##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT of 1934


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003


Commission file number 1-14180

LORAL SPACE & COMMUNICATIONS
LTD.

c/o Loral SpaceCom Corporation

600 Third Avenue


New York, New York 10016


Telephone: (212) 697-1105


Jurisdiction of incorporation:
Bermuda

IRS identification number:
13-3867424

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

|                             |  |                      
|---------------------------- |  | ---------------------
|                             |  | Name of each exchange
|Title of each class          |  | on which registered  
|                             |  |                      
|Common stock, $.10 par value |  | None                 

The registrant 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 and has been
subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes
x     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
x     No
o

The aggregate market value of the common shares
held by non-affiliates of the registrant, based upon the closing
sale price of the common shares on June 30, 2003, as
reported on the New York Stock Exchange was approximately
$133 million.

At March 1, 2004, 44,125,202 common shares
were outstanding.



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TABLE OF CONTENTS



|                                                  |                                                                                                                      |  |  |  |  |  |  | 
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                           
|                                                  | Item 1. Business                                                                                                    
|THE COMPANY                                      
|                                                  | Item 2. Properties                                                                                                  
|                                                  | Item 3. Legal Proceedings                                                                                           
|                                                  | 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
|                                                  | Item 6. Selected Financial Data                                                                                     
|                                                  | Item 7. Managements Discussion and Analysis of Results of Operations and Financial Condition                       
|                                                  | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                                 
|                                                  | Item 8. Financial Statements and Supplementary Data                                                                 
|                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|                                                  | Item 9A. Disclosure Controls and Procedures                                                                         
|PART III                                         
|                                                  | Item 10. Directors and Executive Officers of the Registrant                                                         
|                                                  | Item 11. Executive Compensation                                                                                     
|                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters             
|                                                  | Item 13. Certain Relationships and Related Transactions                                                             
|                                                  | Item 14. Principal Accountant Fees and Services                                                                     
|PART IV                                          
|                                                  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                                            
|INDEX TO EXHIBITS                                
|SIGNATURES                                       
|AMENDMENT 4 TO ASSET PURCHASE AGREEMENT          
|MEMORANDUM OF INCREASE OF SHARE CAPITAL          
|FOUTH AMENDED AND RESTATED BYE-LAWS              
|CASH COLLATERAL ORDER                            
|CONFORMED AS AMENDED APSTAR V SATELLITE AGREEMENT
|CONSENT ORDER                                    
|CONSENT ORDER                                    
|CHANGE-IN-CONTROL SEVERANCE AGREEMENT            
|STATEMENT RE: COMPUTATION OF RATIOS              
|CODE OF CONDUCT                                  
|LIST OF SUBSIDIARIES                             
|CONSENT OF DELOITTE & TOUCHE LLP                 
|CERTIFICATION OF CEO                             
|CERTIFICATION OF CFO                             
|CERTIFICATION OF CEO                             
|CERTIFICATION OF CFO                             



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##### Table of Contents






PART I






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






THE COMPANY


Overview

Loral Space & Communications Ltd.,
together with our subsidiaries (Loral, the
Company, we, our and
us), is a leading satellite communications company.
We own and operate a fleet of telecommunications satellites,
manage a global network that integrates our satellites with
terrestrial facilities and have the rights to numerous
well-positioned orbital slots. Managed by our Loral Skynet
division, the fleet provides satellite capacity and platforms
for use by television and cable networks to broadcast video
programming, and by communication service providers, resellers,
corporate and government customers for broadband data
transmission, Internet services and other value-added
communications services. Our subsidiary, Space Systems/
Loral, Inc. (SS/ L), is one of the worlds
largest designers and manufacturers of satellites and satellite
systems for commercial and government applications including
satellite services, television broadcasting, direct-to-home
(DTH) television services, broadband communications, military
communications, wireless telephony, digital satellite radio,
weather monitoring and air traffic management. (See
Segment Overview below for further details on each
of our businesses.)

On July 15, 2003, Loral and certain of our
subsidiaries (the Debtor Subsidiaries, and
collectively with Loral, the Debtors) filed
voluntary petitions for reorganization under chapter 11 of
title 11 (Chapter 11) of the United States
Code (the Bankruptcy Code) in the United States
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),
collectively, the Chapter 11 Cases). The
Debtors include, among others, Loral Space &
Communications Corporation, Loral SpaceCom Corporation
(Loral SpaceCom), Loral Satellite, Inc.
(Loral Satellite), SS/ L and Loral Orion, Inc.
(Loral Orion). We continue to manage our properties
and operate our businesses as debtors in possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the provisions of the Bankruptcy Code. (See
Bankruptcy Filings below for further details.)

Also on July 15, 2003, Loral
Space & Communications Corporation, Loral SpaceCom and
Loral Satellite (collectively, the Sellers) entered
into a definitive agreement, as amended, (the Asset
Purchase Agreement) to sell to Intelsat, Ltd. and certain
of its affiliated companies (Intelsat), satellites
serving the North American market. The transaction is expected
to conclude by early April 2004. Loral expects to use the
proceeds from the sale of the assets to repay its outstanding
secured bank debt. On March 5, 2004, we and Intelsat
entered into an amendment to the Asset Purchase Agreement, the
effectiveness of which is subject to approval by the Bankruptcy
Court and Intelsats bank lenders (See Sale of
Assets below for further details).

We plan to reorganize Loral around our remaining
fleet of international satellites and our satellite
manufacturing business.

Loral was incorporated on January 12, 1996,
as a Bermuda exempt company and has its registered and principal
executive offices at Canons Court, 22 Victoria Street,
Hamilton HM 12, Bermuda.

Bankruptcy Filings

As previously stated, we filed for reorganization
under Chapter 11 on July 15, 2003 and continue to
operate as debtors in possession.

Also on July 15, 2003, Loral and one of our
Bermuda subsidiaries (the Bermuda Group) filed
parallel insolvency proceedings in the Supreme Court of Bermuda
(the Bermuda Court). On that date, the Bermuda Court
entered an order appointing Philip Wallace, Chris Laverty and
Michael Morrison, partners of KPMG, as Joint Provisional
Liquidators (JPLs) in respect of the Bermuda Group.
The Bermuda Court granted the JPLs the power to oversee the
continuation and reorganization of these businesses under the
control of their boards of directors and under the supervision
of the U.S. Bankruptcy Court and the Bermuda Court. The
JPLs have not audited the contents of this report.

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A creditors committee has been appointed in
the Chapter 11 Cases to represent all unsecured creditors,
including all holders of Lorals and Loral Orions
senior unsecured notes, and, in accordance with the provisions
of the Bankruptcy Code, has the right to be heard on all matters
that come before the Bankruptcy Court.

As provided by the Bankruptcy Code, we had the
exclusive right to submit our plan (or plans) of reorganization
for 120 days from the date of the Chapter 11 filing.
On November 12, 2003, the Bankruptcy Court extended this
exclusive period for another 120 days. On March 16,
2004, a hearing will be held to consider a further extension of
the exclusivity period. We have no assurance that this extension
request will be granted. If we fail to file our plan of
reorganization during the exclusive period, or if we file a plan
of reorganization and the required number of creditors and
equity holders do not approve our plan of reorganization within
the required period, any party in interest may subsequently file
its own plan of reorganization for Loral and its Debtor
Subsidiaries.

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against the Debtors, arising prior to or relating to
events which occurred prior to the Chapter 11 filing, is
generally subject to an automatic stay under Section 362 of
the Bankruptcy Code. Absent further order of the Bankruptcy
Court, a party is generally prohibited from taking any action to
recover any pre-petition claims, enforce any lien against or
obtain possession of any property from the Debtors. In addition,
pursuant to Section 365 of the Bankruptcy Code, the Debtors
may reject or assume pre-petition executory contracts and
unexpired leases. Parties whose contracts or leases are rejected
may file claims with the Bankruptcy Court.

As a result of our Chapter 11 filing, on
July 15, 2003, the New York Stock Exchange
(NYSE) suspended trading of Lorals common
stock and on September 2, 2003 removed our securities from
listing and registration. Our common stock is being quoted under
the ticker symbol LRLSQ on the Pink Sheets and on the
Over-The-Counter Bulletin Board Service.

Sale of Assets

As stated above, the Sellers agreed on
July 15, 2003, to sell certain assets to Intelsat for
$1 billion, subject to certain purchase price adjustments.
These assets consisted of four satellites then in-orbit:
Telstar 5, Telstar 6, Telstar 7 and Telstar 4 (which failed
in September 2003); two satellites then under construction:
Telstar 13 (which was successfully launched and placed into
service on September 12, 2003) and Telstar 8, scheduled for
launch in 2004; and certain related assets and liabilities. At
the same time, Intelsat agreed to order a new satellite
from SS/ L when the sale closes and, subject to obtaining a
security interest in certain of our assets, agreed to make a
$100 million down payment on that order. Proceeds of the
sale will be used to pay off our secured bank debt.

On March 5, 2004, as part of an arrangement
to reach agreement with Intelsat on the satisfaction of certain
closing conditions, we entered into an amendment to the Asset
Purchase Agreement. Among other things, the amendment reduces
the purchase price by $20 million (subject to further
adjustment based on future events) to cover certain contingent
liabilities relating to the transferred assets, reduces from
$100 million to $50 million the deposit Intelsat is to
make for its new satellite construction contract with SS/L, and
provides for a dollar-for-dollar reduction in the price of this
satellite if and to the extent the Telstar 4 insurance proceeds
are less than $141 million. As part of this amendment,
Intelsat agreed to pay SS/L $12.5 million in full
settlement and satisfaction of all remaining obligations to make
certain orbital payments to SS/ L under the construction
contracts relating to the purchased satellites. The
effectiveness of this amendment is subject to approval by the
Bankruptcy Court and Intelsats bank lenders.

Segment Overview: Satellite Services

We formed our satellite services business by
acquiring assets from AT&T in March 1997 and Orion Network
Services in 1998, and rapidly established Loral Skynet, which
manages and operates our Satellite Services business, as one of
the worlds leading satellite operators. We further grew
our business through placing additional satellites in service
and expanding our product offerings. Our satellites operate in
geosynchronous earth orbit approximately 23,000 miles above
the equator. In this orbit, satellites remain in a

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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.


Customers lease transponder capacity for
distribution of network and cable television programming, for
direct-to-home (DTH) video transmission and for live
video feeds from breaking news and sporting events and broadband
data distribution. Increasingly, satellites are being used for
international communications using Internet Protocol (IP)-based
technologies, for high-speed data services for businesses
through very small aperture terminal (VSAT) networks, and
for distance learning and educational television. Skynet
operates in a highly competitive market with other
well-established satellite operators including
PanAmSat, Intelsat, SES Global, Eutelsat and New Skies.
While we also compete with fiber optic cable and other
terrestrial delivery systems, satellites are considerably more
efficient for certain applications, such as broadcast or
point-to-multipoint transmission of video and data. For
point-to-point applications, however, fiber may cost less, so
satellites compete on the basis of superior reliability, or
serve as a back-up service. Satellites also better serve areas
with inadequate terrestrial infrastructures, low-density
populations or difficult geographic terrain.

The satellite services market has been
characterized in recent years by over-capacity, pricing pressure
and increased competition from fiber. The downturn in the
telecommunications sector led many existing Skynet customers,
hampered by a slow-down in demand and lack of access to the
capital markets, to postpone expansion plans. Similarly, several
start-up companies that leased Skynets satellite capacity
for the delivery of new applications failed to meet their
business objectives. Following the closing of the Intelsat
transaction, Skynets growth will rely on its ability to
differentiate itself from the competition through its customized
product offerings, its superior customer service and its
successful marketing of available capacity on its international
fleet, which is well positioned to serve regions of the world
where demand is growing.

When we use the term Loral Skynet and
Skynet in this report, we are, unless the context
provides otherwise, referring to our Satellite Services
business, the assets (including satellites) of which are held in
various companies including Loral SpaceCom, Loral Orion, Loral
Satellite, Loral Skynet do Brasil, Ltda. (Skynet do
Brasil), Loral Skynet Network Services, Inc.
(formerly known as Loral Cyberstar, Inc., Skynet
Network Services) and Cyberstar, LP
(Cyberstar).

Transponder Leasing

Loral Skynets heritage transponder leasing
business provides a platform for the global distribution of
television programming, video applications and data for large
programmers and data service providers, including HBO, AT&T,
Cable & Wireless, Singapore Telecom (SingTel),
Univision, Telecom Italia, Connexion by BoeingSM and
China Central TV.

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The following chart provides details on the
satellites that will comprise Lorals fleet after the sale
to Intelsat.

|                                    |  |              |  |            |  |                                                                                                               |  |                        |  |                     
|----------------------------------- |  | ------------ |  | ---------- |  | ------------------------------------------------------------------------------------------------------------- |  | ---------------------- |  | --------------------
|                                   
|                                   
|                                    |  | Expected End
|Satellite                           |  | Location     |  | Frequency  |  | Coverage                                                                                                      |  | In Service Date        |  | of Life             
|                                   
|                                   
|Telstar 10/ ApstarIIR               |  | 76.5°E.L.    |  | C/ Ku-band |  | Asia and portions of Europe, portions of Africa
    and Australia                                             |  | December 1997          |  | September 2012      
|                                   
|Telstar 11                          |  | 37.5°W.L.    |  | Ku-band    |  | Europe, SE Canada, U.S. East of the Rockies
    and portions of Mexico                                        |  | January 1995           |  | June 2004(1)        
|                                   
|Telstar 12                          |  | 15°W.L.      |  | Ku-band    |  | Eastern U.S., SE Canada, Europe, Russia, Middle
    East, North Africa, portions of South and Central America |  | January 2000           |  | June 2016           
|                                   
|Telstar 14/ Estrela
    do Sul-1(2) |  | 63°W.L.      |  | Ku-band    |  | Brazil and portions of Latin America, North
    America, Atlantic Ocean                                       |  | March 2004             |  | See footnote 2 below
|                                   
|Brazil 1T(2)                        |  | 63°W.L.      |  | Ku-band    |  | Brazil, North America and North Atlantic                                                                      |  | September 2000         |  | February 2002       
|                                   
|Telstar 18/ Apstar V(3)(5)          |  | 138°E.L.     |  | C/ Ku-band |  | India, South East Asia, China, Australia and
    Hawaii                                                       |  | To be launched in 2004 |  | TBD(7)              
|                                   

The following chart provides details on the
satellites to be sold to Intelsat.

|              |  |          |  |                |  |                                                                 |  |                        |  |               
|------------- |  | -------- |  | -------------- |  | --------------------------------------------------------------- |  | ---------------------- |  | --------------
|             
|             
|Telstar 4(4)  |  | 89°W.L.  |  | C/ Ku-band     |  | U.S., Northern Mexico, Southern Canada                          |  | November 1995          |  | September 2003
|             
|Telstar 5     |  | 97°W.L.  |  | C/ Ku-band     |  | U.S., Mexico, Canada, Northern and Central America              |  | July 1997              |  | June 2015     
|             
|Telstar 6     |  | 93°W.L.  |  | C/ Ku-band     |  | U.S., Mexico, Southern Canada, Central America                  |  | April 1999             |  | March 2017    
|             
|Telstar 7     |  | 129°W.L. |  | C/ Ku-band     |  | U.S., Mexico, Southern Canada, Northern and
    Central America |  | November 1999          |  | October 2014  
|             
|Telstar 8(5)  |  | 89°W.L.  |  | C/ Ku/ Ka-band |  | U.S. and portions of South America                              |  | To be launched in 2004 |  | TBD(7)        
|             
|Telstar 13(6) |  | 121°W.L. |  | C -band        |  | North America, Central America, Puerto Rico and
    Hawaii      |  | September 2003         |  | August 2019   
|             

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During the fourth quarter of 2003, we determined
    that Telstar 11 would go out of service in June 2004 which is
    earlier than its previously expected end of life of March 2005.                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Brazil 1T is operating in inclined orbit and is
    not currently generating revenues. Its replacement, Estrela do
    Sul-1, was launched in January 2004, but failed to deploy its
    North solar array. The satellite is currently operating between
    10 and 14 of its 41 transponders and has a life expectancy of
    three to six years. See Managements Discussion and
    Analysis of Results of Operations and Financial Condition,
    Results by Operating Segment  Satellite Services.
|   
|(3) | Loral owns the Telstar 18/ Apstar V satellite and
    will initially lease 37 transponders on the satellite to an
    Asian satellite services company, in return for its funding a
    substantial portion of the project cost for Telstar 18.                                                                                                                                                                                                                                                         
|   
|(4) | In September 2003, Telstar 4 experienced a
    short-circuit of its primary power bus and ceased operations.                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) | Our cash collateral order with our secured
    lenders imposes restrictions on our ability to incur capital
    expenditures.                                                                                                                                                                                                                                                                                                                                                                           
|   
|(6) | Telstar 13, which is to be sold to Intelsat, is
    subject to a condosat arrangement: Loral owns the C-band payload
    on the satellite, consisting of 24 transponders, while EchoStar
    Communications Corporation owns the Ku- and Ka-band payload.                                                                                                                                                                                                                                               
|   
|(7) | To be determined after launch and in-orbit
    testing.                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Network Services

We offer customers access services and
transmission platforms that enable the rapid and reliable
transport of content. Our hybrid satellite and ground-based
network services solutions allow them to enter the market
quickly and easily through a combination of applications that
include broadband transport, bandwidth-on-demand, broadcast MCPC
(multiple-carriers per channel) platforms, and teleport
services. Skynet Network Services newest offering is
SkyReachSM, a group of IP-based services that
provides customers with secure private networks and high-speed
Internet access using Skynets established satellite/fiber
infrastructure. SkyReach can deliver a wide range of one-way and
two-way IP services around the world.

These services are currently provided through an
integrated satellite and fiber network that interconnects with
customer networks through points of presence in San Jose,
California; Ashburn, Virginia; New York, New York and
London, England and interconnects with satellite and VSAT
services via teleports in Mount Jackson, Virginia, Hawaii and
London.

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 satellite operational services (TT&C),
satellite construction oversight services, network architecture
design, regulatory issue management and customized distribution
solutions.

Satellite Services Performance

The following information for Satellite Services
includes amounts related to the satellites serving the North
American market which we have agreed to sell to Intelsat. See
Managements Discussion and Analysis of Results of
Operations and Financial Condition.

|                                                   |  |                      |     |      |  |      |     |   |  |   |     |  
|-------------------------------------------------- |  | -------------------- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                   |  |                     
|                                                   |  | For the years ending
|                                                   |  | December 31,        
|                                                   |  |                     
|                                                   |  | 2003                 |     | 2002 |  | 2001
|                                                   |  |                      |     |      |  |     
|                                                   |  |                     
|                                                   |  | (in millions)       
|Total segment revenues                             |  | $                    | 296 |      |  | $    | 395 |   |  | $ | 464 |  
|Eliminations                                       |  |                      | (8  | )    |  |      | (5  | ) |  |   | (8  | )
|                                                   |  |                      |     |      |  |      |     |   |  |   |     |  
|Revenues from satellite services as reported       |  | $                    | 288 |      |  | $    | 390 |   |  | $ | 456 |  
|                                                   |  |                      |     |      |  |      |     |   |  |   |     |  
|Segment adjusted EBITDA before
    eliminations(1) |  | $                    | 141 |      |  | $    | 220 |   |  | $ | 263 |  
|                                                   |  |                      |     |      |  |      |     |   |  |   |     |  



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|    |                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Consolidated Operating Results in
    Managements Discussion and Analysis of Results of
    Operations and Financial Condition for the definition of
    Adjusted EBITDA.

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Total Satellite Services assets were
$2.0 billion, $1.9 billion and $2.8 billion as of
December 31, 2003, 2002 and 2001, respectively. As of
December 31, 2003 and 2002, backlog was $1.3 billion
and $1.4 billion, respectively, including intercompany
backlog of $37 million in 2003 and $41 million in 2002.

Segment Overview: Satellite
Manufacturing

Space Systems/ Loral designs, manufactures and
integrates satellites and space systems. SS/ L-built satellites
have achieved over 1000 years of cumulative on-orbit
experience over its 40-year history. SS/ L is a leading supplier
of commercial telecommunications satellites, high-powered
direct-to-home broadcast satellites, commercial weather
satellites, digital audio radio satellites and innovative
spot-beam satellites for data networking applications. SS/ L
customers include some of the largest satellite service
providers, such as Intelsat, DirecTV, EchoStar, Loral Skynet,
PanAmSat, Optus, APT Satellite, SingTel, Shin Satellite and
Japans Ministry of Transport and Civil Aviation Bureau.

SS/ L has a history of technical innovation that
includes the first three-axis spin stabilized satellites;
bipropellant propulsion systems for commercial satellites that
permit significant increases in the satellites payload and
extend the satellites on-orbit lifetime; rechargeable
nickel-hydrogen batteries; the use of advanced composites to
significantly enhance satellite performance at lighter weights;
and, as a result of these innovations, the first communications
satellite with more than ten kilowatts of power. SS/ L was also
the first satellite manufacturer to employ heat pipes to control
heat transfer in commercial satellites, thereby providing a more
benign temperature environment, increased reliability and high
power. SS/ L also created the first multi-mission geostationary
satellite and was one of the first U.S. companies to
acquire space technology from Russias space industry,
obtaining exclusive rights outside the former Eastern bloc to an
electric propulsion subsystem that is five times more efficient
than bipropellant propulsion systems.

SS/ L offers a broad product line covering the
vast majority of customer requirements for satellites with six
to 20 kilowatts of power. The capacity offered on these
satellites ranges from one to as many as 150 transponders.

SS/ L competes principally on the basis of
technical excellence, reliability and pricing with Boeing,
Lockheed Martin, Alcatel Space, Astrium and Orbital Sciences.
Historically, SS/ L has provided customers with satellites that
significantly exceed their designed life expectancies. SS/
Ls continued success depends on its ability to perform on
a cost-effective and timely basis. The commercial satellite
industry is highly competitive. In recent years, a combination
of on-orbit over-capacity and economic pressures profoundly
diminished demand for satellites. After a period of nearly two
years without being awarded a satellite contract, SS/ L received
orders or authorizations to proceed on the construction of four
satellites (including the expected Intelsat order) in late 2003.
Total SS/ L assets were $362 million, $690 million and
$1.2 billion as of December 31, 2003, 2002 and 2001,
respectively. Backlog at December 31, 2003 and 2002 was
$536 million (excluding approximately $240 million
associated with the fourth quarter awards and authorizations to
proceed, see Managements Discussion and Analysis of
Results of Operations and Financial Condition) and
$763 million, respectively, including intercompany backlog
of $145 million and $275 million, respectively.

Satellite Manufacturing Performance

|                                                   |  |                      |      |      |  |      |      |   |  |   |      |  
|-------------------------------------------------- |  | -------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                   |  |                     
|                                                   |  | For the years ending
|                                                   |  | December 31,        
|                                                   |  |                     
|                                                   |  | 2003                 |      | 2002 |  | 2001
|                                                   |  |                      |      |      |  |     
|                                                   |  |                     
|                                                   |  | (in millions)       
|Total segment revenues                             |  | $                    | 474  |      |  | $    | 853  |   |  | $ | 815  |  
|Eliminations                                       |  |                      | (229 | )    |  |      | (145 | ) |  |   | (201 | )
|                                                   |  |                      |      |      |  |      |      |   |  |   |      |  
|Revenues from satellite manufacturing as reported  |  | $                    | 245  |      |  | $    | 708  |   |  | $ | 614  |  
|                                                   |  |                      |      |      |  |      |      |   |  |   |      |  
|Segment adjusted EBITDA before
    eliminations(1) |  | $                    | (159 | )    |  | $    | (34  | ) |  | $ | 44   |  
|                                                   |  |                      |      |      |  |      |      |   |  |   |      |  



---



|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Consolidated Operating Results in
    Managements Discussion and Analysis of Results of
    Operations and Financial Conditionfor the definition of
    Adjusted EBITDA and for significant items that affect
    comparability between the periods presented.

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Investment in Affiliates and Globalstar Joint
Ventures



| |     
| | ----
| | XTAR

We own 56 percent of XTAR, L.L.C.
(XTAR), a joint venture between Loral and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat). XTAR is
accounted for under the equity method since we do not control
certain significant operating decisions. XTAR is constructing
and plans to launch an X-band satellite in 2004, to provide
X-band services to government users in the United States and
Spain, and to other friendly and allied nations. For more
information on XTAR, see Managements Discussion and
Analysis of Results of Operations and Financial Conditionand Note 7 to the consolidated financial statements.



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

We own 49 percent of Satelites Mexicanos,
S.A. de C.V. (Satmex), a satellite communications
company providing satellite services in Mexico and Latin
America. Satmex has two satellites in operation and a third
satellite, Satmex 6, scheduled for launch this year. Satmex is
in default on its existing financing and has ceased paying
interest on its unsecured debt. It will require additional
liquidity to complete its business plan. During 2003, Loral
wrote-off its remaining investment in Satmex. For more
information on Satmex, see Note 7 to the consolidated
financial statements.



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

Globalstar, L.P. (Globalstar) owns
and operates a satellite constellation that forms the backbone
of a global telecommunications system (the Globalstar
System). On February 15, 2002, Globalstar and certain
of its direct subsidiaries filed voluntary bankruptcy petitions
under Chapter 11. For further details, see Note 7 to
the consolidated financial statements.

On December 8, 2003, the bankruptcy court
approved Globalstars plan which includes an investment of
$43 million by Thermo Capital Partners, LLC
(Thermo) and the creation of a new Globalstar
company (New Globalstar). The effectiveness of
Globalstars plan is subject to a number of material
conditions. If Globalstars plan is effected, Lorals
ownership in New Globalstar is expected to be approximately
2.5 percent, which based on the Thermo transaction, is
expected to have minimal value.

Loral holds various indirect ownership interests
in three foreign companies that currently serve as exclusive
service providers for Globalstar service in Brazil, Mexico and
Russia and an indirect ownership interest in a U.S.-based
distributor that has the exclusive right to sell Globalstar
services to certain agencies within the U.S. Government.
Globalstar is currently renegotiating its service provider
agreements with the various Globalstar service providers, and
there can be no assurance that such agreements will be
successfully negotiated.

In 2000, we wrote-off $1.7 billion of
investments in Globalstar leaving us with an investment balance
of $3 million as of December 31, 2003. We do not
currently intend to invest further in Globalstar or the service
providers in which we continue to have an equity interest.

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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 Telecommunications 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 Federal Communications Commission (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 other 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 our applications will be
granted. Most satellite authorizations include specific
construction and launch milestones; failure to meet them may
result in license revocations. Under licensing rules, we must
post a bond for up to $5,000,000 when we are granted a satellite
authorization. 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. 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 the following
existing or planned satellites which operate or will operate in
the C-band, the Ku-band, or both bands: Telstar 9 at
69° W.L., Telstar 11 at 37.5°W.L., Telstar 12 at
15° W.L. and Orion A at 47°W.L. In addition, we
have final authorization to operate at the following orbital
slots: Ka-band at 15° W.L., 67° W.L.,
93° W.L., 115° W.L., 139° E.L.,
and 126.5° E.L. Certain of our authorizations are
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 design changes or milestone
extension requests that are the subject of pending modification
applications. There can be no assurance that such design changes
or milestone extensions will be granted by the FCC. The failure
to obtain a milestone extension could result in the loss of the
related FCC authorization. If we are unable to obtain FCC
approval to implement its requested technical modifications for
any particular authorization, we will be obligated to operate
the related satellite in accordance with the original
authorization. We also have an application pending before the
FCC at 126° E.L. for use of the Ku-band. There can be
no assurance that the FCC will grant this application.

Under the FCCs rules, an applicant may
commence satellite construction prior to receiving an
authorization to launch and operate, but must notify the FCC of
its intention to do so. The applicant

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##### Table of Contents



undertakes construction at its own risk. We may
begin construction, but must recognize that the FCC may not
grant the application, may not assign the satellite to its
proposed orbital location, or otherwise may reduce or eliminate
the value of the construction begun on the satellite.


Scope
of Services Authorized

In 1996, the FCC largely eliminated the
regulatory distinction between U.S. domestic satellites and
U.S.-licensed international satellites. As a result, each of our
FCC-licensed satellites may be used, to the extent technically
feasible, to provide both U.S. domestic and international
services.

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
Ku- and Ka-band orbital slots by the Papua New Guinea
government. In March 1999, the Brazilian telecommunications
authority announced that Loral had 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. 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 plan to operate the
extended C- and Ku-band payload on Telstar 18/ Apstar V at
138° E.L. using licenses provided by China and Tonga,
respectively.

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.

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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.

