     | Accrued interest (deferred gain on debt exchanges)                       |              |         |  |  |              |   |           | 214,446 | 
|9.50% senior notes due 2006                                                          |                                                                          |              |        |   |  |              |   | 350,000   |        
|Non-recourse debt of Loral Orion:                                                    |                                                                          |              |         |   |  |              |   |           |        
|                                                                                     | 11.25% senior notes due 2007 (principal amount
    $37 million)          |              |         |  |  |              |   |           | 39,402  | 
|                                                                                     | 12.50% senior discount notes due 2007 (principal amount
    $49 million) |              |         |  |  |              |   |           | 53,425  | 
|                                                                                     |                                                                          |              |         |   |  |              |  
|                                                                                     |                                                                          | $            | 128,191 |   |  |              | $ | 1,269,977 |        
|                                                                                     |                                                                          |              |         |   |  |              |  

Successor Registrant




| |                   
| | ------------------
| | Loral Skynet Notes



F-34



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                               
| | ------------------------------
| | SS/L Letter of Credit Facility



Predecessor Registrant (see Note 11)








F-35



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                          
|--- | -----------------------------------------
|13. | Reorganization Expenses Due to Bankruptcy



|                                 |                                                 |                        |        |        |              |   |               |                  |  |   |        |        | 
|-------------------------------- | ----------------------------------------------- | ---------------------- | ------ | ------ | ------------ | - | ------------- | ---------------- |  | - | ------ | ------ | 
|                                 |                                                 | Predecessor Registrant |       
|                                 |                                                 |                        |       
|                                 |                                                 | For the Period         |        |        |             
|                                 |                                                 | January 1,             |        |        |              |   | July 15, 2003 |                 
|                                 |                                                 | 2005 to                |        |        | Year Ended   |   |               | (Filing Date) to | 
|                                 |                                                 | October 1,             |        |        | December 31, |   |               | December 31,     | 
|                                 |                                                 | 2005                   |        |        | 2004         |   |               | 2003             | 
|                                 |                                                 |                        |        |        |              |   |               |                  | 
|Professional fees                |                                                 | $                      | 32,240 |        |              | $ | 20,898        |                  |  | $ | 15,489 |       
|Employee retention costs         |                                                 |                        | (917   | )      |              |   | 10,035        |                  |  |   | 4,692  |       
|Severance costs                  |                                                 |                        | 972    |        |              |   | 4,641         |                  |  |   |       |       
|Facility closing costs           |                                                 |                        |       |        |              |   | 1,963         |                  |  |   |       |       
|Lease rejection claims (gains)   |                                                 |                        | (265   | )      |              |   | 220           |                  |  |   | 5,872  |       
|Vendor settlement losses (gains) |                                                 |                        | 289    |        |              |   | (5,561        | )                |  |   | (61    | )     
|Restructuring costs              |                                                 |                        | 1,503  |        |              |   |              |                  |  |   |       |       
|Interest income                  |                                                 |                        | (2,586 | )      |              |   | (1,740        | )                |  |   | (708   | )     
|                                 |                                                 |                        |        |        |              |   |               |                  | 
|                                 | Total reorganization expenses due to bankruptcy |                        | $      | 31,236 |              |   | $             | 30,456           |  |   | $      | 25,284 | 
|                                 |                                                 |                        |        |        |              |   |               |                  | 



|    |             
|--- | ------------
|14. | Income Taxes



|                                     |                     |                |        |        |   |                        |   |        |              |   |   |         |         |   |   |       |         |  
|------------------------------------ | ------------------- | -------------- | ------ | ------ | - | ---------------------- | - | ------ | ------------ | - | - | ------- | ------- | - | - | ----- | ------- | -
|                                     |                     | Successor      |        |        |   |                       
|                                     |                     | Registrant     |        |        |   | Predecessor Registrant |  
|                                     |                     |                |        |        |   |                        |  
|                                     |                     | For the Period |        |        |   | For the Period         |   |        |             
|                                     |                     | October 2,     |        |        |   | January 1,             |   |        | Years Ended  |  
|                                     |                     | 2005 to        |        |        |   | 2005 to                |   |        | December 31, |  
|                                     |                     | December 31,   |        |        |   | October 1,             |   |        |              |  
|                                     |                     | 2005           |        |        |   | 2005                   |   |        | 2004         |   |   | 2003    |        
|                                     |                     |                |        |        |   |                        |   |        |              |   |   |         |        
|Current:                             |                     |                |        |        |   |                        |   |        |              |   |   |         |         |   |   |       |        
|                                     | U.S. Federal        |                | $      | (532   | ) |                        |   | $      | (1,235       | ) |   | $       |        |   |   | $     | 358     |  
|                                     | State and local     |                |        | (429   | ) |                        |   |        | (2,339       | ) |   |         | (335    | ) |   |       | (745    | )
|                                     | Foreign             |                |        | (791   | ) |                        |   |        | (1,659       | ) |   |         | (796    | ) |   |       | (604    | )
|                                     |                     |                |        |        |   |                        |   |        |              |   |   |         |        
|                                     | Total               |                |        | (1,752 | ) |                        |   |        | (5,233       | ) |   |         | (1,131  | ) |   |       | (991    | )
|                                     |                     |                |        |        |   |                        |   |        |              |   |   |         |        
|Deferred:                            |                     |                |        |        |   |                        |   |        |              |   |   |         |         |   |   |       |        
|                                     | U.S. Federal        |                |        | 325    |   |                        |   |        | (259,373     | ) |   |         | 59,635  |   |   |       | 118,672 |  
|                                     | State and local     |                |        | 97     |   |                        |   |        | (45,737      | ) |   |         | 12,891  |   |   |       | (16,811 | )
|                                     | Foreign             |                |        |        |   |                        |   |        |              |   |   |         | (3,650  | ) |   |       | 960     |  
|                                     | Valuation allowance |                |        | (422   | ) |                        |   |        | 321,244      |   |   |         | (81,029 | ) |   |       | (95,500 | )
|                                     |                     |                |        |        |   |                        |   |        |              |   |   |         |        
|                                     | Total               |                |        |       |   |                        |   |        | 16,134       |   |   |         | (12,153 | ) |   |       | 7,321   |  
|                                     |                     |                |        |        |   |                        |   |        |              |   |   |         |        
|Total income tax (provision) benefit |                     | $              | (1,752 | )      |   |                        | $ | 10,901 |              |   | $ | (13,284 | )       |   | $ | 6,330 |        
|                                     |                     |                |        |        |   |                        |   |        |              |   |   |         |        

F-36



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


non-U.S. Sul-1.










F-37



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |                                                              |                |        |        |         |                        |   |          |              |   |   |         |         |   |   |         |         |  
|----------------------------------------------------- | ------------------------------------------------------------ | -------------- | ------ | ------ | ------- | ---------------------- | - | -------- | ------------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                      |                                                              | Successor      |        |        |         |                       
|                                                      |                                                              | Registrant     |        |        |         | Predecessor Registrant |  
|                                                      |                                                              |                |        |        |         |                        |  
|                                                      |                                                              |                |        |        | For the |                        |   |         
|                                                      |                                                              | For the Period |        |        |         | Period                 |   |          |             
|                                                      |                                                              | October 2,     |        |        |         | January 1,             |   |          | Years Ended  |  
|                                                      |                                                              | 2005 to        |        |        |         | 2005 to                |   |          | December 31, |  
|                                                      |                                                              | December 31,   |        |        |         | October 1,             |   |          |              |  
|                                                      |                                                              | 2005           |        |        |         | 2005                   |   |          | 2004         |   |   | 2003    |        
|                                                      |                                                              |                |        |        |         |                        |   |          |              |   |   |         |        
|Tax benefit (provision) at U.S. Statutory Rate of 35% |                                                              | $              | 1,888  |        |         |                        | $ | (357,928 | )            |   | $ | 72,748  |         |   | $ | 128,924 |        
|Permanent adjustments which change statutory amounts: |                                                              |                |        |        |         |                        |   |          |              |   |   |         |         |   |   |         |        
|                                                      | State and local income taxes, net of federal income tax      |                |        | (216   | )       |                        |   |          | (31,249      | ) |   |         | 8,161   |   |   |         | (11,411 | )
|                                                      | Non-U.S. income and losses taxed at lower rates              |                |        | (847   | )       |                        |   |          | (6,308       | ) |   |         | (4,575  | ) |   |         | (9,121  | )
|                                                      | Reorganization expenses due to bankruptcy                    |                |        | (94    | )       |                        |   |          | (9,944       | ) |   |         | (7,080  | ) |   |         | (5,885  | )
|                                                      | Plan of Reorganization and Fresh-Start valuation adjustments |                |        |       |         |                        |   |          | 94,206       |   |   |         |        |   |   |         |        |  
|                                                      | Nondeductible expenses                                       |                |        | (1,410 | )       |                        |   |          | (1,122       | ) |   |         | (1,548  | ) |   |         | (673    | )
|                                                      | Change in valuation allowance                                |                |        | (422   | )       |                        |   |          | 321,244      |   |   |         | (81,029 | ) |   |         | (95,500 | )
|                                                      | Other, net                                                   |                |        | (651   | )       |                        |   |          | 2,002        |   |   |         | 39      |   |   |         | (4      | )
|                                                      |                                                              |                |        |        |         |                        |   |          |              |   |   |         |        
|Total income tax (provision) benefit                  |                                                              | $              | (1,752 | )      |         |                        | $ | 10,901   |              |   | $ | (13,284 | )       |   | $ | 6,330   |        
|                                                      |                                                              |                |        |        |         |                        |   |          |              |   |   |         |        





paid-in


F-38



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|                           |                                                      |              |         |          |   |             |   |         |          |  
|-------------------------- | ---------------------------------------------------- | ------------ | ------- | -------- | - | ----------- | - | ------- | -------- | -
|                           |                                                      | Successor    |         |          |   | Predecessor |  
|                           |                                                      | Registrant   |         |          |   | Registrant  |  
|                           |                                                      |              |         |          |   |             |  
|                           |                                                      | December 31, |        
|                           |                                                      |              |         |          |   |             |  
|                           |                                                      | 2005         |         |          |   | 2004        |  
|                           |                                                      |              |         |          |   |             |  
|Deferred tax assets:       |                                                      |              |         |          |   |             |   |         |         
|                           | Postretirement benefits other than pensions          |              | $       | 30,912   |   |             |   | $       | 21,373   |  
|                           | Inventoried costs                                    |              |         | 36,114   |   |             |   |         | 30,718   |  
|                           | Net operating loss and tax credit carryforwards      |              |         | 421,271  |   |             |   |         | 487,934  |  
|                           | Compensation and benefits                            |              |         | 7,662    |   |             |   |         | 8,669    |  
|                           | Premium on senior notes                              |              |         |         |   |             |   |         | 69,663   |  
|                           | Investments in and advances to affiliates            |              |         |         |   |             |   |         | 38,108   |  
|                           | Other, net                                           |              |         | 2,519    |   |             |   |         | 7,546    |  
|                           | Pension costs                                        |              |         | 60,374   |   |             |   |         | 44,933   |  
|                           |                                                      |              |         |          |   |             |  
|                           | Total deferred tax assets before valuation allowance |              |         | 558,852  |   |             |   |         | 708,944  |  
|                           | Less valuation allowance                             |              |         | (337,346 | ) |             |   |         | (659,783 | )
|                           |                                                      |              |         |          |   |             |  
|                           | Net deferred tax asset                               |              | $       | 221,506  |   |             |   | $       | 49,161   |  
|                           |                                                      |              |         |          |   |             |  
|Deferred tax liabilities:  |                                                      |              |         |          |   |             |   |         |         
|                           | Property, plant and equipment                        |              | $       | 148,905  |   |             |   | $       | 66,436   |  
|                           | Intangible assets                                    |              |         | 43,528   |   |             |   |         | 831      |  
|                           | Investments in and advances to affiliates            |              |         | 21,807   |   |             |   |         |         |  
|                           | Income recognition on long-term contracts            |              |         | 20,145   |   |             |   |         | 12,501   |  
|                           |                                                      |              |         |          |   |             |  
|                           | Total deferred tax liability                         |              | $       | 234,385  |   |             |   | $       | 79,768   |  
|                           |                                                      |              |         |          |   |             |  
|Net deferred tax liability |                                                      | $            | (12,879 | )        |   |             | $ | (30,607 | )       
|                           |                                                      |              |         |          |   |             |  



F-39



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                                     
|--- | ----------------------------------------------------
|15. | Shareholders Equity (Deficit) and Minority Interest

Successor Registrant




| |             
| | ------------
| | Common Stock





| |                             
| | ----------------------------
| | Loral Skynet Preferred Stock









| |            
| | -----------
| | Stock Plans





F-40



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |  |        |         |          |       |          |             |      |  |  |         | 
|----------------------------------------------------- |  | ------ | ------- | -------- | ----- | -------- | ----------- | ---- |  |  | ------- | 
|                                                      |  |        |         |          |       | Weighted |            
|                                                      |  |        |         | Weighted |       |          | Average     |     
|                                                      |  |        |         | Average  |       |          | Remaining   |     
|                                                      |  |        |         | Exercise |       |          | Contractual |     
|                                                      |  | Shares |         |          | Price |          |             | Term | 
|                                                      |  |        |         |          |       |          |             |      | 
|Outstanding at October 2, 2005                        |  |        |        |          |       | $        |            |      |  |  |        | 
|Granted (weighted average fair value $6.82 per share) |  |        | 746,952 |          |       |          | 28.44       |      |  |  | 7 years | 
|Exercised                                             |  |        |        |          |       |          |            |      |  |  |        | 
|Forfeited                                             |  |        |        |          |       |          |            |      |  |  |        | 
|                                                      |  |        |         |          |       |          |             |      | 
|Outstanding at December 31, 2005                      |  |        | 746,952 |          |       | $        | 28.44       |      |  |  | 7 years | 
|                                                      |  |        |         |          |       |          |             |      | 
|Exercisable at December 31, 2005                      |  |        |        |          |       |          |             |      |  |  |         | 
|                                                      |  |        |         |          |       |          |             |      | 







Predecessor Registrant




| |             
| | ------------
| | Common Stock





F-41



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

All shares of Old Loral common stock were cancelled upon our
emergence pursuant to the terms of the Plan of Reorganization.



| |                      
| | ---------------------
| | Old Loral Stock Plans

On April 18, 2000, the Old Loral Board of Directors
approved a new stock option plan (the 2000 Plan).
The 2000 Plan was intended to constitute a broadly-based
plan as defined in Section 312.04(h) of the NYSE
Listed Company Manual, which provides that at least 50% of
grants thereunder exclude senior management. The 2000 Plan
provided for the grant of non-qualified stock options only. As
of December 31, 2004, up to 3.7 million shares of
common stock were issuable under the 2000 Plan, of which
approximately 1.2 million options at a weighted average
exercise price of $18.69 per share were outstanding as of
December 31, 2004.

In April 1996, Old Loral established the 1996 Stock Option Plan.
An aggregate of 1.8 million shares of common stock were
reserved for issuance, of which approximately 0.7 million
options at a weighted average exercise price of $92.76 per
share were outstanding as of December 31, 2004.

In connection with the acquisition of Loral Orion in 1998, Old
Loral assumed the unvested employee stock options of Loral Orion.

The Plan of Reorganization does not provide for participation or
recovery by Old Loral common shareholders and, accordingly, the
above stock options have no value to the employees. A summary of
the status of Old Lorals stock option plans, as of
November 21, 2005, and December 31, 2004 and 2003 and
changes during the periods then ended is presented below.
Options outstanding as of November 21, 2005 were forfeited
in accordance with the Plan of Reorganization:

|                                                                                  |  |        |            |          |  |   |       | 
|--------------------------------------------------------------------------------- |  | ------ | ---------- | -------- |  | - | ----- | 
|                                                                                  |  |        |            | Weighted
|                                                                                  |  |        |            | Average 
|                                                                                  |  |        |            | Exercise
|                                                                                  |  | Shares |            | Price   
|                                                                                  |  |        |            |         
|Outstanding at January 1, 2003                                                    |  |        | 4,284,884  |          |  | $ | 62.90 | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Granted below fair market value (weighted average
    fair value $3.06 per share) |  |        | 30,000     |          |  |   | 0.10  | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Exercised                                                                         |  |        | (30,000    | )        |  |   | 0.10  | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Forfeited                                                                         |  |        | (1,897,671 | )        |  |   | 83.60 | 
|                                                                                  |  |        |            |          |  |   |       | 
|Outstanding at December 31, 2003                                                  |  |        | 2,387,213  |          |  |   | 46.45 | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Forfeited                                                                         |  |        | (384,343   | )        |  |   | 39.12 | 
|                                                                                  |  |        |            |          |  |   |       | 
|Outstanding at December 31, 2004                                                  |  |        | 2,002,870  |          |  |   | 47.86 | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Forfeited                                                                         |  |        | (2,002,870 | )        |  |   | 47.86 | 
|                                                                                  |  |        |            |          |  |   |       | 
|Outstanding as of November 21, 2005                                               |  |        |           |          |  |   |      | 
|                                                                                  |  |        |            |          |  |   |       | 
|Options exercisable at December 31, 2003                                          |  |        | 1,945,227  |          |  |   | 52.21 | 
|                                                                                  |  |        |            |          |  |   |       | 
|Options exercisable at December 31, 2004                                          |  |        | 1,974,654  |          |  |   | 48.25 | 
|                                                                                  |  |        |            |          |  |   |       | 

As of December 31, 2004, there were 3,380,146 shares
of common stock available for future grant under the Old
Lorals stock plans.

In connection with an exchange offer for certain outstanding
stock options completed on March 7, 2003, Old Loral
accepted and cancelled existing stock options to purchase an
aggregate of 1,488,440 shares of common stock that were
tendered in the exchange offer and agreed to grant in exchange
new stock options to purchase an aggregate of
602,149 shares of common stock. The new options were to be
granted, subject to the terms and conditions of the exchange
offer, on September 8, 2003. As a result of our
Chapter 11 filing,

F-42



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

however, we were not able to grant the new stock options and any
claims that option holders may have arising from such
cancellations have been extinguished pursuant to the Plan of
Reorganization. Any claims or rights that option holders whose
options were cancelled may have had, were addressed in the
context of the Chapter 11 Cases. These cancellations have
been reflected as forfeitures in 2003.



|    |                          
|--- | -------------------------
|16. | Earnings (Loss) Per Share

Basic earnings (loss) per share is computed based upon the
weighted average number of shares of common stock outstanding.
Diluted loss per share excludes the assumed conversion of the
Series C Preferred Stock and the Series D Preferred
Stock for the Predecessor Registrant, as their effect would have
been antidilutive. For the periods from October 2, 2005 to
December 31, 2005 and January 1, 2005 to
October 1, 2005 and for the years ended December 31,
2004 and 2003, the effect of approximately 0.7 million,
2.0 million, 2.0 million and 2.4 million stock
options, which would be calculated using the treasury stock
method, were excluded from the calculation of diluted loss per
share, as the effect would have been antidilutive.

F-43



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |          |   |  |   |          |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | ------- | ---------------------- |  | - | ------------------------ |  |  | ---- | -------- | - |  | - | -------- | -
|                                                |                                                                                                                                             | Successor                             |   |         |                       
|                                                |                                                                                                                                             | Registrant                            |   |         | Predecessor Registrant | 
|                                                |                                                                                                                                             |                                       |   |         |                        | 
|                                                |                                                                                                                                             | For the Period                        |   |         | For the Period         |  |   |                         
|                                                |                                                                                                                                             | October 2,                            |   |         | January 1,             |  |   |                         
|                                                |                                                                                                                                             | 2005 to                               |   |         | 2005 to                |  |   | Years Ended December 31, | 
|                                                |                                                                                                                                             | December 31,                          |   |         | October 1,             |  |   |                          | 
|                                                |                                                                                                                                             | 2005                                  |   |         | 2005                   |  |   | 2004                     |  |  | 2003 |         
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|                                                |                                                                                                                                             | (in thousands, except per share data) |  
|Numerator for basic and diluted loss per share: |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |          |   |  |   |         
|                                                | (Loss) income from continuing operations                                                                                                    |                                       | $ | (15,261 | )                      |  | $ | 1,030,882                |  |  | $    | (174,347 | ) |  | $ | (413,158 | )
|                                                | (Loss) income from discontinued operations, net of taxes                                                                                    |                                       |   |        |                        |  |   |                         |  |  |      | (2,348   | ) |  |   | 18,803   |  
|                                                | Gain on sale of discontinued operations, net of taxes                                                                                       |                                       |   |        |                        |  |   | 13,967                   |  |  |      |         |   |  |   |         |  
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|                                                | (Loss) income before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |                                       |   | (15,261 | )                      |  |   | 1,044,849                |  |  |      | (176,695 | ) |  |   | (394,355 | )
|                                                | Cumulative effect of change in accounting principle                                                                                         |                                       |   |        |                        |  |   |                         |  |  |      |         |   |  |   | (1,970   | )
|                                                | Extraordinary gain on acquisition of minority interest                                                                                      |                                       |   |        |                        |  |   |                         |  |  |      |         |   |  |   | 13,615   |  
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|                                                | Net (loss) income                                                                                                                           |                                       |   | (15,261 | )                      |  |   | 1,044,849                |  |  |      | (176,695 | ) |  |   | (382,710 | )
|                                                | Preferred dividends                                                                                                                         |                                       |   |        |                        |  |   |                         |  |  |      |         |   |  |   | (6,719   | )
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|                                                | Net (loss) income applicable to common stockholders                                                                                         |                                       | $ | (15,261 | )                      |  | $ | 1,044,849                |  |  | $    | (176,695 | ) |  | $ | (389,429 | )
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|Denominator:                                    |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |          |   |  |   |         
|                                                | Weighted average common shares outstanding                                                                                                  |                                       |   | 20,000  |                        |  |   | 44,108                   |  |  |      | 44,108   |   |  |   | 43,819   |  
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|Basic and diluted (loss) earnings per share:    |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |          |   |  |   |         
|                                                | Continuing operations                                                                                                                       |                                       | $ | (0.76   | )                      |  | $ | 23.37                    |  |  | $    | (3.96    | ) |  | $ | (9.58    | )
|                                                | Discontinued operations                                                                                                                     |                                       |   |        |                        |  |   | 0.32                     |  |  |      | (0.05    | ) |  |   | 0.43     |  
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|                                                | Before cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest                   |                                       |   | (0.76   | )                      |  |   | 23.69                    |  |  |      | (4.01    | ) |  |   | (9.15    | )
|                                                | Cumulative effect of change in accounting principle                                                                                         |                                       |   |        |                        |  |   |                         |  |  |      |         |   |  |   | (0.05    | )
|                                                | Extraordinary gain on acquisition of minority interest                                                                                      |                                       |   |        |                        |  |   |                         |  |  |      |         |   |  |   | 0.31     |  
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         
|                                                | (Loss) earnings per share                                                                                                                   |                                       | $ | (0.76   | )                      |  | $ | 23.69                    |  |  | $    | (4.01    | ) |  | $ | (8.89    | )
|                                                |                                                                                                                                             |                                       |   |         |                        |  |   |                          |  |  |      |         



|    |                                     
|--- | ------------------------------------
|17. | Pensions and Other Employee Benefits

Pensions




F-44



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |               
| | --------------
| | Other Benefits





|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   |  |  |   |         |  
|------------------------------------------------ |  | ---------------- | -------- | - |  | -------------- | - | -------- | -------------- |  |  | -------------- | ------- | - |  |  | - | ------- | -
|                                                 |  | Pension Benefits |          |   |  | Other Benefits |  
|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   | 
|                                                 |  | Successor        |          |   |  | Predecessor    |   |          | Successor      |  |  | Predecessor    |        
|                                                 |  | Registrant       |          |   |  | Registrant     |   |          | Registrant     |  |  | Registrant     |        
|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   | 
|                                                 |  | December 31,     |          |   |  | December 31,   |   |          | December 31,   |  |  | December 31,   |        
|                                                 |  | 2005             |          |   |  | 2004           |   |          | 2005           |  |  | 2004           |        
|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   | 
|                                                 |  | (in thousands)   |          |   |  | (in thousands) |   |          | (in thousands) |  |  | (in thousands) |        
|Reconciliation of benefit obligation             |  |                  |          |   |  |                |   |          |                |  |  |                |         |   |  |  |   |         |  
|Obligation at beginning of period                |  | $                | 395,098  |   |  |                | $ | 353,881  |                |  |  | $              | 82,029  |   |  |  | $ | 69,337  |  
|Service cost                                     |  |                  | 10,683   |   |  |                |   | 9,694    |                |  |  |                | 935     |   |  |  |   | 1,212   |  
|Interest cost                                    |  |                  | 23,361   |   |  |                |   | 22,740   |                |  |  |                | 4,564   |   |  |  |   | 5,178   |  
|Participant contributions                        |  |                  | 933      |   |  |                |   | 1,008    |                |  |  |                | 1,751   |   |  |  |   | 1,592   |  
|Actuarial (gain) loss                            |  |                  | (3,246   | ) |  |                |   | 28,467   |                |  |  |                | (2,765  | ) |  |  |   | 9,748   |  
|Benefit payments                                 |  |                  | (19,923  | ) |  |                |   | (20,692  | )              |  |  |                | (5,338  | ) |  |  |   | (5,038  | )
|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   | 
|Obligation at December 31,                       |  | $                | 406,906  |   |  |                | $ | 395,098  |                |  |  | $              | 81,176  |   |  |  | $ | 82,029  |  
|Reconciliation of fair value of plan assets      |  |                  |          |   |  |                |   |          |                |  |  |                |         |   |  |  |   |         |  
|Fair value of plan assets at beginning of period |  | $                | 230,685  |   |  |                | $ | 218,897  |                |  |  | $              | 1,154   |   |  |  | $ | 1,380   |  
|Actual return on plan assets                     |  |                  | 15,305   |   |  |                |   | 17,268   |                |  |  |                | 21      |   |  |  |   | 26      |  
|Employer contributions                           |  |                  | 20,022   |   |  |                |   | 13,255   |                |  |  |                | 3,440   |   |  |  |   | 3,194   |  
|Participant contributions                        |  |                  | 933      |   |  |                |   | 1,008    |                |  |  |                | 1,751   |   |  |  |   | 1,592   |  
|Benefit payments                                 |  |                  | (19,217  | ) |  |                |   | (19,743  | )              |  |  |                | (5,338  | ) |  |  |   | (5,038  | )
|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   | 
|Fair value of plan assets at December 31,        |  | $                | 247,728  |   |  |                | $ | 230,685  |                |  |  | $              | 1,028   |   |  |  | $ | 1,154   |  
|Funded status                                    |  |                  |          |   |  |                |   |          |                |  |  |                |         |   |  |  |   |         |  
|Unfunded status at end of period                 |  | $                | (159,178 | ) |  |                | $ | (164,413 | )              |  |  | $              | (80,148 | ) |  |  | $ | (80,875 | )
|Unrecognized prior service cost                  |  |                  |         |   |  |                |   | (225     | )              |  |  |                |        |   |  |  |   | (21,335 | )
|Unrecognized loss (gain)                         |  |                  | 1,922    |   |  |                |   | 125,248  |                |  |  |                | (544    | ) |  |  |   | 50,041  |  
|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   | 
|Net amount recognized                            |  | $                | (157,256 | ) |  |                | $ | (39,390  | )              |  |  | $              | (80,692 | ) |  |  | $ | (52,169 | )
|                                                 |  |                  |          |   |  |                |   |          |                |  |  |                |         |   | 

F-45



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |  |              |          |   |             |   |          |  
|------------------------------------ |  | ------------ | -------- | - | ----------- | - | -------- | -
|                                     |  | Successor    |          |   | Predecessor |  
|                                     |  | Registrant   |          |   | Registrant  |  
|                                     |  |              |          |   |             |  
|                                     |  | December 31, |         
|                                     |  |              |         
|                                     |  | 2005         |          |   | 2004        |  
|                                     |  |              |          |   |             |  
|Accrued benefit liability            |  | $            | (157,256 | ) |             | $ | (127,648 | )
|Accumulated other comprehensive loss |  |              |         |   |             |   | 88,258   |  
|                                     |  |              |          |   |             |  
|Net amount recognized                |  | $            | (157,256 | ) |             | $ | (39,390  | )
|                                     |  |              |          |   |             |  









|                                       |  |                  |        |   |                        |   |           |              |  |                |                        |   |                |            |         |   |              |   |       |      |  |   |        |   |  |   |        |   |  |   |        |  
|-------------------------------------- |  | ---------------- | ------ | - | ---------------------- | - | --------- | ------------ |  | -------------- | ---------------------- | - | -------------- | ---------- | ------- | - | ------------ | - | ----- | ---- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                       |  | Pension Benefits |        |   | Other Benefits         |  
|                                       |  |                  |        |   |                        |  
|                                       |  | Successor        |        |   |                        |   | Successor |              |  |               
|                                       |  | Registrant       |        |   | Predecessor Registrant |   |           | Registrant   |  |                | Predecessor Registrant |  
|                                       |  |                  |        |   |                        |   |           |              |  |                |                        |  
|                                       |  | For the Period   |        |   | For the Period         |   |           |              |  | For the Period |                        |   | For the Period |            |         |  
|                                       |  | October 2,       |        |   | January 1,             |   |           |              |  | October 2,     |                        |   | January 1,     |            |         |  
|                                       |  | 2005 to          |        |   | 2005 to                |   |           | December 31, |  |                | 2005 to                |   |                | 2005 to    |         |   | December 31, |  
|                                       |  | December 31,     |        |   | October 1,             |   |           |              |  |                | December 31,           |   |                | October 1, |         |   |              |  
|                                       |  | 2005             |        |   | 2005                   |   |           | 2004         |  |                | 2003                   |   |                | 2005       |         |   | 2005         |   |       | 2004 |  |   | 2003   |  
|                                       |  |                  |        |   |                        |   |           |              |  |                |                        |   |                |            |         |   |              |   |       |      |  |   |        |  
|Service cost                           |  | $                | 2,896  |   |                        | $ | 7,787     |              |  | $              | 9,694                  |   |                | $          | 10,647  |   |              | $ | 255   |      |  | $ | 680    |   |  | $ | 1,212  |   |  | $ | 3,139  |  
|Interest cost                          |  |                  | 5,760  |   |                        |   | 17,601    |              |  |                | 22,740                 |   |                |            | 22,021  |   |              |   | 1,157 |      |  |   | 3,407  |   |  |   | 5,178  |   |  |   | 5,647  |  
|Expected return on plan assets         |  |                  | (5,545 | ) |                        |   | (15,343   | )            |  |                | (19,415                | ) |                |            | (18,318 | ) |              |   | (23   | )    |  |   | (78    | ) |  |   | (74    | ) |  |   | (139   | )
|Amortization of prior service cost     |  |                  |       |   |                        |   | (27       | )            |  |                | (36                    | ) |                |            | (36     | ) |              |   |      |      |  |   | (1,443 | ) |  |   | (1,931 | ) |  |   | (1,429 | )
|Amortization of net loss               |  |                  |       |   |                        |   | 4,976     |              |  |                | 5,294                  |   |                |            | 5,372   |   |              |   |      |      |  |   | 1,843  |   |  |   | 2,911  |   |  |   | 2,120  |  
|Recognition of curtailment loss (gain) |  |                  |       |   |                        |   |          |              |  |                |                       |   |                |            | 18      |   |              |   |      |      |  |   |       |   |  |   |       |   |  |   | (1,257 | )
|                                       |  |                  |        |   |                        |   |           |              |  |                |                        |   |                |            |         |   |              |   |       |      |  |   |        |  
|Net periodic cost                      |  | $                | 3,111  |   |                        | $ | 14,994    |              |  | $              | 18,277                 |   |                | $          | 19,704  |   |              | $ | 1,389 |      |  | $ | 4,409  |   |  | $ | 7,296  |   |  | $ | 8,081  |  
|                                       |  |                  |        |   |                        |   |           |              |  |                |                        |   |                |            |         |   |              |   |       |      |  |   |        |  