Additional ITU Filings

In addition to the ITU filings associated with
our satellite authorizations and applications noted above, we
have ITU filings at 98° E.L., 122° E.L., 130°
E.L., 167.45° E.L., 175° W.L., and 115°W.L. for
use of the C- and Ku-band frequencies. We also have ITU filings
at 9.9° E.L., 16.1° E.L., 22.3° E.L., 115.5°
E.L., 161° E.L., and 97° W.L. for the use of C-, Ku-,
and Ka-band frequencies and at 37.5° W.L. for the use of C-
and Ka-band frequencies. We have filings at 96.5° W.L. and
123.5° W.L. for Broadcast Satellite Service. Loral also has
ITU filings at 1° E.L., 3.5° E.L., 8° E.L.,
10° E.L., 11° E.L., 30° E.L., 81° E.L.,
105.5° E.L., 135° E.L., 135° W.L., 115°
W.L., 95° W.L., 58° W.L. for use of the V-band
frequency.

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 with the U.S. Department of
State. Other Loral exports remain 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.

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 218 patents in the United States and 115 patents abroad
and has applications for 40 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 2004 and 2022.

Skynet Network Services, CyberStar and Loral
SpaceCom have four, six and two patents in the United States,
respectively. Loral SpaceCom holds one patent abroad. Skynet
Network Services and Loral SpaceCom have three and four patents
pending in the United States, respectively. In addition, Loral
SpaceCom has nine patents pending abroad. The Skynet Network
Services, CyberStar and Loral SpaceCom 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.

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FOREIGN OPERATIONS

Sales to foreign customers, primarily in Asia,
Europe and Mexico, represented 29%, 46% and 35% of our
consolidated revenues for 2003, 2002 and 2001, respectively. As
of December 31, 2003 and 2002, we had substantially all of
our long-lived assets located in the United States with the
exception of the in-orbit satellites. See Commitments and
Contingencies in Managements Discussion and Analysis of
Results of Operations and Financial Conditionfor a
discussion of the risks related to operating internationally.

EMPLOYEES

As of December 31, 2003, we had
approximately 1,900 full-time employees, approximately 3%
of whom are subject to collective bargaining agreements. We
consider our employee relations to be good.

AVAILABLE INFORMATION

We make available free of charge through our
website our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and
amendments to those reports as soon as reasonably practicable
after such reports are filed electronically with the SEC. Our
Internet address is www.loral.com. Loral.com is an inactive
textual reference only, meaning that the information contained
on the website is not part of this report and is not
incorporated in this report by reference.






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

We lease approximately 38,000 square feet of
space for our corporate offices in New York and
8,000 square feet in Washington, D.C. We also maintain
office space, manufacturing facilities, and telemetry, tracking
and control facilities primarily in the United States.

Satellite
Services

Loral Skynet owns three telemetry, tracking and
control stations covering approximately 66,000 square feet
on 212 acres in Hawley, Pennsylvania and Three Peaks,
California and on three leased acres in Richmond, California. It
also leases two telemetry, tracking and control stations
covering approximately 11,000 square feet in Rio de
Janeiro, Brazil and Utive, Panama. Loral Skynet also leases
approximately 65,000 square feet of office space in
Bedminster, New Jersey and 8,100 square feet in various
locations around the world.

Skynet Network Services owns seven acres of land
including 8,000 square feet of office space in Mt. Jackson,
Virginia and leases approximately 77,000 square feet of
office space and three acres of land in various locations around
the world.

Satellite
Manufacturing

SS/ Ls research, production and testing are
conducted in SS/ L-owned facilities covering approximately
563,000 square feet on 28 acres in Palo Alto,
California. In addition, SS/ L leases approximately
518,000 square feet of space on 23 acres from various
third parties primarily in Palo Alto, Menlo Park and Mountain
View, California and Kent, Washington.

Management believes that the facilities are
sufficient for its current operations.






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

Consent Agreement.On January 9, 2002, Loral, SS/ L and the United States
Department of State (Department of State) entered
into a consent agreement (the Consent Agreement)
settling and disposing of all civil charges, penalties and
sanctions associated with alleged violations by SS/ L of the
Arms Export Control Act and its implementing regulations. Under
the Consent Agreement, SS/ L remains obligated

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to, among other things, pay the Department of
State $10 million over the next five years and to implement
enhanced export control compliance measures.


Alcatel Settlement.SS/ L was a party to an Operational Agreement with Alcatel Space
Industries, under which the parties had agreed to cooperate on
certain satellite programs. It also was a party to an Alliance
Agreement with Alcatel Space (together with Alcatel Space
Industries, Alcatel), under which Alcatel had
certain rights with respect to SS/ L. On June 30, 2003,
Loral, SS/ L and Alcatel entered into a master agreement
settling all claims among the parties, including arbitration
claims brought by Alcatel against Loral alleging breaches of the
Operational Agreement and Alliance Agreement. Pursuant to the
master settlement agreement, Loral paid Alcatel $5 million
and agreed to pay an additional $8 million within one year,
resulting in a charge to operations of $13 million. In
addition, Alcatel transferred to Loral its minority interest in
CyberStar and Loral transferred to Alcatel its minority
interests in Europe*Star Limited and SkyBridge Limited
Partnership that Loral had previously written off. As a result
of receiving Alcatels minority interest in CyberStar,
Loral recognized an extraordinary gain of $14 million,
which represents the extinguishment of the minority interest
liability less the fair value of the acquired net assets. Under
the terms of the master settlement agreement, because of the
commencement of the Chapter 11 Cases, the arbitration and a
related court proceeding to confirm a partial arbitration award
were suspended, with termination to occur on the date of
confirmation of a plan of reorganization or a liquidation,
provided that if any action is commenced in the Chapter 11
Cases seeking the repayment, disgorgement or turnover of the
transfers made in connection with the master settlement
agreement, the arbitration and related court confirmation
proceeding would not be terminated until such repayment,
disgorgement or turnover action had been dismissed. The master
settlement agreement also provides that Alcatel is entitled to
reinstate the arbitration if it is required by judicial order to
repay, disgorge or turn over the consideration paid to it under
the agreement in the context of the Chapter 11 Cases.

PanAmSat
Arbitration.In September 2001, the
PAS 7 satellite built by SS/ L for PanAmSat experienced an
electrical power failure on its solar arrays that resulted in
the loss of use of certain transponders on the satellite. Also,
the PAS 8 satellite has experienced minor losses of power from
its solar arrays, the cause of which is unrelated to the loss of
power on the PAS 7 satellite. On June 30, 2003, PanAmSat
commenced an arbitration claiming that under its contract with
SS/ L it is entitled to $23.7 million as a result of these
losses. This arbitration is subject to the automatic stay as a
result of the commencement of SS/ Ls Chapter 11 case,
and further proceedings in the matter have been suspended. In
March 2004, the Company reached an agreement in principle
to settle this matter with PanAmSat, which is subject to
documentation and Bankruptcy Court approval and has recorded a
charge to operations of $8 million in the fourth quarter of
2003.

Globalstar Related
Matters.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, 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, Loral and Bernard L. Schwartz alleging
(a) that all defendants (except Loral) 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 Globalstars business and prospects,
(b) that defendants 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 Loral and Mr. Schwartz 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

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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. Loral believes that it has meritorious defenses to this
class action lawsuit and intends to pursue them vigorously. As a
result of the commencement of the Chapter 11 Cases,
however, this lawsuit is subject to the automatic stay and
further proceedings in the matter have been suspended insofar as
Loral is concerned but are proceeding as to GTL and
Mr. Schwartz. Loral is obligated to indemnify
Mr. Schwartz for any losses or costs he may incur as a
result of this lawsuit. In December 2003, a motion to dismiss
the amended complaint in its entirety was denied by the court
insofar as GTL and Mr. Schwartz are concerned, and
discovery has commenced.


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 our common stock against 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 alleging (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 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
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of 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 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. Loral believes that it has
meritorious defenses to this class action lawsuit and intends to
pursue them vigorously. As a result of the commencement of the
Chapter 11 Cases, however, this lawsuit is subject to the
automatic stay, and further proceedings in the matter have been
suspended, insofar as Loral is concerned but are proceeding as
to the other defendants. Loral is obligated to indemnify
Messrs. Schwartz and Townsend for any losses or costs they
may incur as a result of this lawsuit. On February 23,
2004, a motion to dismiss the amended complaint was granted by
the court insofar as Messrs. Schwartz and Townsend are
concerned.

The primary insurer under Lorals directors
and officers liability insurance policy has denied coverage for
the case filed by Loral shareholders under the policy and, on
March 24, 2003, filed a lawsuit in the Supreme Court of
New York county seeking a declaratory judgment upholding
their coverage position. In May 2003, Loral and the other
defendants served their 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, 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. Loral believes that the insurers have wrongfully
denied coverage and intends to defend against the denial
vigorously. As a result of the commencement of the
Chapter 11 Cases, however, this lawsuit is subject to the
automatic stay, and further proceedings in the matter have been
suspended insofar as Loral is concerned but are proceeding as to
the other defendants.

Lawsuits against our Directors and
Officers.In August 2003, plaintiffs
Robert Beleson and Harvey Matcovsky filed a purported class
action complaint against Bernard Schwartz in the United States
District Court for the Southern District of New York. The
complaint alleges (a) that Mr. Schwartz 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 Lorals financial
condition relating to the sale of assets to Intelsat and
Lorals 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
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of 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 them. 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 on March 2,
2004, and discovery has commenced.

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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 Schwartz and
Richard J. Townsend in the United States District Court for the
Southern District of New York. 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 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 defendants are secondarily liable
for these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as an alleged
controlling person of Loral. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
buyers of 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. This case is in its preliminary stages, and, on
March 11, 2004, a conference was held with the court
concerning selection of a lead plaintiff.

In December 2003, plaintiff Wendy Koch, a former
employee, filed a purported class action complaint against the
Loral Space & Communications Ltd. Savings Plan
Administrative Committee, all Loral directors, Richard J.
Townsend and certain other Loral officers and employees in the
United States District Court for the Southern District of
New York. The 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 Loral
Savings Plan (the Plan) by including Loral common
stock as an investment alternative and by providing matching
contributions under the Plan in Loral stock, (b) that the
director defendants violated Section 404 of ERISA by
breaching their fiduciary duties to monitor the committee
defendants and (c) that defendants violated
Sections 404 and 405 of ERISA by failing to provide
complete and accurate information to Plan participants and
beneficiaries. The class of plaintiffs on whose behalf the
lawsuit has been asserted consists of all participants in or
beneficiaries of the Plan at any time between November 4,
1999 and the present and whose accounts included investments in
Loral stock. One other similar complaint against the defendants
with substantially similar allegations has been filed, and a
motion to consolidate the cases is pending.

Loral is obligated to indemnify its directors and
officers for any losses or costs they may incur as a result of
these lawsuits.

Natelco.On
October 21, 2002, National Telecom of India Ltd.
(Natelco) filed suit against 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. Loral believes that
the claims are without merit and intends to vigorously defend
against them. As a result of the commencement of the
Chapter 11 Cases, this lawsuit is subject to the automatic
stay and further proceedings in the matter have been suspended.

Environmental
Regulation.Our operations are subject
to regulation by various federal, state and local agencies
concerned with environmental control. We believe that our
facilities are in substantial compliance with all existing
federal, state and local environmental regulations. With regard
to certain sites, environmental remediation is being performed
by prior owners who retained liability for such remediation
arising from occurrences during their period of ownership. To
date, these prior owners have been fulfilling these obligations;
their size and current financial condition make it probable that
they will be able to complete their remediation obligations
without cost to us.

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
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 results of operations.

14



---



##### Table of Contents








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

None.

15



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##### Table of Contents






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

As a result of the commencement of our
Chapter 11 Cases, on July 15, 2003, the NYSE suspended
trading of Lorals common stock and removed our securities
from listing and registration on September 2, 2003.
Lorals common stock is being quoted under the ticker
symbol LRLSQ on the Pink Sheets and on the Over-The-Counter
Bulletin Board Service (OTC). In addition, on June 4, 2003,
our Board of Directors approved a reverse stock split of
Lorals common stock at a ratio of one-for-ten, resulting
in a new par value of $0.10 per common share. The reverse
stock split became effective after the close of business on
June 13, 2003. All references to common stock and per share
amounts for all prior periods presented have been retroactively
restated to reflect this reverse stock split. The following
table presents the reported high and low closing prices of our
common stock as reported on the Pink Sheets and the NYSE for
2003 and the intra-day high and low sales prices for 2002:

|                                 |  |      |       |     |  |   |       | 
|-------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                 |  | High |       | Low
|                                 |  |      |       |    
|Year ended December 31, 2003     |  |      |       |     |  |   |       | 
|Quarter ended December 31, 2003  |  | $    | 0.48  |     |  | $ | 0.26  | 
|Quarter ended September 30, 2003 |  |      | 3.06  |     |  |   | 0.15  | 
|Quarter ended June 30, 2003      |  |      | 4.60  |     |  |   | 2.59  | 
|Quarter ended March 31, 2003     |  |      | 5.20  |     |  |   | 3.00  | 
|Year ended December 31, 2002     |  |      |       |     |  |   |       | 
|Quarter ended December 31, 2002  |  | $    | 7.00  |     |  | $ | 2.30  | 
|Quarter ended September 30, 2002 |  |      | 10.80 |     |  |   | 2.20  | 
|Quarter ended June 30, 2002      |  |      | 24.40 |     |  |   | 9.10  | 
|Quarter ended March 31, 2002     |  |      | 32.70 |     |  |   | 18.00 | 



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

At March 1, 2004, there were 6,476 holders
of record of Lorals common stock.



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

We have not paid any dividends on our common
stock. In August 2002, Lorals Board of Directors approved
a plan to suspend indefinitely the future payment of dividends
on our two series of preferred stock. Accordingly, we have
deferred the payments of quarterly dividends due on our
Series C and Series D preferred stock. The Debtors
will not pay any dividends or make any distributions during the
pendency of the Chapter 11 Cases. The ability of the
Debtors to pay dividends or distributions following any
emergence from Chapter 11 will depend on various factors
that cannot be determined at this time.






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

The following consolidated selected financial
data has been derived from, and should be read in conjunction
with, the related consolidated financial statements.

16



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

(In thousands, except per share
data)


|                                                                                                                                                                                                                                                   |                                                                                                                               |                          |          |       |   |      |            |        |   |      |           |       |   |   |            |        |   |   |           |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------- | ----- | - | ---- | ---------- | ------ | - | ---- | --------- | ----- | - | - | ---------- | ------ | - | - | --------- | ----- | -
|                                                                                                                                                                                                                                                   |                                                                                                                               |                         
|                                                                                                                                                                                                                                                   |                                                                                                                               | Years Ended December 31,
|                                                                                                                                                                                                                                                   |                                                                                                                               |                         
|                                                                                                                                                                                                                                                   |                                                                                                                               | 2003                     |          | 2002  |   | 2001 |            | 2000   |   | 1999
|                                                                                                                                                                                                                                                   |                                                                                                                               |                          |          |       |   |      |            |        |   |     
|Statement of operations data:                                                                                                                                                                                                                      |                                                                                                                               |                          |          |       |   |      |            |        |   |      |           |       |   |   |            |        |   |   |           |      
|Revenues                                                                                                                                                                                                                                           |                                                                                                                               | $                        | 533,385  |       |   | $    | 1,098,425  |        |   | $    | 1,069,575 |       |   | $ | 1,224,111  |        |   | $ | 1,457,720 |      
|Operating loss                                                                                                                                                                                                                                     |                                                                                                                               |                          | (309,915 | )     |   |      | (82,029    | )      |   |      | (5,228    | )     |   |   | (86,086    | )      |   |   | (62,263   | )    
|Loss before income taxes, equity in net losses of
    affiliates, minority interest, Globalstar related impairment
    charges, cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest |                                                                                                                               |                          | (338,575 | )     |   |      | (147,354   | )      |   |      | (126,333  | )     |   |   | (56,843    | )      |   |   | (62,138   | )    
|Income tax (provision) benefit                                                                                                                                                                                                                     |                                                                                                                               |                          | (4,647   | )     |   |      | (355,042   | ) (1)  |   |      | (2,170    | )     |   |   | (9,375     | )      |   |   | 32,516    |      
|Loss before equity in net losses of affiliates,
    minority interest, Globalstar related impairment charges,
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest               |                                                                                                                               |                          | (343,222 | )     |   |      | (502,396   | )      |   |      | (128,503  | )     |   |   | (66,218    | )      |   |   | (29,622   | )    
|Equity in net losses of affiliates, net of
    taxes(2)                                                                                                                                                                                            |                                                                                                                               |                          | (51,153  | )     |   |      | (76,280    | )      |   |      | (66,677   | )     |   |   | (1,294,910 | ) (3)  |   |   | (177,819  | )    
|Globalstar related impairment charges, net of
    taxes                                                                                                                                                                                            |                                                                                                                               |                          |          |       |   |      |            |        |   |      |           |       |   |   | (112,241   | ) (3)  |   |   |           |      
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest                                                                                                                 |                                                                                                                               |                          | (394,355 | )     |   |      | (578,902   | )      |   |      | (194,719  | )     |   |   | (1,469,678 | )      |   |   | (201,916  | )    
|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                                                                                                                                                                                                                                           |                                                                                                                               |                          | (382,710 | )     |   |      | (1,469,211 | )      |   |      | (196,460  | )     |   |   | (1,469,678 | )      |   |   | (201,916  | )    
|Preferred dividends and accretion                                                                                                                                                                                                                  |                                                                                                                               |                          | (6,719   | )     |   |      | (89,186    | )      |   |      | (80,743   | )     |   |   | (67,528    | )      |   |   | (44,728   | )    
|Net loss applicable to common stockholders                                                                                                                                                                                                         |                                                                                                                               |                          | (389,429 | )     |   |      | (1,558,397 | )      |   |      | (277,203  | )     |   |   | (1,537,206 | )      |   |   | (246,644  | )    
|Basic and diluted loss per share:                                                                                                                                                                                                                  |                                                                                                                               |                          |          |       |   |      |            |        |   |      |           |       |   |   |            |        |   |   |           |      
|                                                                                                                                                                                                                                                   | Before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |                          | $        | (9.15 | ) |      | $          | (17.92 | ) |      | $         | (8.51 | ) |   | $          | (51.96 | ) |   | $         | (8.50 | )
|                                                                                                                                                                                                                                                   | Cumulative effect of change in accounting
    principle                                                                       |                          |          | (0.05 | ) |      |            | (23.89 | ) |      |           | (0.05 | ) |   |            |        |   |   |           |       |  
|                                                                                                                                                                                                                                                   | Extraordinary gain on acquisition of minority
    interest                                                                    |                          |          | 0.31  |   |      |            |        |   |      |           |       |   |   |            |        |   |   |           |       |  
|                                                                                                                                                                                                                                                   |                                                                                                                               |                          |          |       |   |      |            |        |   |      |           |       |   |   |            |        |   |   |           |      
|                                                                                                                                                                                                                                                   | Loss per share                                                                                                                |                          | $        | (8.89 | ) |      | $          | (41.81 | ) |      | $         | (8.56 | ) |   | $          | (51.96 | ) |   | $         | (8.50 | )
|                                                                                                                                                                                                                                                   |                                                                                                                               |                          |          |       |   |      |            |        |   |      |           |       |   |   |            |        |   |   |           |      
|Other data:                                                                                                                                                                                                                                        |                                                                                                                               |                          |          |       |   |      |            |        |   |      |           |       |   |   |            |        |   |   |           |      
|Deficiency of earnings to cover fixed charges                                                                                                                                                                                                      |                                                                                                                               | $                        | 379,134  |       |   | $    | 266,356    |        |   | $    | 230,173   |       |   | $ | 141,453    |        |   | $ | 191,075   |      

17



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##### Table of Contents



|                                             |  |                          |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|-------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                             |  |                         
|                                             |  | Years Ended December 31,
|                                             |  |                         
|                                             |  | 2003                     |          | 2002 |  | 2001 |          | 2000 |  | 1999
|                                             |  |                          |          |      |  |      |          |      |  |     
|Cash flow data:                              |  |                          |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|Provided by (used in) operating activities   |  | $                        | 225,025  |      |  | $    | 192,670  |      |  | $    | 169,818  |   |  | $ | 258,816  |   |  | $ | (7,181   | )
|Used in investing activities                 |  |                          | (149,856 | )    |  |      | (138,824 | )    |  |      | (248,672 | ) |  |   | (377,780 | ) |  |   | (679,005 | )
|Provided by (used in) equity transactions    |  |                          | 3,852    |      |  |      | (32,737  | )    |  |      | (35,687  | ) |  |   | 352,415  |   |  |   | (24,633  | )
|(Used in) provided by financing transactions |  |                          | (3,313   | )    |  |      | (115,122 | )    |  |      | (119,555 | ) |  |   | (79,271  | ) |  |   | 403,912  |  
|Dividends paid per common share              |  |                          |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  

|                                              |  |              |           |            |  |         |           |         |  |      |           |  |  |   |           |  |  |   |           | 
|--------------------------------------------- |  | ------------ | --------- | ---------- |  | ------- | --------- | ------- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                              |  |             
|                                              |  | December 31,
|                                              |  |             
|                                              |  | 2003(5)      |           | 2002(1)(4) |  | 2001(6) |           | 2000(3) |  | 1999
|                                              |  |              |           |            |  |         |           |         |  |     
|Balance sheet data:                           |  |              |           |            |  |         |           |         |  |      |           |  |  |   |           |  |  |   |           | 
|Cash and cash equivalents                     |  | $            | 141,644   |            |  | $       | 65,936    |         |  | $    | 159,949   |  |  | $ | 394,045   |  |  | $ | 239,865   | 
|Total assets                                  |  |              | 2,455,741 |            |  |         | 2,692,802 |         |  |      | 4,426,187 |  |  |   | 4,692,082 |  |  |   | 5,610,421 | 
|Debt, including current portion               |  |              |           |            |  |         | 2,236,497 |         |  |      | 2,352,956 |  |  |   | 2,445,996 |  |  |   | 1,988,194 | 
|Non-current liabilities and minority interest |  |              | 199,323   |            |  |         | 354,475   |         |  |      | 272,302   |  |  |   | 261,432   |  |  |   | 262,900   | 
|Convertible redeemable preferred stock        |  |              |           |            |  |         | 125,081   |         |  |      |           |  |  |   |           |  |  |   |           | 
|Liabilities subject to compromise             |  |              | 2,906,095 |            |  |         |           |         |  |      |           |  |  |   |           |  |  |   |           | 
|Shareholders (deficit) equity                |  |              | (855,670  | )          |  |         | (354,227  | )       |  |      | 1,350,868 |  |  |   | 1,586,388 |  |  |   | 2,750,664 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the increase in the deferred tax
    valuation allowance of $390.4 million to a balance of
    $576.5 million, based upon managements assessment
    during the fourth quarter of 2002 that insufficient positive
    evidence existed substantiating recoverability of our loss
    carryforwards and other deferred tax assets (see Note 12 to
    the consolidated financial statements).                                                                 
|   
|(2) | Our principal affiliates are XTAR and Satmex.
    Loral also has investments in Globalstar and other ventures,
    which are accounted for under the equity method. During 2003,
    Loral wrote-off its remaining investment of $29 million in
    Satmex.                                                                                                                                                                                                            
|   
|(3) | The results of operations for 2000 includes
    Lorals share of Globalstars related equity losses
    and after-tax impairment charges of approximately
    $1.29 billion (approximately $1.6 billion on a pre-tax
    basis), which is included in equity in net loss of affiliates
    and after-tax impairment charges of $112 million
    ($125 million pre-tax) relating to Lorals investments
    in and advances to Globalstar service provider partnerships.
|   
|(4) | On January 1, 2002, we recorded a charge of
    $890 million to write-off all of our goodwill as the
    cumulative effect of change in accounting principle (see
    Note 8 to the consolidated financial statements).                                                                                                                                                                                                                                                
|   
|(5) | As a result of our Chapter 11 filing, our
    debt obligations, preferred stock obligations and certain other
    liabilities existing at July 15, 2003, have been classified
    as liabilities subject to compromise on our balance sheet as of
    December 31, 2003 (see Note 9 to the consolidated
    financial statements).                                                                                                                                     
|   
|(6) | On December 21, 2001, Loral Orion completed
    exchange offers and consent solicitations by issuing
    $613 million principal amount of new senior notes
    guaranteed by Loral and 0.6 million five year warrants to
    purchase 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.                                                                     

18



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##### Table of Contents








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

The following discussion and analysis should
be read in conjunction with our consolidated financial
statements included in Item 16.

We use the terms Loral, the
Company, we, our, and
us in this report to refer to Loral Space &
Communications Ltd. and its subsidiaries. When we use the term
Loral Skynet or Skynet, we are, unless
the context provides otherwise, referring to our entire
Satellite Services business, the assets of which are held in
various companies.

Disclosure Regarding Forward-Looking
Statements

Except for the historical information
contained in the following discussion and analysis, the matters
discussed 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, Loral 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. These include the development of a
plan of reorganization, confirmation of the plan by the
Bankruptcy Court, and our ability to maintain good relations
with our customers, suppliers and employees. For a detailed
discussion of these and other factors and conditions, please
refer to the Commitments and Contingencies section below and to
the other periodic reports filed with the SEC by Loral, our
wholly owned subsidiary Loral Orion, Inc. (Loral
Orion) and our affiliate Satelites de Mexico, S.A. de C.V.
(Satmex). Loral operates in an industry sector in
which securities values 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. Revenues in 2003 were
$533 million.

Satellite
Services

Through our Loral Skynet division we lease
satellite capacity and platforms to our customers for video and
direct-to-home (DTH) broadcasting, high-speed
data distribution, Internet access, communications and
networking services. The satellite services business is capital
intensive and highly competitive. We compete with other
satellite operators and with ground-based service providers. The
build-out of a satellite fleet requires substantial 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. Beyond
construction, one of the major cost factors is in-orbit
insurance, an essential component given the harsh and
unpredictable environment in which the satellites operate.
Annual receipts from this business are fairly predictable
because they are based on an established base of long-term
customer contracts. In 2003, Satellite Services sales were
$296 million before eliminations of $8 million.
Worldwide satellite services industry sales in 2002 were
approximately $7 billion, according to available industry
estimates. Satellite Services backlog at December 31,
2003 was $1.3 billion.

The satellite services market has been
characterized in recent years by over-capacity, pricing pressure
and competition from fiber. The downturn in the
telecommunications sector led many existing Skynet customers,
hampered by a slow-down in demand and lack of access to the
capital markets, to postpone expansion plans. Similarly, several
start-up companies that leased Skynets satellite capacity
for the delivery of new applications failed to meet their
business objectives. Following the closing of the Intelsat
transaction, Skynets growth will

19



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##### Table of Contents



rely on its ability to differentiate itself from
the competition through customized product offerings, its
superior customer service and its successful marketing of
available capacity on its international fleet which is well
positioned to serve regions of the world where demand is growing.


Satellite
Manufacturing

Our Space Systems/ Loral (SS/L)
subsidiary designs and manufactures satellites, space systems
and space systems components for customers in the commercial and
government sectors for applications including 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 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 1,500
employees is one of our key competitive advantages.

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 four satellite awards a year. Cash flow in
the satellite manufacturing business tends to be uneven. It
takes two to three years to complete a satellite project and
numerous assumptions are built into the estimated costs. Cash
receipts are tied to the achievement of contract milestones,
which depend in part on the ability of our subcontractors to
deliver on time. In addition, the timing of satellite awards is
difficult to predict, contributing to the unevenness of revenue
and making it more challenging to match the workforce to the
workflow.

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 reduces profitability and may result in losses
borne solely by SS/ L, which may be material. The satellite
manufacturing industry is highly competitive and, in recent
years, order levels reached an unprecedented low level,
resulting in manufacturing over-capacity. Buyers, as a result,
are in the advantageous position of being able to negotiate
contracts with favorable prices, terms and conditions. In the
latter part of 2003, the order rate for new commercial
satellites picked up and is expected to continue into 2004. This
pick up has been driven by the need for replacement satellites
and the resumption of some customers expansion plans.
Backlog as of December 31, 2003, was $536 million.
Backlog excludes approximately $240 million associated with
orders or authorizations to proceed on the construction of four
satellites (including the expected Intelsat order) received in
the fourth quarter of 2003. SS/ L had sales in 2003 of
$474 million including $229 million for internal
satellites. Commercial satellite manufacturing industry sales in
2002 totaled $3.5 billion worldwide, according to available
industry estimates.



| |                       
| | ----------------------
| | Bankruptcy Proceedings

We operate in extremely competitive markets
characterized in recent years by over-capacity and pricing
pressures brought on by the downturn in the telecommunications
sector. Our existing and potential customers, having limited
access to the capital markets, postponed or reduced the scope of
their planned satellite-based applications and services. This
resulted in an excess of transponder capacity and a standstill
in satellite orders. In the face of these pressures, we further
increased our emphasis on cash conservation over the last
18 months, reducing operating expenses, suspending dividend
payments on our preferred stock, and closely monitoring capital
expenditures. The sustained and unprecedented decline in demand
for our satellites and satellite services, however, exacerbated
our already strained financial condition brought on primarily by
the investments we had previously made in Globalstar and
subsequently wrote off. On July 2003, Loral and certain of its
subsidiaries filed voluntary petitions for reorganization under
Chapter 11. As a result of our Chapter 11 filing, all
of our prepetition debt obligations aggregating
$2.2 billion at December 31, 2003 have been
accelerated. Our $2.2 billion of debt includes
$967 million of bank debt that is secured by liens on the
assets of Loral SpaceCom and Loral Satellite, consisting
primarily of our Satellite Manufacturing assets and satellites
serving

20



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##### Table of Contents



the North American market. On July 15, 2003,
we suspended interest payments on all of our senior unsecured
notes, with a principal amount of $1.05 billion.