F-46



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                               |  |                |      |   |  |                        |  |      |              |  |  |      |   |  |  |      |  
|------------------------------ |  | -------------- | ---- | - |  | ---------------------- |  | ---- | ------------ |  |  | ---- | - |  |  | ---- | -
|                               |  | Successor      |      |   |  |                       
|                               |  | Registrant     |      |   |  | Predecessor Registrant | 
|                               |  |                |      |   |  |                        | 
|                               |  | For the Period |      |   |  | For the Period         |  |      |             
|                               |  | October 2,     |      |   |  | January 1,             |  |      |             
|                               |  | 2005 to        |      |   |  | 2005 to                |  |      | December 31, | 
|                               |  | December 31,   |      |   |  | October 1,             |  |      |              | 
|                               |  | 2005           |      |   |  | 2005                   |  |      | 2004         |  |  | 2003 |  
|                               |  |                |      |   |  |                        |  |      |              |  |  |      |  
|Discount rate                  |  |                | 5.75 | % |  |                        |  | 6.00 | %            |  |  | 6.25 | % |  |  | 6.75 | %
|Expected return on plan assets |  |                | 9.00 | % |  |                        |  | 9.00 | %            |  |  | 9.00 | % |  |  | 9.00 | %
|Rate of compensation increase  |  |                | 4.25 | % |  |                        |  | 4.25 | %            |  |  | 4.25 | % |  |  | 4.25 | %



|                              |  |              |      |   |                |                        |  |      |              |  |  |      |  
|----------------------------- |  | ------------ | ---- | - | -------------- | ---------------------- |  | ---- | ------------ |  |  | ---- | -
|                              |  | Successor    |      |   |                |                       
|                              |  | Registrant   |      |   |                | Predecessor Registrant | 
|                              |  |              |      |   |                |                        | 
|                              |  |              |      |   | For the Period |                        |  |     
|                              |  |              |      |   | Ended          |                        |  |     
|                              |  | December 31, |      |   |                | October 1,             |  |      | December 31, | 
|                              |  | 2005         |      |   |                | 2005                   |  |      | 2004         | 
|                              |  |              |      |   |                |                        |  |      |              | 
|Discount rate                 |  |              | 5.75 | % |                |                        |  | 5.75 | %            |  |  | 6.00 | %
|Rate of compensation increase |  |              | 4.25 | % |                |                        |  | 4.25 | %            |  |  | 4.25 | %





|                         |  |              |     |   |  |             |  |     |  
|------------------------ |  | ------------ | --- | - |  | ----------- |  | --- | -
|                         |  | Successor    |     |   |  | Predecessor | 
|                         |  | Registrant   |     |   |  | Registrant  | 
|                         |  |              |     |   |  |             | 
|                         |  | December 31, |    
|                         |  |              |     |   |  |             | 
|                         |  | 2005         |     |   |  | 2004        | 
|                         |  |              |     |   |  |             | 
|Equity investments       |  |              | 56  | % |  |             |  | 56  | %
|Fixed income investments |  |              | 44  | % |  |             |  | 44  | %
|                         |  |              |     |   |  |             | 
|                         |  |              | 100 | % |  |             |  | 100 | %
|                         |  |              |     |   |  |             | 



F-47



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                    |  |             |       |  |             |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----- |  | ----------- | - | ------ | -
|                                                                                                                    |  | 1% Increase |       |  | 1% Decrease |  
|                                                                                                                    |  |             |       |  |             |  
|Effect on total of service and interest cost components of net
    periodic postretirement health care benefit cost |  | $           | 423   |  |             | $ | (356   | )
|Effect on the health care component of the accumulated
    postretirement benefit obligation                        |  | $           | 6,921 |  |             | $ | (5,867 | )



|             |  |          |         |                |          |   |        |          |  |   |       | 
|------------ |  | -------- | ------- | -------------- | -------- | - | ------ | -------- |  | - | ----- | 
|             |  |          |         | Other Benefits |         
|             |  |          |         |                |         
|             |  |          |         | Gross          |          |   |       
|             |  | Pension  |         |                | Benefit  |   |        | Subsidy  | 
|             |  | Benefits |         |                | Payments |   |        | Receipts | 
|             |  |          |         |                |          |   |        |          | 
|2006         |  | $        | 21,346  |                |          | $ | 4,959  |          |  | $ | 309   | 
|2007         |  |          | 22,072  |                |          |   | 5,128  |          |  |   | 357   | 
|2008         |  |          | 22,869  |                |          |   | 5,362  |          |  |   | 392   | 
|2009         |  |          | 23,416  |                |          |   | 5,591  |          |  |   | 429   | 
|2010         |  |          | 23,872  |                |          |   | 5,775  |          |  |   | 465   | 
|2011 to 2015 |  |          | 127,300 |                |          |   | 31,776 |          |  |   | 2,877 | 









| |                      
| | ---------------------
| | Employee Savings Plan



F-48



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                           
|--- | ------------------------------------------
|18. | Financial Instruments and Foreign Currency



| |                      
| | ---------------------
| | Financial Instruments







|                                      |  |                      |         |  |                        |   |          |        |  |   |            |  |  |   |         | 
|------------------------------------- |  | -------------------- | ------- |  | ---------------------- | - | -------- | ------ |  | - | ---------- |  |  | - | ------- | 
|                                      |  | Successor Registrant |         |  | Predecessor Registrant |  
|                                      |  |                      |         |  |                        |  
|                                      |  | December 31,         |        
|                                      |  |                      |        
|                                      |  | 2005                 |         |  | 2004                   |  
|                                      |  |                      |         |  |                        |  
|                                      |  | Carrying             |         |  |                        |   | Carrying |        |  |  
|                                      |  | Amount               |         |  | Fair Value             |   |          | Amount |  |   | Fair Value | 
|                                      |  |                      |         |  |                        |   |          |        |  |   |            | 
|Cash and cash equivalents             |  | $                    | 275,796 |  |                        | $ | 275,796  |        |  | $ | 147,773    |  |  | $ | 147,773 | 
|Supplemental retirement plan assets   |  |                      | 6,637   |  |                        |   | 6,637    |        |  |   | 7,444      |  |  |   | 7,444   | 
|Long-term debt                        |  |                      | 128,191 |  |                        |   | 153,405  |        |  |   | 1,269,977  |  |  |   | 563,000 | 
|Old Loral 6% Series C Preferred Stock |  |                      |        |  |                        |   |         |        |  |   | 187,274    |  |  |   | 1,000   | 
|Old Loral 6% Series D Preferred Stock |  |                      |        |  |                        |   |         |        |  |   | 36,707     |  |  |   |        | 





| |                 
| | ----------------
| | Foreign Currency







|                                            |  |              |       |  |        |   |      | 
|------------------------------------------- |  | ------------ | ----- |  | ------ | - | ---- | 
|                                            |  | Japanese Yen |       |  | U.S. $ |  
|                                            |  |              |       |  |        |  
|Future revenues                             |  | ¥            | 324   |  |        | $ | 2.7  | 
|Future expenditures                         |  |              | 2,178 |  |        |   | 18.5 | 
|Contracts-in-process (unbilled receivables) |  |              | 69    |  |        |   | 0.6  | 

F-49



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2005, SS/ L also had future expenditures in
EUROs of 119,389 ($141,410 U.S.) that were unhedged.



|    |                              
|--- | -----------------------------
|19. | Commitments and Contingencies



| |                  
| | -----------------
| | Financial Matters

We had outstanding letters of credit of approximately
$2.4 million as of December 31, 2005.

Due to the long lead times required to produce purchased parts,
we have entered into various purchase commitments with
suppliers. These commitments aggregated approximately
$346.3 million as of December 31, 2005, and primarily
relate to satellite backlog.

We are obligated to pay $6.7 million over the next four
years to the U.S Department of State pursuant to a consent
agreement entered into by Old Loral and SS/ L.

SS/ L has deferred revenue and accrued liabilities for
performance warranty obligations relating to satellites sold to
customers, which could be affected by future performance. SS/ L
accounts for satellite performance warranties in accordance with
the product warranty provisions of FIN 45, which requires
disclosure, but not initial recognition and measurement, of
performance guarantees. SS/ L estimates the deferred revenue for
its warranty obligations based on historical satellite
performance. SS/ L periodically reviews and adjusts the deferred
revenue and accrued liabilities for warranty reserves based on
the actual performance of each satellite and remaining warranty
period. A reconciliation of such deferred amounts for the
periods October 2, 2005 to December 31, 2005 and
January 1, 2005 to October 1, 2005, and for the years
ended December 31, 2004 and 2003, is as follows (in
millions):

|                                                                                 |  |   |      | 
|-------------------------------------------------------------------------------- |  | - | ---- | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Balance of deferred amounts at January 1,
    2003                               |  | $ | 14.1 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals for deferred amounts issued during the
    period                       |  |   |     | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | 2.2  | 
|                                                                                 |  |   |      | 
|Balance of deferred amounts at December 31,
    2003                             |  |   | 16.3 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals for deferred amounts issued during the
    period                       |  |   | 2.9  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | 6.8  | 
|                                                                                 |  |   |      | 
|Balance of deferred amounts at December 31,
    2004                             |  |   | 26.0 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals for deferred amounts issued during the
    period                       |  |   | 1.3  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | 10.5 | 
|                                                                                 |  |   |      | 
|Balance of deferred amounts at October 1,
    2005                               |  |   | 37.8 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals for deferred amounts issued during the
    period                       |  |   |     | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | 2.7  | 
|                                                                                 |  |   |      | 
|Balance of deferred amounts at December 31,
    2005                             |  | $ | 40.5 | 
|                                                                                 |  |   |      | 

Many of SS/ Ls satellite contracts require SS/ L to
provide vendor financing to its customers or, more customarily,
for customers to pay a portion of the purchase price for the
satellite over time subject to performance of the satellite
(orbitals) or a combination of these terms. Although
not always the case, in many cases these arrangements are
provided to customers that are start-up companies or companies
in the early stages of building their businesses. As of
December 31, 2005, SS/ L had recorded vendor financing and
orbital receivables totaling $99 million (of which
$57 million was from start-up or early stage companies). Of
this $57 million, SS/ L had received payments of
$49 million as of March 2006. There can be no assurance
that these companies or their businesses will be successful and,
accordingly, that these customers will be able to fulfill their
payment obligations under their contracts with SS/ L. Moreover,
SS/ Ls receipt of orbital

F-50



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

payments is subject to the continued performance of its
satellites generally over the contractually stipulated life of
the satellites. As of December 31, 2005, SS/ L had recorded
orbital receivables of $41.7 million, payable over
16 years. Since these orbital receivables could be affected
by future satellite performance, there can be no assurance that
SS/ L will be able to collect all or a portion of these
receivables.

Loral Skynet has in the past entered into prepaid leases, sales
contracts and other arrangements relating to transponders on its
satellites. Under the terms of these agreements, as of
December 31, 2005, Loral Skynet continues to provide for a
warranty for periods of two years to eight years for sales
contracts and other arrangements (seven transponders), and
prepaid leases (two transponders). Depending on the contract,
Loral Skynet may be required to replace transponders which do
not meet operating specifications. Substantially all customers
are entitled to a refund equal to the reimbursement value if
there is no replacement, which is normally covered by insurance.
In the case of the sales contracts, the reimbursement value is
based on the original purchase price plus an interest factor
from the time the payment was received to acceptance of the
transponder by the customer, reduced on a straight-line basis
over the warranty period. In the case of prepaid leases, the
reimbursement value is equal to the unamortized portion of the
lease prepayment made by the customer. For other arrangements,
in the event of transponder failure where replacement capacity
is not available on the satellite, one customer is not entitled
to reimbursement, and the other customers reimbursement
value is based on contractually prescribed amounts that decline
over time.



| |                  
| | -----------------
| | Satellite Matters

Satellites are built with redundant components or additional
components to provide excess performance margins to permit their
continued operation in case of component failure, an event that
is not uncommon in complex satellites. Twenty of the satellites
built by SS/ L and launched since 1997, three of which are owned
and operated by our subsidiaries or affiliates, have experienced
losses of power from their solar arrays. There can be no
assurance that one or more of the affected satellites will not
experience additional power loss. In the event of additional
power loss, the extent of the performance degradation, if any,
will depend on numerous factors, including the amount of the
additional power loss, the level of redundancy built into the
affected satellites design, when in the life of the
affected satellite the loss occurred, how many transponders are
then in service and how they are being used. It is also possible
that one or more transponders on a satellite may need to be
removed from service to accommodate the power loss and to
preserve full performance capabilities on the remaining
transponders. A complete or partial loss of a satellites
capacity could result in a loss of orbital incentive payments to
SS/ L and, in the case of satellites owned by Loral Skynet and
its affiliates, a loss of revenues and profits. With respect to
satellites under construction and the construction of new
satellites, based on its investigation of the matter, SS/ L has
identified and has implemented remediation measures that SS/ L
believes will prevent newly launched satellites from
experiencing similar anomalies. SS/ L does not expect that
implementation of these measures will cause any significant
delay in the launch of satellites under construction or the
construction of new satellites. Based upon information currently
available, including design redundancies to accommodate small
power losses, and that no pattern has been identified as to the
timing or specific location within the solar arrays of the
failures, we believe that this matter will not have a material
adverse effect on our condensed consolidated financial position
or our results of operations, although no assurance can be
provided.