For the duration of the bankruptcy proceedings,
our businesses are subject to risks and uncertainties of
bankruptcy (see Commitments and Contingencies
section below for examples of such risks and uncertainties).



| |               
| | --------------
| | Sale of Assets

In a further effort to strengthen our balance
sheet, on July 15, 2003, we agreed to sell our satellites
serving the North American market and related assets to
Intelsat. Proceeds from the sale will be used to repay our
outstanding secured bank debt, which was $967 million at
December 31, 2003. This will reduce our outstanding
principal debt obligations by almost 50 percent. On
March 5, 2004, we and Intelsat entered into an amendment to
the Asset Purchase Agreement, the effectiveness of which is
subject to approval by the Bankruptcy Court and Intelsats
bank lenders.



| |               
| | --------------
| | Future Outlook

We intend to reorganize around our satellite
manufacturing operations and our remaining fleet of
international satellites, which will cover regions with high
growth potential, such as Southeast Asia and South America,
where the ground infrastructure is inadequate to support
increased demand. We consider these operations to be a viable
foundation for the further expansion of our company. We
anticipate using excess cash flows from operations to populate
our available slots with new satellites to meet market demand.
We are in the process now of completing our long-term business
plan. We believe the plan is sound and that we will not require
any additional financing to fund operations. At this time,
however, it is impossible to predict accurately the effect of
the Chapter 11 reorganization on Loral, when it may emerge
from Chapter 11 and what its capital structure will be. The
rights and claims of various creditors and security holders will
be determined by our plan of reorganization. No assurance can be
given as to what values, if any, will be ascribed in the
bankruptcy proceedings to each of these constituencies. We
anticipate that, in any plan of reorganization ultimately
confirmed by the Bankruptcy Court, our common and preferred
stock will, at best, be severely diluted and may be eliminated
entirely, with the result that common and preferred stockholders
would receive no distribution. Accordingly, we urge that
appropriate caution be exercised with respect to existing and
future investments in any of such securities and claims.

Critical success factors for us include
maintaining our reputation for reliability, quality and superior
customer service. During reorganization, in particular, these
factors are vital to securing new customers and retaining
current ones. In addition, we must align our workforce levels
with the needs of the business, continue to contain costs, and
maximize the efficiency of both of our operations. Loral Skynet
is focused on increasing the capacity utilization of its
satellite fleet and successfully introducing new value-added
services to its markets. Space Systems/ Loral, which received
orders or authorizations to proceed for four new satellites
(including the expected Intelsat order) in the fourth quarter of
2003, is focused on increased bookings and backlog in 2004.

See Part 1, Item 1, for a complete
description of Lorals businesses, our Chapter 11
Cases and the sale of our satellite assets serving the North
American market.

Consolidated Operating Results

Please refer to Critical Accounting Matters
further on in this section.

The accompanying consolidated financial
statements have been prepared assuming Loral in its current
structure will continue as a going concern. However, the factors
mentioned above among other things, raise substantial doubt
about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. The
ability of Loral to continue as a going concern is dependent on
a number of factors including, but not limited to, developing a
plan of reorganization, confirmation of the plan by the
Bankruptcy Court and maintaining good relations with

21



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##### Table of Contents



our customers, suppliers and employees. If a plan
of reorganization is not confirmed and implemented, we may be
forced to liquidate under applicable provisions of the
Bankruptcy Code. There can be no assurance of the level of
recovery that Lorals creditors would receive in the event
of a liquidation. The consolidated financial statements do not
include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the
amounts and classification of liabilities if Loral were forced
to liquidate.


The common definition of EBITDA is Earnings
Before Interest, Taxes, Depreciation and Amortization. In
evaluating financial performance, we use revenue and operating
income (loss) before depreciation and amortization including
amortization of unearned stock compensation, and reorganization
expenses due to bankruptcy (Adjusted EBITDA) as a
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 (loss) on investments and debt exchanges;
equity in net losses of affiliates, net of tax; minority
interest, net of tax; cumulative effect of change in accounting
principle, net of tax, and extraordinary gain on acquisition of
minority interest, net of tax. Adjusted EBITDA should be used in
conjunction with 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
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, 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 Loral. Adjusted EBITDA as
used here may not be comparable to similarly titled measures
reported by other companies. We also use Adjusted EBITDA to
evaluate operating performance, to allocate resources and
capital, to measure performance for incentive compensation
programs, and to evaluate future growth opportunities. See the
table below for reconciliations of Adjusted EBITDA to net loss.

The following discussion of revenues and Adjusted
EBITDA reflects the results of our operating businesses for
2003, 2002 and 2001. The balance of the discussion relates to
our consolidated results, unless otherwise noted. Both of our
business segments have been adversely affected by the downturn
in the telecommunications sector, which has caused a delay in
demand for new telecommunications applications and services.

Revenues:

|                        |  |                          |        |      |  |      |         |   |  |   |         |  
|----------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                        |  |                         
|                        |  | Years Ended December 31,
|                        |  |                         
|                        |  | 2003                     |        | 2002 |  | 2001
|                        |  |                          |        |      |  |     
|                        |  |                         
|                        |  | (in millions)           
|Satellite Services      |  | $                        | 295.7  |      |  | $    | 395.4   |   |  | $ | 464.2   |  
|Satellite Manufacturing |  |                          | 474.0  |      |  |      | 853.1   |   |  |   | 814.8   |  
|                        |  |                          |        |      |  |      |         |   |  |   |         |  
|Segment revenues        |  |                          | 769.7  |      |  |      | 1,248.5 |   |  |   | 1,279.0 |  
|Eliminations(1)         |  |                          | (236.3 | )    |  |      | (150.1  | ) |  |   | (209.4  | )
|                        |  |                          |        |      |  |      |         |   |  |   |         |  
|Revenues as reported(2) |  | $                        | 533.4  |      |  | $    | 1,098.4 |   |  | $ | 1,069.6 |  
|                        |  |                          |        |      |  |      |         |   |  |   |         |  

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##### Table of Contents



Adjusted EBITDA:

|                                                                                                                                   |  |                          |        |      |  |      |          |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | -------- | - |  | - | ------ | -
|                                                                                                                                   |  |                         
|                                                                                                                                   |  | Years Ended December 31,
|                                                                                                                                   |  |                         
|                                                                                                                                   |  | 2003                     |        | 2002 |  | 2001
|                                                                                                                                   |  |                          |        |      |  |     
|                                                                                                                                   |  |                         
|                                                                                                                                   |  | (in millions)           
|Satellite Services                                                                                                                 |  | $                        | 141.1  |      |  | $    | 219.9    |   |  | $ | 263.4  |  
|Satellite Manufacturing(3)                                                                                                         |  |                          | (158.6 | )    |  |      | (34.0    | ) |  |   | 44.1   |  
|Corporate expenses(4)                                                                                                              |  |                          | (36.0  | )    |  |      | (36.8    | ) |  |   | (37.5  | )
|                                                                                                                                   |  |                          |        |      |  |      |          |   |  |   |        |  
|Segment Adjusted EBITDA before eliminations                                                                                        |  |                          | (53.5  | )    |  |      | 149.1    |   |  |   | 270.0  |  
|Eliminations(1)                                                                                                                    |  |                          | (41.9  | )    |  |      | (44.1    | ) |  |   | (47.4  | )
|                                                                                                                                   |  |                          |        |      |  |      |          |   |  |   |        |  
|Adjusted EBITDA                                                                                                                    |  |                          | (95.4  | )    |  |      | 105.0    |   |  |   | 222.6  |  
|Depreciation and amortization                                                                                                      |  |                          | 189.2  |      |  |      | 187.0    |   |  |   | 227.8  |  
|Reorganization expenses due to bankruptcy                                                                                          |  |                          | 25.3   |      |  |      |          |   |  |   |        |  
|                                                                                                                                   |  |                          |        |      |  |      |          |   |  |   |        |  
|Operating loss                                                                                                                     |  |                          | (309.9 | )    |  |      | (82.0    | ) |  |   | (5.2   | )
|Interest and investment income                                                                                                     |  |                          | 15.2   |      |  |      | 12.9     |   |  |   | 28.9   |  
|Interest expense                                                                                                                   |  |                          | (61.8  | )    |  |      | (77.1    | ) |  |   | (183.9 | )
|Gain (loss) on investments and debt exchanges, net                                                                                 |  |                          | 17.9   |      |  |      | (1.2     | ) |  |   | 33.9   |  
|Income tax provision                                                                                                               |  |                          | (4.6   | )    |  |      | (355.0   | ) |  |   | (2.2   | )
|Equity in net losses of affiliates, net of taxes                                                                                   |  |                          | (51.2  | )    |  |      | (76.3    | ) |  |   | (66.7  | )
|Minority interest                                                                                                                  |  |                          |        |      |  |      | (0.2     | ) |  |   | 0.5    |  
|                                                                                                                                   |  |                          |        |      |  |      |          |   |  |   |        |  
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |  |                          | (394.4 | )    |  |      | (578.9   | ) |  |   | (194.7 | )
|Cumulative effect of change in accounting
    principle                                                                            |  |                          | (1.9   | )    |  |      | (890.3   | ) |  |   | (1.8   | )
|Extraordinary gain on acquisition of minority
    interest                                                                         |  |                          | 13.6   |      |  |      |          |   |  |   |        |  
|                                                                                                                                   |  |                          |        |      |  |      |          |   |  |   |        |  
|Net loss                                                                                                                           |  | $                        | (382.7 | )    |  | $    | (1,469.2 | ) |  | $ | (196.5 | )
|                                                                                                                                   |  |                          |        |      |  |      |          |   |  |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents: (a) the elimination of
    intercompany sales and intercompany Adjusted EBITDA, primarily
    for satellites under construction by SS/ L for wholly owned
    subsidiaries and (b) the reversal of satellite
    manufacturing sales of $83 million and $73 million of
    cost of satellite manufacturing on a satellite program with a
    customer where the contract was changed to a lease arrangement
    in 2003 (see Note 17 to the consolidated financial
    statements).
|   
|(2) | Includes revenues from affiliates of
    $28.7 million, $85.9 million and $100.9 million
    in 2003, 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | See 2003 Compared with 2002 and
    2001  Cost of Satellite Manufacturing, for
    significant items that effect comparability between the periods
    presented.                                                                                                                                                                                                                                                                                                                             
|   
|(4) | Represents corporate expenses incurred in support
    of our operations.                                                                                                                                                                                                                                                                                                                                                                                                                       

Financial Information for Assets Serving the
North American Market to be Sold to Intelsat

The net book value of the satellites to be sold
to Intelsat was $935 million (including insurance proceeds
receivable of $123 million on our balance sheet) and the
related assets and liabilities was $30 million and
$31 million, respectively, as of December 31, 2003.
The net assets to be sold, as well as the results of operations
relating to such net assets, have not been segregated in the
accompanying financial statements since Bankruptcy Court
approval is still required with respect to certain provisions of
the asset purchase agreement.

Upon receipt of Bankruptcy Court approval
relating to certain closing conditions, the satellites serving
the North American market will be accounted for as a
discontinued operation, resulting in our historical consolidated
financial statements being reclassified to reflect such
discontinued operations separately from continuing operations.

23



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##### Table of Contents



The following table represents the results of
operations that are expected to be reclassified for the
satellite assets to be sold to Intelsat, for the three years in
the period ended December 31, 2003. For the purpose of this
presentation, all indirect costs normally associated with these
operations have been omitted, including telemetry, tracking and
control, access control, maintenance and engineering, selling
and marketing and general and administrative.

Revenues:

|         |  |                          |       |      |  |      |       |  |  |   |       | 
|-------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|         |  |                         
|         |  | Years Ended December 31,
|         |  |                         
|         |  | 2003                     |       | 2002 |  | 2001
|         |  |                          |       |      |  |     
|         |  |                         
|         |  | (in millions)           
|Revenues |  | $                        | 143.6 |      |  | $    | 200.1 |  |  | $ | 227.4 | 
|         |  |                          |       |      |  |      |       |  |  |   |       | 

Adjusted EBITDA:

|                              |  |   |       |  |  |   |       |  |  |   |       | 
|----------------------------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|Adjusted EBITDA               |  | $ | 133.6 |  |  | $ | 184.0 |  |  | $ | 213.3 | 
|Depreciation and amortization |  |   | 54.6  |  |  |   | 57.7  |  |  |   | 59.9  | 
|                              |  |   |       |  |  |   |       |  |  |   |       | 
|Operating income              |  |   | 79.0  |  |  |   | 126.3 |  |  |   | 153.4 | 
|Interest expense              |  |   | 48.9  |  |  |   | 36.1  |  |  |   | 49.8  | 
|Income tax provision          |  |   | 11.1  |  |  |   | 32.6  |  |  |   | 42.3  | 
|                              |  |   |       |  |  |   |       |  |  |   |       | 
|Net income                    |  | $ | 19.0  |  |  | $ | 57.6  |  |  | $ | 61.3  | 
|                              |  |   |       |  |  |   |       |  |  |   |       | 

2003 Compared with 2002 and 2001

Revenues from Satellite
Services

|                                             |  |               |     |            |  |      |     |            |  |      |     |   |  |  |     |    |  |  |     |   
|-------------------------------------------- |  | ------------- | --- | ---------- |  | ---- | --- | ---------- |  | ---- | --- | - |  |  | --- | -- |  |  | --- | --
|                                             |  |               |     |            |  |      |     |           
|                                             |  |               |     |            |  |      |     | % Increase
|                                             |  |               |     | (Decrease)
|                                             |  | Years Ended   |     |           
|                                             |  | December 31,  |     | 2003       |  | 2002
|                                             |  |               |     | vs.        |  | vs. 
|                                             |  | 2003          |     | 2002       |  | 2001 |     | 2002       |  | 2001
|                                             |  |               |     |            |  |      |     |            |  |     
|                                             |  |               |     |            |  |     
|                                             |  | (in millions) |     |            |  |     
|Revenues from Satellite Services             |  | $             | 296 |            |  | $    | 395 |            |  | $    | 464 |   |  |  | (25 | )% |  |  | (15 | )%
|Eliminations                                 |  |               | (8  | )          |  |      | (5  | )          |  |      | (8  | ) |  |  | 60  | %  |  |  | (38 | )%
|                                             |  |               |     |            |  |      |     |            |  |      |     |   |  |  |     |    |  |  |     |   
|Revenues from Satellite Services as reported |  | $             | 288 |            |  | $    | 390 |            |  | $    | 456 |   |  |  | (26 | )% |  |  | (14 | )%
|                                             |  |               |     |            |  |      |     |            |  |      |     |   |  |  |     |    |  |  |     |   

Revenues from Satellite Services decreased
$99 million in 2003 as compared to 2002 primarily due to
decreases in prices of $43 million, reduced transponder and
network utilization of $48 million and lower customer lease
termination fees of $8 million in both transponder leasing
and network services. Revenues from Satellite Services decreased
$69 million in 2002 as compared to 2001 primarily due to
decreases in prices of $15 million, reduced transponder and
network utilization of $46 million and lower customer lease
termination fees of $5 million in both transponder leasing
and network services. Eliminations primarily consist of revenues
from leasing transponder capacity to Satellite Manufacturing and
an adjustment to present revenues without the implicit interest
discount provided to customers who have made prepayments under
long-term contracts. As a result of the above, revenues from
Satellite Services as reported decreased $102 million and
$66 million in 2003 and 2002, respectively, as compared to
the respective prior year.

24



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##### Table of Contents



Revenues from
Satellite Manufacturing

|                                                  |  |               |      |            |  |      |      |            |  |      |      |   |  |  |     |    |  |  |     |   
|------------------------------------------------- |  | ------------- | ---- | ---------- |  | ---- | ---- | ---------- |  | ---- | ---- | - |  |  | --- | -- |  |  | --- | --
|                                                  |  |               |      |            |  |      |      |           
|                                                  |  |               |      |            |  |      |      | % Increase
|                                                  |  |               |      | (Decrease)
|                                                  |  | Years Ended   |      |           
|                                                  |  | December 31,  |      | 2003       |  | 2002
|                                                  |  |               |      | vs.        |  | vs. 
|                                                  |  | 2003          |      | 2002       |  | 2001 |      | 2002       |  | 2001
|                                                  |  |               |      |            |  |      |      |            |  |     
|                                                  |  |               |      |            |  |     
|                                                  |  | (in millions) |      |            |  |     
|Revenues from Satellite Manufacturing             |  | $             | 474  |            |  | $    | 853  |            |  | $    | 815  |   |  |  | (44 | )% |  |  | 5   | % 
|Eliminations                                      |  |               | (229 | )          |  |      | (145 | )          |  |      | (201 | ) |  |  | 58  | %  |  |  | (28 | )%
|                                                  |  |               |      |            |  |      |      |            |  |      |      |   |  |  |     |    |  |  |     |   
|Revenues from Satellite Manufacturing as reported |  | $             | 245  |            |  | $    | 708  |            |  | $    | 614  |   |  |  | (65 | )% |  |  | 15  | % 
|                                                  |  |               |      |            |  |      |      |            |  |      |      |   |  |  |     |    |  |  |     |   

Revenues from Satellite Manufacturing decreased
$379 million in 2003 as compared to 2002, primarily
resulting from satellite programs nearing completion under the
percentage of completion method with no new satellite orders
from December 2001 to October 2003. Revenues from Satellite
Manufacturing increased $38 million in 2002 as compared to
2001, primarily resulting from the timing of work performed and
costs incurred on satellite backlog programs under the
percentage of completion method. Eliminations primarily consist
of revenues from satellites under construction by SS/ L for
Satellite Services. In 2003, eliminations also include the
reversal of $83 million of sales on a customer satellite
contract that was changed to a lease arrangement in the third
quarter (which became an internal program that will be leased to
the customer in the future). See Note 17 to the
consolidated financial statements. As a result of the above,
revenues from Satellite Manufacturing as reported decreased
$463 million in 2003 and increased $94 million in 2002
as compared to the respective prior year.

Cost of Satellite
Services

|                                                  |  |               |     |            |  |      |     |            |  |      |     |   |  |  |    |    |  |  |     |   
|------------------------------------------------- |  | ------------- | --- | ---------- |  | ---- | --- | ---------- |  | ---- | --- | - |  |  | -- | -- |  |  | --- | --
|                                                  |  |               |     |            |  |      |     |           
|                                                  |  |               |     |            |  |      |     | % Increase
|                                                  |  |               |     | (Decrease)
|                                                  |  | Years Ended   |     |           
|                                                  |  | December 31,  |     | 2003       |  | 2002
|                                                  |  |               |     | vs.        |  | vs. 
|                                                  |  | 2003          |     | 2002       |  | 2001 |     | 2002       |  | 2001
|                                                  |  |               |     |            |  |      |     |            |  |     
|                                                  |  |               |     |            |  |     
|                                                  |  | (in millions) |     |            |  |     
|Cost of Satellite Services                        |  | $             | 254 |            |  | $    | 271 |            |  | $    | 303 |   |  |  | (6 | )% |  |  | (11 | )%
|% of revenues from Satellite Services as reported |  |               | 88  | %          |  |      | 69  | %          |  |      | 66  | % |  |  | 28 | %  |  |  | 5   | % 

The decrease of $17 million in 2003 as
compared to 2002 was primarily due to (i) a $9 million
insurance claim recovery on a satellite, (ii) reduced
external satellite capacity costs totaling $14 million
($9 million due to lower network services revenues and
$5 million due to expirations of capacity leases) and
(iii) lower network service costs of $3 million. This
was offset by (i) a net increase in depreciation expense of
$7 million primarily due to the shortening in the estimated
life of a satellite, offset by lower depreciation expense due to
the loss of Telstar 4 in 2003, the timing of assets placed
in service and assets that became fully depreciated and
(ii) increased insurance costs of $5 million resulting
from higher premiums on renewals and changes in insurance
coverage requirements and the launch of Telstar 13. The decrease
of $32 million in 2002 as compared to 2001 was primarily
due to decreases of (i) $18 million in amortization
expense for goodwill resulting from the adoption of
SFAS No. 142 on January 1, 2002 (as we wrote-off
our remaining balance of goodwill, see Note 8 to the
consolidated financial statements) and
(ii) $14 million in depreciation due to the timing of
assets placed in service and assets that became fully
depreciated. The increases in cost of satellite services as a
percentage of revenues in 2003 and 2002, as compared to the
prior year, were primarily due to reduced revenues.

25



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##### Table of Contents



Cost of Satellite
Manufacturing

|                                                           |  |               |     |            |  |      |     |            |  |      |     |   |  |  |     |    |  |  |    |  
|---------------------------------------------------------- |  | ------------- | --- | ---------- |  | ---- | --- | ---------- |  | ---- | --- | - |  |  | --- | -- |  |  | -- | -
|                                                           |  |               |     |            |  |      |     |           
|                                                           |  |               |     |            |  |      |     | % Increase
|                                                           |  |               |     | (Decrease)
|                                                           |  | Years Ended   |     |           
|                                                           |  | December 31,  |     | 2003       |  | 2002
|                                                           |  |               |     | vs.        |  | vs. 
|                                                           |  | 2003          |     | 2002       |  | 2001 |     | 2002       |  | 2001
|                                                           |  |               |     |            |  |      |     |            |  |     
|                                                           |  |               |     |            |  |     
|                                                           |  | (in millions) |     |            |  |     
|Cost of Satellite Manufacturing                            |  | $             | 422 |            |  | $    | 760 |            |  | $    | 581 |   |  |  | (44 | )% |  |  | 31 | %
|% of revenues from Satellite Manufacturing as
    reported |  |               | 172 | %          |  |      | 107 | %          |  |      | 95  | % |  |  | 61  | %  |  |  | 13 | %

The decrease of $338 million in 2003 as
compared to 2002 was primarily due to (i) lower overall
sales as satellite programs neared completion under the
percentage of completion method with no new satellite awards
from December 2001 until October 2003, (ii) the reversal of
$73 million of costs of satellite manufacturing on a
satellite program where the contract was changed to a lease
arrangement in the third quarter of 2003 and (iii) lower
depreciation expense of $6 million primarily due to reduced
capital spending from 2001 to 2003. These factors were offset by
the following cost increases for the year ended
December 31, 2003 (i) a charge of $24 million due
to cancellation of a deposit on a launch vehicle contract;
(ii) provisions for inventory obsolescence of
$50 million primarily due to the absence of new satellite
awards from December 2001 until October 2003; (iii) a
charge of $13 million on the settlement of all outstanding
issues with Alcatel including a contract dispute that was in
arbitration; (iv) a loss of $11 million on the
acceleration of receipt of long-term receivables; (v) a
charge of $8 million related to an agreement in principle
to settle a satellite contract dispute and (vi) a charge of
$10 million recorded on SS/ L-provided vendor financing,
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 Satellite Radio, Inc. (Sirius) common
stock on March 7, 2003 of $28 million (see Gain on
Investments and Debt Exchangesfor gains realized subsequent
to receipt of the shares). The increase in cost of satellite
manufacturing as a percentage of revenues in 2003 as compared to
2002, was affected by reduced revenues for overhead cost
absorption.

The increase of $179 million in 2002 as
compared to 2001 primarily resulted from (i) increased
sales; (ii) valuation allowances of $69 million
recorded on SS/ L-provided vendor financings (in connection with
advances related to Europe*Star Limited
(Europe*Star) and an agreement reached with Sirius
to convert vendor financing receivables into Sirius
equity) and (iii) provisions for inventory obsolescence of
$14 million due to the absence of new satellite awards.
These factors were offset by (i) $13 million of income
recorded from a recovery of a claim from a vendor; (ii) a
decrease of $9 million in amortization expense for goodwill
resulting from the adoption of SFAS No. 142 on
January 1, 2002 (as the Company wrote-off its remaining
balance of goodwill, see Note 8 to the consolidated
financial statements) and (iii) by lowering costs through
workforce reductions since the beginning of 2001, by
streamlining certain internal processes and by instituting
tighter controls which are designed to provide that
subcontracted components are received on time and meet all
customer requirements. Costs in 2001, include $12 million
for obligations to the U.S. government to settle a case
relating to export controls.

Selling,
General and Administrative Expenses

|                                             |  |               |     |            |  |      |     |            |  |      |     |   |  |  |    |    |  |  |     |   
|-------------------------------------------- |  | ------------- | --- | ---------- |  | ---- | --- | ---------- |  | ---- | --- | - |  |  | -- | -- |  |  | --- | --
|                                             |  |               |     |            |  |      |     |           
|                                             |  |               |     |            |  |      |     | % Increase
|                                             |  |               |     | (Decrease)
|                                             |  | Years Ended   |     |           
|                                             |  | December 31,  |     | 2003       |  | 2002
|                                             |  |               |     | vs.        |  | vs. 
|                                             |  | 2003          |     | 2002       |  | 2001 |     | 2002       |  | 2001
|                                             |  |               |     |            |  |      |     |            |  |     
|                                             |  |               |     |            |  |     
|                                             |  | (in millions) |     |            |  |     
|Selling, general and administrative expenses |  | $             | 142 |            |  | $    | 150 |            |  | $    | 191 |   |  |  | (5 | %) |  |  | (21 | %)
|% of revenues as reported                    |  |               | 27  | %          |  |      | 14  | %          |  |      | 18  | % |  |  | 86 | %  |  |  | (22 | %)

The decrease of $8 million in 2003 as
compared to 2002 was primarily due to lower research and
development costs of $7 million and sales and marketing
costs of $2 million at SS/ L. Satellite Services had
expense increases of $3 million, primarily due to an
increase in bad debt expense of $4 million, offset by cost
reductions for headcount and employee related expenses and
marketing expenses of $2 million. The decrease

26



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of $41 million in 2002 as compared to 2001
was primarily due to lower SS/ L research and development costs
of $17 million in 2002 and lower Satellite Services
expenses of $22 million in 2002, primarily due to lower
headcount and employee related expenses of $11 million,
lower marketing and selling expenses of $7 million and
lower professional fees of $3 million.


Reorganization
Expenses Due to Bankruptcy

Reorganization expenses due to bankruptcy in 2003
were $25 million for the period from July 15, 2003
(date of filing) to December 31, 2003, which includes a
charge for lease rejection claims of $6 million,
professional fees of $15 million associated with bankruptcy
services, and employee retention costs of $5 million,
offset by interest and investment income earned of
$1 million (which represents the interest earned subsequent
to filing for bankruptcy, excluding interest earned on satellite
programs).

Interest and
Investment Income

|                               |  |               |    |            |  |      |    |            |  |      |    |  |  |  |    |   |  |  |     |   
|------------------------------ |  | ------------- | -- | ---------- |  | ---- | -- | ---------- |  | ---- | -- |  |  |  | -- | - |  |  | --- | --
|                               |  |               |    |            |  |      |    |           
|                               |  |               |    |            |  |      |    | % Increase
|                               |  |               |    | (Decrease)
|                               |  | Years Ended   |    |           
|                               |  | December 31,  |    | 2003       |  | 2002
|                               |  |               |    | vs.        |  | vs. 
|                               |  | 2003          |    | 2002       |  | 2001 |    | 2002       |  | 2001
|                               |  |               |    |            |  |      |    |            |  |     
|                               |  |               |    |            |  |     
|                               |  | (in millions) |    |            |  |     
|Interest and investment income |  | $             | 15 |            |  | $    | 13 |            |  | $    | 29 |  |  |  | 15 | % |  |  | (55 | %)

The increase of $2 million in 2003 as
compared to 2002 was principally due to higher interest income
earned on satellite programs, offset by lower interest income
earned on lower average cash balances prior to filing for
bankruptcy and interest income earned on available cash balances
subsequent to filing for bankruptcy being reclassified into
reorganization expenses. The decrease of $16 million in
2002 as compared to 2001 was principally due to lower interest
rates and lower average cash balances and lower interest earned
on satellite programs.

Interest
Expense

|                                          |  |               |     |            |  |      |     |            |  |      |     |   |  |  |     |    |  |  |     |   
|----------------------------------------- |  | ------------- | --- | ---------- |  | ---- | --- | ---------- |  | ---- | --- | - |  |  | --- | -- |  |  | --- | --
|                                          |  |               |     |            |  |      |     |           
|                                          |  |               |     |            |  |      |     | % Increase
|                                          |  |               |     | (Decrease)
|                                          |  | Years Ended   |     |           
|                                          |  | December 31,  |     | 2003       |  | 2002
|                                          |  |               |     | vs.        |  | vs. 
|                                          |  | 2003          |     | 2002       |  | 2001 |     | 2002       |  | 2001
|                                          |  |               |     |            |  |      |     |            |  |     
|                                          |  |               |     |            |  |     
|                                          |  | (in millions) |     |            |  |     
|Interest cost before capitalized interest |  | $             | 96  |            |  | $    | 107 |            |  | $    | 207 |   |  |  | (10 | )% |  |  | (48 | )%
|Capitalized interest                      |  |               | (34 | )          |  |      | (30 | )          |  |      | (23 | ) |  |  | 13  | %  |  |  | 30  | % 
|                                          |  |               |     |            |  |      |     |            |  |      |     |   |  |  |     |    |  |  |     |   
|Interest expense                          |  | $             | 62  |            |  | $    | 77  |            |  | $    | 184 |   |  |  | (19 | )% |  |  | (58 | )%
|                                          |  |               |     |            |  |      |     |            |  |      |     |   |  |  |     |    |  |  |     |   

Interest cost before capitalized interest
decreased $11 million in 2003 as compared to 2002, which
was primarily attributable to the fact that subsequent to
Lorals voluntary petitions for reorganization on
July 15, 2003, we only recognize and pay interest on our
bank debt and have stopped recognizing and paying interest on
all other outstanding borrowings. Interest cost before
capitalized interest is expected to decrease in 2004 when we pay
off our bank debt upon closing of the Intelsat transaction.
Interest cost before capitalized interest decreased
$100 million in 2002 as compared to 2001, primarily because
we did not recognize any interest expense on our 10% senior
notes issued in connection with exchange offers completed in
December 2001. Interest expense on our 10% senior notes was
fully offset by amortization of the deferred gain on the debt
exchanges (see Note 10 to the consolidated financial
statements) and lower debt balances and interest rates in 2002
as compared to 2001. Capitalized interest increased
$4 million in 2003 and $7 million in 2002 as compared
to the respective prior year, primarily due to higher satellite
under construction balances. Capitalized interest is expected to
decrease in 2004, as a result of the closing of the Intelsat
transaction and the fact that our remaining satellite under
construction is expected to be launched in 2004. As a result of
the above, interest expense decreased $15 million in 2003
and $107 million in 2002, as compared to the respective
prior year.

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##### Table of Contents



Gain on
Investments and Debt Exchange

During 2003, Loral realized $18 million of
gains from the sale of all 59 million shares of Sirius
common stock received by us in settlement of the vendor
financing owed to SS/ L by Sirius. During 2001, we recorded a
$34 million gain related to Loral Orions debt
exchanges (see Note 10 to the consolidated financial
statements).

Income Tax
(Provision) Benefit

During 2003, we continued to maintain a 100%
valuation allowance against our net deferred tax assets and
recorded no benefit for our domestic loss. For 2003, we recorded
an income tax provision of $4.6 million on a pre-tax loss
of $338.6 million, which is primarily for state, local and
foreign income taxes and a deferred tax liability recorded for
certain foreign entities. This compares to income tax provisions
for 2002 and 2001 of $355 million and $2.2 million on
pre-tax losses of $147 million and $126 million,
respectively.

At December 31, 2002, we recorded a 100%
valuation allowance against our domestic net deferred tax assets
under the criteria of SFAS No. 109, Accounting for
Income Taxes. The increase in tax expense in 2002 when compared
to 2003 and 2001 was primarily attributable to an increase in
the deferred tax valuation allowance. See Critical Accounting
Matters.

Equity in Net
Losses of Affiliates

|                                                            |  |                          |       |      |  |      |       |   |  |   |       |  
|----------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                            |  |                         
|                                                            |  | Years Ended December 31,
|                                                            |  |                         
|                                                            |  | 2003                     |       | 2002 |  | 2001
|                                                            |  |                          |       |      |  |     
|                                                            |  |                         
|                                                            |  | (in millions)           
|XTAR                                                        |  | $                        | (0.2  | )    |  | $    | (7.0  | ) |  | $ | (0.5  | )
|Satmex                                                      |  |                          | (51.7 | )    |  |      | (25.1 | ) |  |   | (12.1 | )
|Europe*Star                                                 |  |                          |      |      |  |      | (41.6 | ) |  |   | (28.1 | )
|Globalstar and Globalstar service provider
    partnerships |  |                          | 0.7   |      |  |      | (2.6  | ) |  |   | (24.9 | )
|Other affiliates                                            |  |                          |      |      |  |      |      |   |  |   | (1.1  | )
|                                                            |  |                          |       |      |  |      |       |   |  |   |       |  
|                                                            |  | $                        | (51.2 | )    |  | $    | (76.3 | ) |  | $ | (66.7 | )
|                                                            |  |                          |       |      |  |      |       |   |  |   |       |  

The decrease in equity losses of $25 million
in 2003 as compared to 2002, primarily resulted from a decrease
in equity losses in Europe*Star of $42 million, as we
wrote-off our remaining investment in Europe*Star in the fourth
quarter of 2002. This was offset by an increase in equity losses
in Satmex of $27 million, primarily because we wrote-off
our remaining investment of $29 million in Satmex in the
third quarter of 2003. Accordingly, there is no longer any
requirement for us to provide for our allocated share of
Satmexs net losses subsequent to September 30, 2003
and Europe*Stars net losses subsequent to
December 31, 2002. The increase in equity losses of
$10 million in 2002 as compared to 2001 primarily resulted
from our recording increased equity losses in Satmex of
$13 million, due primarily to the downturn in the
telecommunications sector, and increased equity losses in
Europe*Star of $13 million, due primarily to
Europe*Stars loss on the sale of an equity investment and
to an impairment charge of $7 million we recorded relating
to our investment in Europe*Star in 2002. This was offset by
reduced equity losses in Globalstar related activities of
$22 million, due primarily to reduced equity losses in
Globalstar service provider partnerships. In 2002, equity losses
in Globalstar related activities included a recovery of a claim
from a vendor on the Globalstar program of which
$14 million ($8 million after taxes) was recorded as a
benefit to equity in net losses of affiliates, offset by a
$9 million charge relating to liabilities we had guaranteed
in connection with a Globalstar service provider partnership.
See Note 7 to the consolidated financial statements.

Cumulative
Effect of Change in Accounting Principle

On July 1, 2003, we adopted
SFAS No. 150, and as a result, recorded a charge of
$2 million for the amortization of expenses incurred on the
issuance of our preferred stock from their issuance dates through

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June 30, 2003, that were not previously
amortized as a cumulative effect of change in accounting
principle. See Note 3 to the consolidated financial
statements.


On January 1, 2002, we adopted
SFAS No. 142, Goodwill and Other Intangible Assets,
which resulted in our recording a charge to write-off all of our
goodwill of $890 million as the cumulative effect of change
in accounting principle. See Note 8 to the consolidated
financial statements.

On January 1, 2001, we adopted
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which resulted in our recording a charge
for the cumulative effect of a change in accounting principle,
net of taxes, of $2 million. See Note 3 to the
consolidated financial statements.

Extraordinary
Gain on Acquisition of Minority Interest

As a result of receiving Alcatels minority
interest in CyberStar, L.P. on June 30, 2003 (as part of a
settlement arrangement with Alcatel), we recognized an
extraordinary gain of $14 million, which represents the
extinguishment of the minority interest liability less the fair
value of the acquired net assets.

Preferred
Dividends

|                    |  |               |   |            |  |      |    |            |  |      |    |  |  |  |     |    |  |  |    |  
|------------------- |  | ------------- | - | ---------- |  | ---- | -- | ---------- |  | ---- | -- |  |  |  | --- | -- |  |  | -- | -
|                    |  |               |   |            |  |      |    |           
|                    |  |               |   |            |  |      |    | % Increase
|                    |  |               |   | (Decrease)
|                    |  | Years Ended   |   |           
|                    |  | December 31,  |   | 2003       |  | 2002
|                    |  |               |   | vs         |  | vs. 
|                    |  | 2003          |   | 2002       |  | 2001 |    | 2002       |  | 2001
|                    |  |               |   |            |  |      |    |            |  |     
|                    |  |               |   |            |  |     
|                    |  | (in millions) |   |            |  |     
|Preferred dividends |  | $             | 7 |            |  | $    | 89 |            |  | $    | 81 |  |  |  | (92 | )% |  |  | 10 | %

The $82 million decrease in 2003 from 2002
was primarily due to dividend charges of $60 million
($46 million non-cash charges and $13 million cash
charges) and the reduction of dividend obligations. Both
resulted from our 2002 exchange offers and privately negotiated
exchange transactions where 11.5 million shares of our 6%
Series C convertible redeemable preferred stock (the
Series C Preferred Stock) and 6% Series D
convertible redeemable preferred stock (the Series D
Preferred Stock) were converted into 7.7 million
shares of our common stock. Preferred dividends also decreased
in 2003 from 2002, as a result of the adoption of SFAS 150
on July 1, 2003, which requires that dividends since
adoption be included in interest expense. The increase of
$8 million in 2002 from 2001 was due primarily to dividend
charges of $60 million resulting from the Companys
2002 exchange offers and privately negotiated exchange
transactions, offset by lower dividends of $23 million as a
result of these exchanges and the fact that we incurred non-cash
dividend charges of $29 million in 2001 on the conversion
of 5.6 million shares of Series C Preferred Stock and
Series D Preferred Stock into 3.1 million shares of
our common stock, in connection with our exchange offers.

Consolidated Backlog

Backlog before eliminations was
$1.7 billion, including $479 million related to the
satellites to be sold to Intelsat, and $1.8 billion at
December 31, 2003 and 2002, which includes $45 million
and $142 million, respectively, as a result of transactions
entered into with affiliates and related parties for the
construction of satellites (primarily with XTAR and Spainsat,
Satmex, Europe*Star and Globalstar). Backlog at
December 31, 2003, excludes approximately $240 million
associated with orders or authorizations to proceed on the
construction of four satellites (including the expected Intelsat
order), received in the fourth quarter of 2003.

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##### Table of Contents



Results by Operating Segment



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

|                                             |  |               |     |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |     |   
|-------------------------------------------- |  | ------------- | --- | ---- |  | ---- | --- | ---------- |  | ---- | --- |  |  |  | ---- | -- |  |  | --- | --
|                                             |  |               |     |      |  |      |     |           
|                                             |  |               |     |      |  |      |     | % Increase
|                                             |  |               |     |      |  |      |     | (Decrease)
|                                             |  |               |     |     
|                                             |  | Years Ended   |     |     
|                                             |  | December 31,  |     |     
|                                             |  |               |     | 2003 |  | 2002
|                                             |  |               |     | vs   |  | vs. 
|                                             |  | 2003          |     | 2002 |  | 2001 |     | 2002       |  | 2001
|                                             |  |               |     |      |  |      |     |            |  |     
|                                             |  |               |     |      |  |      |     |            |  |     
|                                             |  |               |     |      |  |     
|                                             |  | (in millions) |     |      |  |     
|Satellite Services revenues                  |  | $             | 296 |      |  | $    | 395 |            |  | $    | 464 |  |  |  | (25  | )% |  |  | (15 | )%
|Cost of Satellite Services                   |  |               | 254 |      |  |      | 268 |            |  |      | 304 |  |  |  | (5   | )% |  |  | (12 | )%
|Selling, general and administrative expenses |  |               | 63  |      |  |      | 60  |            |  |      | 82  |  |  |  | 5    | %  |  |  | (27 | )%
|                                             |  |               |     |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |     |   
|Operating (loss) income                      |  |               | (21 | )    |  |      | 67  |            |  |      | 78  |  |  |  | (131 | )% |  |  | (14 | )%
|Add: depreciation and amortization           |  |               | 162 |      |  |      | 153 |            |  |      | 185 |  |  |  | 6    | %  |  |  | (17 | )%
|                                             |  |               |     |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |     |   
|Adjusted EBITDA before eliminations          |  | $             | 141 |      |  | $    | 220 |            |  | $    | 263 |  |  |  | (36  | )% |  |  | (16 | )%
|                                             |  |               |     |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |     |   

See Revenues from Satellite Services, Cost of
Satellite Servicesand Selling, General and
Administrative Expenses,for an explanation of the changes
in these items for the periods presented. The net increase in
depreciation and amortization expense of $9 million in 2003
as compared to 2002 was primarily due to the shortening in the
estimated life of a satellite, offset by lower depreciation
expense due to the timing of assets placed in service and assets
that became fully depreciated. The decrease in depreciation and
amortization expense of $32 million in 2002 as compared to
2001 was primarily due to an $18 million decrease in
amortization expense for goodwill resulting from the adoption of
SFAS No. 142 and a $14 million decrease in
depreciation, due to the timing of assets placed in service and
assets that became fully depreciated. As a result of the above,
Adjusted EBITDA before eliminations decreased $79 million
in 2003 and decreased $43 million in 2002 as compared to
the respective prior year.

As of December 31, 2003, Satellite Services
had seven satellites in-orbit and three under construction
(including one launched in January 2004 that has a problem with
its solar array deployment, see below). At December 31,
2003, Satellite Services backlog totaled
$1.3 billion, including intercompany backlog of
$37 million and $479 million in backlog relating to
the Intelsat transaction. As of December 31, 2002, backlog
was $1.4 billion, including intercompany backlog of
$41 million. Approximately $223 million of the 2003
backlog is expected to be realized in 2004, including
approximately $4 million of intercompany backlog. Total
assets for the segment were $2.0 billion and
$1.9 billion as of December 31, 2003 and 2002,
respectively. Capital expenditures were approximately
$171 million in 2003 and are expected to substantially
decrease in 2004, as a result of the sale of the satellite
assets serving the North American market to Intelsat and the
fact that the remaining satellite under construction is expected
to be launched in 2004.

In January 2004, the Companys Telstar 14/
Estrela do Sul-1 satellite was successfully launched, but after
launch the satellite only partially deployed its North solar
array. SS/ L, the manufacturer of the satellite, is raising the
satellite to geostationary orbit. The satellite is currently
generating enough power to operate between 10 and 14 Ku-band
transponders, making it capable of meeting immediate customer
requirements, as well as Brazilian government requirements. The
book value of Telstar14/ Estrela do Sul-1 at December 31,
2003 was $253 million and is included in satellites under
construction. It is insured for partial and total losses up to a
maximum of $250 million.

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##### Table of Contents



Satellite Manufacturing

|                                             |  |                          |      |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |      |   
|-------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | --- | ---------- |  | ---- | --- |  |  |  | ---- | -- |  |  | ---- | --
|                                             |  |                          |      |      |  |      |     |           
|                                             |  |                          |      |      |  |      |     | % Increase
|                                             |  |                          |      |      |  |      |     | (Decrease)
|                                             |  |                          |      |     
|                                             |  | Years Ended December 31, |      | 2003 |  | 2002
|                                             |  |                          |      | vs   |  | vs. 
|                                             |  | 2003                     |      | 2002 |  | 2001 |     | 2002       |  | 2001
|                                             |  |                          |      |      |  |      |     |            |  |     
|                                             |  |                          |      |      |  |     
|                                             |  | (in millions)            |      |      |  |     
|Satellite Manufacturing revenues             |  | $                        | 474  |      |  | $    | 853 |            |  | $    | 815 |  |  |  | (44  | )% |  |  | 5    | % 
|Cost of Satellite Manufacturing              |  |                          | 617  |      |  |      | 868 |            |  |      | 742 |  |  |  | (29  | )% |  |  | 17   | % 
|Selling, general and administrative expenses |  |                          | 43   |      |  |      | 52  |            |  |      | 70  |  |  |  | (17  | )% |  |  | (26  | )%
|                                             |  |                          |      |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |      |   
|Operating (loss) income                      |  |                          | (186 | )    |  |      | (67 | )          |  |      | 3   |  |  |  | 178% |    |  |  | N/A  |   
|Add: depreciation and amortization           |  |                          | 27   |      |  |      | 33  |            |  |      | 41  |  |  |  | (18  | )% |  |  | (20  | )%
|                                             |  |                          |      |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |      |   
|Adjusted EBITDA before eliminations          |  | $                        | (159 | )    |  | $    | (34 | )          |  | $    | 44  |  |  |  | 368% |    |  |  | (177 | )%
|                                             |  |                          |      |      |  |      |     |            |  |      |     |  |  |  |      |    |  |  |      |   

See Revenues from Satellite Manufacturing,
Cost of Satellite Manufacturing and Selling, General and
Administrative Expenses,for an
explanation of the changes in these items for the periods
presented. The decrease of $6 million in depreciation and
amortization in 2003 as compared to 2002 was primarily due to
reduced capital spending from 2001 to 2003. The decrease of
$8 million in depreciation and amortization expense in 2002
as compared to 2001 was primarily due to the adoption of
SFAS No. 142. As a result of the above, Adjusted
EBITDA before eliminations decreased $125 million in 2003
and $78 million in 2002, as compared to the respective
prior year.

Adjusted EBITDA before eliminations also
decreased because of the absence of new satellite awards from
December 2001 to October 2003.

In October 2003, SS/ L received three new
satellite orders through authorizations to proceed from existing
customers (two from DIRECTV and one from PanAmSat) having an
aggregate value in excess of $320 million and an option for
another satellite for PanAmSat. DIRECTV also increased the total
contract value for the nearly completed DIRECTV 7S by
$25 million to approximately $165 million. In
addition, Intelsat has agreed to order a new satellite from
SS/ L upon closing of the sale of the fleet serving the North
American market.

As of December 31, 2003 and 2002, backlog
for SS/ L was $536 million (excluding approximately
$240 million associated with the fourth quarter awards, see
Consolidated Backlog) and $763 million, including
intercompany backlog of $145 million and $275 million,
respectively. Approximately $471 million of the 2003
backlog is expected to be realized in 2004, including
approximately $145 million of intercompany backlog. The
decline in backlog is due to a lack of new satellite orders
resulting from an industry-wide slowdown in orders and concerns
regarding Lorals financial condition. Total SS/ L assets
were $362 million and $690 million as of
December 31, 2003 and 2002, respectively. Capital
expenditures in 2003 were approximately $6 million and are
expected to increase slightly in 2004.

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.

Revenue
recognition

The majority 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. Loral
uses 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

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##### Table of Contents



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 Loral.


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

Loral is required to estimate the collectibility
of its 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 bad debts recorded to the
income statement on billed receivables during 2003, 2002, and
2001 were $7.4 million, $4.3 million and
$3.7 million, respectively. At December 31, 2003 and
2002, billed receivables were net of allowances for doubtful
accounts of $11.7 million and $7.1 million,
respectively. Long-term receivables were net of allowances of
$8.1 million as of December 31, 2003 and vendor
financing was net of a valuation allowance of $32.6 million
as of December 31, 2002 (relating to vendor financings in
connection with an agreement reached with Sirius to convert
vendor financing receivables into Sirius equity). 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.

Inventories

Inventory is reviewed for estimated obsolescence
or unusable items and, if appropriate, is 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 2003, 2002, and 2001 were $49.5 million,
$14.0 million and $5.9 million, respectively.

Taxation

Loral, as a Bermuda company, is subject to
U.S. federal, state and local income taxation at regular
corporate rates on any income that is effectively connected with
the conduct of a U.S. trade or business. When such income
is deemed removed from the U.S. business, it is subject to
an additional 30% branch profits tax. While any
portion of Lorals income from sources outside the United
States may also be subject to taxation by foreign countries, the
extent to which these countries may require Loral to pay tax or
to make payments in lieu of tax cannot be determined in advance.
From its inception, Loral has not received any cumulative
benefit as a result of being established in Bermuda because of
substantial losses incurred outside the U.S. Lorals
U.S. subsidiaries are subject to U.S. taxes on their
worldwide income. In addition, a 30% U.S. withholding tax
will be imposed on dividends and interest paid by such
subsidiaries to Loral.

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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 No. 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 the entire balance of our
net deferred tax assets. During 2003, we recorded no benefit for
our domestic loss and continued to maintain the valuation
allowance, increasing the reserve by $94.4 million to a
balance of $670.9 million.

We will maintain the valuation allowance until
sufficient positive evidence exists to support its reversal.
Until such time, we expect to report no income tax provision net
of valuation allowance adjustments, except for potential
alternative minimum taxes and minor state, local and foreign tax
provisions. When we determine that we will be able to realize
all or a part of the benefit from our deferred tax assets,
reversal of the valuation allowance will increase income in the
period the determination is made.

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 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 6.25%
as of December 31, 2003, a decline of 50 basis points
from December 31, 2002. This had the effect of increasing
our accumulated benefit obligations (ABO) for
pensions by $17.6 million and for other employee benefits
by $3.8 million as of December 31, 2003.

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., 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 10.9%. The expected long-term rate of return on plan
assets determined on this basis was 9.0% for 2003, a decline of
50 basis points from 2002.

These pension and other employee costs are
expected to decrease to approximately $22 million in 2004
from $28 million in 2003 primarily due to better asset
returns, a reduction in force and other employee benefit plan
changes, offset by the drop in discount rate. Lowering the
discount rate and the expected long-term rate of return each by
0.5% would have increased these pensions and other employee
benefits costs by approximately $3.3 million and
$1.0 million, respectively, in 2003.

On December 8, 2003, President Bush signed
the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (DIMA). The Act introduces a federal
subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to
Medicare Part D. In accordance with the FASB Staff Position
No. 106-1, we are electing to defer recognition of any
potential savings on the measure of accumulated postretirement
benefit obligation or net periodic benefit cost as a result of
DIMA

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until specific authoritative guidance on the
accounting of the federal subsidy is issued. Therefore, the
financial statements do not reflect the effects of the Act on
the plan.


The ABO for the pension plan exceeded the fair
value of plan assets by $94 million at December 31,
2003 (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 required to establish a minimum liability and record
an additional $4.5 million during 2003, for a total charge
to equity of $69.2 million for the unfunded ABO, to the
extent not already reflected as a liability. The ABO was
measured using a discount rate of 6.25% as of December 31,
2003. Lowering the discount rate by 0.5% would have increased
the ABO and the resulting minimum liability and charge to equity
by approximately $17.6 million. Market conditions and
interest rates significantly impact future assets and
liabilities of Lorals pension plans. This charge to equity
will be revalued based upon plan assets and the measurement of
plan obligations at the end of each fiscal year.

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 below under Commitments and
Contingencies.

Liquidity and Capital Resources



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

As of December 31, 2003, we had
$142 million of cash (not including $3 million of
restricted cash presented in other current assets, which we will
have access to upon repayment of our bank debt), $6 million
of outstanding letters of credit and had no further credit
available from our credit facilities. Transfer of this cash,
which is held in various separate legal entities, is subject to
the provisions of the cash collateral order (see Cash
Collateral Order below). Cash flow from Satellite Services
is fairly predictable because it is based on an existing base of
long-term customer contracts. Cash flow from Satellite
Manufacturing, however, is not as predictable, because it
depends on a number of factors, some of which are not within SS/
Ls control. For example, most satellite contracts are
long-term (two to three years) fixed price contracts that
require significant estimates when they are competitively bid
(which may include cost estimates for new technologies). In
addition, various component manufacturers that subcontract for
SS/ L may not meet required manufacturing specifications or
timetables, which may cause SS/ L to miss milestones and incur
penalties. Customers may also require SS/ L to have a source of
liquidity to support new satellite orders in light of
Lorals financial condition.

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Contractual Obligations and Other Commercial
Commitments

The following tables aggregate our contractual
obligations and other commercial commitments as of
December 31, 2003 (in thousands).

Contractual
Obligations(1):

|                                       |  |                        |           |        |  |           |           |           |  |               |         |  |  |   |         |  |  |   |        | 
|-------------------------------------- |  | ---------------------- | --------- | ------ |  | --------- | --------- | --------- |  | ------------- | ------- |  |  | - | ------- |  |  | - | ------ | 
|                                       |  |                       
|                                       |  | Payments Due by Period
|                                       |  |                       
|                                       |  | Total                  |           | 1 Year |  | 2-3 Years |           | 4-5 Years |  | After 5 Years
|                                       |  |                        |           |        |  |           |           |           |  |              
|Debt(2)                                |  | $                      | 2,236,864 |        |  | $         | 2,236,864 |           |  | $             |        |  |  | $ |        |  |  | $ |       | 
|Operating leases(3)                    |  |                        | 175,082   |        |  |           | 30,452    |           |  |               | 43,742  |  |  |   | 32,196  |  |  |   | 68,692 | 
|Unconditional purchase obligations (4) |  |                        | 107,568   |        |  |           | 105,003   |           |  |               | 2,487   |  |  |   | 78      |  |  |   |       | 
|Other long-term obligations(5)         |  |                        | 164,648   |        |  |           | 113,920   |           |  |               | 9,072   |  |  |   | 39,972  |  |  |   | 1,684  | 
|Preferred stock redemptions(6)         |  |                        | 223,981   |        |  |           |          |           |  |               | 187,274 |  |  |   | 36,707  |  |  |   |       | 
|                                       |  |                        |           |        |  |           |           |           |  |               |         |  |  |   |         |  |  |   |        | 
|Total contractual cash obligations     |  | $                      | 2,908,143 |        |  | $         | 2,486,239 |           |  | $             | 242,575 |  |  | $ | 108,953 |  |  | $ | 70,376 | 
|                                       |  |                        |           |        |  |           |           |           |  |               |         |  |  |   |         |  |  |   |        | 

Other Commercial
Commitments:

|                                                |  |           |       |                                            |  |           |       |           |  |         |   |  |  |   |   |  |  |   |       | 
|----------------------------------------------- |  | --------- | ----- | ------------------------------------------ |  | --------- | ----- | --------- |  | ------- | - |  |  | - | - |  |  | - | ----- | 
|                                                |  |           |       |                                           
|                                                |  |           |       | Amount of Commitment Expiration Per Period
|                                                |  | Total     |       |                                           
|                                                |  | Amounts   |       |                                            |  | After    
|                                                |  | Committed |       | 1 Year                                     |  | 2-3 Years |       | 4-5 Years |  | 5 Years
|                                                |  |           |       |                                            |  |           |       |           |  |        
|Standby letters of credit and
    Guarantees(7) |  | $         | 7,850 |                                            |  | $         | 5,470 |           |  | $       |  |  |  | $ |  |  |  | $ | 2,380 | 
|                                                |  |           |       |                                            |  |           |       |           |  |         |   |  |  |   |   |  |  |   |       | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Pursuant to Section 365 of the Bankruptcy
    Code, Loral and its Debtor subsidiaries may reject or assume
    prepetition executory contracts and unexpired leases, and
    parties affected by rejections of these contracts or leases may
    file claims with the Bankruptcy Court which will be addressed in
    the context of the Chapter 11 Cases. The above table
    includes amounts that are subject to compromise under a plan of
    reorganization, including: all of our debt and preferred stock,
    and certain of our operating leases, unconditional purchase
    obligations and other long-term obligations. See Note 9 to
    the consolidated financial statements for further detail on
    liabilities subject to compromise.
|   
|(2) | Represents cash obligations for principal
    payments and the difference in the carrying value and principal
    amount for Loral Orions 10% senior notes that was
    amortized over the life of the notes. As a result of our
    Chapter 11 filing on July 15, 2003, all of our debt
    obligations have been accelerated. While we have continued to
    pay interest on our bank debt, we have stopped accruing and
    paying interest on all of our senior unsecured notes with an
    aggregate principal amount of $1.05 billion. This has
    significantly reduced our cash interest payments. See
    Note 10 to the consolidated financial statements for
    further detail on our debt obligations.                                   
|   
|(3) | Represents future minimum payments under
    operating leases with initial or remaining terms of one year or
    more, net of sub-lease rentals of $2.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | SS/ L has entered into various purchase
    commitments with suppliers due to the long lead times required
    to produce purchased parts and launch vehicles (year 1 amount
    includes $36 million of launch vehicle obligations expected
    to be paid by Intelsat for one of the satellites to be sold).
    Unassigned launch vehicle commitments represent the minimum
    amount due if the launch contract is terminated.                                                                                                                                                                                                                                                                                                                     
|   
|(5) | Primarily represents vendor financing related
    amounts owed to subcontractors, of which $47 million is
    non-recourse to SS/ L in the event of non-payment by Globalstar
    due to bankruptcy, and amounts due to APT representing
    Lorals share of the project cost of Telstar 18.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(6) | In August 2002, Lorals Board of Directors
    approved a plan to suspend indefinitely the future payment of
    dividends on its two series of preferred stock. Accordingly, we
    have deferred the payments of quarterly dividends due on our
    Series C and Series D preferred stock. We stopped
    accruing dividends on our two                                                                                                                                                                                                                                                                                                                                                                                                               

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| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | series of preferred stock on July 15, 2003
    in our consolidated financial statements, as a result of our
    Chapter 11 filing.