In November 2004, Intelsat Americas 7 (formerly Telstar
7) experienced an anomaly which caused it to completely
cease operations for several days before it was partially
recovered. Four other satellites manufactured by SS/ L for other
customers have designs similar to Intelsat Americas 7 and,
therefore, could be susceptible to similar anomalies in the
future. A partial or complete loss of these satellites could
result in the incurrence of warranty payments by SS/ L of up to
$18 million.

Certain of our satellites are currently operating using back-up
components because of the failure of primary components. If the
back-up components fail, however, and we are unable to restore
redundancy, these

F-51



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

satellites could lose capacity or be total losses, which would
result in a loss of revenues and profits. For example, in July
2005, in the course of conducting our normal operations, we
determined that the primary command receiver on two of our
satellites had failed. These satellites, which are equipped with
redundant command receivers designed to provide full functional
capability through the full design life of the satellite,
continue to function normally and service to customers has not
been affected. Moreover, SS/ L has successfully completed
implementation of a software workaround that fully restores the
redundant command receiver function on each of these satellites.

Two satellites owned by us have the same solar array
configuration as one other 1300-class satellite manufactured by
SS/ L that has experienced an event with a large loss of solar
power. SS/ L believes that this failure is an isolated event and
does not reflect a systemic problem in either the satellite
design or manufacturing process. Accordingly, we do not believe
that this anomaly will affect our two satellites with the same
solar array configuration. The insurance coverage for these
satellites, however, provides for coverage of losses due to
solar array failures only in the event of a capacity loss of 75%
or more for one satellite and 80% or more for the other
satellite.

We normally insure the on-orbit performance of the satellites in
our Satellite Services segment. Typically such insurance is for
one year subject to renewal. It may be difficult, however, to
obtain full insurance coverage for satellites that have, or are
part of a family of satellites that has, experienced problems in
the past. We cannot assure that, upon the expiration of an
insurance policy, we will be able to renew the policy on terms
acceptable to us. Insurers may require either exclusions of
certain components or may place limitations on coverage in
connection with insurance renewals for such satellites in the
future. The loss of a satellite would have a material adverse
effect on our financial performance and may not be adequately
mitigated by insurance.

In connection with an agreement reached in 1999 and an overall
settlement reached in February 2005 with ChinaSat relating to
the delayed delivery of ChinaSat 8, we have provided
ChinaSat with usage rights to two Ku-band transponders on
Telstar 10 for the life of the satellite and to one Ku-band
transponder on Telstar 18 for the life of the Telstar 10
satellite plus two years.

SS/ L has completed repairs on a satellite that was damaged in
transit, a significant portion of which was recovered through
insurance coverage. The cost of repairs less the negotiated
insurance recoveries have been reflected in these financial
statements.

SS/ L has contracted to build a spot beam, Ka-band satellite for
a customer planning to offer broadband data services directly to
the consumer. As of December 31, 2005, SS/ L had billed and
unbilled accounts receivable and vendor financing arrangements
of $56 million (including accrued interest of
$18 million) with this customer. In January 2006, the
customer paid SS/ L $48.9 million, representing all
outstanding accounts receivable and vendor financing, and the
security arrangements that the customer had granted to SS/ L to
secure payment of the outstanding vendor financing were
terminated.



| |                   
| | ------------------
| | Regulatory Matters

To prevent frequency interference, the regulatory process
requires potentially lengthy and costly negotiations with third
parties who operate or intend to operate satellites at or near
the locations of our satellites. For example, as part of our
coordination efforts on Telstar 12, we agreed to provide
four 54 MHz transponders on Telstar 12 to Eutelsat for the
life of the satellite and have retained risk of loss with
respect to those transponders. In the event of an unrestored
failure, under Loral Skynets related warranty obligation,
Eutelsat would be entitled to compensation on contractually
prescribed amounts that decline over time. We also granted
Eutelsat the right to acquire, at cost, four transponders on the
replacement satellite for Telstar 12. We continue to be in
discussions with other operators on coordination issues. We may
be required to make additional financial concessions in the
future in connection with our coordination efforts. The failure
to reach

F-52



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

an appropriate arrangement with a third party having priority
rights at or near one of our orbital slots may result in
substantial restrictions on the use and operation of our
satellite at that location.

SS/ L is required to obtain licenses and enter into technical
assistance agreements, presently under the jurisdiction of the
State Department, in connection with the export of satellites
and related equipment, and with the disclosure of technical data
to foreign persons. Due to the relationship between launch
technology and missile technology, the U.S. government has
limited, and is likely in the future to limit, launches from
China and other foreign countries. Delays in obtaining the
necessary licenses and technical assistance agreements have in
the past resulted in, and may in the future result in, the delay
of SS/ Ls performance on its contracts, which could result
in the cancellation of contracts by its customers, the
incurrence of penalties or the loss of incentive payments under
these contracts.



| |                   
| | ------------------
| | Lease Arrangements

We lease certain facilities, equipment and transponder capacity
under agreements expiring at various dates. Certain leases
covering facilities contain renewal and/or purchase options
which may be exercised by us. Rent expense, net of sublease
income is as follows (in thousands):

|                                     |  |       |        |          |  |          |      |   |  |   |        | 
|------------------------------------ |  | ----- | ------ | -------- |  | -------- | ---- | - |  | - | ------ | 
|                                     |  | Gross |        | Sublease |  |         
|                                     |  | Rent  |        | Income   |  | Net Rent
|                                     |  |       |        |          |  |         
|October 2, 2005 to December 31, 2005 |  | $     | 6,536  |          |  | $        | (38  | ) |  | $ | 6,498  | 
|                                    
|                                    
|                                    
|                                    
|January 1, 2005 to October 1, 2005   |  | $     | 20,057 |          |  | $        | (261 | ) |  | $ | 19,796 | 
|                                    
|                                    
|                                    
|                                    
|Year ended December 31, 2004         |  | $     | 36,565 |          |  | $        | (328 | ) |  | $ | 36,237 | 
|                                    
|                                    
|                                    
|                                    
|Year ended December 31, 2003         |  | $     | 42,580 |          |  | $        | (974 | ) |  | $ | 41,606 | 

Future minimum payments, by year and in the aggregate under
operating leases with initial or remaining terms of one year or
more consisted of the following as of December 31, 2005 (in
thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|          
|          
|          
|          
|2006       |  | $ | 22,225  | 
|          
|          
|          
|          
|2007       |  |   | 19,102  | 
|          
|          
|          
|          
|2008       |  |   | 15,993  | 
|          
|          
|          
|          
|2009       |  |   | 14,068  | 
|          
|          
|          
|          
|2010       |  |   | 12,566  | 
|          
|          
|          
|          
|Thereafter |  |   | 39,812  | 
|           |  |   |         | 
|           |  | $ | 123,766 | 
|           |  |   |         | 

Future minimum payments have been reduced by minimum sublease
rentals of $0.3 million due in the future under
non-cancelable subleases.



| |                  
| | -----------------
| | Legal Proceedings



| |                                    
| | -----------------------------------
| | Class Action Securities Litigations

In August 2003, plaintiffs Robert Beleson and Harvey Matcovsky
filed a purported class action complaint against Bernard L.
Schwartz in the United States District Court for the Southern
District of New York. The complaint seeks, among other things,
damages in an unspecified amount and reimbursement of
plaintiffs reasonable costs and expenses. The complaint
alleges (a) that Mr. Schwartz violated
Section 10(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Rule 10b-5 promulgated
thereunder, by making material misstatements or failing to state
material facts about our financial condition relating to the
sale of assets to Intelsat and our Chapter 11 filing and
(b) that Mr. Schwartz is secondarily liable for these
alleged misstatements and omissions under Section 20(a) of
the Exchange Act as an alleged controlling person of

F-53



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Old Loral. The class of plaintiffs on whose behalf the lawsuit
has been asserted consists of all buyers of Old Loral common
stock during the period from June 30, 2003 through
July 15, 2003, excluding the defendant and certain persons
related to or affiliated with him. In November 2003, three other
complaints against Mr. Schwartz with substantially similar
allegations were consolidated into the Belesoncase. In
February 2004, a motion to dismiss the complaint in its entirety
was denied by the court. Defendant filed an answer in March
2004. The case has been stayed until mid-July 2006. Since this
case was brought by or on behalf of holders of the common stock
of Old Loral and was not brought against Old Loral, we believe,
although no assurance can be given, that, to the extent that any
award is ultimately granted to the plaintiffs in this action,
the liability of New Loral, if any, with respect thereto is
limited solely to claims for indemnification against Old Loral
by the defendant as described below under Indemnification
Claims.

In November 2003, plaintiffs Tony Christ, individually and as
custodian for Brian and Katelyn Christ, Casey Crawford, Thomas
Orndorff and Marvin Rich, filed a purported class action
complaint against Bernard L. Schwartz and Richard J. Townsend in
the United States District Court for the Southern District of
New York. The complaint seeks, among other things, damages in an
unspecified amount and reimbursement of plaintiffs
reasonable costs and expenses. The complaint alleges
(a) that defendants violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder, by
making material misstatements or failing to state material facts
about Old Lorals financial condition relating to the
restatement in 2003 of the financial statements for the second
and third quarters of 2002 to correct accounting for certain
general and administrative expenses and the alleged improper
accounting for a satellite transaction with APT Satellite
Company Ltd. and (b) that each of the defendants is
secondarily liable for these alleged misstatements and omissions
under Section 20(a) of the Exchange Act as an alleged
controlling person of Old Loral. The class of
plaintiffs on whose behalf the lawsuit has been asserted
consists of all buyers of Old Loral common stock during the
period from July 31, 2002 through June 29, 2003,
excluding the defendants and certain persons related to or
affiliated with them. In October 2004, a motion to dismiss the
complaint in its entirety was denied by the court. Defendants
filed an answer to the complaint in December 2004. The case has
been stayed until mid-July 2006. Since this case was brought by
or on behalf of holders of the common stock of Old Loral and was
not brought against Old Loral, we believe, although no assurance
can be given, that to the extent that any award is ultimately
granted to the plaintiffs in this action, the liability of New
Loral, if any, with respect thereto is limited solely to claims
for indemnification against Old Loral by the defendants as
described below under Indemnification Claims.



| |                              
| | -----------------------------
| | Class Action ERISA Litigation

In April 2004, two separate purported class action lawsuits
filed in the United States District Court for the Southern
District of New York by former employees of Old Loral and
participants in the Old Loral Savings Plan (the Savings
Plan) were consolidated into one action titled In re:
Loral Space ERISA Litigation. In July 2004, plaintiffs in
the consolidated action filed an amended consolidated complaint
against the members of the Loral Space & Communications
Ltd. Savings Plan Administrative Committee and certain existing
and former members of the Board of Directors of SS/ L, including
Bernard L. Schwartz. The amended complaint seeks, among other
things, damages in the amount of any losses suffered by the
Savings Plan to be allocated among the participants
individual accounts in proportion to the accounts losses,
an order compelling defendants to make good to the Savings Plan
all losses to the Savings Plan resulting from defendants
alleged breaches of their fiduciary duties and reimbursement of
costs and attorneys fees. The amended complaint alleges
(a) that defendants violated Section 404 of the
Employee Retirement Income Security Act (ERISA), by
breaching their fiduciary duties to prudently and loyally manage
the assets of the Savings Plan by including Old Loral common
stock as an investment alternative and by providing matching
contributions under the Savings Plan in Old Loral stock,
(b) that the director defendants violated Section 404
of ERISA by breaching their fiduciary duties to monitor the
committee defendants and to provide them with accurate
information, (c) that defendants violated Sections 404
and 405 of ERISA by failing to provide

F-54



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

complete and accurate information to Savings Plan participants
and beneficiaries, and (d) that defendants violated
Sections 404 and 405 of ERISA by breaching their fiduciary
duties to avoid conflicts of interest. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
participants in or beneficiaries of the Savings Plan at any time
between November 4, 1999 and the present and whose accounts
included investments in Old Loral stock. In September 2005, the
plaintiffs agreed in principle to settle this case for
$7.5 million payable solely from proceeds of insurance
coverage and without recourse to the individual defendants. The
District Court has suspended further proceedings in this case
pending the outcome of the insurance litigation referred to
below and final approval of the settlement. Plaintiffs have also
filed a proof of claim against Old Loral with respect to this
case and have agreed that in no event will their claim against
Old Loral with respect to this case exceed $22 million. If
the settlement of this case does not, for whatever reason, go
forward and plaintiffs claim ultimately becomes an allowed
claim under the Plan of Reorganization, plaintiffs would be
entitled to a distribution under the Plan of Reorganization of
New Loral common stock based upon the amount of the allowed
claim. Any such distribution of stock would be in addition to
the 20 million shares of New Loral common stock being
distributed under the Plan of Reorganization to other creditors.