Our Series C and Series D preferred
stock have mandatory redemption dates in 2006 and 2007,
respectively. We have the right to make mandatory redemption
payments to the holders in either cash or common stock, or a
combination of the two. As a consequence of the Chapter 11
Cases, it is not likely that a mandatory redemption will occur.
As a result of the adoption of SFAS 150, we reclassified
our preferred stock to liabilities from shareholders
deficit at June 30, 2003 and the related dividends since
adoption have been included in interest expense (see Note 3
to the consolidated financial statements).



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(7) | Letters of credit have a maturity of one year and
    are renewed annually.

Cash Collateral
Order

As previously stated, substantially all of the
assets of Loral SpaceCom and Loral Satellite constitute
collateral security for the obligations that are owed to our
bank lenders. Under the Bankruptcy Code, Loral SpaceCom and
Loral Satellite are authorized to use the existing cash or cash
proceeds of this collateral (the Cash Collateral)
only in accordance with the cash collateral order.

On the date the Chapter 11 Cases were
commenced, the Bankruptcy Court entered an order authorizing the
Debtors to use the Cash Collateral to fund all operating
expenses associated with their businesses in accordance with an
agreed upon budget and in accordance with certain other terms
set forth in the order. The use of the Cash Collateral can be
terminated by the bank lenders upon the occurrence of certain
events specified in the order. The bank lenders have granted the
Debtors a number of waivers in the past. In fact, the Debtors
currently are operating under a waiver that temporarily sets
aside certain of the orders requirements, among them, the
requirement for an agreed upon business plan, certain financial
tests, maintenance of in-orbit insurance at certain levels and
delivery of financial statements. There can be no assurance that
the bank lenders will grant future waivers. In the event the
Debtors ability to use the Cash Collateral is terminated,
the Debtors would still have the right to seek the authority of
the Bankruptcy Court to use the Cash Collateral notwithstanding
any objection by the bank lenders. There can be no assurance,
however, that the Bankruptcy Court would grant this request.

Net Cash
Provided by Operating Activities

Net cash provided by operating activities for
2003 was $225 million, due primarily to (i) a
$74 million decrease in long-term receivables arising from
the accelerated collection of orbital receivables, (ii) a
$41 million increase in accounts payable due primarily to the
timing of satellite related payments, including the start up of
the three new satellite programs in the fourth quarter of 2003
and unpaid prepetition liabilities, (iii) a
$34 million decrease in other current assets and other
assets primarily resulting from a decrease in prepaid insurance
and pension costs recorded in 2003, (iv) a $32 million
decrease in contracts-in-process primarily resulting from net
collections on customer contracts, (v) a $50 million
increase in customer advances primarily due to the start up of
the three new satellite programs in the fourth quarter of 2003
and (vi) a $26 million decrease in deposits primarily
arising from the assignment of launch vehicles to satellite
programs. These factors were offset by a decrease in long-term
liabilities of $20 million due primarily to a decrease in
deferred revenue and the settlement of the guaranteed residual
value of a leased asset and net loss as adjusted for non-cash
items of $30 million.

Net cash provided by operating activities for
2002 was $193 million, due primarily to (i) net income
as adjusted for non-cash items of $155 million, (ii) a
$97 million decrease in contracts-in-process resulting from
net collections on customer contracts and (iii) a
$59 million decrease in deposits arising primarily from the
assignment of launch vehicles to satellite programs. Offsetting
factors include an $89 million decrease in accounts payable
due primarily to the timing of satellite related payments and a
$35 million decrease in customer advances due primarily to
progress on satellite programs.

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Net Cash Used in
Investing Activities

Net cash used in investing activities was
$150 million for 2003, primarily reflecting capital
expenditures of $177 million mainly for the construction of
satellites, and investments in and advances to affiliates of
$19 million (primarily for XTAR), offset by proceeds of
$46 million from the sale of Sirius common stock.

Net cash used in investing activities was
$139 million for 2002, primarily reflecting capital
expenditures of $98 million mainly for the construction of
satellites, and investments in and advances to affiliates of
$41 million (including $29 million for XTAR).

Net Cash
Provided by (Used in) Financing Activities

Net cash provided by financing activities in 2003
was $1 million, primarily due to net borrowings under
revolving credit facilities of $71 million, offset by debt
amortization payments of $70 million (including
$31 million of interest payments on our 10% senior
notes) and payment of bank amendment costs of $5 million.

Net cash used in financing activities in 2002 was
$148 million, primarily due to debt amortization payments
of $133 million (including $46 million of interest
payments on our 10% senior notes) and net cash used in
equity transactions of $33 million (primarily dividend
related payments), offset by net borrowings under revolving
credit facilities of $18 million.

Equity

On June 4, 2003, our Board of Directors
approved a reverse stock split of our common stock at a ratio of
one-for-ten, resulting in a new par value of $0.10 per
common share (previously $0.01 par value per common share).
The reverse stock split became effective after the close of
business on June 13, 2003. All references to common stock
and per share amounts for all periods presented have been
retroactively restated to reflect this reverse stock split.

Other

For 2003, our qualified pension plan, under the
Internal Revenue Code and its regulations, was considered fully
funded (i.e. assets are greater than liabilities) and there was
no contribution required to be made in 2003. During 2004, based
on current estimates, we expect to contribute $13 million
to the qualified pension plan and expect to fund $3 million
for other employee benefit plans.

Affiliate
Matters

Loral has made certain investments in joint
ventures in the satellite services business that are accounted
for under the equity method of accounting. See Note 7 to
the consolidated financial statements and Commitments and
Contingencies in this Managements Discussion and
Analysis of Results of Operations and Financial Condition
for further information on affiliate matters.

Our consolidated statements of operations reflect
the effects of the following amounts related to transactions
with or investments in affiliates (in millions).

|                                                                                                      |  |                          |      |      |  |      |       |   |  |   |       |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                                                      |  |                         
|                                                                                                      |  | Years Ended December 31,
|                                                                                                      |  |                         
|                                                                                                      |  | 2003                     |      | 2002 |  | 2001
|                                                                                                      |  |                          |      |      |  |     
|Revenues                                                                                              |  | $                        | 28.7 |      |  | $    | 85.9  |   |  | $ | 100.9 |  
|Elimination of Lorals proportionate share
    of losses (profits) relating to affiliate transactions |  |                          | 4.4  |      |  |      | (10.9 | ) |  |   | (1.5  | )
|(Losses) profits relating to affiliate
    transactions not eliminated                                |  |                          | (3.6 | )    |  |      | 9.9   |   |  |   | 3.7   |  

Our revenues from affiliates have declined from
2001 to 2003, primarily because satellite construction programs
are nearing completion. We expect that revenues from affiliates
will continue to decline for the foreseeable future.

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XTAR,
L.L.C.

XTAR, a joint venture between Loral and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat), a
consortium comprised of leading Spanish telecommunications
companies, including Hispasat, S.A., and agencies of the Spanish
government, is constructing and plans to launch an X-band
satellite in 2004 to provide X-band services to government users
in the United States, Spain, and other friendly and allied
nations. XTAR is owned 56% by Loral (accounted for under the
equity method since we do not control certain significant
operating decisions) and 44% by Hisdesat. For more information
on XTAR, see Note 7 to the consolidated financial
statements.

Commitments and Contingencies

Our business and operations are subject to a
significant number of risks, the most significant of which are
summarized below.



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

We filed for bankruptcy protection on
July 15, 2003 and are subject to its associated risks and
uncertainties.

The Chapter 11 Cases could adversely affect
relationships with our customers, suppliers and employees. This
in turn could adversely affect the going concern value of the
business and of its assets, particularly if the Chapter 11
Cases are protracted. Also, transactions outside the ordinary
course of business will be subject to the prior approval of the
Bankruptcy Court which may limit our ability to respond to
certain market events or take advantage of certain market
opportunities, and, as a result, our operations could be
materially adversely affected.

As a result of the Chapter 11 Cases, all
$2.0 billion principal amount of our debt has been
accelerated. During the pendency of the Chapter 11 Cases,
we have not paid, and will not pay, interest on
$1.05 billion of our unsecured debt. Although we and our
Debtor Subsidiaries expect to file a plan or plans of
reorganization that provide for emergence from Chapter 11
reorganization sometime in 2004, we cannot now describe the
components or features of the plan, including whether the plan
will provide for creditors to be paid in whole or in part or
whether consideration they will receive will consist of cash,
debt, equity or some combination thereof. In addition, there can
be no assurance that we will be able to propose a plan, obtain
court approval of any plan we propose, obtain acceptances from
the number of creditors necessary to confirm a plan, or actually
confirm and consummate a plan.

We anticipate that, in any plan of reorganization
ultimately confirmed by the Bankruptcy Court, our common and
preferred stock will, at best, be severely diluted and may be
eliminated entirely, with the result that common and preferred
stockholders would receive no distribution.

Our emergence from Chapter 11
reorganization depends on the success of our business plan and
our ability to generate enough cash to pay our obligations and
fund our operations.

We intend to reorganize around our remaining
fleet of international satellites and our satellite
manufacturing operations. As discussed in our Overview,
we operate in highly competitive markets. Our overall financial
condition and outstanding debt, and that of our subsidiaries,
are factors that potential customers will consider prior to
contracting for satellite services or making a satellite
procurement decision. Our success depends on our ability to
respond to these financial concerns and perform on a
cost-effective and timely basis.

There may be certain tax implications upon our
emergence from Chapter 11 reorganization.

As of December 31, 2003, our
U.S. subsidiaries had net operating loss carryforwards, or
NOLs, of approximately $1.5 billion that can be used to
offset future taxable income, including the tax gain that will
be recognized upon the sale of our satellite assets serving the
North American market to Intelsat. Our ability to use these
NOLs, however, may be impaired in the future, depending upon
various factors relating to our plan of reorganization such as
how creditor claims are satisfied, how the equity interests in
the reorganized company are distributed, the extent of any
capital infusion by new investors, and our value and level of
debt at

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the time we emerge from bankruptcy, which are all
unknown factors at this time. Moreover, if it is determined that
an ownership change occurred in the three-year
period preceding our emergence from bankruptcy, future use of
these NOLs would be severely limited. An ownership change would
be triggered if shareholders owning 5% or more of our total
equity value change their holdings during this three-year period
by more than 50% in the aggregate. On August 22, 2003, the
Bankruptcy Court entered an order to assist us in protecting our
NOLs by establishing procedures that require certain proposed
acquirers of our securities to notify us about a prospective
acquisition, thus giving us an opportunity to file an objection
with the Bankruptcy Court if we deem necessary. There is no
guarantee that the Bankruptcy Court will rule in our favor in
the event of a dispute between a proposed acquirer and us. A
ruling against us could jeopardize a substantial portion of our
NOLs.


We may lose our investment stake in
Satmex.

As of August 1, 2003, Satmex, our 49%-owned
Mexican affiliate, ceased paying interest on its unsecured debt,
constituting a default under all of its debt agreements. The
potential acceleration of Satmexs debt of
$524 million and the shortfall of cash flow to pay interest
could force Satmex to file for bankruptcy protection under
Chapter 11 in the United States or reorganization under
Mexican law or both. Following such a proceeding, our investment
in Satmex would likely be worthless.

In addition to Satmexs debt, Servicios
Corporativos Satelitales, S.A. de C.V. (Servicios),
the parent company of Satmex, has defaulted on its debt
obligation. Loral and Principia had previously pledged their
respective shares in Servicios parent company, the primary
vehicle through which our equity interest in Satmex is held, as
collateral for Servicios debt obligation. These shares are
now subject to foreclosure by the Mexican government. See
Note 7 to the consolidated financial statements.



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

Launch 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. Satellite launches are
risky, and some launch attempts have ended in complete or
partial failure. 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. Our insurance typically does not cover business
interruption; launch failures may therefore result in uninsured
economic losses. Replacing a lost satellite typically requires
at least 24 months from contract execution to launch.

For example, on January 10, 2004,
Lorals Telstar 14/ Estrela do Sul-1 communications
satellite was launched by Boeing Sea Launch, but only partially
deployed its North solar array. Although insured for partial and
total losses up to a maximum of $250 million, the failed
solar array deployment has resulted in only 10 to 14 ku-band
transponders currently being available to customers, which will
impact the roll out of our Brazilian business and will reduce
operating revenues pending construction of a replacement
satellite.

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

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
to permit their continued operation in case of a component
failure. Certain of our satellites are currently operating using
back-up components because of the failure of primary components.
If these back-up components fail and the primary components
cannot be restored, these satellites could lose capacity or be
total losses resulting in a loss of revenues and profits. Repair
of satellites in space is not feasible.

For example, in September 2003 the high voltage
bus on Lorals Telstar 4 satellite short circuited, causing
it to cease operations. The satellite was insured for
$141 million. The agent for the secured lenders of Loral
SpaceCom is named as the loss payee on the Telstar 4
insurance policy. Under Lorals agreement to sell its
satellite assets serving the North American market to Intelsat
as previously discussed, the purchase price for those assets
will be reduced by any Telstar 4 insurance proceeds received
prior to closing, net of any

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payments by Loral to customers for warranty
claims. Moreover, to the extent that the insurance proceeds
actually received are less than $141 million, our recent
amendment to the Intelsat purchase agreement would provide for a
dollar-for-dollar reduction in the price paid by Intelsat under
its new satellite construction contract with SS/ L. For further
details see Note 2 to the consolidated financial statements.


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.

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

Fourteen satellites built by SS/ L have
experienced minor losses of power from their solar arrays. None
of these, however, have exhibited any performance problems but
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 a loss of orbital
incentive payments to SS/L and a loss of revenues and profits
for Loral Skynet or other affiliates. SS/ L has instituted
remedial measures to prevent similar anomalies from occurring on
satellites under construction or in development. For further
details see Note 17 to the consolidated financial
statements.

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.

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 similar limitations on coverage
in connection with insurance renewals for such satellites in the
future. An uninsured loss of a satellite would have a material
adverse effect on our financial performance. For further details
see Note 17 to the consolidated financial statements.

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

Insurers also have made more stringent the
coverage terms of our launch and in-orbit insurance. At the same
time, the cost of obtaining this insurance has increased
significantly. While these developments in the insurance
industry have increased our cost of doing business there can be
no assurance that we will be able to pass the cost on to our
customers. For further details see Note 17 to the
consolidated financial statements.

Our satellite services businesses compete with
other providers for market share and customers.

We face heavy competition in the transponder
leasing business from companies such as PanAmSat Corporation,
SES Global, New Skies, Intelsat and Eutelsat. Competition
puts downward pressure on prices and may result in the reduced
utilization of our fleet capacity, both of which may have an
adverse effect on our financial performance.

Furthermore, upon closing of the Intelsat
transaction, we will be prohibited, subject to certain
exceptions, for two years following the closing, from engaging
in the following activities:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leasing or otherwise providing satellite services
    transponder capacity (other than for our network services
    business) to a customer for transmission within the United
    States;
|
| |  | Locating a satellite in the orbital arc between
    54 degrees W.L. and 143 degrees W.L. for the purpose of engaging
    in the prohibited service; and                                   
|
| |  | Soliciting existing customers on the satellite
    fleet serving the North American market to migrate their service
    to our satellites.                                                

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.
Competition in this sector has increased because there is an
over-supply of transponders in the global market, existing
customers are using less capacity

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and fewer new customers are entering the market
than in past years. Moreover, we have had a higher rate of
customer defaults than in previous years, a trend, if it
continues, that may further increase overcapacity.


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 line), wireless local
loop and traditional telephone service providers. We will face
further price pressure from these companies as they continue to
compete for our Internet services.

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 or through the use of incompatible
standards. 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 satellite manufacturing market continues
to be highly competitive.

Space Systems/ Loral competes with several large,
well-capitalized companies such as: Boeing and Lockheed Martin
in the United States, and Alcatel and Astrium in Europe. In
2003, orders were placed for 18 commercial GEO satellites, an
improvement over 2002 when only one of the seven orders placed
was subject to a competitive bidding process. This compares to
approximately 25 to 30 awards across the industry in each of
2001 and 2000. U.S. satellite manufacturers also must
contend with export control regulations that put them at a
disadvantage when competing for foreign customers. SS/ L, which
had not won an order since December 2001, received orders and
authorizations to proceed for four satellites in the fourth
quarter of 2003 (including the expected Intelsat order) as the
market began to improve. If SS/ L is not successful in
sustaining a similar order rate and increasing its backlog this
year and beyond, our financial performance would be materially
and adversely affected.

SS/ Ls contracts are subject to
adjustments, cost overruns and termination.

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.

SS/ Ls major contracts are primarily 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 would result in gains to SS/ L, cost
increases would result in 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. Moreover, some of SS/ Ls customers are
start-up companies, and there can be no assurance that these
companies will be able to fulfill their payment obligations
under their contracts with SS/ L.

SS/ Ls contracts are terminable for default
for non-performance, including schedule delays. In that event,
SS/ L is generally obligated to refund to the customer all
payments received plus penalties, and SS/ L may be liable for
damages. A 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. Such terminations may occur in the future.

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.

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Some of SS/ Ls satellite manufacturing
contracts provide that some of the total price is payable as
incentive payments earned over the life of the
satellite. 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 incentive
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.

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 are
subject to warranty payback in the event satellite
anomalies were to develop (see Note 17 to the consolidated
financial statements). These contingent liabilities are not
insured by SS/ L.

We are subject to export controls, which may
result in delays and additional costs. SS/ L is still awaiting
approval for the launch of ChinaSat 8.

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. For example, SS/ L completed construction
of the ChinaSat 8 satellite in December 1998 but the launch of
the satellite has been delayed pending the necessary approvals
from the State Department. If, as a result of the delay,
ChinaSat were to terminate its contract with SS/ L, it could
seek a refund of $82 million for payments made to SS/ L for
the satellite as well as up to $11 million in penalties.
Moreover, there can be no assurance that an agreement to release
SS/ L from $52.5 million of potential liabilities relating
to the launcher will be completed. For further details see
Note 17 to the consolidated financial statements.

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 increasingly difficult for the U.S. satellite
manufacturing industry, including SS/ L, to recapture this lost
market share.

Our business is regulated, causing uncertainty
and additional costs.

Multiple authorities regulate our business,
including the Federal Communications Commission, 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 are in discussions with various
administrations regarding Telstar 12s continued operation
at 15 degrees W.L. If these coordination discussions are not
successful, Telstar 12s useable capacity may be reduced.

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.
For further details, see Note 17 to the consolidated
financial statements.

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We face risks in conducting business
internationally.

For the year ended December 31, 2003,
approximately 29% 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. 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.

We share control of our affiliates with third
parties.

Third parties have significant ownership, voting
and other rights in our affiliates. As a result, we do not have
control over management of these entities. 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, these conflicts could become acute.
For example:



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Primary control of Satmex is vested in Mexican
    nationals, as required by Mexican law, subject to certain
    approval rights that we retain.
|
| |  | Hisdesat enjoys certain approval rights in XTAR,
    our X-band joint venture.                                                                  

We rely on key personnel.

We need highly qualified personnel. Except for
Bernard L. Schwartz, our Chairman and Chief Executive Officer,
none of our officers has an employment contract nor do we
maintain key man life insurance. The departure of
any of our key executives could have an adverse effect on our
business.



|     |            
|---- | -----------
|III. | Other Risks

Litigations and
disputes.We are involved in a number
of ongoing litigations. For further details see Item 3,
Legal Proceedings. In addition, we are involved in a number of
disputes which may not be resolved without recourse to
litigation. For example, International Launch Services
claims that it is entitled to termination charges of up to
$54.75 million with respect to three terminated launches.
For further details, see Note 17 to the consolidated
financial statements. If any of these litigations or disputes
are decided against us it could have a material adverse affect
on our financial condition and our results of operation.

Globalstar.In April
2003, one of Globalstars creditors filed a motion seeking
reconsideration of court approval of an agreement between Loral
and Globalstar and Globalstars official creditors
committee in which, among other things, Globalstar granted to
Loral, subject to certain conditions, a general release of all
claims Globalstar might have against Loral. The court denied
this motion for reconsideration in May 2003, and, in June 2003,
the creditor filed with the Federal Appeals Court a notice of
appeal of the courts order approving the Settlement.
Although the Company believes that the appeal, which is
currently pending, is without merit, no assurance can be given
in this regard or as to what relief, if any, might be granted in
the event the appeal were to be successful.

Shareholder Rights.Since we are a Bermuda company, the principles of law that
govern shareholder rights, the validity of corporate procedures
and other matters are different from those that would apply if
we were a U.S. company. For example, it is not certain
whether a Bermuda court would enforce liabilities against us or
our officers and directors based upon United States securities
laws either in an original action in Bermuda or under a United
States judgment. Bermuda law giving shareholders the right to
sue directors is less developed than in the United States and
may provide fewer rights.

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Other Matters



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

During 2003, we adopted certain new accounting
pronouncements (see Consolidated Operating Results 
Cumulative Effect of Change in Accounting Principle above).
There are also other pronouncements that have been issued, but
are not yet required to be adopted (see Note 3 to the
consolidated financial statements).

On January 1, 2002, we adopted
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142) which addresses the initial
recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. Our net loss for the year ended December 31,
2001, without the amortization of goodwill would have been
$169.8 million, as adjusted, as compared to
$196.5 million as reported. The decrease of
$26.6 million would have lowered the reported loss per
share from $8.56 to $7.74, as adjusted.






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

Foreign
Currency

Upon filing Chapter 11, SS/ Ls hedges
with counterparties (primarily yen denominated forward
contracts) were cancelled leaving SS/ L vulnerable to foreign
currency fluctuations in the future. The inability to enter into
forward contracts exposes SS/ Ls future revenues, costs
and cash associated with anticipated yen denominated receipts
and payments to currency fluctuations. As of December 31,
2003, SS/ L had the following amounts denominated in Japanese
Yen that were unhedged (in millions):

|                                            |  |              |        |       |  |   |      | 
|------------------------------------------- |  | ------------ | ------ | ----- |  | - | ---- | 
|                                            |  | Japanese Yen |        | U.S.$
|                                            |  |              |        |      
|Future revenues                             |  |              | ¥2,263 |       |  | $ | 21.6 | 
|Future expenditures                         |  |              | 1,339  |       |  |   | 12.5 | 
|Contracts-in-process (unbilled receivables) |  |              | 3,449  |       |  |   | 31.0 | 

At December 31, 2003, SS/ L also had future
expenditures in EUROs of $1.5 million
($1.8 million U.S.) that were unhedged.

Interest

As of December 31, 2003, our primary
interest rate exposure was from loss of earnings and cash flow
that could result from the movement in market rates on its bank
debt of $967 million, which had a blended interest rate of
5.47%. As a result of our Chapter 11 filing, all
$2.2 billion of our debt has been accelerated and is
included in liabilities subject to compromise.

As of December 31, 2002, approximately 58%
of our outstanding debt had fixed interest rates. In 2002, we
strived to manage our interest rate risk by balancing the
composition of our fixed versus variable rate borrowings
combined with the monitoring of the overall level of borrowings
and did not actively manage our interest rate risk through the
use of derivatives or other financial instruments.

As of December 31, 2003, the carrying value
of our debt obligations was $2.2 billion and the fair value
of such debt was $1.7 billion. As of December 31,
2002, the carrying value of our long-term debt was
$2.2 billion and the fair value of such debt was
$1.3 billion. The fair value of our debt obligations is
based on the carrying value for those obligations that have
short-term variable interest rates on the outstanding borrowings
and quoted market prices for obligations with long-term or fixed
interest rates (the fair value for the Loral Orion 11.25% and
12.5% senior notes was based on the quoted market price of
the Loral Orion 10% senior notes, as there was no active
market for those senior notes). Approximately $214 million
and $245 million of the difference between the carrying
amount and the fair value of our debt obligations as of
December 31, 2003 and 2002, respectively, is attributable
to the accounting for the Loral Orion exchange offers (see
Note 10 to the consolidated financial statements).

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

See Index to Financial Statements and Financial
Statement Schedules on page F-1.






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

Not applicable.






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

(a) Disclosure controls and
procedures. Our chief executive officer and our chief
financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in
the Securities and Exchange Act of 1934 Rules 13a-15(e) and
15-d-15(e)) as of December 31, 2003, have concluded that,
our disclosure controls and procedures were effective and
designed to ensure that material information relating to Loral
and its consolidated subsidiaries required to be in our filings
under the Securities and, Exchange Act of 1934 would be made
known to them by others within those entities in a timely manner.