In addition, two insurers under our directors and officers
liability insurance policies have denied coverage with respect
to the case titled In re: Loral Space ERISA Litigation,
each claiming that coverage should be provided under the
others policy. In December 2004, one of the defendants in
that case filed a lawsuit in the United States District Court
for the Southern District of New York seeking a declaratory
judgment as to his right to receive coverage under the policies.
In March 2005, the insurers filed answers to the complaint and
one of the insurers filed a cross claim against the other
insurer which such insurer answered in April 2005. In August and
October 2005, each of the two potentially responsible insurers
moved separately for judgment on the pleadings, seeking a court
ruling absolving it of liability to provide coverage of the
ERISA action. Those motions are pending, and discovery has
commenced and is ongoing. We believe, although no assurance can
be given, that the liability of New Loral, if any, with respect
to the In re: Loral Space ERISA Litigation case or with
respect to the related insurance coverage litigation is limited
solely to claims for indemnification against Old Loral by the
defendants as described below under Indemnification
Claims and, to the extent that any award is ultimately
granted to the plaintiffs in this action, to distributions under
the Plan of Reorganization as described above.



| |                                                           
| | ----------------------------------------------------------
| | Globalstar Related Class Action Securities
    Litigations

On September 26, 2001, the nineteen separate purported
class action lawsuits filed in the United States District Court
for the Southern District of New York by various holders of
securities of Globalstar Telecommunications Limited
(GTL) and Globalstar against GTL, Old Loral, Bernard
L. Schwartz and other defendants were consolidated into one
action titled In re: Globalstar Securities Litigation. In
November 2001, plaintiffs in the consolidated action filed a
consolidated amended class action complaint against Globalstar,
GTL, Globalstar Capital Corporation, Old Loral and Bernard L.
Schwartz seeking, among other things, damages in an unspecified
amount and reimbursement of plaintiffs costs and expenses.
The complaints alleged (a) that all defendants (except Old
Loral) violated Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about
Globalstars business and prospects, (b) that
defendants Old Loral and Mr. Schwartz are secondarily
liable for these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as alleged
controlling persons of Globalstar, (c) that
defendants GTL and Mr. Schwartz are liable under
Section 11 of the Securities Act of 1933 (the
Securities Act) for untrue statements of material
facts in or omissions of material facts from a registration
statement relating to the sale of shares of GTL common stock in
January 2000, (d) that defendant GTL is liable under
Section 12(2)(a) of the Securities Act for untrue
statements of material facts in or omissions of material facts
from a prospectus and prospectus supplement relating to the sale
of shares of GTL common stock in January 2000, and (e) that
defendants Old Loral and Mr. Schwartz

F-55



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

are secondarily liable under Section 15 of the Securities
Act for GTLs primary violations of Sections 11 and
12(2)(a) of the Securities Act as alleged controlling
persons of GTL. The class of plaintiffs on whose behalf
the lawsuit has been asserted consists of all buyers of
securities of Globalstar, Globalstar Capital and GTL during the
period from December 6, 1999 through October 27, 2000,
excluding the defendants and certain persons related to or
affiliated with them. This case was preliminarily settled by
Mr. Schwartz in July 2005 for $20 million with final
approval of the settlement in December 2005, and he has
commenced a lawsuit against Globalstars directors and
officers liability insurers seeking to recover the full
settlement amount plus legal fees and expenses incurred in
enforcing his rights under Globalstars directors and
officers liability insurance policy. In addition,
Mr. Schwartz has filed a proof of claim against Old Loral
asserting a general unsecured prepetition claim for, among other
things, indemnification relating to this case. Mr. Schwartz
and Old Loral have agreed that in no event will his claim
against Old Loral with respect to the settlement of this case
exceed $25 million. If Mr. Schwartzs claim
ultimately becomes an allowed claim under the Plan of
Reorganization and assuming he is not reimbursed by
Globalstars insurers, Mr. Schwartz would be entitled
to a distribution under the Plan of Reorganization of New Loral
common stock based upon the amount of the allowed claim. Any
such distribution of stock would be in addition to the
20 million shares of New Loral common stock being
distributed under the Plan of Reorganization to other creditors.
We believe, although no assurance can be given, that New Loral
will not incur any material loss as a result of this settlement.

On March 2, 2002, the seven separate purported class action
lawsuits filed in the United States District Court for the
Southern District of New York by various holders of Old Loral
common stock against Old Loral, Bernard L. Schwartz and Richard
J. Townsend were consolidated into one action titled In re:
Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint seeking, among other things, damages in an unspecified
amount and reimbursement of plaintiffs costs and expenses.
The complaint alleged (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, by making material misstatements or
failing to state material facts about Old Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of Old
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Old Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related to or affiliated with them. After oral argument
on a motion to dismiss filed by Old Loral and
Messrs. Schwartz and Townsend, in June 2003, the plaintiffs
filed an amended complaint alleging essentially the same claims
as in the original amended complaint. In February 2004, a motion
to dismiss the amended complaint was granted by the court
insofar as Messrs. Schwartz and Townsend are concerned.
Pursuant to the Plan of Reorganization, plaintiffs received no
distribution with respect to their claims in this lawsuit.

In addition, the primary insurer under the directors and
officers liability insurance policy of Old Loral has denied
coverage under the policy for the In re: Loral
Space & Communications Ltd. Securities Litigationcase and, on March 24, 2003, filed a lawsuit in the
Supreme Court of New York County seeking a declaratory judgment
upholding its coverage position. In May 2003, Old Loral and the
other defendants served an answer and filed counterclaims
seeking a declaration that the insurer is obligated to provide
coverage and damages for breach of contract and the implied
covenant of good faith. In May 2003, Old Loral and the other
defendants also filed a third party complaint against the excess
insurers seeking a declaration that they are obligated to
provide coverage. Although we believe that the insurers have
wrongfully denied coverage, the parties have voluntarily agreed
not to proceed further with the action at this time, subject to
their right to actively pursue the litigation at a later date.
We believe, although no assurance can be given, that the
liability of New Loral, if any, with respect to the In re:
Loral Space & Communications Ltd. Securities Litigationcase or with respect to the related insurance coverage
litigation is limited solely to claims for indemnification
against Old Loral by the defendants as described below under
Indemnification Claims.

F-56



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Indemnification Claims

Old Loral was obligated to indemnify its directors and officers
for any losses or costs they may incur as a result of the
lawsuits described above in Class Action Securities
Litigations, Class Action ERISA Litigation and Globalstar
Related Class Action Securities Litigations. The Plan of
Reorganization provides that the direct liability of New Loral
post-emergence in respect of such indemnity obligation is
limited to the In re: Loral Space ERISA Litigationand
In re: Loral Space & Communications Ltd. Securities
Litigationcases in an aggregate amount of
$2.5 million. In addition, most directors and officers have
filed proofs of claim in unliquidated amounts with respect to
the prepetition indemnity obligations of the Debtors. The
Debtors and these directors and officers, including
Mr. Schwartz with respect to all claims he may have other
than the Globalstar settlement referred to above, have agreed
that in no event will their indemnity claims against Old Loral
and Loral Orion in the aggregate exceed $25 million and
$5 million, respectively. If any of these claims ultimately
becomes an allowed claim under the Plan of Reorganization, the
claimant would be entitled to a distribution under the Plan of
Reorganization of New Loral common stock based upon the amount
of the allowed claim. Any such distribution of stock would be in
addition to the 20 million shares of New Loral common stock
being distributed under the Plan of Reorganization to other
creditors. We believe, although no assurance can be given, that
New Loral will not incur any substantial losses as a result of
these claims.



| |                       
| | ----------------------
| | Reorganization Matters

In connection with our Plan of Reorganization, certain claims
have been filed against Old Loral and its Debtor Subsidiaries,
the validity or amount of which we dispute. We are in the
process of resolving these disputed claims, which may involve
litigation in the Bankruptcy Court. To the extent any disputed
claims become allowed claims, the claimants would be entitled to
distributions under the Plan of Reorganization based upon the
amount of the allowed claim, payable either in cash for claims
against SS/ L or Loral SpaceCom or in New Loral common stock for
all other claims. We have accrued only the amount we believe is
valid for disputed claims payable in cash, although there can be
no assurance that this amount will be sufficient to cover all
such claims that ultimately become allowed claims. We have
reserved 1.3 million of the 20 million shares of New
Loral Common Stock distributable under the Plan of
Reorganization for disputed claims that may ultimately be
payable in Common Stock. To the extent that disputed claims do
not become allowed claims, shares held in reserve on account of
such claims will be distributed pursuant to the Plan of
Reorganization pro rata to claimants with allowed claims.

Confirmation of our Plan of Reorganization was opposed by the
Official Committee of Equity Security Holders (the Equity
Committee) appointed in the Chapter 11 Cases and by
the self-styled Loral Stockholders Protective Committee (the
LSPC). Shortly before the hearing to consider
confirmation of the Plan of Reorganization, the Equity Committee
also filed a motion seeking authority to prosecute an action on
behalf of the estates of Old Loral and its debtor subsidiaries
seeking to unwind as fraudulent, a guarantee provided by Old
Loral in 2001, of certain indebtedness of Loral Orion (the
Motion to Prosecute). By separate Orders dated
August 1, 2005, the Bankruptcy Court confirmed the Plan of
Reorganization (the Confirmation Order) and denied
the Motion to Prosecute (the Denial Order). On or
about August 10, 2005, the LSPC appealed (the
Appeal) to the United States District Court for the
Southern District of New York (the District Court)
the Confirmation Order and the Denial Order. On February 3,
2006, we filed with the District Court a motion to dismiss the
Appeal.

On or about January 27, 2006, the LSPC filed with the
Bankruptcy Court a motion pursuant to section 1144 of the
Bankruptcy Code (the Revocation Motion), pursuant to
which the LSPC seeks revocation of the Confirmation Order. On
February 6, 2006, we filed an objection to the Revocation
Motion, in which the we objected to the relief sought in the
Revocation Motion and requested that the Bankruptcy Court impose
sanctions against the LSPC. A hearing on the Revocation Motion
currently is scheduled for April 10, 2006.

F-57



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At a hearing held on March 29, 2005, the Bankruptcy Court
denied the Motion of the LSPC for a Court Order for Relief
From Automatic Stay and Order for the Annual Election of the
Loral Board of Directors (the Election
Motion). Pursuant to the Election Motion, the LSPC sought
an order compelling Old Loral to hold an annual meeting of
shareholders. Although the Bankruptcy Court did not enter its
Order denying the Election Motion until March 31, 2005, on
March 30, 2005, the LSPC filed with the Bankruptcy Court a
Notice of Appeal of the Bankruptcy Courts denial of the
Election Motion (the Shareholder Meeting Appeal).
This appeal is currently on the courts active calendar,
and the LSPC has been instructed to file its brief. The court
has stated, however, that we need not respond to that brief
until further notice from the court, pending resolution of the
motion to dismiss the appeal relating to the Confirmation Order
and the Denial Order.

In November 2005, a shareholder of Old Loral on behalf of the
LSPC filed with the FCC a petition for reconsideration of the
FCCs approval of the transfer of our FCC licenses from Old
Loral to reorganized Loral in connection with the implementation
of our Plan of Reorganization and a request for investigation by
the FCC into the financial matters and actions of the Company
(the FCC Appeal). In December 2005, we filed with
the FCC our opposition to the FCC Appeal.



| |                             
| | ----------------------------
| | Other and Routine Litigation

In October 2002, National Telecom of India Ltd.
(Natelco) filed suit against Old Loral and a
subsidiary in the United States District Court for the Southern
District of New York. The suit relates to a joint venture
agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a Loral Orion subsidiary, the effectiveness of
which was subject to express conditions precedent. In 1999, ONS
Mauritius had notified Natelco that Natelco had failed to
satisfy those conditions precedent. In Natelcos amended
complaint filed in March 2003, Natelco has alleged wrongful
termination of the joint venture agreement, has asserted claims
for breach of contract and fraud in the inducement and is
seeking damages and expenses in the amount of $97 million.
Natelco has filed a proof of claim in the Chapter 11 Cases
and, in response, we have filed an objection stating our belief
that the claims are without merit. The Bankruptcy Court has
assumed jurisdiction over this claim. After a hearing on
March 15, 2006, the Bankruptcy Court granted both our
motion for summary judgment and our motion to dismiss with
respect to Natelcos claim for breach of contract. The
Bankruptcy Court denied our motion for summary judgment and
requested further briefing by March 31, 2006 with respect
to our motion to dismiss Natelcos fraudulent inducement
claim and indicated that it would decide the motion to dismiss
with respect to that claim after receipt of such briefs. We
believe that, if Natelcos pre-petition unsecured claim
ultimately becomes an allowed claim, the liability of New Loral
would be limited solely to a distribution of New Loral common
stock under the Plan of Reorganization based upon the amount of
the allowed claim.

SS/ L has entered into several long-term launch services
agreements with various launch providers to secure future
launches for its customers, including Loral and its affiliates.
SS/ L had launch services agreements with International Launch
Services (ILS) which covered a number of launches,
three of which remained open. In November 2002, SS/ L elected to
terminate one of those future launches, which had a termination
liability equal to SS/ Ls deposit of $5 million.
Subsequently, SS/ L received a letter from ILS alleging SS/
Ls breach of the agreements and purporting to terminate
the launch service agreements and all remaining launches.
Despite ILSs wrongful termination of the agreements and
all remaining launches, to protect its interest, SS/ L also
terminated a second launch, which had a termination liability
equal to its deposit of $5 million, but reserved all of its
rights against ILS. As a result, SS/ L recognized a non-cash
charge to earnings of $10 million in the fourth quarter of
2002 with respect to the two terminated launches. In June 2003,
to protect its interest, SS/ L also terminated a third launch,
which had a termination liability equal to $23.5 million,
and SS/ L recognized a non-cash charge to earnings of
$23.5 million in the second quarter of 2003 with respect to
this launch. SS/ L also reserved all of its rights at that time
against ILS. In April 2004, SS/ L commenced an adversary
proceeding against ILS in the Bankruptcy Court to seek recovery
of

F-58



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$37.5 million of its deposits. In June 2004, ILS filed
counterclaims in the Bankruptcy Court, and, in January 2005, the
Bankruptcy Court dismissed two of ILSs four counterclaims.
In the two remaining counterclaims, ILS is seeking to recover
damages, in an unspecified amount, as a result of our alleged
failure to assign to ILS two satellite launches and
$38 million in lost revenue due to our alleged failure to
comply with a contractual obligation to assign to ILS the launch
of another satellite. After a hearing in October 2005 on cross
motions for summary judgment, the Bankruptcy Court ruled that
SS/ L is entitled to recover from ILS at least $9 million,
representing the excess of the deposits that SS/ L paid to ILS
over the termination liabilities. The Bankruptcy Court further
ruled that this $9 million payment is subject to ILSs
counterclaims which we believe are without merit and against
which we intend to defend vigorously. In addition, the
Bankruptcy Court ruled that ILS wrongfully terminated the launch
service agreements with SS/ L but that whether SS/ L is entitled
to the $28.5 million in remaining deposits involves factual
questions that must be the subject of a trial after further
discovery. We do not believe that this matter will have a
material adverse effect on our consolidated financial position
or results of operations, although no assurance can be provided.

In March 2001, Loral entered into an agreement (the
Rainbow DBS Sale Agreement) with Rainbow DBS
Holdings, Inc. (Rainbow Holdings) pursuant to which
Loral agreed to sell to Rainbow Holdings its interest in Rainbow
DBS Company, LLC (formerly R/ L DBS Company, LLC, Rainbow
DBS) for a purchase price of $33 million plus
interest at an annual rate of 8% from April 1, 2001.
Lorals receipt of this purchase price is, however,
contingent on the occurrence of certain events, including
without limitation, the sale of substantially all of the assets
of Rainbow DBS. At the time of the Rainbow DBS Sale Agreement,
Lorals investment in Rainbow DBS had been recorded at zero
and Loral did not record a receivable or gain from this sale.
During the quarter ended March 31, 2005, Rainbow DBS
entered into an agreement to sell its Rainbow 1 satellite and
related assets to EchoStar Communications Corporation, which
sale was consummated in November 2005. Rainbow Holdings,
however, has informed Loral that it does not believe that Loral
is entitled to receive an immediate payment of the purchase
price under the Rainbow DBS Sale Agreement as a result of the
EchoStar sale transaction. Loral disputes Rainbow Holdings
interpretation of the agreement and, in September 2005,
commenced a lawsuit in the Supreme Court of the State of New
York to enforce its rights thereunder. Moreover, a third party
has asserted a prepetition claim against Loral in the amount of
$3 million with respect to the purchase price.

We are subject to various other legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course
of business. Although the outcome of these legal proceedings and
claims cannot be predicted with certainty, we do not believe
that any of these other existing legal matters will have a
material adverse effect on our consolidated financial position
or our results of operations.



|    |         
|--- | --------
|20. | Segments

We are organized into two operating segments: Satellite Services
and Satellite Manufacturing (see Note 1 regarding our
operating segments and Note 5 regarding the sale of our
North American satellites and related assets).