(b) Internal controls over financial
reporting. There were no significant changes in our internal
controls over financial reporting (as defined in the Securities
and Exchange Act of 1934 Rules 13a-15(f) and 15-d-15(f))
during the most recent fiscal quarter that we judge to have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

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PART III






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

Directors

The following sets forth information concerning
Lorals directors as of March 1, 2004.

|                     |  |                                                                                                                                                                                                                           
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bernard L. Schwartz  |  |                                                                                                                                                                                                                           
|                     |  |                                                                                                                                                                                                                           
|                    
|Age:                 |  | 78                                                                                                                                                                                                                        
|Director Since:      |  | 1996                                                                                                                                                                                                                      
|Business Experience: |  | Mr. Schwartz is Chairman of the Board of
    Directors and Chief Executive Officer of the Company.                                                                                                                        
|Other Directorships: |  | First Data Corp., K&F Industries, Inc. and
    Satélites Mexicanos, S.A. de C.V. Trustee of NYU Medical
    Center and Health System, Thirteen/ WNET Educational
    Broadcasting Corporation and the Baruch College Fund.
|                    
|Howard Gittis        |  |                                                                                                                                                                                                                           
|                     |  |                                                                                                                                                                                                                           
|                    
|Age:                 |  | 70                                                                                                                                                                                                                        
|Director Since:      |  | 1996                                                                                                                                                                                                                      
|Business Experience: |  | Mr. Gittis is Director, Vice Chairman and
    Chief Administrative Officer of MacAndrews & Forbes Holdings
    Inc. and its various affiliates.                                                                           
|Other Directorships: |  | Jones Apparel Group, Inc., M & F
    Worldwide Corp., REV Holdings Inc., Revlon Consumer Products
    Corporation, Revlon, Inc. and Scientific Games Corporation                                                          
|                    
|Robert B. Hodes      |  |                                                                                                                                                                                                                           
|                     |  |                                                                                                                                                                                                                           
|                    
|Age:                 |  | 78                                                                                                                                                                                                                        
|Director Since:      |  | 1996                                                                                                                                                                                                                      
|Business Experience: |  | Mr. Hodes is counsel to Willkie Farr &
    Gallagher, a law firm in New York, N.Y., and, until 1996, was a
    partner in and co-chairman of that firm.                                                                   
|Other Directorships: |  | K&F Industries, Inc., LCH Investments, N.V.,
    Mueller Industries, Inc., The National Philanthropic Trust,
    Restructured Capital Holdings, Ltd. and R.V.I. Guaranty Ltd.                                             
|                    
|Gershon Kekst        |  |                                                                                                                                                                                                                           
|                     |  |                                                                                                                                                                                                                           
|                    
|Age:                 |  | 69                                                                                                                                                                                                                        
|Director Since:      |  | 1996                                                                                                                                                                                                                      
|Business Experience: |  | Mr. Kekst is President of Kekst and Company
    Incorporated, a strategic corporate communications
    (consulting) firm.                                                                                                 
|                    
|Charles Lazarus      |  |                                                                                                                                                                                                                           
|                     |  |                                                                                                                                                                                                                           
|                    
|Age:                 |  | 80                                                                                                                                                                                                                        
|Director Since:      |  | 1996                                                                                                                                                                                                                      
|Business Experience: |  | Mr. Lazarus is Chairman Emeritus of Toys
    R Us, Inc.                                                                                                                                                                 

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|                     |  |                                                                                                                                                                                                                                                                                                                                                                      
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Sally Minard         |  |                                                                                                                                                                                                                                                                                                                                                                      
|                     |  |                                                                                                                                                                                                                                                                                                                                                                      
|                    
|Age:                 |  | 61                                                                                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 2002                                                                                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Ms. Minard is co-chair of the Womens
    Leadership Forum of the Democratic National Committee in New
    York State. She was co-founder and CEO of Lotas Minard Patton
    McIver, an advertising communications firm in New York, N.Y.,
    from 1986-1999.                                                                                                       
|Other Directorships: |  | American Red Cross (NY), Metropolitan Museum of
    Art, NARAL Pro-Choice New York Foundation and The New School                                                                                                                                                                                                                                                     
|                    
|Malvin A. Ruderman   |  |                                                                                                                                                                                                                                                                                                                                                                      
|                     |  |                                                                                                                                                                                                                                                                                                                                                                      
|                    
|Age:                 |  | 76                                                                                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 1996                                                                                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Dr. Ruderman is the Centennial Professor of
    Physics at Columbia University in New York, N.Y. He has been a
    member of the Board of Trustees of the Institute for Advanced
    Study and of Associated Universities, Inc.                                                                                                                                      
|                    
|E. Donald Shapiro    |  |                                                                                                                                                                                                                                                                                                                                                                      
|                     |  |                                                                                                                                                                                                                                                                                                                                                                      
|                    
|Age:                 |  | 72                                                                                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 1996                                                                                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Shapiro has been The Joseph Solomon
    Distinguished Professor of Law at New York Law School since 1983
    and Dean Emeritus since 2000 and was previously Dean/ Professor
    of Law (1973-1983).                                                                                                                                                             
|Other Directorships: |  | Frequency Electronics, Inc., Group Health
    Incorporated, Kramont Realty Trust, NSTAR and Vasomedical, Inc.                                                                                                                                                                                                                                                        
|                    
|Arthur L. Simon      |  |                                                                                                                                                                                                                                                                                                                                                                      
|                     |  |                                                                                                                                                                                                                                                                                                                                                                      
|                    
|Age:                 |  | 72                                                                                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 1996                                                                                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Simon is an independent consultant.
    Previously, he was a partner at Coopers & Lybrand
    L.L.P., Certified Public Accountants, from 1968 to 1994.                                                                                                                                                                                                           
|Other Directorships: |  | L-3 Communications Corporation                                                                                                                                                                                                                                                                                                                                       
|                    
|Daniel Yankelovich   |  |                                                                                                                                                                                                                                                                                                                                                                      
|                     |  |                                                                                                                                                                                                                                                                                                                                                                      
|                    
|Age:                 |  | 79                                                                                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 1996                                                                                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Yankelovich is Chairman of DYG, Inc., a
    market, consumer and opinion research firm in New York, N.Y. He
    is also Chairman of Viewpoint Learning, Inc., a consulting firm
    based in San Diego, CA.                                                                                                                                                      
|Other Directorships: |  | Director Emeritus of Arkla, Inc., CBS, Inc.,
    Meredith Corporation and U S West, Inc.                                                                                                                                                                                                                                                                             
|                    
|Eric J. Zahler       |  |                                                                                                                                                                                                                                                                                                                                                                      
|                     |  |                                                                                                                                                                                                                                                                                                                                                                      
|                    
|Age:                 |  | 53                                                                                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 2001                                                                                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Zahler has been President and Chief
    Operating Officer of the Company since February 2000.
    Previously, he was Executive Vice President of the Company since
    October 1999, Senior Vice President, General Counsel and
    Secretary of the Company since February 1998 and Vice President,
    General Counsel and Secretary of the Company since 1996.
|Other Directorships: |  | Satélites Mexicanos, S.A. de C.V.                                                                                                                                                                                                                                                                                                                                    

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In addition to the Chapter 11 Cases
commenced on July 15, 2003 by Loral and certain of its
subsidiaries, as disclosed earlier in this report, on
February 15, 2002, 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 serve as general partners of Loral/ Qualcomm
Partnership, L.P. filed voluntary petitions with the Delaware
bankruptcy court. Messrs. Schwartz and Zahler either
currently serve or have previously served as executive officers
of these general partner entities and Globalstar and certain of
its subsidiaries.

In August 2002, Lorals Board of Directors
approved a plan to suspend indefinitely the future payment of
dividends on Lorals two series of preferred stock.
Accordingly, Loral deferred the payment of quarterly dividends
due on its Series C Preferred Stock commencing on
November 1, 2002 and the payment of quarterly dividends due
on its Series D Preferred Stock commencing on
November 15, 2002. Because we have failed to pay dividends
on the Series C and the Series D preferred stock for
six quarters, holders of the majority of each class of such
preferred stock are now entitled, subject to the applicable
effects of the Chapter 11 Cases and Lorals Bermuda
insolvency proceedings, to elect two additional members, for a
total of four, to Lorals Board of Directors.

Audit Committee

The Board of Directors has a standing Audit
Committee, the members of which are Messrs. Ruderman,
Shapiro and Simon. 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 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
Mr. Simon is independent, within the meaning of
Schedule 14A under the Securities Exchange Act of 1934, as
amended.

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Executive Officers of the Registrant

The following table sets forth information
concerning the executive officers of Loral as of March 1,
2004.

|                     |  |     |    |          |  |                                                                                                                                                                                                                                                                                                                               
|-------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Bernard L. Schwartz  |  |     | 78 |          |  | Chairman of the Board of Directors and Chief
    Executive Officer since January 1996.                                                                                                                                                                                                                                        
|Eric J. Zahler       |  |     | 53 |          |  | Director since July 2001 and President and Chief
    Operating Officer since February 2000. Prior to that, Executive
    Vice President since October 1999. Prior to that, Senior Vice
    President, General Counsel and Secretary since February 1998 and
    Vice President, General Counsel and Secretary since April 1996
|Richard J. Townsend  |  |     | 53 |          |  | Executive Vice President and Chief Financial
    Officer since March 2003. Prior to that, Senior Vice President
    and Chief Financial Officer since October 1998.                                                                                                                                                           
|Robert E. Berry      |  |     | 75 |          |  | Senior Vice President since November 1996 and
    Chairman of Space Systems/ Loral since September 1999. Prior to
    that, President of Space Systems/ Loral since 1990.                                                                                                                                                     
|Laurence D. Atlas    |  |     | 46 |          |  | Vice President, Government Relations 
    Telecommunications since May 1997.                                                                                                                                                                                                                                                 
|Jeanette H. Clonan   |  |     | 55 |          |  | Vice President  Communications and
    Investor Relations since December 1996.                                                                                                                                                                                                                                               
|C. Patrick DeWitt    |  |     | 57 |          |  | Vice President. President of Space Systems/ Loral
    since November 2001. Prior to that, Executive Vice President of
    Space Systems/ Loral since 1996.                                                                                                                                                                    
|Terry J. Hart        |  |     | 57 |          |  | Vice President. President of Loral Skynet since
    March 1997.                                                                                                                                                                                                                                                               
|Stephen L. Jackson   |  |     | 62 |          |  | Vice President  Administration since
    March 1997.                                                                                                                                                                                                                                                                         
|Avi Katz             |  |     | 45 |          |  | Vice President, General Counsel and Secretary
    since November 1999. Prior to that, Vice President, Deputy
    General Counsel and Assistant Secretary since February 1998.                                                                                                                                                 
|Russell R. Mack      |  |     | 49 |          |  | Vice President  Business Ventures
    since February 1998.                                                                                                                                                                                                                                                                   
|Richard P. Mastoloni |  |     | 39 |          |  | Vice President and Treasurer since February 2002.
    Prior to that, Vice President since September 2001 and Assistant
    Treasurer since August 2000. Prior to that, Director of
    Corporate Finance since August 1997.                                                                                                   
|Harvey B. Rein       |  |     | 50 |          |  | Vice President and Controller since April 1996.                                                                                                                                                                                                                                                                               
|Janet T. Yeung       |  |     | 39 |          |  | Vice President, Deputy General Counsel and
    Assistant Secretary since February 2000. Prior to that,
    Associate General Counsel and Assistant Secretary since November
    1999. Prior to that, Associate General Counsel since February
    1998.                                                                       

In addition to being officers and directors of
Loral and its subsidiaries, Messrs. Schwartz, Zahler,
Townsend, Katz, Mastoloni and Rein and Ms. Yeung 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 serve as
general partners of Loral/ Qualcomm Partnership, L.P., which
entities filed voluntary petitions with the Delaware bankruptcy
court on February 15, 2002.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act
of 1934, as amended, requires our executive officers, directors
and persons who own more than 10% of our common stock, to file
reports with the Securities and

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Exchange Commission and based solely on a review
of the copies of such reports furnished to us and on written
representations from certain reporting persons that no
Form 5 was required for such person, Loral believes that
during 2003 all executive officers, directors and persons who
own more than 10% of Lorals common stock timely filed all
such reports as required to be filed under Section 16(a) of
the Securities Exchange Act of 1934, as amended.


Code of Ethics

The Company has adopted a Code of Ethics for all
of its employees, including its executive officers. A copy of
this Code of Ethics has been filed as an exhibit to this report.
This Code of Ethics is also available on Lorals web site
at www.loral.com. Any amendments or waivers to this Code of
Ethics with respect to the Company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 the
Companys Investor Relations Department at
(212) 338-5345.






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

Executive Compensation

The Company has entered into a management
agreement with Loral SpaceCom pursuant to which Loral SpaceCom
provides certain services to the Company. In accordance with
this agreement, compensation for the named executive officers
(NEOs) and other executive officers and employees of
the Company is paid by Loral SpaceCom. The following table
summarizes the compensation paid to the NEOs.

|                          |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |        |         |     |  |   |         |     |  |   |         |  |   |        |         | 
|------------------------- | ------------------------ | ---- | ---- | ------------------- |  | ------------ | --------- | ------------ | --- | ---------- | ------- | --------- | --- | --------------- | ------ | ------- | --- |  | - | ------- | --- |  | - | ------- |  | - | ------ | ------- | 
|                          |                          |      |      |                     |  |              |           |              |     |            |         |          
|                          |                          |      |      |                     |  |              |           |              |     | Long Term  |         |          
|                          |                          |      |      |                     |  | Compensation |           |             
|                          |                          |      |      | Annual Compensation |  |              |           |             
|                          |                          |      |      |                     |  |              |           | Securities   |     |           
|                          |                          |      |      |                     |  | Other        |           | Restricted   |     | Underlying |         |          
|Name and                  |                          |      |      |                     |  | Annual       |           | Stock        |     | Stock      |         | All Other
|Principal Position        |                          | Year |      | Salary              |  | Bonus        |           | Compensation |     | Awards     |         | Options   |     | Compensation(a)
|                          |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                
|Bernard L. Schwartz,      |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |        |         |     |  |   |         |     |  |   |         |  |   |        |        
|                          | Chairman of the Board of |      |      | 2003                |  |              | $         | 292,150      | (b) |            |         |          |     |                 | $      | 42,763  | (c) |  |   |        |     |  |   |        |  |   | $      | 32,200  | 
|                          | Directors and Chief      |      |      | 2002                |  |              | $         | 1,744,576    |     |            |         |          |     |                 |        |        |     |  |   |        |     |  |   | 25,000  |  |   | $      | 261,648 | 
|                          | Executive Officer        |      |      | 2001                |  |              | $         | 1,708,581    |     |            |         |          |     |                 |        |        |     |  |   |        |     |  |   | 330,500 |  |   | $      | 219,713 | 
|Eric J. Zahler, President |                          |      | 2003 |                     |  | $            | 1,000,000 |              |     | $          | 400,000 |           |     |                 |       |         |     |  |  |         |     |  |  |         |  | $ | 53,946 |        
|                          | and Chief Operating      |      |      | 2002                |  |              | $         | 1,000,000    |     |            | $       | 225,000   |     |                 |        |        |     |  |   |        |     |  |   | 16,250  |  |   | $      | 53,346  | 
|                          | Officer                  |      |      | 2001                |  |              | $         | 1,000,000    |     |            |         |          |     |                 |        |        |     |  |   |        |     |  |   | 77,500  |  |   | $      | 27,866  | 
|Richard J. Townsend,      |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |        |         |     |  |   |         |     |  |   |         |  |   |        |        
|                          | Executive Vice President |      |      | 2003                |  |              | $         | 770,000      |     |            | $       | 360,000   |     |                 |        |        |     |  |   |        |     |  |   |        |  |   | $      | 21,435  | 
|                          | and Chief Financial      |      |      | 2002                |  |              | $         | 640,673      |     |            | $       | 150,000   |     |                 |        |        |     |  |   |        |     |  |   | 15,000  |  |   | $      | 20,835  | 
|                          | Officer                  |      |      | 2001                |  |              | $         | 552,212      |     |            |         |          |     |                 |        |        |     |  |   |        |     |  |   | 47,500  |  |   | $      | 20,355  | 
|Terry J. Hart, Vice       |                          |      | 2003 |                     |  | $            | 380,000   |              |     | $          | 266,000 |           |     | $               | 69,600 | (e)     |     |  |  |         |     |  |  |         |  | $ | 12,689 |        
|                          | President and President  |      |      | 2002                |  |              | $         | 378,154      |     |            | $       | 275,000   | (d) |                 |        |        |     |  | $ | 96,000  | (f) |  |   |        |  |   | $      | 12,022  | 
|                          | of Loral Skynet          |      |      | 2001                |  |              | $         | 351,461      |     |            | $       | 198,000   |     |                 |        |        |     |  |   |        |     |  |   | 16,970  |  |   | $      | 11,689  | 
|Avi Katz, Vice President, |                          |      | 2003 |                     |  | $            | 400,404   |              |     | $          | 150,000 |           |     |                 |       |         |     |  |  |         |     |  |  |         |  | $ | 15,921 |        
|                          | General Counsel and      |      |      | 2002                |  |              | $         | 369,154      |     |            | $       | 135,000   |     |                 |        |        |     |  |   |        |     |  |   |        |  |   | $      | 15,321  | 
|                          | Secretary                |      |      | 2001                |  |              | $         | 325,019      |     |            | $       | 112,500   |     |                 |        |        |     |  |   |        |     |  |   | 18,840  |  |   | $      | 14,841  | 
|C. Patrick DeWitt, Vice   |                          |      |      |                     |  |              |           |              |     |            |         |           |     |                 |        |         |     |  |   |         |     |  |   |         |  |   |        |        
|                          | President and President  |      |      | 2003                |  |              | $         | 426,675      |     |            |         | (g       | )   |                 |        |        |     |  |   |        |     |  |   |        |  |   | $      | 7,197   | 
|                          | of Space Systems/        |      |      | 2002                |  |              | $         | 363,462      |     |            | $       | 250,000   |     |                 | $      | 148,269 | (h) |  | $ | 152,000 | (i) |  |   |        |  |   | $      | 7,194   | 
|                          | Loral, Inc.              |      |      | 2001                |  |              | $         | 311,558      |     |            | $       | 75,057    |     |                 |        |        |     |  |   |        |     |  |   | 34,945  |  |   | $      | 6,118   | 



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | For 2003, includes annual Board of Directors fee
    in the amount of $25,000 to each of Messrs. Schwartz and
    Zahler and Company matching contributions to the Savings Plan in
    the amount of $7,200 for each of Messrs. Schwartz, Zahler,
    Townsend and Katz, $8,000 for Mr. Hart and $7,197 for
    Mr. DeWitt and the value of supplemental life insurance
    premiums in the amounts of $21,746, $14,235, $4,689 and $8,721
    for Messrs. Zahler, Townsend, Hart and Katz, respectively.
|   
|(b) |  | At Mr. Schwartzs request, the
    Compensation Committee of the Board of Directors 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.                                                                                                                                                                                     

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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) |  | Represents the aggregate incremental cost to
    Loral for use of Lorals corporate jet by Mr. Schwartz.                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(d) |  | For 2002, represents a $275,000 one-time cash
    bonus payment to Mr. Hart on the fifth anniversary of the
    closing date of the purchase by Loral of Loral Skynet from
    AT&T.                                                                                                                                                                                                                                                                                                         
|   
|(e) |  | Consists of $68,605 for Mr. Hart for a tax
    gross-up on his restricted stock award and the Companys
    medicare match on this income of $995.                                                                                                                                                                                                                                                                                                                                           
|   
|(f) |  | Represents the market value on 30,000 shares
    of restricted stock granted to Mr. Hart on March 6,
    2003 for performance in 2002. Such shares had a market value of
    $6,300 based on the closing price of Lorals common stock
    at December 31, 2003. The restrictions lapse on the third
    anniversary of the date of grant. This is the only restricted
    stock grant that has been awarded to Mr. Hart and
    represents his entire restricted stock holdings at year-end.
|   
|(g) |  | Mr. DeWitt will receive payments under a key
    employee retention program in lieu of his 2003 bonus.                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(h) |  | Consists of $146,150 for Mr. DeWitt for a
    tax gross-up on his restricted stock award and the
    Companys medicare match on this income of $2,119.                                                                                                                                                                                                                                                                                                                                      
|   
|(i) |  | Represents the market value on 40,000 shares
    of restricted stock granted to Mr. DeWitt on
    December 18, 2002. Such shares had a market value of $8,400
    based on the closing price of Lorals common stock at
    December 31, 2003. The restrictions lapse on the third
    anniversary of the date of grant. This is the only restricted
    stock grant that has been awarded to Mr. DeWitt and
    represents his entire restricted stock holdings at
    December 31, 2003.   

Other Compensation
Arrangements

Mr. Schwartz is compensated pursuant to an
employment agreement with Loral SpaceCom. This agreement, which
expires on April 5, 2006, provides for a minimum annual
base salary, to be increased each year by the percentage change
in a specified consumer price index, plus such other annual
increases as the Board of Directors or the Compensation
Committee may grant from time to time. At
Mr. Schwartzs request, the Compensation Committee
agreed to amend his employment agreement to provide for no base
salary for the twelve-month period commencing March 1,
2003. Effective March 1, 2004, Mr. Schwartz resumed
receiving a base salary in accordance with his employment
agreement.

Pursuant to the amended employment agreement, if
Mr. Schwartz is removed as Chairman of the Board of
Directors or as Chief Executive Officer other than for cause, or
if his duties, authorities or responsibilities are diminished,
or if there is a change of control of the Company,
Mr. Schwartz may elect to terminate the agreement. A change
of control of the Company is defined generally to mean:
(1) the acquisition by any person of 35% or more of either
(i) the then outstanding common stock or (ii) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors; (2) the incumbent directors cease for any reason
to constitute at least a majority of the Board of Directors;
(3) subject to certain exceptions, consummation of a
reorganization, consolidation, merger or sale of substantially
all of the assets of the Company; or (4) approval by the
shareholders of the Company of a liquidation or dissolution of
the Company. In any such event, or upon his death or disability,
Mr. Schwartz will be entitled to receive a lump sum payment
discounted at 3% per annum, in an amount equal to his
highest annual base salary during the five years prior to his
termination for a five-year period, an amount of incentive bonus
equal to the highest bonus received by Mr. Schwartz during
the term of the agreement for a five-year period, and an amount
calculated to approximate the annual compensation elements
reflected in the difference between fair market value and
exercise price of stock options granted to Mr. Schwartz.
All such sums are further increased to offset any tax due by
Mr. Schwartz under the excise tax and related provisions of
Section 4999 of the Internal Revenue Code.

Prior to 2003, Loral SpaceCom established a
Supplemental Life Insurance Plan for certain key employees
including Messrs. Schwartz, Zahler, Townsend, Hart and
Katz. For Messrs. Zahler, Townsend, Hart 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. Mr. Schwartzs Plan is
funded with two universal life insurance policies,
one with a death benefit of $500,000 (the Policy)
and one with a death benefit of $20,000,000 (the
Split-Dollar Policy). The Split-Dollar Policy is
subject to a split-dollar agreement between Loral SpaceCom and
the trustees of a life insurance trust (the
Trustees) established by Mr. Schwartz (the
Life Insurance Trust). Pursuant to the split-dollar
agreement, upon the death of Mr. Schwartz, Loral SpaceCom,
as sponsor of the Plan, would be entitled to reimbursement from
the insurance proceeds of its cumulative contributions to the
Split-Dollar Policy. If the split-dollar agreement

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were to be terminated prior to
Mr. Schwartzs death, the sponsor would be entitled to
the cash surrender value of the Split-Dollar Policy on the date
of the termination. The Trustees may terminate the split-dollar
agreement at any time, and this agreement will terminate if
Mr. Schwartzs employment with Loral SpaceCom is
terminated for cause.


Loral SpaceCom suspended payments under both the
Policy and the Split-Dollar Policy in 2002 and 2003 as a result
of uncertainty as to whether such payments might be prohibited
by the terms of the Sarbanes-Oxley Act, and in 2004,
Mr. Schwartz agreed that Loral SpaceCom would not be
required to make further payments thereunder. Instead, the Life
Insurance Trust paid a total of approximately $955,350 in
premium payments on the Split-Dollar Policy in 2003, funded
through loans and gifts from Mr. Schwartz.

In December 2003, the United States Bankruptcy
Court for the Southern District of New York approved a Key
Employee Retention Program (KERP) for the Company in
which, among others, Messrs. Zahler, Townsend and Katz are
eligible to participate. The KERP provides that, in addition to
the Companys standard severance arrangements, if
Messrs. Zahler, Townsend and Katz are terminated without
cause during Lorals Chapter 11 case, they will be
entitled to a severance payment of up to 175% of their 2003 base
salary. Mr. Schwartz does not participate in the KERP.

In connection with the KERP, Messrs. Zahler,
Townsend and Katz have waived their rights and released the
Company from any and all claims they might have under the
employment protection agreements they had previously entered
into with the Company.

Mr. Hart has an employment protection
agreement that would provide him with certain protections in the
event of a change of control of the Company. A change of control
of the Company is defined generally to mean: (1) the
acquisition by any person of 35% or more of either (i) the
then outstanding common stock or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors;
(2) the incumbent directors cease for any reason to
constitute at least a majority of the Board of Directors;
(3) subject to certain exceptions, consummation of a
reorganization, consolidation, merger or sale of substantially
all of the assets of the Company; or (4) approval by the
shareholders of the Company of a liquidation or dissolution of
the Company. The agreement provides that, after a change of
control, Mr. Hart would be entitled to certain protections
relating to his responsibilities and duties, as well as
compensation and benefits. In the event of a termination by the
Company other than for cause or
disability or a termination by Mr. Hart for
good reason, in each case as such terms are defined
therein, the agreement provides for a severance package
consisting of: (i) Mr. Harts base salary through
the date of termination; (ii) a cash amount equal to three
times the sum of Mr. Harts base salary, annual bonus,
the present value amount of the cost of certain benefit plans
and programs in which Mr. Hart participates and the
annualized value of his vacation and fringe benefits; and
(iii) any deferred compensation and any other amounts or
benefits then owing to Mr. Hart. In addition, under Loral
Skynets standard severance arrangements, Mr. Hart
would be entitled to receive a severance payment equal to
18 months of his base salary in the event of a termination.

Mr. DeWitt has an employment protection
agreement that would provide him with certain protections in the
event that his employment is terminated in connection with a
change in control of SS/ L or Loral. A change in control under
this agreement is defined generally to mean (i) a third
party tender or exchange offer for common stock or securities
convertible into common stock of SS/ L or Loral;
(ii) subject to certain exceptions, an acquisition by any
person of 20% or more of SS/ Ls or Lorals voting
power; (iii) a change in the composition of the board of
directors of SS/ L or Loral so that the existing board members
and their approved successors do not constitute a majority of
the board; (iv) subject to certain exceptions, consummation
of a merger or consolidation of SS/ L or Loral and
(v) shareholder approval of either a liquidation or
dissolution of, or sale of substantially all of the assets of,
SS/ L or Loral. A change in control will not generally include a
conversion of debt obligations to equity in connection with a
plan of reorganization and any change in the board of directors
resulting therefrom. This agreement provides that if
Mr. DeWitts employment is terminated without
cause or Mr. DeWitt terminates his employment
for good reason any time within one year following a
change in control, then Mr. DeWitt will be
entitled to receive a cash payment equal to 1.5 times his annual
base salary, together with the continuation of his medical and
life insurance coverage for a

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period expiring upon the earlier of
1.5 years or the date on which Mr. DeWitt starts
receiving comparable benefits from another employer. This
agreement further provides that if a change in
control has not occurred by February 4, 2006, the
agreement will terminate and have no further force or effect.


Option Exercises and Year-End Value
Table

The following table presents the year-end values
of options held by the NEOs. None of the NEOs exercised options
during 2003. The Company granted no stock options in 2003.

|                    |  |                            |         |                              |  |             |        |               |  |  |   |  |  |  |   | 
|------------------- |  | -------------------------- | ------- | ---------------------------- |  | ----------- | ------ | ------------- |  |  | - |  |  |  | - | 
|                    |  |                            |         |                             
|                    |  | 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 |  |                            | 718,000 |                              |  |             | 0      |               |  |  | 0 |  |  |  | 0 | 
|Eric J. Zahler      |  |                            | 67,912  |                              |  |             | 25,838 |               |  |  | 0 |  |  |  | 0 | 
|Richard J. Townsend |  |                            | 46,664  |                              |  |             | 15,836 |               |  |  | 0 |  |  |  | 0 | 
|Terry J. Hart       |  |                            | 11,312  |                              |  |             | 5,658  |               |  |  | 0 |  |  |  | 0 | 
|Avi Katz            |  |                            | 12,560  |                              |  |             | 6,280  |               |  |  | 0 |  |  |  | 0 | 
|C. Patrick DeWitt   |  |                            | 23,294  |                              |  |             | 11,651 |               |  |  | 0 |  |  |  | 0 | 

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 SpaceCom and Loral SpaceComs 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. 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 SpaceCom Corporation
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 SpaceCom, 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,
2003 for Messrs. Schwartz, Zahler, Townsend and Katz are
31.75, 11.75, 5.25 and 7.37, respectively.

For executive officers employed by Space Systems/
Loral, 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 explanation

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and table below.) The estimated credited years of
service through December 31, 2003 for Mr. DeWitt is
30.25. The following table shows the amounts of annual
retirement benefits that would be payable at normal retirement
for executives who are employed by Space Systems/ Loral.
Benefits are shown for various rates of final average salary,
assuming that employee contributions were made for the periods
indicated.


|                     |  |                               |        |    |  |    |         |    |  |    |         |    |  |   |         |  |  |   |         |  |  |   |         | 
|-------------------- |  | ----------------------------- | ------ | -- |  | -- | ------- | -- |  | -- | ------- | -- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                     |  |                              
|                     |  | Years of Contributory Service
|                     |  |                              
|Final Average Salary |  | 10                            |        | 15 |  | 20 |         | 25 |  | 30 |         | 35
|                     |  |                               |        |    |  |    |         |    |  |    |         |   
|$100,000             |  | $                             | 14,530 |    |  | $  | 21,800  |    |  | $  | 29,060  |    |  | $ | 36,330  |  |  | $ | 43,590  |  |  | $ | 50,860  | 
|125,000              |  |                               | 18,910 |    |  |    | 28,360  |    |  |    | 37,810  |    |  |   | 47,260  |  |  |   | 56,720  |  |  |   | 66,170  | 
|150,000              |  |                               | 23,280 |    |  |    | 34,920  |    |  |    | 46,560  |    |  |   | 58,200  |  |  |   | 69,840  |  |  |   | 81,480  | 
|175,000              |  |                               | 27,660 |    |  |    | 41,480  |    |  |    | 55,310  |    |  |   | 69,140  |  |  |   | 82,970  |  |  |   | 96,790  | 
|200,000              |  |                               | 32,030 |    |  |    | 48,050  |    |  |    | 64,060  |    |  |   | 80,080  |  |  |   | 96,090  |  |  |   | 112,110 | 
|225,000              |  |                               | 36,410 |    |  |    | 54,610  |    |  |    | 72,810  |    |  |   | 91,010  |  |  |   | 109,220 |  |  |   | 127,420 | 
|250,000              |  |                               | 40,780 |    |  |    | 61,170  |    |  |    | 81,560  |    |  |   | 101,950 |  |  |   | 122,340 |  |  |   | 142,730 | 
|275,000              |  |                               | 45,160 |    |  |    | 67,730  |    |  |    | 90,310  |    |  |   | 112,890 |  |  |   | 135,470 |  |  |   | 158,040 | 
|300,000              |  |                               | 49,530 |    |  |    | 74,300  |    |  |    | 99,060  |    |  |   | 123,830 |  |  |   | 148,590 |  |  |   | 173,360 | 
|350,000              |  |                               | 58,280 |    |  |    | 87,420  |    |  |    | 116,560 |    |  |   | 145,700 |  |  |   | 174,840 |  |  |   | 203,980 | 
|400,000              |  |                               | 67,030 |    |  |    | 100,550 |    |  |    | 134,060 |    |  |   | 167,580 |  |  |   | 201,090 |  |  |   | 234,610 | 
|450,000              |  |                               | 75,780 |    |  |    | 113,670 |    |  |    | 151,560 |    |  |   | 189,450 |  |  |   | 227,340 |  |  |   | 265,230 | 
|500,000              |  |                               | 84,530 |    |  |    | 126,800 |    |  |    | 169,060 |    |  |   | 211,330 |  |  |   | 253,590 |  |  |   | 295,860 | 

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.