The common definition of EBITDA is Earnings Before
Interest, Taxes, Depreciation and Amortization. In
evaluating financial performance, we use revenues and operating
income (loss) from continuing operations before depreciation and
amortization, including amortization of unearned stock
compensation, and reorganization expenses due to bankruptcy
(Adjusted EBITDA) as the measure of a segments
profit or loss. Adjusted EBITDA is equivalent to the common
definition of EBITDA before amortization of stock compensation;
reorganization expenses due to bankruptcy; gain on discharge of
pre-petition obligations and fresh-start adjustments, gain
(loss) on investments; other income (expense); equity in net
income (losses) of affiliates, minority interest, net of tax;
income (loss) from discontinued operations, net of taxes;
cumulative effect of change in accounting principle, net of tax,
and extraordinary gain on acquisition of minority interest, net
of tax. Interest expense has been excluded from Adjusted EBITDA
to maintain comparability with the

F-59



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

performance of competitors using similar measures with different
capital structures. During the period we were in
Chapter 11, we only recognized interest expense on the
actual interest payments we made. During this period, we did not
expect to make any further interest payments on our debt
obligations after March 17, 2004, the date we repaid our
secured bank debt. Reorganization expenses due to bankruptcy
were only incurred during the period we were in Chapter 11.
These expenses have been excluded from Adjusted EBITDA to
maintain comparability with our results during periods we were
not in Chapter 11 and with the results of competitors using
similar measures. Adjusted EBITDA should be used in conjunction
with U.S. GAAP financial measures and is not presented as
an alternative to cash flow from operations as a measure of our
liquidity or as an alternative to net income as an indicator of
our operating performance.

We believe the use of Adjusted EBITDA along with U.S. GAAP
financial measures enhances the understanding of our operating
results and is useful to investors in comparing performance with
competitors, estimating enterprise value and making investment
decisions. Adjusted EBITDA allows investors to compare operating
results of competitors exclusive of depreciation and
amortization, net losses of affiliates and minority interest.
Adjusted EBITDA is a useful tool given the significant variation
that can result from the timing of capital expenditures, the
amount of intangible assets recorded, the differences in
assets lives, the timing and amount of investments, and
effects of investments not managed by us. Adjusted EBITDA as
used here may not be comparable to similarly titled measures
reported by competitors. We also use Adjusted EBITDA to evaluate
operating performance of our segments, to allocate resources and
capital to such segments, to measure performance for incentive
compensation programs, and to evaluate future growth
opportunities.

F-60



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




2005 Segment Information


Successor Registrant




|                                                          |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|--------------------------------------------------------- |  | --------- | ----- |  | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                          |  | Satellite |       |  | Satellite     |   |       |              |  |  
|                                                          |  | Services  |       |  | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                             |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|Revenues(2)                                               |  | $         | 36.1  |  |               | $ | 161.0 |              |  |   |       |   |  | $ | 197.1   |  
|Intersegment revenues                                     |  |           | 0.9   |  |               |   | 0.8   |              |  |   |       |   |  |   | 1.7     |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Operating segment revenues                                |  | $         | 37.0  |  |               | $ | 161.8 |              |  |   |       |   |  |   | 198.8   |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Eliminations(3)                                           |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (1.6    | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Operating revenues as reported                            |  |           |       |  |               |   |       |              |  |   |       |   |  | $ | 197.2   |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before eliminations
    (4)(5)(9) |  | $         | 11.5  |  |               | $ | 11.8  |              |  | $ | (11.0 | ) |  | $ | 12.3    |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Eliminations(3)                                           |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (1.2    | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                           |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 11.1    |  
|Depreciation and
    amortization(6)(7)                   |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (16.0   | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Operating loss from continuing operations                 |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (4.9    | )
|Interest and investment income                            |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 4.1     |  
|Interest expense                                          |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (4.4    | )
|Other expense                                             |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (0.2    | )
|Income tax provision                                      |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (1.8    | )
|Equity loss in affiliates                                 |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (5.4    | )
|Minority interest                                         |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (2.7    | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Loss from continuing operations                           |  |           |       |  |               |   |       |              |  |   |       |   |  | $ | (15.3   | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Other Data:                                               |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|Depreciation and
    amortization(6)(7)                   |  | $         | 12.4  |  |               | $ | 3.2   |              |  | $ | 0.4   |   |  | $ | 16.0    |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Capital
    expenditures(7)                               |  | $         | 2.0   |  |               | $ | 3.0   |              |  | $ |      |   |  | $ | 5.0     |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Total
    assets(7)                                       |  | $         | 741.4 |  |               | $ | 871.5 |              |  | $ | 66.1  |   |  | $ | 1,679.0 |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  

F-61



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Predecessor Registrant




|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | --------- | ----- |  | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                                                  |  | Satellite |       |  | Satellite     |   |       |              |  |  
|                                                                                  |  | Services  |       |  | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                                                     |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|Revenues(2)                                                                       |  | $         | 111.3 |  |               | $ | 318.6 |              |  |   |       |   |  | $ | 429.9   |  
|Intersegment revenues                                                             |  |           | 3.2   |  |               |   | 10.9  |              |  |   |       |   |  |   | 14.1    |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Operating segment revenues                                                        |  | $         | 114.5 |  |               | $ | 329.5 |              |  |   |       |   |  |   | 444.0   |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Eliminations(3)                                                                   |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (14.8   | )
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Operating revenues as reported                                                    |  |           |       |  |               |   |       |              |  |   |       |   |  | $ | 429.2   |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before eliminations
    (4)(5)(9)                         |  | $         | 39.8  |  |               | $ | 15.2  |              |  | $ | (17.3 | ) |  | $ | 37.7    |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Eliminations(3)                                                                   |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (12.3   | )
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                                                   |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 25.4    |  
|Depreciation and
    amortization(6)(7)                                           |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (61.3   | )
|Reorganization expenses due to bankruptcy                                         |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (31.2   | )
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Operating loss from continuing operations                                         |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (67.1   | )
|Gain on discharge of pre-petition obligations and fresh-start
    adjustments(10) |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 1,101.5 |  
|Interest and investment income                                                    |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 6.4     |  
|Interest
    expense(10)                                                          |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (17.2   | )
|Other expense                                                                     |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (0.9    | )
|Income tax
    benefit(10)                                                        |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 10.9    |  
|Equity loss in affiliates                                                         |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (2.8    | )
|Minority interest                                                                 |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 0.1     |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Income from continuing operations                                                 |  |           |       |  |               |   |       |              |  |   |       |   |  | $ | 1,030.9 |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Other Data:                                                                       |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|Depreciation and
    amortization(6)(7)                                           |  | $         | 48.8  |  |               | $ | 11.9  |              |  | $ | 0.6   |   |  | $ | 61.3    |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Capital
    expenditures(7)                                                       |  | $         | 2.2   |  |               | $ | 2.4   |              |  | $ |      |   |  | $ | 4.6     |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  
|Total
    assets(7)                                                               |  | $         | 521.5 |  |               | $ | 510.7 |              |  | $ | 68.8  |   |  | $ | 1,101.0 |  
|                                                                                  |  |           |       |  |               |   |       |              |  |   |       |  

F-62



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2004 Segment Information


|                                                          |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|--------------------------------------------------------- |  | --------- | ----- |  | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                          |  | Satellite |       |  | Satellite     |   |       |              |  |  
|                                                          |  | Services  |       |  | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                             |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|Revenues(2)                                               |  | $         | 136.7 |  |               | $ | 299.6 |              |  |   |       |   |  | $ | 436.3   |  
|Revenues from sales-type lease arrangement (see Note 8)   |  |           | 87.2  |  |               |   |       |              |  |   |       |   |  |   | 87.2    |  
|Intersegment revenues                                     |  |           | 4.5   |  |               |   | 137.0 |              |  |   |       |   |  |   | 141.5   |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Operating segment revenues                                |  | $         | 228.4 |  |               | $ | 436.6 |              |  |   |       |   |  |   | 665.0   |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Eliminations(3)                                           |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (142.9  | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Operating revenues as reported                            |  |           |       |  |               |   |       |              |  |   |       |   |  | $ | 522.1   |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before eliminations
    (4)(5)(9) |  | $         | 23.3  |  |               | $ | (13.5 | )            |  | $ | (34.9 | ) |  | $ | (25.1   | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Eliminations(3)                                           |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (24.0   | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                           |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (49.1   | )
|Depreciation and
    amortization(6)(7)                   |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (134.8  | )
|Reorganization expenses due to bankruptcy                 |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (30.4   | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Operating loss from continuing operations                 |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (214.3  | )
|Interest and investment income                            |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 9.9     |  
|Interest expense                                          |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (2.9    | )
|Other expense                                             |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (0.5    | )
|Income tax provision                                      |  |           |       |  |               |   |       |              |  |   |       |   |  |   | (13.2   | )
|Equity income in affiliates                               |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 46.6    |  
|Minority interest                                         |  |           |       |  |               |   |       |              |  |   |       |   |  |   | 0.1     |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Loss from continuing operations                           |  |           |       |  |               |   |       |              |  |   |       |   |  | $ | (174.3  | )
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Other Data:                                               |  |           |       |  |               |   |       |              |  |   |       |   |  |   |         |  
|Depreciation and
    amortization(6)(7)                   |  | $         | 111.3 |  |               | $ | 22.9  |              |  | $ | 0.6   |   |  | $ | 134.8   |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Capital
    expenditures(7)                               |  | $         | 22.8  |  |               | $ | 1.8   |              |  | $ | 0.2   |   |  | $ | 24.8    |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  
|Total
    assets(7)                                       |  | $         | 780.8 |  |               | $ | 382.2 |              |  | $ | 55.7  |   |  | $ | 1,218.7 |  
|                                                          |  |           |       |  |               |   |       |              |  |   |       |  

F-63



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2003 Segment
Information(8)


|                                                          |  |           |         |  |               |   |        |              |  |   |       |   |  |   |         |  
|--------------------------------------------------------- |  | --------- | ------- |  | ------------- | - | ------ | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                          |  | Satellite |         |  | Satellite     |   |        |              |  |  
|                                                          |  | Services  |         |  | Manufacturing |   |        | Corporate(1) |  |   | Total |  
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Revenues and Adjusted EBITDA:                             |  |           |         |  |               |   |        |              |  |   |       |   |  |   |         |  
|Revenues(2)                                               |  | $         | 150.0   |  |               | $ | 245.0  |              |  |   |       |   |  | $ | 395.0   |  
|Intersegment revenues                                     |  |           | 4.3     |  |               |   | 229.0  |              |  |   |       |   |  |   | 233.3   |  
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Operating segment revenues                                |  | $         | 154.3   |  |               | $ | 474.0  |              |  |   |       |   |  |   | 628.3   |  
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Eliminations(3)                                           |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (236.3  | )
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Operating revenues as reported                            |  |           |         |  |               |   |        |              |  |   |       |   |  | $ | 392.0   |  
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Segment Adjusted EBITDA before eliminations
    (4)(5)(9) |  | $         | 7.5     |  |               | $ | (158.6 | )            |  | $ | (36.0 | ) |  | $ | (187.1  | )
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Eliminations(3)                                           |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (41.9   | )
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Adjusted EBITDA                                           |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (229.0  | )
|Depreciation and
    amortization(6)(7)                   |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (134.6  | )
|Reorganization expenses due to bankruptcy                 |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (25.3   | )
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Operating loss from continuing operations                 |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (388.9  | )
|Interest and investment income                            |  |           |         |  |               |   |        |              |  |   |       |   |  |   | 15.2    |  
|Interest expense                                          |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (14.1   | )
|Other income                                              |  |           |         |  |               |   |        |              |  |   |       |   |  |   | 1.5     |  
|Gain on investment                                        |  |           |         |  |               |   |        |              |  |   |       |   |  |   | 17.9    |  
|Income tax benefit                                        |  |           |         |  |               |   |        |              |  |   |       |   |  |   | 6.4     |  
|Equity losses in affiliates                               |  |           |         |  |               |   |        |              |  |   |       |   |  |   | (51.2   | )
|Loss from continuing operations                           |  |           |         |  |               |   |        |              |  |   |       |   |  | $ | (413.2  | )
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Other Data:                                               |  |           |         |  |               |   |        |              |  |   |       |   |  |   |         |  
|Depreciation and
    amortization(6)(7)                   |  | $         | 106.9   |  |               | $ | 27.2   |              |  | $ | 0.5   |   |  | $ | 134.6   |  
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Capital
    expenditures(7)                               |  | $         | 109.4   |  |               | $ | 6.0    |              |  | $ |      |   |  | $ | 115.4   |  
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  
|Total
    assets(7)                                       |  | $         | 1,983.9 |  |               | $ | 362.0  |              |  | $ | 117.9 |   |  | $ | 2,463.8 |  
|                                                          |  |           |         |  |               |   |        |              |  |   |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support of our
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Includes revenues from affiliates of $4.1 million for the
    period October 2, 2005 to December 31, 2005,
    $10.0 million for the period January 1, 2005 to
    October 1, 2005 and $7.8 million and
    $27.7 million in 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for wholly owned subsidiaries and in the
    year ended December 31, 2003, the reversal of cumulative
    satellite manufacturing sales of $83 million and cost of
    satellite manufacturing of $73 million on a satellite
    program that was changed to a lease arrangement in the third
    quarter of 2003 (see Note 8).                                                                                                                                                                                                                           
|   
|(4) | Satellite manufacturing excludes charges of $24 million for
    the year ended December 31, 2004, as a result of the
    settlement of all orbital receivables on satellites sold to
    Intelsat. This settlement had the effect of reducing future
    orbital receipts by $25 million, including $15 million
    relating to a satellite that was under construction in 2004.
    Consistent with our internal reporting for satellite
    manufacturing, this decrease in contract value for the satellite
    that was under construction in 2004 was not being reflected as a
    decrease in satellite manufacturing revenues. These charges had
    no effect on our consolidated results in 2004.
|   
|(5) | Satellite Services recognized for the year ended
    December 31, 2004, $7.7 million of EBITDA for a
    sales-type lease arrangement for satellite capacity
    (Note 8) and an impairment charge of $12.0 million
    relating to our Telstar 14/ Estrela do Sul-1 satellite and
    related assets to reduce the carrying values to the expected
    proceeds from insurance (Note 8).                                                                                                                                                                                                                                                                                                                 