Effective with the sale of Loral Skynet from
AT&T to Loral on March 15, 1997, the benefit formula
for executive officers employed by Loral Skynet, such as
Mr. Hart, provides an annual benefit equal to 1.6% of
compensation for each year of service. Service with AT&T
preceding March 15, 1997 is recognized for eligibility and
vesting purposes but not for benefit accrual.
Mr. Harts estimated credited years of service with
Loral Skynet through December 31, 2003 is 6.75.

Annual Benefits

Effective April 1, 1997, 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. In connection with the Chapter 11 Cases
and subject to Bankruptcy Court approval, effective
March 1, 2004, Mr. Schwartz agreed to forego current
payment of his SERP benefits but will retain a claim for such
benefits which will be addressed in the context of the
Chapter 11 Cases. The projected annual benefit under the
Pension Plan and SERP upon retirement is $378,727 for
Mr. Zahler, $209,310 for Mr. Townsend, $91,045 for
Mr. Hart, $206,102 for Mr. Katz and $174,478 for
Mr. DeWitt. These projected benefits have been computed
assuming that (i) employment will be continued until normal
retirement, (ii) current levels of creditable compensation
and the Social Security Wage Base will continue without
increases or adjustments throughout the remainder of the
computation period, (iii) contributions will continue to be
made toward a contributory benefit and (iv) payments will
be made on a life annuity basis.

Director Compensation

Directors are paid a fixed fee of
$25,000 per year. Non-employee directors are also paid
$6,000 for personal attendance or $2,000 for telephone
participation at each meeting. In addition, the Chairman of the
Audit Committee is paid $12,000 per year, and Audit
Committee members are paid $4,000 per year. Audit Committee
members are also paid $2,000 for personal attendance or $1,000
for telephone participation at each meeting. Compensation
Committee members are paid an additional $2,000 per year
and $1,000 for personal attendance or $500 for telephone
participation at each meeting.

The Company provides certain life insurance and
medical benefits to certain non-employee directors. For 2003,
the cost of the life insurance benefits was $13,565 for
Mr. Gittis, $14,553 for Mr. Kekst, $13,872 for

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Mr. Ruderman, $15,000 for Mr. Shapiro,
$12,500 for Mr. Simon and $14,170 for Mr. Yankelovich,
and the cost of life insurance and medical benefits was $40,883
for Mr. Hodes.


Indemnification of Directors and
Officers

The Company has purchased insurance from various
insurance companies insuring the Company against obligations it
might incur as a result of its indemnification of officers and
directors for certain liabilities they might incur, and insuring
such officers and directors for additional liabilities against
which they might not be indemnified by the Company. The cost to
the Company for the annual insurance premiums covering the
period ending April 2004 was approximately $7,050,000. Pursuant
to Bermuda law, the Company has entered into indemnity
agreements with its directors and executive officers. These
indemnity agreements are intended to provide the full indemnity
protection authorized by Bermuda law.

Compensation Committee Interlocks and
Insider Participation

The Board of Directors has a standing
Compensation Committee comprised of Ms. Minard and
Messrs. Shapiro and Simon. None of the members of such
Compensation Committee are present or former officers or
employed by the Company and its subsidiaries.






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

On July 15, 2003, Loral and certain of its
subsidiaries filed voluntary petitions for reorganization under
chapter 11 of title 11 of the United States Code in
the United States Bankruptcy Court for the Southern District of
New York. The Company anticipates that, in any plan for
reorganization ultimately confirmed by the Bankruptcy Court, the
common and preferred stock of the Company, will, at best, be
severely diluted and may be eliminated entirely, with the result
that common and preferred stockholders would receive no
distribution under such plan. Such a plan of reorganization
would be deemed a change in control of the Company.

As of the date of this report, based upon filings
made with the Securities and Exchange Commission, the Company is
not aware of any persons who may be deemed beneficial owners of
5% or more of the outstanding shares of Lorals common
stock because they possessed or shared voting or investing power
with respect to the shares of Lorals common stock.

The following table shows the number of shares of
Lorals common stock beneficially owned by the directors,
the NEOs and all directors, NEOs and all other executive
officers as a group as of March 1, 2004 (except as

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otherwise indicated). Individuals have sole
voting and investment power over the stock unless otherwise
indicated in the footnotes.


|                                                                             |  |                                 |           |            |  |  |     |  
|---------------------------------------------------------------------------- |  | ------------------------------- | --------- | ---------- |  |  | --- | -
|                                                                             |  | Amount and Nature of Beneficial |           | Percent of
|Name of Individual                                                           |  | Ownership (1)(2)                |           | Class     
|                                                                             |  |                                 |           |           
|Bernard L. Schwartz                                                          |  |                                 | 1,111,925 | (3)        |  |  | 2.5 | %
|C. Patrick DeWitt                                                            |  |                                 | 68,078    | (4)        |  |  | *   |  
|Howard Gittis                                                                |  |                                 | 35,940    | (5)        |  |  | *   |  
|Terry J. Hart                                                                |  |                                 | 44,464    | (6)        |  |  | *   |  
|Robert B. Hodes                                                              |  |                                 | 27,540    | (7)        |  |  | *   |  
|Avi Katz                                                                     |  |                                 | 18,114    | (8)        |  |  | *   |  
|Gershon Kekst                                                                |  |                                 | 27,340    | (5)        |  |  | *   |  
|Charles Lazarus                                                              |  |                                 | 25,340    | (5)        |  |  | *   |  
|Sally Minard                                                                 |  |                                 | 3,334     | (9)        |  |  | *   |  
|Malvin A. Ruderman                                                           |  |                                 | 28,540    | (5)        |  |  | *   |  
|E. Donald Shapiro                                                            |  |                                 | 34,690    | (10)       |  |  | *   |  
|Arthur L. Simon                                                              |  |                                 | 29,340    | (11)       |  |  | *   |  
|Richard J. Townsend                                                          |  |                                 | 54,211    | (12)       |  |  | *   |  
|Daniel Yankelovich                                                           |  |                                 | 32,440    | (5)        |  |  | *   |  
|Eric J. Zahler                                                               |  |                                 | 90,058    | (13)       |  |  | *   |  
|All directors, NEOs and other executive officers
    as a group (23 persons) |  |                                 | 1,758,126 | (14)       |  |  | 3.9 | %



---



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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes shares which, as of March 1, 2004,
    may be acquired within sixty days pursuant to the exercise of
    options (which shares are treated as outstanding for the
    purposes of determining beneficial ownership and computing the
    percentage set forth) and shares held for the benefit of named
    executive directors as of February 16, 2004 in the Loral
    Savings Plan (the Savings Plan).
|   
|(2) | Except as noted, all shares are owned directly
    with sole investment and voting power.                                                                                                                                                                                                                                                                                                                           
|   
|(3) | Includes 16,000 shares owned by
    Mr. Schwartzs wife, 718,000 shares exercisable
    under the Stock Option Plans and 2,599 shares held in the
    Savings Plan.                                                                                                                                                                                                                                                 
|   
|(4) | Includes 40,000 shares of restricted stock,
    23,294 shares exercisable under the Stock Option Plans and
    3,184 shares held in the Savings Plan.                                                                                                                                                                                                                                                               
|   
|(5) | Includes 25,340 shares exercisable under the
    Stock Option Plans.                                                                                                                                                                                                                                                                                                                                                
|   
|(6) | Includes 30,000 shares of restricted stock,
    11,312 shares exercisable under the Stock Option Plans and
    2,752 shares held in the Savings Plan.                                                                                                                                                                                                                                                               
|   
|(7) | Consists of 2,000 shares held in
    Mr. Hodes IRA account, 200 shares held by
    Mr. Hodes minor children and 25,340 shares
    exercisable under the Stock Option Plans.                                                                                                                                                                                                                                       
|   
|(8) | Includes 12,560 shares exercisable under the
    Stock Option Plans and 5,454 shares held in the Savings
    Plan..                                                                                                                                                                                                                                                                                                 
|   
|(9) | Consists of 3,334 shares exercisable under
    the Stock Option Plans.                                                                                                                                                                                                                                                                                                                                              



|     |                                                                                                                                                                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Consists of 25,000 shares of Series C
    Preferred Stock convertible into 6,250 shares of common
    stock owned by Mr. Shapiros wife and
    25,340 shares exercisable under the Stock Option Plans.                                                                                           
|    
|(11) | Includes 2,975 shares held in
    Mr. Simons IRA account, 25 shares in his
    wifes IRA account, 4,000 shares of Series C
    Preferred Stock convertible into 1,000 shares of common
    stock held in Mr. Simons IRA account and
    25,340 shares exercisable under the Stock Option Plans.
|    
|(12) | Includes 2,500 shares of Series C
    Preferred Stock convertible into 625 shares of common
    stock, 46,664 shares exercisable under the Stock Option
    Plans and 2,872 shares held in the Savings Plan.                                                                                      
|    
|(13) | Includes 5,000 shares held in
    Mr. Zahlers IRA account, 67,912 shares
    exercisable under the Stock Option Plans and 4,026 shares
    held in the Savings Plan.                                                                                                                             
|    
|(14) | Includes 31,500 shares of Series C
    Preferred Stock convertible into 7,875 shares of common
    stock, 1,172,718 shares exercisable under the Stock Option
    Plans and 44,902 shares held in the Savings Plan.                                                                               

56



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The following table presents all of the
Companys stock compensation plans previously approved and
not previously approved by the Companys shareholders:

|                                                               |       |                   |           |                  |  |                      |       |       |  |  |           |           | 
|-------------------------------------------------------------- | ----- | ----------------- | --------- | ---------------- |  | -------------------- | ----- | ----- |  |  | --------- | --------- | 
|                                                               |       |                   |           |                  |  | 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)(1) |           | rights (b)       |  | (c)(2)              
|                                                               |       |                   |           |                  |  |                     
|Equity compensation plans approved by security
    holders     |       |                   | 767,520   |                  |  | $                    | 95.63 |       |  |  | 881,696   |          
|Equity compensation plans not approved by
    security holders |       |                   | 1,585,431 |                  |  | $                    | 20.30 |       |  |  | 2,114,569 |          
|                                                               |       |                   |           |                  |  |                      |       |       |  |  |           |          
|                                                               | Total |                   |           | 2,352,951        |  |                      | $     | 44.87 |  |  |           | 2,996,265 | 
|                                                               |       |                   |           |                  |  |                      |       |       |  |  |           |          



---



|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include 34,262 of outstanding options
    that Loral assumed in connection with the acquisition of Loral
    Orion. These options have a weighted-average exercise price of
    $155.07.
|   
|(2) | During the pendency of our Chapter 11 Cases,
    no grants of stock or stock options will be made under our
    employee benefit plans.                                                          

Equity Compensation Plan Not Approved by
Security Holders: 2000 Stock Option Plan

The Companys 2000 Stock Option Plan (the
2000 Plan) was adopted by the Board of Directors on
April 18, 2000. The 2000 Plan is a broadly-based
plan as defined in Section 312.04(h) of the
New York Stock Exchange Listed Company Manual, which
provides that during any three-period at least 50% of grants
thereunder exclude senior management. The 2000 Plan provides for
the grant of non-qualified stock options and restricted stock.
The total number of shares of common stock available under the
2000 Plan is 3,700,000, of which there are 2,114,569 shares
remaining for future issuances.

Recipients of stock options under the 2000 Plan
are selected by a committee (the Committee)
consisting of at least two persons, appointed by the Board of
Directors of the Company, each of whom must be an outside
director for purposes of Section 162(m) of the
Internal Revenue Code. The Committee determines the terms of
each stock option grant, including (i) the purchase price
of shares subject to options, (ii) the date on which each
option becomes exercisable and (iii) the expiration date of
each option (which may not exceed ten years from the date of
grant). The terms and conditions of each grant are evidenced by
a stock option agreement. The Committee has the power to
accelerate the exercisability of outstanding stock options at
any time.

The purchase price of the shares of common stock
subject to stock options are fixed by the Committee, in its
discretion, at the time options are granted; provided that in no
event shall the per share purchase price be less than the lower
of (i) 50% of the fair market value of a share of common
stock on the date of grant and (ii) $20 below the aforesaid
fair market value.

Optionees have no voting, dividend, or other
rights as shareholders with respect to shares of common stock
covered by options prior to becoming the holders of record of
such shares. All option grants permit the purchase price to be
paid in cash, by tendering stock, or by a brokered or
cashless exercise.

Recipients of restricted stock under the 2000
Plan are selected by the Committee. The terms and conditions of
each restricted stock grant are evidenced by a restricted stock
agreement. The holder generally has the rights and privileges of
a stockholder as to such restricted stock, including the right
to vote such restricted stock. In addition to any other
restrictions set forth in a holders restricted stock
agreement, until the expiration of the applicable restricted
period set forth in such restricted stock agreement, the holder
is not permitted to sell, transfer, pledge or otherwise encumber
the restricted stock. Stop transfer orders are entered with the
Companys transfer agent and registrar against the transfer
of legended securities.

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In the event that the outstanding shares of
common stock are changed by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split,
combination or exchange of shares and the like, or dividends
payable in shares of common stock, an appropriate adjustment
shall be made by the Committee in the aggregate number of shares
of common stock available under the 2000 Plan and in the number
of shares of common stock and price per share of common stock
subject to outstanding stock options. If the Company shall be
sold, reorganized, consolidated or merged with another
corporation, or if all or substantially all of the assets of the
Company shall be sold or exchanged (a Corporate
Event), a holder shall at the time of issuance of the
stock under such Corporate Event be entitled to receive upon the
exercise of his option the same number and kind of shares of
stock or the same amount of property, cash or securities as he
would have been entitled to receive upon the occurrence of any
such Corporate Event as if he had been, immediately prior to
such event, the holder of the number of shares of common stock
covered by his option; provided, however, that the Committee
may, in its discretion, accelerate the exercisability of
outstanding options, and shorten the term thereof, to any date
within 30 days prior to or concurrent with the occurrence
of such Corporate Event.

Restricted stock shall be adjusted as a result of
a Corporate Event or changes in capitalization on the same basis
as the common stock is adjusted in such events generally.






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

Lockheed Martin

In connection with contract performance, Loral
subsidiaries acquired services from Lockheed Martin for the year
ended December 31, 2003. For 2003, the cost of services
purchased by Loral subsidiaries from Lockheed Martin was
$8,573,000, and such subsidiaries net payable to Lockheed
Martin at December 31, 2003 was $2,590,000.

K&F Industries, Inc.

Loral SpaceCom has a management services
agreement with K&F Industries (K&F), a
company of which Bernard L. Schwartz is chief executive officer
and a 50% owner, to provide administrative and certain other
services to K&F. Under this agreement, K&F pays Loral
SpaceCom a fee based on the cost of such services plus out of
pocket expenses. In 2003, K&F paid Loral SpaceCom $382,000
under this agreement.

In addition, K&F charged the Company $19,000
in 2003 for certain expenses related to the Companys use
of K&Fs corporate jet.

Other Relationships

Robert B. Hodes, a Director and a member of the
Executive Committee, is counsel to the law firm of Willkie
Farr & Gallagher, which acts as counsel to the Company.

For the year ended December 31, 2003, the
Company paid fees and disbursements in the amount of
approximately $335,000 for corporate communications
consultations and related services to Kekst and Company
Incorporated, of which company Gershon Kekst, a Director and
member of the Executive Committee, is President and the
principal stockholder. Kekst and Company continues to render
such services to the Company.






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

During 2003 and 2002, Deloitte & Touche
LLP, the member firms of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, the Deloitte
Entities) provided the following services to the Company.

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Audit Fees

The aggregate fees billed or expected to be
billed by the Deloitte Entities for professional services
rendered for the audit of the Companys annual consolidated
financial statements for the fiscal years ended
December 31, 2003 and 2002, for the reviews of the
condensed consolidated financial statements included in the
Companys Quarterly Reports on Form 10-Q for the 2003
and 2002 fiscal years, stand-alone and statutory audits of the
Companys subsidiaries and accounting research and
consultation related to the audits and reviews, totaled
approximately $2,789,000 and $1,875,000, respectively. The prior
years fees include final additional billings agreed to
with respect to the fiscal 2002 audits.

Audit-Related Fees

The aggregate fees billed by the Deloitte
Entities for audit-related services for the fiscal years ended
December 31, 2003 and 2002 were $233,000 and $50,000,
respectively. The fees in 2003 related primarily to research and
consultation on a transfer of interest transaction and various
other filings with the Securities and Exchange Commission
(SEC). The fees in 2002 related primarily to various
filings with the SEC.

Tax Fees

The aggregate fees billed by the Deloitte
Entities for tax-related services for the fiscal years ended
December 31, 2003 and 2002 were $388,000 and $231,000,
respectively. These fees related to tax consultation and related
services.

All Other Fees

The aggregate fees billed or expected to be
billed by the Deloitte Entities for services rendered to the
Company, other than the services described above under
Audit Fees, Audit-Related Fees and
Tax Fees for the fiscal years ended
December 31, 2003 and 2002 totaled approximately $719,000
and $171,000, respectively. The services rendered in 2003
related primarily to the Companys Chapter 11 filing
and related filings and activities. The services in 2002 related
to the license and implementation of tax system software.

In accordance with the Audit Committees
charter, the Audit Committee pre-approves all services provided
by the Deloitte Entities. These services are pre-approved
annually and updates are provided on a regular basis. All
services provided by the Deloitte Entities were approved by the
Audit Committee.

59



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##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) 1.
Financial Statements

|                                                                   |                                                                                                                        |      |     |      | 
|------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | ---- | --- | ---- | 
|                                                                   |                                                                                                                        | Page
|                                                                   |                                                                                                                        |     
|Index to Financial Statements and Financial
    Statement Schedule |                                                                                                                        |      | F-1 |     
|Loral Space & Communications Ltd., A
    Debtor In Possession      |                                                                                                                        |      |     |     
|                                                                   | Independent Auditors Report                                                                                           |      |     | F-2  | 
|                                                                   | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                       |      |     | F-3  | 
|                                                                   | Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001                         |      |     | F-4  | 
|                                                                   | Consolidated Statements of Shareholders
    (Deficit) Equity for the years ended December 31, 2003,
    2002 and 2001 |      |     | F-5  | 
|                                                                   | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                         |      |     | F-6  | 
|                                                                   | Notes to Consolidated Financial Statements                                                                             |      |     | F-7  | 
|(a) 2. Financial Statement Schedule                               
|                                                                   | Independent Auditors Report on Supplemental
    Schedule                                                              |      |     | F-67 | 
|                                                                   | Schedule II                                                                                                            |      |     | F-68 | 

60



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##### Table of Contents






INDEX TO EXHIBITS

|        |    |             |  |                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Restructuring, Financing and Distribution
    Agreement, dated as of January 7, 1996, among Loral
    Corporation, Loral Aerospace Holdings, Inc., Loral
    Aerospace Corp., Loral General Partner, Inc., Loral
    Globalstar L.P., Loral Globalstar Limited, the Registrant and
    Lockheed Martin Corporation(1)
|        | 2  | .2          |  | Amendment to Restructuring, Financing and
    Distribution Agreement, dated as of April 15, 1996(1)                                                                                                                                                                                                                  
|        | 2  | .3          |  | Agreement for the Purchase and Sale of Assets
    dated as of September 25, 1996 by and between AT&T
    Corp., as Seller, and Loral Space & Communications
    Ltd., as Buyer(2)                                                                                                                                    
|        | 2  | .3.1        |  | First Amendment to Agreement for the Purchase and
    Sale of Assets dated as of March 14, 1997, by and between
    AT&T Corp., as Seller, and Loral Space &
    Communications Ltd., as Buyer(3)                                                                                                                    
|        | 2  | .4          |  | Agreement and Plan of Merger dated as of
    October 7, 1997 by and among Orion Network
    Systems, Inc., Loral Space & Communications Ltd.
    and Loral Satellite Corporation(4)                                                                                                                                  
|        | 2  | .4.1        |  | First Amendment to Agreement and Plan of Merger
    dated as of February 11, 1998 by and among Orion Network
    Systems, Inc., Loral Space & Communications Ltd.
    and Loral Satellite Corporation(5)                                                                                                             
|        | 2  | .4.2        |  | Second Amendment to Agreement and Plan of Merger
    dated as of March 20, 1998 by and among Orion Network
    Systems, Inc., Loral Space & Communications Ltd.
    and Loral Satellite Corporation (10)                                                                                                             
|        | 2  | .5          |  | Asset Purchase Agreement dated as of
    July 15, 2003, among Intelsat, Ltd., Intelsat
    (Bermuda), Ltd., Loral Space & Communications
    Corporation, Loral SpaceCom Corporation and Loral
    Satellite, Inc. (25)                                                                                              
|        | 2  | .5.1        |  | Amendment No. 1 to Asset Purchase Agreement
    dated as of July 15, 2003, among Intelsat,
    Ltd., Intelsat (Bermuda), Ltd., Loral Space &
    Communications Corporation, Loral SpaceCom Corporation and Loral
    Satellite, Inc.(26)                                                                            
|        | 2  | .5.2        |  | Amendment No. 2 to Asset Purchase Agreement
    dated as of July 15, 2003, among Intelsat,
    Ltd., Intelsat (Bermuda), Ltd., Loral Space &
    Communications Corporation, Loral SpaceCom Corporation and Loral
    Satellite, Inc.(26)                                                                            
|        | 2  | .5.3        |  | Amendment No. 3 to Asset Purchase Agreement
    dated as of July 15, 2003, among Intelsat,
    Ltd., Intelsat (Bermuda), Ltd., Loral Space &
    Communications Corporation, Loral SpaceCom Corporation and Loral
    Satellite, Inc.(26)                                                                            
|        | 2  | .5.4        |  | Amendment No. 4 to Asset Purchase Agreement
    dated as of March 5, 2004, among Intelsat,
    Ltd., Intelsat (Bermuda), Ltd., Loral Space &
    Communications Corporation, Loral SpaceCom Corporation and Loral
    Satellite, Inc.                                                                               
|        | 3  | .1          |  | Memorandum of Association(1)                                                                                                                                                                                                                                                                                         
|        | 3  | .2          |  | Memorandum of Increase of Share Capital dated
    January 1996(1)                                                                                                                                                                                                                                                    
|        | 3  | .2.1        |  | Memorandum of Increase of Share Capital dated May
    1997(21)                                                                                                                                                                                                                                                       
|        | 3  | .2.2        |  | Memorandum of Increase of Share Capital dated May
    1999(21)                                                                                                                                                                                                                                                       
|        | 3  | .2.3        |  | Memorandum of Increase of Share Capital dated
    June 2003                                                                                                                                                                                                                                                         
|        | 3  | .3          |  | Third Amended and Restated Bye-laws
    (14)                                                                                                                                                                                                                                                                         
|        | 3  | .4          |  | Schedule IV to the Third Amended and
    Restated Bye-laws(14)                                                                                                                                                                                                                                                       
|        | 3  | .5          |  | Fourth Amended and Restated Bye-laws                                                                                                                                                                                                                                                                                
|        | 4  | .1          |  | Rights Agreement dated March 27, 1996
    between the Registrant and The Bank of New York, Rights
    Agent(1)                                                                                                                                                                                                       
|        | 4  | .2          |  | Indenture dated as of January 15, 1999
    relating to the Registrants 9 1/2% Senior Notes
    due 2006(11)                                                                                                                                                                                                         
|        | 10 | .1          |  | Shareholders Agreement dated as of April 23,
    1996 between Loral Corporation and the Registrant(1)                                                                                                                                                                                                                

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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .1.1        |  | Amended Shareholders Agreement dated as of
    March 29, 2000 between the Registrant and Lockheed Martin
    Corporation(14)                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .2          |  | Tax Sharing Agreement dated as of April 22,
    1996 between Loral Corporation, the Registrant, Lockheed Martin
    Corporation and LAC Acquisition Corporation(1)                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .3          |  | Exchange Agreement dated as of April 22,
    1996 between the Registrant and Lockheed Martin Corporation(1)                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .4          |  | Amended and Restated Agreement of Limited
    Partnership of Globalstar, L.P. dated as of January 26,
    1999 among Loral/ Qualcomm Satellite Services, L.P., Globalstar
    Telecommunications Limited, AirTouch Satellite
    Services, Inc., Dacom Corporation, Dacom
    International, Inc., Hyundai Corporation, Hyundai
    Electronics Industries Co., Ltd., Loral/ DASA Globalstar, L.P.,
    Loral Space & Communications Ltd., San Giorgio
    S.p.A., TeleSat Limited, TE.S.AM and Vodafone Satellite Services
    Limited(11)
|        | 10 | .4.1        |  | Amendment dated as of December 8, 1999 to
    the Amended and Restated Agreement of Limited Partnership of
    Globalstar, L.P.(12)                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .4.2        |  | Amendment dated as of February 1, 2000 to
    the Amended and Restated Agreement of Limited Partnership of
    Globalstar, L.P.(12)                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .5          |  | Service Provider Agreements by and between
    Globalstar, L.P. and each of Loral General Partner, Inc.
    and Loral/ DASA Globalstar, L.P. (7)                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .6          |  | Contract between Globalstar, L.P. and Space
    Systems/ Loral, Inc.(7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .7          |  | 1996 Amended and Restated Stock Option
    Plan(22)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .7.1        |  | Amendment No. 1 to 1996 Amended and Restated
    Stock Option Plan(22)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .7.2        |  | 2000 Amended and Restated Stock Option
    Plan(22)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .7.3        |  | Amendment No. 1 to 2000 Amended and Restated
    Stock Option Plan(22)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .8          |  | Common Stock Purchase Plan for Non-Employee
    Directors(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .9          |  | Employment Agreement between the Registrant and
    Bernard L. Schwartz(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .9.1        |  | Amendment dated as of March 1, 1998 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz(10)                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .9.2        |  | Amendment dated as of July 18, 2000 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz(16)                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .9.3        |  | Amendment dated February 25, 2003 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz(22)                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .10         |  | Registration Rights Agreement dated as of
    August 9, 1996 among Loral Space & Communications
    Ltd., Lehman Brothers Capital Partners II, L.P., Lehman
    Brothers Merchant Banking Portfolio Partnership L.P., Lehman
    Brothers Offshore Investment Partnership L.P. and Lehman
    Brothers Offshore Investment Partnership-Japan
    L.P.(8)                                                                                                                                                                                   
|        | 10 | .11         |  | Registration Rights Agreement dated
    November 6, 1996 relating to the Registrants
    6% Convertible Preferred Equivalent Obligations due 2006(6)                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .12         |  | Registration Rights Agreement (Series C
    Preferred Stock) dated as of March 31, 1997 between Loral
    Space & Communications Ltd. and Finmeccanica S.p.A. an
    dated as of June 23, 1997 among Loral Space &
    Communications Ltd., Aerospatiale SNI and Alcatel Espace(9)                                                                                                                                                                                                                                                         
|        | 10 | .13         |  | Registration Rights Agreement (Common Stock)
    dated as of June 23, 1997 among Loral Space &
    Communications Ltd., Aerospatiale and Alcatel Espace(9)                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .14         |  | Alliance Agreement dated as of June 23, 1997
    among Loral Space & Communications Ltd., Aerospatiale
    SNI, Alcatel Espace and Finmeccanica S.p.A.(9)                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .15         |  | Principal Stockholder Agreement dated as of
    October 7, 1997 among Loral Space & Communications
    Ltd., Loral Satellite Corporation, Orion Network
    Systems, Inc. and certain Orion stockholders signatory
    thereto(4)                                                                                                                                                                                                                                                                                                          
|        | 10 | .16         |  | Purchase and Sale Agreement dated
    November 17, 1997 between the Federal Government of the
    United Mexican States and Corporativo Satelites Mexicanos, S.A.
    de C.V. for the purchase and sale of the capital stock of
    Satelites Mexicanos, S.A. de C.V. (English translation of
    Spanish original)(10)                                                                                                                                                                                                                    