F-64



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes additional depreciation expense of $9 million for
    2004 and $14 million for 2003, due to accelerating the
    estimated end of depreciable life of our Telstar 11 satellite to
    June 2004 from March 2005. Also, includes amortization of
    unearned stock compensation charges.
|   
|(7) | Amounts are presented after the elimination of intercompany
    profit and include $89.4 million, $250.7 million and
    zero goodwill for Satellite Services, Satellite Manufacturing
    and Corporate, respectively, as of December 31, 2005.                                                 
|   
|(8) | The 2003 segment information has been adjusted to remove the
    operations of the North American satellites and related assets
    sold, which have been reclassified to discontinued operations
    (see Note 5).                                                                              
|   
|(9) | Satellite manufacturing includes:                                                                                                                                                                                                                                                                

|                                                                        |                                                                  |                |      |      |                        |   |      |              |   |   |       |       |   |   |        |       |  
|----------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------- | ---- | ---- | ---------------------- | - | ---- | ------------ | - | - | ----- | ----- | - | - | ------ | ----- | -
|                                                                        |                                                                  | Successor      |      |      |                       
|                                                                        |                                                                  | Registrant     |      |      | Predecessor Registrant |  
|                                                                        |                                                                  |                |      |      |                        |  
|                                                                        |                                                                  | For the Period |      |      | For the Period         |   |      |             
|                                                                        |                                                                  | October 2,     |      |      | January 1,             |   |      | Years Ended  |  
|                                                                        |                                                                  | 2005 to        |      |      | 2005 to                |   |      | December 31, |  
|                                                                        |                                                                  | December 31,   |      |      | October 1,             |   |      |              |  
|                                                                        |                                                                  | 2005           |      |      | 2005                   |   |      | 2004         |   |   | 2003  |      
|                                                                        |                                                                  |                |      |      |                        |   |      |              |   |   |       |      
|                                                                        | Adjusted EBITDA before specific identified charges               |                | $    | 16.0 |                        |   | $    | 29.1         |   |   | $     | 10.8  |   |   | $      | (21.3 | )
|                                                                        | Accrued warranty obligations                                     |                |      | (2.7 | )                      |   |      | (11.8        | ) |   |       | (9.7  | ) |   |        | (2.2  | )
|                                                                        | Write-off of long-term receivables due to contract modifications |                |      |     |                        |   |      |             |   |   |       | (11.3 | ) |   |        | (20.2 | )
|                                                                        | Provisions for inventory obsolescence                            |                |      | (1.5 | )                      |   |      | (2.1         | ) |   |       | (3.3  | ) |   |        | (49.5 | )
|                                                                        | Loss on cancellation of a deposits                               |                |      |     |                        |   |      |             |   |   |       |      |   |   |        | (23.5 | )
|                                                                        | Accrual for Alcatel settlement                                   |                |      |     |                        |   |      |             |   |   |       |      |   |   |        | (13.0 | )
|                                                                        | Loss on acceleration of receipt of long-term receivables         |                |      |     |                        |   |      |             |   |   |       |      |   |   |        | (10.9 | )
|                                                                        | Valuation allowance on vendor financing receivables              |                |      |     |                        |   |      |             |   |   |       |      |   |   |        | (10.0 | )
|                                                                        | Settlement of satellite contract dispute                         |                |      |     |                        |   |      |             |   |   |       |      |   |   |        | (8.0  | )
|                                                                        |                                                                  |                |      |      |                        |   |      |              |   |   |       |      
|Satellite manufacturing segment Adjusted EBITDA before
    eliminations |                                                                  | $              | 11.8 |      |                        | $ | 15.2 |              |   | $ | (13.5 | )     |   | $ | (158.6 | )    
|                                                                        |                                                                  |                |      |      |                        |   |      |              |   |   |       |      



|     |                                                                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | In connection with our emergence from Chapter 11 and our
    adoption of fresh-start accounting on October 1, 2005 we
    recognized a gain on discharge of pre-petition obligations and
    fresh-start adjustments of $1.101 billion, related interest
    expense of $13.2 million and a tax benefit of
    $15.4 million (see Note 4).



| |                             
| | ----------------------------
| | Revenue by Customer Location



|                                                         |  |                |         |  |                        |   |         |              |  |   |         |  |  |   |         |  
|-------------------------------------------------------- |  | -------------- | ------- |  | ---------------------- | - | ------- | ------------ |  | - | ------- |  |  | - | ------- | -
|                                                         |  | Successor      |         |  |                       
|                                                         |  | Registrant     |         |  | Predecessor Registrant |  
|                                                         |  |                |         |  |                        |  
|                                                         |  | For the Period |         |  | For the Period         |   |         |             
|                                                         |  | October 2,     |         |  | January 1,             |   |         | Years Ended  | 
|                                                         |  | 2005 to        |         |  | 2005 to                |   |         | December 31, | 
|                                                         |  | December 31,   |         |  | October 1,             |   |         |              | 
|                                                         |  | 2005           |         |  | 2005                   |   |         | 2004         |  |   | 2003    | 
|                                                         |  |                |         |  |                        |   |         |              |  |   |         | 
|United States                                            |  | $              | 170,103 |  |                        | $ | 350,622 |              |  | $ | 303,258 |  |  | $ | 239,531 |  
|Japan                                                    |  |                | 4,193   |  |                        |   | 13,486  |              |  |   | 47,641  |  |  |   | 69,573  |  
|Thailand                                                 |  |                | 2,711   |  |                        |   | 6,010   |              |  |   | 20,378  |  |  |   | 54,436  |  
|Spain                                                    |  |                | 3,418   |  |                        |   | 7,483   |              |  |   | 5,292   |  |  |   | 30,903  |  
|Mexico                                                   |  |                | 1,327   |  |                        |   | 7,122   |              |  |   | 1,693   |  |  |   | (3,749  | )
|Peoples Republic of China (including Hong Kong)
    (1) |  |                | 2,411   |  |                        |   | 4,498   |              |  |   | 97,628  |  |  |   | (66,047 | )
|Other                                                    |  |                | 13,002  |  |                        |   | 39,962  |              |  |   | 46,237  |  |  |   | 67,396  |  
|                                                         |  |                |         |  |                        |   |         |              |  |   |         | 
|                                                         |  | $              | 197,165 |  |                        | $ | 429,183 |              |  | $ | 522,127 |  |  | $ | 392,043 |  
|                                                         |  |                |         |  |                        |   |         |              |  |   |         | 






|    |                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2004 amount includes $87 million for a sales-type lease
    arrangement for satellite capacity. The 2003 amount includes the
    reversal of $83 million of sales on a satellite program
    with a customer where the contract was changed to a lease
    arrangement (see Note 8).

F-65



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                           
|--- | --------------------------
|21. | Related Party Transactions



| |                     
| | --------------------
| | K&F Industries, Inc.







| |                        
| | -----------------------
| | MHR Fund Management LLC





out-of






| |                    
| | -------------------
| | Other Relationships



F-66



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                
| | ---------------
| | Lockheed Martin





|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|22. | Selected Quarterly Financial Information (unaudited, in
    thousands, except per share amounts)

|                                                                              |  |                        |         |   |           |              |         |               |  |   |            |   |  |   |              |  |  |  |   |         |  
|----------------------------------------------------------------------------- |  | ---------------------- | ------- | - | --------- | ------------ | ------- | ------------- |  | - | ---------- | - |  | - | ------------ |  |  |  | - | ------- | -
|                                                                              |  |                        |         |   | Successor |             
|                                                                              |  | Predecessor Registrant |         |   |           | Registrant   |        
|                                                                              |  |                        |         |   |           |              |        
|                                                                              |  | Quarter Ended          |         |   |           |             
|                                                                              |  |                        |         |   |           | October 2 to |        
|                                                                              |  | March 31,              |         |   | June 30,  |              |         | September 30, |  |   | October 1, |   |  |   | December 31, | 
|                                                                              |  |                        |         |   |           |              |         |               |  |   |            |   |  |   |              | 
|Year ended December 31, 2005                                                  |  |                        |         |   |           |              |         |               |  |   |            |   |  |   |              |  |  |  |   |         |  
|Revenues                                                                      |  | $                      | 132,378 |   |           | $            | 136,762 |               |  | $ | 160,043    |   |  | $ |             |  |  |  | $ | 197,165 |  
|Operating loss from continuing operations                                     |  |                        | (23,959 | ) |           |              | (16,741 | )             |  |   | (26,395    | ) |  |   |             |  |  |  |   | (4,945  | )
|Loss from continuing operations                                               |  |                        | (26,221 | ) |           |              | (18,776 | )             |  |   | (27,800    | ) |  |   |             |  |  |  |   | (15,261 | )
|Gain on discharge of pre-petition obligations and fresh-start
    adjustments |  |                        |        |   |           |              |        |               |  |   |           |   |  |   | 1,101,453    |  |  |  |   |        |  
|Gain on sale of discontinued operations, net of taxes                         |  |                        |        |   |           |              | 11,371  |               |  |   | 2,596      |   |  |   |             |  |  |  |   |        |  
|Net (loss) income                                                             |  |                        | (26,221 | ) |           |              | (7,405  | )             |  |   | (25,204    | ) |  |   | 1,103,679    |  |  |  |   | (15,261 | )
|Basic and diluted (loss) earnings per
    share(1):                           |  |                        |         |   |           |              |         |               |  |   |            |   |  |   |              |  |  |  |   |         |  
|Continuing operations                                                         |  |                        | (0.59   | ) |           |              | (0.43   | )             |  |   | (0.63      | ) |  |   | 25.02        |  |  |  |   | (0.76   | )
|Discontinued operations                                                       |  |                        |        |   |           |              | 0.26    |               |  |   | 0.06       |   |  |   |             |  |  |  |   |        |  
|                                                                              |  |                        |         |   |           |              |         |               |  |   |            |   |  |   |              | 
|(Loss) earnings per share                                                     |  |                        | (0.59   | ) |           |              | (0.17   | )             |  |   | (0.57      | ) |  |   | 25.02        |  |  |  |   | (0.76   | )

F-67



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Predecessor Registrant


|                                               |                         |               |         |       |          |   |         |               |   |   |              |       |   |   |         |       |  
|---------------------------------------------- | ----------------------- | ------------- | ------- | ----- | -------- | - | ------- | ------------- | - | - | ------------ | ----- | - | - | ------- | ----- | -
|                                               |                         | Quarter Ended |        
|                                               |                         |               |        
|                                               |                         | March 31,     |         |       | June 30, |   |         | September 30, |   |   | December 31, |      
|                                               |                         |               |         |       |          |   |         |               |   |   |              |      
|Year ended December 31, 2004                   |                         |               |         |       |          |   |         |               |   |   |              |       |   |   |         |      
|Revenues                                       |                         | $             | 103,684 |       |          | $ | 113,703 |               |   | $ | 198,615      |       |   | $ | 106,125 |      
|Operating loss from continuing operations      |                         |               | (68,078 | )     |          |   | (58,489 | )             |   |   | (35,127      | )     |   |   | (52,651 | )    
|Loss from continuing operations                |                         |               | (68,016 | )     |          |   | (22,827 | )             |   |   | (31,701      | )     |   |   | (51,803 | )    
|Income (loss) from discontinued
    operations |                         |               | (11,620 | )     |          |   | 158     |               |   |   | 299          |       |   |   | 8,815   |      
|Net loss                                       |                         |               | (79,636 | )     |          |   | (22,669 | )             |   |   | (31,402      | )     |   |   | (42,988 | )    
|Basic and diluted loss per
    share(1):       |                         |               |         |       |          |   |         |               |   |   |              |       |   |   |         |      
|Continuing operations                          |                         |               | (1.54   | )     |          |   | (0.51   | )             |   |   | (0.72        | )     |   |   | (1.17   | )    
|                                               | Discontinued operations |               |         | (0.26 | )        |   |         |              |   |   |              | 0.01  |   |   |         | 0.20  |  
|                                               |                         |               |         |       |          |   |         |               |   |   |              |      
|                                               | Loss per share          |               |         | (1.80 | )        |   |         | (0.51         | ) |   |              | (0.71 | ) |   |         | (0.97 | )






|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The quarterly earnings per share information is computed
    separately for each period. Therefore, the sum of such quarterly
    per share amounts may differ from the total for the year.

F-68



---



##### 



SCHEDULE I


LORAL SPACE & COMMUNICATIONS INC.


CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY


CONDENSED BALANCE SHEETS


(In thousands)


|                                             |                                        |                                                      |         |         |         |              |  |           |            |            |  
|-------------------------------------------- | -------------------------------------- | ---------------------------------------------------- | ------- | ------- | ------- | ------------ |  | --------- | ---------- | ---------- | -
|                                             |                                        | Successor                                            |         |         |         | Predecessor  | 
|                                             |                                        | Parent                                               |         |         |         | Parent       | 
|                                             |                                        |                                                      |         |         |         |              | 
|                                             |                                        | December 31,                                         |         |         |         | December 31, | 
|                                             |                                        | 2005                                                 |         |         |         | 2004         | 
|                                             |                                        |                                                      |         |         |         |              | 
|Current assets:                              |                                        |                                                      |         |         |         |              |  |           |           
|                                             | Cash and cash equivalents              |                                                      | $       | 8,309   |         |              |  | $         | 1,525      |           
|                                             | Accounts receivable                    |                                                      |         | 227     |         |              |  |           |           |           
|                                             | Other current assets                   |                                                      |         | 1,627   |         |              |  |           | 2,331      |           
|                                             |                                        |                                                      |         |         |         |              | 
|                                             |                                        | Total current assets                                 |         |         | 10,163  |              |  |           |            | 3,856      |  
|Property, plant and equipment, net           |                                        |                                                      | 1,758   |         |         |              |  |          |           
|Investments in and advances to subsidiaries  |                                        |                                                      | 685,321 |         |         |              |  |          |           
|Other assets                                 |                                        |                                                      | 6,637   |         |         |              |  | 4,197     |           
|                                             |                                        |                                                      |         |         |         |              | 
|                                             |                                        | Total assets                                         |         | $       | 703,879 |              |  |           | $          | 8,053      |  
|                                             |                                        |                                                      |         |         |         |              | 
|Current liabilities:                         |                                        |                                                      |         |         |         |              |  |           |           
|                                             | Accounts payable                       |                                                      | $       | 5,555   |         |              |  | $         | 499        |           
|                                             | Accrued employment costs               |                                                      |         | 5,551   |         |              |  |           |           |           
|                                             | Other current liabilities              |                                                      |         | 17,550  |         |              |  |           | 1,220      |           
|                                             |                                        |                                                      |         |         |         |              | 
|                                             |                                        | Total current liabilities                            |         |         | 28,656  |              |  |           |            | 1,719      |  
|Pension and other postretirement liabilities |                                        |                                                      | 15,529  |         |         |              |  |          |           
|Long-term liabilities                        |                                        |                                                      | 32,530  |         |         |              |  | 30,607    |           
|Liabilities subject to compromise            |                                        |                                                      |        |         |         |              |  | 456,078   |           
|Investments in and advances to subsidiaries  |                                        |                                                      |        |         |         |              |  | 563,750   |           
|                                             |                                        |                                                      |         |         |         |              | 
|Total liabilities                            |                                        |                                                      | 76,715  |         |         |              |  | 1,052,154 |           
|Shareholders equity (deficit):              |                                        |                                                      |         |         |         |              |  |           |           
|                                             | Common stock                           |                                                      |         | 200     |         |              |  |           | 4,413      |           
|                                             | Paid-in capital                        |                                                      |         | 642,210 |         |              |  |           | 3,392,825  |           
|                                             | Treasury stock, at cost                |                                                      |         |        |         |              |  |           | (3,360     | )         
|                                             | Unearned compensation                  |                                                      |         |        |         |              |  |           | (87        | )         
|                                             | Retained deficit                       |                                                      |         | (15,261 | )       |              |  |           | (4,348,231 | )         
|                                             | Accumulated other comprehensive (loss) |                                                      |         | 15      |         |              |  |           | (89,661    | )         
|                                             |                                        |                                                      |         |         |         |              | 
|                                             |                                        | Total shareholders equity (deficit)                 |         |         | 627,164 |              |  |           |            | (1,044,101 | )
|                                             |                                        |                                                      |         |         |         |              | 
|                                             |                                        | Total liabilities and shareholders (deficit) equity |         | $       | 703,879 |              |  |           | $          | 8,053      |  
|                                             |                                        |                                                      |         |         |         |              | 



F-69



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


SCHEDULE I  CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY


CONDENSED STATEMENTS OF OPERATIONS


(in thousands)


|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |   |  |   |          |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - |  | ------------------ | - | --------- | ------------------------ |  | - | -------- | - |  | - | -------- | -
|                                                                                                                        |  | Successor Parent |         |   |  | Predecessor Parent |  
|                                                                                                                        |  |                  |         |   |  |                    |  
|                                                                                                                        |  | For the Period   |         |   |  | For the Period     |   |           |                         
|                                                                                                                        |  | October 2,       |         |   |  | January 1,         |   |           |                         
|                                                                                                                        |  | 2005 to          |         |   |  | 2005 to            |   |           | Years Ended December 31, | 
|                                                                                                                        |  | December 31,     |         |   |  | October 1,         |   |           |                          | 
|                                                                                                                        |  | 2005             |         |   |  | 2005               |   |           | 2004                     |  |   | 2003     |  
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  
|Selling, general and administrative expenses                                                                            |  | $                | 516     |   |  |                    | $ |          |                          |  | $ | 4,279    |   |  | $ | 8,937    |  
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  
|Loss from continuing operations before reorganization expenses
    due to bankruptcy                                    |  |                  | (516    | ) |  |                    |   |          |                          |  |   | (4,279   | ) |  |   | (8,937   | )
|Reorganization expenses due to bankruptcy                                                                               |  |                  |        |   |  |                    |   | (5,539    | )                        |  |   | (3,885   | ) |  |   | (1,900   | )
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  
|Loss from continuing operations                                                                                         |  |                  | (516    | ) |  |                    |   | (5,539    | )                        |  |   | (8,164   | ) |  |   | (10,837  | )
|Gain on discharge of pre-petition obligations and fresh-start
    adjustments                                           |  |                  |        |   |  |                    |   | 352,202   |                          |  |   |         |   |  |   |         |  
|Interest and investment income                                                                                          |  |                  | 2,724   |   |  |                    |   | 20        |                          |  |   | 10       |   |  |   | 12,198   |  
|Interest expense                                                                                                        |  |                  |        |   |  |                    |   | (389      | )                        |  |   |         |   |  |   | (21,675  | )
|Other expense                                                                                                           |  |                  |        |   |  |                    |   | (3        | )                        |  |   |         |   |  |   |         |  
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  
|Income (loss) from continuing operations before income taxes,
    equity income (losses) in subsidiaries and affiliates |  |                  | 2,208   |   |  |                    |   | 346,291   |                          |  |   | (8,154   | ) |  |   | (20,314  | )
|Income tax (provision) benefit                                                                                          |  |                  | (3,225  | ) |  |                    |   | 32,099    |                          |  |   | (1,077   | ) |  |   | (3,656   | )
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  
|Income (loss) from continuing operations before equity (losses)
    income in subsidiaries and affiliates               |  |                  | (1,017  | ) |  |                    |   | 378,390   |                          |  |   | (9,231   | ) |  |   | (23,970  | )
|Equity (loss) income in subsidiaries, net of taxes                                                                      |  |                  | (14,244 | ) |  |                    |   | 666,459   |                          |  |   | (167,464 | ) |  |   | (334,995 | )
|Equity loss in affiliates                                                                                               |  |                  |        |   |  |                    |   |          |                          |  |   |         |   |  |   | (21,775  | )
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  
|(Loss) income from continuing operations before cumulative
    effect of change in accounting principle                 |  |                  | (15,261 | ) |  |                    |   | 1,044,849 |                          |  |   | (176,695 | ) |  |   | (380,740 | )
|Cumulative effect of change in accounting principle                                                                     |  |                  |        |   |  |                    |   |          |                          |  |   |         |   |  |   | (1,970   | )
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  
|Net (loss) income                                                                                                       |  | $                | (15,261 | ) |  |                    | $ | 1,044,849 |                          |  | $ | (176,695 | ) |  | $ | (382,710 | )
|                                                                                                                        |  |                  |         |   |  |                    |   |           |                          |  |   |          |  



F-70



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


SCHEDULE I  CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY


CONDENSED STATEMENTS OF CASH FLOW


(in thousands)


|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |          |   |   |         |          |  
|---------------------------------------------------- | ------------------------------------------------------------------------------ | -------------- | ------- | ------- | - | ------------------ | - | ------ | ------------------------ | - | - | ------ | -------- | - | - | ------- | -------- | -
|                                                     |                                                                                | Successor      |         |         |   |                   
|                                                     |                                                                                | Parent         |         |         |   | Predecessor Parent |  
|                                                     |                                                                                |                |         |         |   |                    |  
|                                                     |                                                                                | For the Period |         |         |   | For the Period     |   |        |                         
|                                                     |                                                                                | October 2,     |         |         |   | January 1,         |   |        |                         
|                                                     |                                                                                | 2005 to        |         |         |   | 2005 to            |   |        | Years Ended December 31, |  
|                                                     |                                                                                | December 31,   |         |         |   | October 1,         |   |        |                          |  
|                                                     |                                                                                | 2005           |         |         |   | 2005               |   |        | 2004                     |   |   | 2003   |         
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Operating activities:                                |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |          |   |   |         |         
|                                                     | Net (loss) income                                                              |                | $       | (15,261 | ) |                    |   | $      | 1,044,849                |   |   | $      | (176,695 | ) |   | $       | (382,710 | )
|                                                     | Non-cash items:                                                                |                |         |         |   |                    |   |        |                          |   |   |        |          |   |   |         |          |  
|                                                     | Gain on discharge of pre-petition obligations and fresh-start
    adjustments  |                |         |        |   |                    |   |        | (352,202                 | ) |   |        |         |   |   |         |         |  
|                                                     | Cumulative effect of change in accounting principle                            |                |         |        |   |                    |   |        |                         |   |   |        |         |   |   |         | 1,970    |  
|                                                     | Equity income in affiliates                                                    |                |         |        |   |                    |   |        |                         |   |   |        |         |   |   |         | 21,775   |  
|                                                     | Equity losses in subsidiaries                                                  |                |         | 14,244  |   |                    |   |        | (666,459                 | ) |   |        | 167,464  |   |   |         | 334,995  |  
|                                                     | Deferred taxes                                                                 |                |         | 1,427   |   |                    |   |        | (30,607                  | ) |   |        |         |   |   |         | 3,656    |  
|                                                     | Depreciation and amortization                                                  |                |         | 464     |   |                    |   |        |                         |   |   |        |         |   |   |         |         |  
|                                                     | Due (to) from subsidiaries                                                     |                |         | (19,902 | ) |                    |   |        | 58                       |   |   |        | 4,527    |   |   |         | 2,080    |  
|                                                     | Accounts receivable                                                            |                |         | (62     | ) |                    |   |        |                         |   |   |        |         |   |   |         |         |  
|                                                     | Other current assets and other assets                                          |                |         | (53     | ) |                    |   |        | 1,732                    |   |   |        | 1,147    |   |   |         | (964     | )
|                                                     | Accounts payable                                                               |                |         | (37     | ) |                    |   |        | (1,536                   | ) |   |        |         |   |   |         |         |  
|                                                     | Accrued expenses and other current liabilities                                 |                |         | (9,667  | ) |                    |   |        | 1,418                    |   |   |        | (476     | ) |   |         | 1,253    |  
|                                                     | Pension and other postretirement liabilities                                   |                |         | (222    | ) |                    |   |        |                         |   |   |        |         |   |   |         |          |  
|                                                     | Income taxes payable                                                           |                |         | 1,661   |   |                    |   |        | (1,492                   | ) |   |        |         |   |   |         |         |  
|                                                     | Long-term liabilities                                                          |                |         | 696     |   |                    |   |        |                         |   |   |        | 1,077    |   |   |         |         |  
|                                                     | Merger of subsidiary into parent in connection with Plan of
    Reorganization |                |         |        |   |                    |   |        | 34,012                   |   |   |        |         |   |   |         |         |  
|                                                     | Other                                                                          |                |         |        |   |                    |   |        |                         |   |   |        |         |   |   |         | 67       |  
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Net cash (used in) provided by operating activities  |                                                                                |                | (26,712 | )       |   |                    |   | 29,773 |                          |   |   | (2,956 | )        |   |   | (17,878 | )       
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Investing activities:                                |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |          |   |   |         |         
|                                                     | Capital expenditures for continuing operations                                 |                |         | (24     | ) |                    |   |        |                          |   |   |        |          |   |   |         |          |  
|                                                     | Investments in and advances to subsidiaries                                    |                |         |        |   |                    |   |        |                         |   |   |        |          |   |   |         | (288     | )
|                                                     | Investments in and advances to affiliates                                      |                |         |        |   |                    |   |        | 3,747                    |   |   |        |         |   |   |         |         |  
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Net cash (used in) provided by investing activities  |                                                                                |                | (24     | )       |   |                    |   | 3,747  |                          |   |   |       |          |   |   | (288    | )       
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Financing activities:                                |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |          |   |   |         |         
|                                                     | Proceeds from note receivable from subsidiary                                  |                |         |        |   |                    |   |        |                         |   |   |        |          |   |   |         | 17,284   |  
|                                                     | Proceeds from other stock issuances                                            |                |         |        |   |                    |   |        |                         |   |   |        |         |   |   |         | 3,849    |  
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Net cash used in financing activities                |                                                                                |                |        |         |   |                    |   |       |                          |   |   |       |          |   |   | 21,133  |         
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Net (decrease) increase in cash and cash equivalents |                                                                                |                | (26,736 | )       |   |                    |   | 33,520 |                          |   |   | (2,956 | )        |   |   | 2,967   |         
|Cash and cash equivalents  beginning of period      |                                                                                |                | 35,045  |         |   |                    |   | 1,525  |                          |   |   | 4,481  |          |   |   | 1,514   |         
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         
|Cash and cash equivalents  end of period            |                                                                                | $              | 8,309   |         |   |                    | $ | 35,045 |                          |   | $ | 1,525  |          |   | $ | 4,481   |         
|                                                     |                                                                                |                |         |         |   |                    |   |        |                          |   |   |        |         



F-71



---



##### 



LORAL SPACE & COMMUNICATIONS INC.


SCHEDULE I  CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY


NOTES TO CONDENSED FINANCIAL INFORMATION OF THE PARENT
COMPANY






90-7).






















| |                                                  
| | -------------------------------------------------
| | 1) the litigation with ILS                       
|
| | 2) the litigation with Rainbow DBS Holdings, Inc.

F-72



---



##### 



SCHEDULE II


LORAL SPACE & COMMUNICATIONS INC.


VALUATION AND QUALIFYING ACCOUNTS


For the Years Ended December 31, 2005, 2004 and 2003


(in thousands)


|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |         |         |   |   |        |        | 
|----------------------------------- | --------------------------- | ---------- | ------ | --------- | ---------- | - | ------ | ----------- | - | - | ----------- | ------ | - | ---------- | ------- | ------- | - | - | ------ | ------ | 
|                                    |                             |            |        | Additions |            |   |        |             |  
|                                    |                             |            |        |           |            |   |        |             |  
|                                    |                             | Balance at |        |           | Charged to |   |        | Charged to  |   |   | Deductions  |        |   | Balance at |        
|                                    |                             | Beginning  |        |           | Costs and  |   |        | Other       |   |   | From        |        |   | End of     |        
|Description                         |                             | of Year    |        |           | Expenses   |   |        | Accounts(1) |   |   | Reserves(2) |        |   | Year       |        
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|Predecessor Registrant:             |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |         |         |   |   |        |       
|Year ended 2003                     |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |         |         |   |   |        |       
|Allowance for billed receivables    |                             | $          | 7,094  |           |            | $ | 7,221  |             |   | $ | 1,405       |        |   | $          | (4,017  | )       |   | $ | 11,703 |       
|Allowance for long-term receivables |                             |            | 32,574 |           |            |   | 10,329 |             |   |   | 19,856      |        |   |            | (42,582 | )       |   |   | 20,177 |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|                                    | Total Receivables allowance |            | $      | 39,668    |            |   | $      | 17,550      |   |   | $           | 21,261 |   |            | $       | (46,599 | ) |   | $      | 31,880 | 
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|Inventory allowance                 |                             | $          | 24,123 |           |            | $ | 49,546 |             |   | $ |            |        |   | $          | (31,933 | )       |   | $ | 41,736 |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|Year ended 2004                     |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |         |         |   |   |        |       
|Allowance for billed receivables    |                             | $          | 11,703 |           |            | $ | (2,144 | )           |   | $ | (13         | )      |   | $          | (3,101  | )       |   | $ | 6,445  |       
|Allowance for long-term receivables |                             |            | 20,177 |           |            |   |       |             |   |   |            |        |   |            | (20,177 | )       |   |   |       |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|                                    | Total Receivables allowance |            | $      | 31,880    |            |   | $      | (2,144      | ) |   | $           | (13    | ) |            | $       | (23,278 | ) |   | $      | 6,445  | 
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|Inventory allowance                 |                             | $          | 41,736 |           |            | $ | 3,324  |             |   | $ |            |        |   | $          | (11,060 | )       |   | $ | 34,000 |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|January 1, 2005-October 1, 2005     |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |         |         |   |   |        |       
|Allowance for billed receivables    |                             | $          | 6,445  |           |            | $ | (2,880 | )           |   | $ | 2           |        |   | $          | 942     |         |   | $ | 4,509  |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|Inventory allowance                 |                             | $          | 34,000 |           |            | $ | 2,127  |             |   | $ |            |        |   | $          | (2,207  | )       |   | $ | 33,920 |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|Successor Registrant:               |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |         |         |   |   |        |       
|October 2, 2005-December 31, 2005   |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |         |         |   |   |        |       
|Allowance for billed receivables    |                             | $          | 4,509  |           |            | $ | 953    |             |   | $ |            |        |   | $          |        |         |   | $ | 5,462  |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        
|Inventory allowance                 |                             | $          | 33,920 |           |            | $ | 1,525  |             |   | $ |            |        |   | $          | (1,703  | )       |   | $ | 33,742 |       
|                                    |                             |            |        |           |            |   |        |             |   |   |             |        |   |            |        






|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Allowance for long-term receivables recorded as a reduction to
    revenues.
|   
|(2) | Write-offs of uncollectible accounts.                                       

F-73