62



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .17         |  | Amended and Restated Membership Agreement dated
    and effective as of August 21, 1998 among Loral SatMex Ltd.
    and Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
    de R.L. de C.V.(11)                                                                                                                                                                                                                                                                                                                      
|        | 10 | .18         |  | Letter Agreement dated December 29, 1997
    between Loral Space & Communications Ltd., Telefonica
    Autrey S.A. de C.V., Donaldson, Lufkin & Jenrette
    Securities Corporation, Lehman Brothers Inc. and Lehman
    Commercial Paper Inc. and related Agreement between the Federal
    Government of the United Mexican States, Telefonica Autrey, S.A.
    de C.V., Ediciones Enigma, S.A. de C.V., Loral Space &
    Communications Ltd., Loral SatMex Ltd. and Servicios
    Corporativos Satelitales, S.A. de C.V.(10)
|        | 10 | .19         |  | Registration Rights Agreement dated as of
    January 21, 1999 relating to Registrants
    9 1/2% Senior Notes due 2006(11)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .20         |  | Lease Agreement dated as of August 18, 1999
    by and between Loral Asia Pacific Satellite (HK) Limited
    and APT Satellite Company Limited(13)                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .21         |  | Registration Rights Agreement dated as of
    February 18, 2000 relating to Registrants 6%
    Series D Convertible Redeemable Preferred Stock due 2007(14)                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .22         |  | Credit Agreement dated as of November 17,
    2000 by and among Loral Satellite, Inc., Bank of America,
    National Association, Bank of America Securities LLC, Credit
    Lyonnais and Lehman Commercial Paper, Inc.(15)                                                                                                                                                                                                                                                                                                     
|        | 10 | .22.1       |  | First Amendment to the Credit Agreement, dated as
    of December 21, 2001, among Loral Satellite, Inc.,
    Bank of America, N.A., as Administrative Agent, and the other
    lenders parties thereto(20)                                                                                                                                                                                                                                                                                                                      
|        | 10 | .22.2       |  | Form of Second Amendment to Credit Agreement,
    dated as of March 31, 2003, among Loral
    Satellite, Inc., Bank of America, N.A., as Administrative
    Agent, and the other lender parties thereto(22)                                                                                                                                                                                                                                                                                                                     
|        | 10 | .23         |  | Guarantee dated as of November 17, 2000 made
    by Loral Space & Communications Ltd.(15)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .23.1       |  | Form of First Amendment to Guarantee dated as of
    March 31, 2003 made by Loral Space &
    Communications Ltd.(22)                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .24         |  | Assignment, Amendment and Release Agreement dated
    as of November 17, 2000 by and among the lenders parties to
    the Globalstar Credit Agreement, Loral Satellite, Inc.,
    Loral SatCom Ltd., Loral Space & Communications Ltd.,
    Loral Space& Communication Corporation, Globalstar, L.P. and
    Bank of America, National Association(15)                                                                                                                                                                          
|        | 10 | .25         |  | Amended and Restated Collateral Agreement dated
    as of November 17, 2000 by and among Loral
    Satellite, Inc. and Bank of America, National
    Association(15)                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .26         |  | Form of Employment Protection Agreement(16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .26.1       |  | Form of Amendment No. 1 to Employment
    Protection Agreement (21)                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .27         |  | Form of Subordinated Guaranty Agreement between
    Loral Space& Communications Ltd. and Loral SpaceCom
    Corporation, with respect to the $29.7 million aggregate
    principal amount, 10% Subordinated Note due 2006, with a
    copy of the 10% Subordinated Note due 2006 included
    therein(17)                                                                                                                                                                                                                       
|        | 10 | .28         |  | Warrant Agreement dated as of December 21,
    2001 between Loral Space & Communications Ltd. and The
    Bank of New York, as warrant agent(18)                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .29         |  | Guaranty Agreement dated as of December 21,
    2001 between Loral Space & Communications Ltd. and
    Bankers Trust Company, as trustee(18)                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .30         |  | Indenture, dated as of December 21, 2001, by
    and among Loral CyberStar, Inc., certain of its
    subsidiaries and Bankers Trust Company, as trustee(18)                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .31         |  | Consent Agreement dated January 9, 2002
    among the United States Department of State, Loral
    Space & Communications Ltd. and Space Systems/
    Loral, Inc.(19)                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .32         |  | Amended and Restated Credit Agreement dated as of
    December 21, 2001 by and among Loral SpaceCom Corporation,
    Bank of America, N.A., as Administrative Agent, and the other
    lenders parties thereto(20)                                                                                                                                                                                                                                                                                                              

63



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                             
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .32.1       |  | Form of First Amendment to Amended and Restated
    Credit Agreement dated as of March 31, 2003 by and among
    Loral SpaceCom Corporation, Bank of America, N.A., as
    Administrative Agent, and the other lenders parties thereto(22)                                                                                                                                                  
|        | 10 | .32.2       |  | Second Amendment to the Amended Restated Credit
    Agreement dated as of June 27, 2003 by and among Loral
    SpaceCom Corporation, Bank of America, N.A. and banks and other
    financial institutions party thereto(24)                                                                                                                                                                 
|        | 10 | .33         |  | Guarantee dated as of December 21, 2001 made
    by Loral Space& Communications Corporation and certain
    subsidiaries of Loral SpaceCom Corporation in favor of Bank of
    America, N.A., as Administrative Agent(20)                                                                                                                                                                   
|        | 10 | .34         |  | Security Agreement dated as of December 21
    2001, by and among Loral SpaceCom Corporation, Space Systems/
    Loral, Inc., Loral Communications Services, Inc.,
    Loral Ground Services, L.L.C. and Bank of America, N.A., as
    Collateral Agent(20)                                                                                                                                 
|        | 10 | .35         |  | Pledge Agreement dated as of December 21,
    2001 by and among Loral SpaceCom Corporation, Space Systems/
    Loral, Inc., Loral Ground Services, L.L.C., Loral
    Space & Communications Corporation, Loral
    Communications Services, Inc. and Bank of America, N.A., as
    Collateral Agent(20)                                                                                     
|        | 10 | .35.1       |  | Form of Second Amended and Restated Pledge
    Agreement dated as of March 31, 2003(22)                                                                                                                                                                                                                                                                                                     
|        | 10 | .36         |  | Intercreditor and Subordination Agreement dated
    as of December 21, 2001 by and among Loral SpaceCom
    Corporation, Bank of America, N.A., as Administrative Agent for
    the lenders under the senior credit facility, Bank of America,
    N.A. as Administrative Agent for the lenders under the junior
    credit facility, and Bank of America, N.A., as Collateral
    Agent(20)
|        | 10 | .36.1       |  | Form of Second Intercreditor and Subordination
    Agreement dated as of March 31, 2003(22)                                                                                                                                                                                                                                                                                                 
|        | 10 | .37         |  | Master Settlement Agreement dated June 30,
    2003 among Loral Space & Communications Ltd., Loral
    Space & Communications Corporation, Loral SpaceCom
    Corporation, Space Systems/Loral, Inc. and Alcatel Space
    Industries(23)                                                                                                                                                   
|        | 10 | .38         |  | Cash Collateral Order, signed on August 22,
    2003                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .39         |  | Form of Conformed as Amended Apstar V Satellite
    Agreement dated as of November 16, 2003 between APT
    Satellite company Limited and Loral Orion, Inc.                                                                                                                                                                                                                                
|        | 10 | .40         |  | Consent Order, signed on November 26, 2003,
    approving Key Employee Retention Plan and other relief for Space
    Systems/ Loral, Inc. and Loral Skynet Division of Loral
    SpaceCom Corporation                                                                                                                                                                                     
|        | 10 | .41         |  | Consent Order, signed on December 18, 2003,
    approving Key Employee Retention Plan and other relief for
    certain employees of Loral Space & Communications
    Ltd.                                                                                                                                                                                                                 
|        | 10 | .42         |  | Change-in-Control Severance Agreement, entered
    into on February 4, 2004, by and between Loral
    Space & Communications Ltd., Space Systems/
    Loral, Inc. and C. Patrick DeWitt                                                                                                                                                                                                   
|        | 12 |             |  | Statement Re: Computation of Ratios                                                                                                                                                                                                                                                                                                                                                        
|        | 14 |             |  | Code of Conduct                                                                                                                                                                                                                                                                                                                                                                            
|        | 21 |             |  | List of Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                     
|        | 23 | .1          |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                           
|        | 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                                                                                                                                                                                                                                              

64



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##### Table of Contents





---



|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from the
    Registrants Registration Statement on Form 10
    (No. 1-14180).                                   
|   
|(2) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    September 27, 1996.                            
|   
|(3) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    March 28, 1997.                                
|   
|(4) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    October 10, 1997.                              
|   
|(5) | Incorporated by reference from the
    Registrants Registration Statement on Form S-4 filed
    on February 17, 1998 (File No. 333-46407).
|   
|(6) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the nine
    month period ended December 31, 1996.      
|   
|(7) | Incorporated by reference from the Registration
    Statement on Form S-1 of Globalstar Telecommunications
    Limited (File No. 33-86808).
|   
|(8) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    August 13, 1996.                               
|   
|(9) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    July 8, 1997.                                  



|     |                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 1997.                               
|    
|(11) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 1998.                               
|    
|(12) | Incorporated by reference from the Current Report
    on Form 8-K filed on December 21, 1999 by Globalstar
    Telecommunications Limited and Globalstar, L.P.
|    
|(13) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on August 23, 1999.                                                          
|    
|(14) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 1999.                               
|    
|(15) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on November 20, 2000.                                                        
|    
|(16) | Incorporated by reference from Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2000.                                   
|    
|(17) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on December 14, 2001.                                                        
|    
|(18) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 7, 2002.                                                          
|    
|(19) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 9, 2002.                                                          
|    
|(20) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 10, 2002.                                                         
|    
|(21) | Incorporated by reference from Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2001.                                   
|    
|(22) | Incorporated by reference from Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2002.                                   
|    
|(23) | Incorporated by reference from Registrants
    Quarterly Report on Form 10-Q filed on August 14, 2003.                                                       
|    
|(24) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on July 2, 2003.                                                             
|    
|(25) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on July 23, 2003.                                                            
|    
|(26) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on October 30, 2003.                                                         



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

65



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(b) Reports on Form 8-K.

|                  |  |                                                                                                                       |  |                                                                                                                                                                                                                                        
|----------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report    |  |                                                                                                                       |  | Description                                                                                                                                                                                                                            
|                  |  |                                                                                                                       |  |                                                                                                                                                                                                                                        
|October 8, 2003   |  | Item 7  Financial Statements, Pro
    Forma Financial Information and Exhibits
    Item 9  Regulation FD Disclosure |  | Monthly Operating Report for the Period of
    July 15, 2003 through August 22, 2003 as filed with
    the U.S. Bankruptcy Court for the Southern District of
    New York                                                             
|October 30, 2003  |  | Item 5  Other Events
    Item 7  Financial Statements, Pro Forma
    Financial Information and Exhibits             |  | Amendment Nos. 1, 2 and 3 to the Asset Purchase
    Agreement among Intelsat, Ltd., Intelsat (Bermuda), Ltd.,
    Loral Space & Communications Corporation, Loral
    SpaceCom Corporation and Loral Satellite, Inc.                   
|November 17, 2003 |  | Item 9  Regulation FD
    Disclosure                                                                                 |  | Monthly Operating Report for the Period of
    August 23, 2003 through September 30, 2003 as filed
    with the U.S. Bankruptcy Court for the Southern District of
    New York                                                        
|November 18, 2003 |  | Item 7  Financial Statements, Pro
    Forma Financial Information and Exhibits                                       |  | Earnings release for the three months ended
    September 30, 2003                                                                                                                                                                     
|                  |  | Item 12  Results of Operations
    and Financial Condition                                                           |  |                                                                                                                                                                                                                                        
|December 8, 2003  |  | Item 9  Regulation FD
    Disclosure                                                                                 |  | Monthly Operating Report for the Period of
    October 1, 2003 through October 24, 2003 as filed with
    the U.S. Bankruptcy Court for the Southern District of
    New York                                                          
|December 11, 2003 |  | Item 5  Other Events and
    Regulation FD Disclosure                                                                |  | Damage to the SpainSat satellite under
    construction by Space Systems/ Loral, Inc.                                                                                                                                                  
|December 18, 2003 |  | Item 9  Regulation FD
    Disclosure                                                                                 |  | Amended Monthly Operating Reports for the Periods
    of July 15, 2003 through August 22, 2003 and
    August 23, 2003 through September 30, 2003 as filed
    with the U.S. Bankruptcy Court for the Southern District of
    New York

66



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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                  
| | ---------------------------------
| | LORAL SPACE & COMMUNICATIONS LTD.



| |     |                        
| | --- | -----------------------
| | By: | /s/ BERNARD L. SCHWARTZ

| |                          
| | -------------------------
| |                          
| | Bernard L. Schwartz      
| | Chairman of the Board and
| | Chief Executive Officer  
| | Dated: March 15, 2004    

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                           |  |                                                                    |  |                |  |     
|------------------------------------------ |  | ------------------------------------------------------------------ |  | -------------- |  | ----
|                                           |  | Signatures                                                         |  | Title          |  | Date
|                                           |  |                                                                    |  |                |  |     
|                                          
|/s/ BERNARD L. SCHWARTZBernard L. Schwartz |  | Chairman of the Board and
    Chief Executive Officer              |  | March 15, 2004
|                                          
|/s/ HOWARD GITTISHoward Gittis             |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ ROBERT B. HODESRobert B. Hodes         |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ GERSHON KEKSTGershon Kekst             |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ CHARLES LAZARUSCharles Lazarus         |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ SALLY MINARDSally Minard               |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ MALVIN A. RUDERMANMalvin A. Ruderman   |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ E. DONALD SHAPIROE. Donald Shapiro     |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ ARTHUR L. SIMONArthur L. Simon         |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ DANIEL YANKELOVICHDaniel Yankelovich   |  | Director                                                           |  | March 15, 2004
|                                          
|/s/ ERIC J. ZAHLEREric J. Zahler           |  | Director, President and COO                                        |  | March 15, 2004
|                                          
|/s/ RICHARD J. TOWNSENDRichard J. Townsend |  | Executive Vice President and
    CFO (Principal Financial Officer) |  | March 15, 2004
|                                          
|/s/ HARVEY B. REINHarvey B. Rein           |  | Vice President and Controller
    (Principal Accounting Officer)   |  | March 15, 2004

67



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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE

|                                                                                   |                                                                                                                         |  |  |      | 
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|                                                                                  
|Loral Space &
    Communications Ltd. and Subsidiaries, A Debtor In
    Possession |                                                                                                                         |  |  |     
|                                                                                   | Independent Auditors Report                                                                                            |  |  | F-2  | 
|                                                                                   | Consolidated Balance Sheets as of
    December 31, 2003 and 2002.                                                       |  |  | F-3  | 
|                                                                                   | Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001                          |  |  | F-4  | 
|                                                                                   | Consolidated Statements of Shareholders
    (Deficit) Equity for the years ended December 31, 2003,
    2002 and 2001. |  |  | F-5  | 
|                                                                                   | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                          |  |  | F-6  | 
|                                                                                   | Notes to Consolidated Financial Statements                                                                              |  |  | F-7  | 
|                                                                                   | Independent Auditors Report on Supplemental
    Schedule                                                               |  |  | F-67 | 
|                                                                                   | Schedule II                                                                                                             |  |  | F-68 | 

F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Shareholders of Loral Space &
Communications Ltd. (a Debtor In Possession)

We have audited the accompanying consolidated
balance sheets of Loral Space &
Communications Ltd. (a Bermuda Company) and its
subsidiaries (collectively, the Company) (a Debtor
In Possession) as of December 31, 2003 and 2002, and the
related consolidated statements of operations,
shareholders (deficit) equity, and cash flows for
each of the three years in the period ended December 31,
2003. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Company as of
December 31, 2003 and 2002, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of
America.

As discussed in Note 3 to the consolidated
financial statements, the Company changed its method of
accounting for its convertible redeemable preferred stock to
adopt the provisions of Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity, effective July 1, 2003. As discussed in
Notes 3 and 8 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and other
intangibles to adopt the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002.

As discussed in Note 2 to the consolidated
financial statements, the Company has filed for reorganization
under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to
reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such consolidated financial
statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to
satisfy liabilities; (b) as to pre-petition liabilities,
the amounts that may be allowed for claims or contingencies, or
the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the
capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in its business.

The accompanying consolidated financial
statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company filed for
reorganization under Chapter 11 of the Federal Bankruptcy
Code. This factor, among others, raises substantial doubt about
the Companys ability to continue as a going concern.
Managements plans concerning these matters are also
discussed in Note 2. The consolidated financial statements
do not include adjustments that might result from the outcome of
this uncertainty.

DELOITTE & TOUCHE LLP

San Jose, California

March 15, 2004


F-2



---



##### Table of Contents



LORAL SPACE &
COMMUNICATIONS LTD., A DEBTOR IN POSSESSION

CONSOLIDATED BALANCE SHEETS


(in thousands, except share amounts)


|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |            |         |           |         | 
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------- | ------------------------- | ------- | --------- | --------- | ---------- | ------- | --------- | ------- | 
|                                                                        |                                                                                                                                                              |                                         
|                                                                        |                                                                                                                                                              | December 31,                            
|                                                                        |                                                                                                                                                              |                                         
|                                                                        |                                                                                                                                                              | 2003                                     |                                             | 2002                     
|                                                                        |                                                                                                                                                              |                                          |                                             |                          
|ASSETS                                                                 
|                                                                       
|Current assets:                                                         |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        | Cash and cash equivalents                                                                                                                                    |                                          | $                                           | 141,644                   |         |           | $         | 65,936     |        
|                                                                        | Accounts receivable, net                                                                                                                                     |                                          |                                             | 22,969                    |         |           |           | 28,893     |        
|                                                                        | Contracts-in-process                                                                                                                                         |                                          |                                             | 62,063                    |         |           |           | 113,154    |        
|                                                                        | Vendor financing receivable                                                                                                                                  |                                          |                                             |                         |         |           |           | 38,016     |        
|                                                                        | Inventories                                                                                                                                                  |                                          |                                             | 42,456                    |         |           |           | 95,733     |        
|                                                                        | Insurance proceeds receivable                                                                                                                                |                                          |                                             | 122,770                   |         |           |           |          |        
|                                                                        | Other current assets                                                                                                                                         |                                          |                                             | 36,004                    |         |           |           | 48,695     |        
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        |                                                                                                                                                              |                                          | Total current assets                        |                           |         | 427,906   |           |            |         | 390,427   |        
|Property, plant and equipment, net                                      |                                                                                                                                                              |                                          | 1,828,282                                   |                           |         |           | 1,878,137 |           
|Long-term receivables                                                   |                                                                                                                                                              |                                          | 70,749                                      |                           |         |           | 163,191   |           
|Investments in and advances to affiliates                               |                                                                                                                                                              |                                          | 46,674                                      |                           |         |           | 95,443    |           
|Deposits                                                                |                                                                                                                                                              |                                          | 9,000                                       |                           |         |           | 58,250    |           
|Other assets                                                            |                                                                                                                                                              |                                          | 73,130                                      |                           |         |           | 107,354   |           
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        |                                                                                                                                                              |                                          | Total assets                                |                           | $       | 2,455,741 |           |            | $       | 2,692,802 |        
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|LIABILITIES AND SHAREHOLDERS
    DEFICIT                              
|Liabilities not subject to compromise:                                  |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        | Current liabilities:                                                                                                                                         |                                          |                                             |                           |         |           |           |            |        
|                                                                        |                                                                                                                                                              | Current portion of long-term debt        |                                             | $                         |       |           |           | $          | 130,167 |          
|                                                                        |                                                                                                                                                              | Accounts payable                         |                                             |                           | 50,656  |           |           |            | 58,323  |          
|                                                                        |                                                                                                                                                              | Accrued employment costs                 |                                             |                           | 23,532  |           |           |            | 34,531  |          
|                                                                        |                                                                                                                                                              | Customer advances                        |                                             |                           | 120,347 |           |           |            | 114,080 |          
|                                                                        |                                                                                                                                                              | Accrued interest and preferred dividends |                                             |                           | 1,319   |           |           |            | 37,370  |          
|                                                                        |                                                                                                                                                              | Income taxes payable                     |                                             |                           | 269     |           |           |            | 37,936  |          
|                                                                        |                                                                                                                                                              | Other current liabilities                |                                             |                           | 9,870   |           |           |            | 48,736  |          
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        |                                                                                                                                                              |                                          |                                             | Total current liabilities |         |           | 205,993   |            |         |           | 461,143 | 
|                                                                        | Pension and other postretirement liabilities                                                                                                                 |                                          |                                             | 10,983                    |         |           |           | 124,193    |        
|                                                                        | Long-term liabilities                                                                                                                                        |                                          |                                             | 185,825                   |         |           |           | 214,132    |        
|                                                                        | Long-term debt                                                                                                                                               |                                          |                                             |                         |         |           |           | 2,106,330  |        
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        |                                                                                                                                                              |                                          | Total liabilities not subject to compromise |                           |         | 402,801   |           |            |         | 2,905,798 |        
|Liabilities subject to compromise (Note 9)                              |                                                                                                                                                              |                                          | 2,906,095                                   |                           |         |           |         |           
|Minority interest                                                       |                                                                                                                                                              |                                          | 2,515                                       |                           |         |           | 16,150    |           
|Convertible redeemable preferred stock:                                 |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        | 6% Series C ($106,009 redemption value),
    $0.01 par value                                                                                                 |                                          |                                             |                         |         |           |           | 104,582    |        
|                                                                        | 6% Series D ($21,122 redemption value),
    $0.01 par value                                                                                                  |                                          |                                             |                         |         |           |           | 20,499     |        
|Commitments and contingencies (Notes 2, 6, 7, 9,
    10, 15, 16 and 17) |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|Shareholders deficit:                                                  |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        | 6% Series C convertible redeemable preferred
    stock ($81,265 redemption value), $.01 par value; 20,000,000
    shares authorized, 3,745,485 shares issued |                                          |                                             |                         |         |           |           | 80,171     |        
|                                                                        | 6% Series D convertible redeemable preferred
    stock ($15,585 redemption value), $.01 par value; 8,000,000
    shares authorized, 734,135 shares issued    |                                          |                                             |                         |         |           |           | 15,125     |        
|                                                                        | Common stock, $.10 par value; 125,000,000 shares
    authorized, 44,125,202 and 42,926,020 shares issued                                                     |                                          |                                             | 4,413                     |         |           |           | 4,293      |        
|                                                                        | Paid-in capital                                                                                                                                              |                                          |                                             | 3,392,829                 |         |           |           | 3,389,035  |        
|                                                                        | Treasury stock, at cost; 17,420 shares                                                                                                                       |                                          |                                             | (3,360                    | )       |           |           | (3,360     | )      
|                                                                        | Unearned compensation                                                                                                                                        |                                          |                                             | (168                      | )       |           |           | (151       | )      
|                                                                        | Retained deficit                                                                                                                                             |                                          |                                             | (4,171,536                | )       |           |           | (3,782,107 | )      
|                                                                        | Accumulated other comprehensive loss                                                                                                                         |                                          |                                             | (77,848                   | )       |           |           | (57,233    | )      
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        |                                                                                                                                                              |                                          | Total shareholders deficit                 |                           |         | (855,670  | )         |            |         | (354,227  | )      
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           
|                                                                        |                                                                                                                                                              |                                          | Total liabilities and shareholders deficit |                           | $       | 2,455,741 |           |            | $       | 2,692,802 |        
|                                                                        |                                                                                                                                                              |                                          |                                             |                           |         |           |           |           

See notes to consolidated financial statements.

F-3



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONSOLIDATED STATEMENTS OF
OPERATIONS


(in thousands, except per share
amounts)


|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------- | ------ | - | ---- | ---------- | ------ | - | - | --------- | ------ | -
|                                                                                                                                                                                                            |                                                                                                                               |                         
|                                                                                                                                                                                                            |                                                                                                                               | Years ended December 31,
|                                                                                                                                                                                                            |                                                                                                                               |                         
|                                                                                                                                                                                                            |                                                                                                                               | 2003                     |          | 2002   |   | 2001
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |     
|Revenues from satellite services                                                                                                                                                                            |                                                                                                                               | $                        | 288,498  |        |   | $    | 389,958    |        |   | $ | 455,695   |       
|Revenues from satellite manufacturing                                                                                                                                                                       |                                                                                                                               |                          | 244,887  |        |   |      | 708,467    |        |   |   | 613,880   |       
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Total revenues                                                                                                                                                                                              |                                                                                                                               |                          | 533,385  |        |   |      | 1,098,425  |        |   |   | 1,069,575 |       
|Cost of satellite services                                                                                                                                                                                  |                                                                                                                               |                          | 254,192  |        |   |      | 271,177    |        |   |   | 303,326   |       
|Cost of satellite manufacturing                                                                                                                                                                             |                                                                                                                               |                          | 422,091  |        |   |      | 759,500    |        |   |   | 580,523   |       
|Selling, general and administrative expenses                                                                                                                                                                |                                                                                                                               |                          | 141,733  |        |   |      | 149,777    |        |   |   | 190,954   |       
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Operating loss before reorganization expenses due
    to bankruptcy                                                                                                                                         |                                                                                                                               |                          | (284,631 | )      |   |      | (82,029    | )      |   |   | (5,228    | )     
|Reorganization expenses due to bankruptcy                                                                                                                                                                   |                                                                                                                               |                          | (25,284  | )      |   |      |            |        |   |   |           |       
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Operating loss                                                                                                                                                                                              |                                                                                                                               |                          | (309,915 | )      |   |      | (82,029    | )      |   |   | (5,228    | )     
|Interest and investment income                                                                                                                                                                              |                                                                                                                               |                          | 15,203   |        |   |      | 12,909     |        |   |   | 28,885    |       
|Interest expense                                                                                                                                                                                            |                                                                                                                               |                          | (61,763  | )      |   |      | (77,045    | )      |   |   | (183,931  | )     
|Gain (loss) on investments and debt
    exchanges, net                                                                                                                                                      |                                                                                                                               |                          | 17,900   |        |   |      | (1,189     | )      |   |   | 33,941    |       
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Loss before income taxes, equity in net losses of
    affiliates, minority interest, cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |                                                                                                                               |                          | (338,575 | )      |   |      | (147,354   | )      |   |   | (126,333  | )     
|Income tax provision                                                                                                                                                                                        |                                                                                                                               |                          | (4,647   | )      |   |      | (355,042   | )      |   |   | (2,170    | )     
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Loss before equity in net losses of affiliates,
    minority interest, cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest               |                                                                                                                               |                          | (343,222 | )      |   |      | (502,396   | )      |   |   | (128,503  | )     
|Equity in net losses of affiliates, net of tax
    benefit of $(5,639) and $(3,050) in 2002 and 2001, respectively                                                                                          |                                                                                                                               |                          | (51,153  | )      |   |      | (76,280    | )      |   |   | (66,677   | )     
|Minority interest, net of taxes                                                                                                                                                                             |                                                                                                                               |                          | 20       |        |   |      | (226       | )      |   |   | 461       |       
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest                                                                          |                                                                                                                               |                          | (394,355 | )      |   |      | (578,902   | )      |   |   | (194,719  | )     
|Cumulative effect of change in accounting
    principle, net of taxes (Notes 3, 8 and 16)                                                                                                                   |                                                                                                                               |                          | (1,970   | )      |   |      | (890,309   | )      |   |   | (1,741    | )     
|Extraordinary gain on acquisition of minority
    interest                                                                                                                                                  |                                                                                                                               |                          | 13,615   |        |   |      |            |        |   |   |           |       
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Net loss                                                                                                                                                                                                    |                                                                                                                               |                          | (382,710 | )      |   |      | (1,469,211 | )      |   |   | (196,460  | )     
|Preferred dividends and accretion                                                                                                                                                                           |                                                                                                                               |                          | (6,719   | )      |   |      | (89,186    | )      |   |   | (80,743   | )     
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Net loss applicable to common shareholders                                                                                                                                                                  |                                                                                                                               | $                        | (389,429 | )      |   | $    | (1,558,397 | )      |   | $ | (277,203  | )     
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Basic and diluted loss per share (Note 14):                                                                                                                                                                 |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|                                                                                                                                                                                                            | Before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |                          | $        | (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 per share                                                                                                                |                          | $        | (8.89  | ) |      | $          | (41.81 | ) |   | $         | (8.56  | )
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|Weighted average shares outstanding:                                                                                                                                                                        |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       
|                                                                                                                                                                                                            | Basic and diluted                                                                                                             |                          |          | 43,819 |   |      |            | 37,272 |   |   |           | 32,379 |  
|                                                                                                                                                                                                            |                                                                                                                               |                          |          |        |   |      |            |        |   |   |           |       

See notes to consolidated financial statements.


F-4



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
(DEFICIT) EQUITY

Years ended December 31, 2003, 2002 and
2001

(in thousands, except per share
amounts)

|                                                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            |        |  
|----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | --------------- | ------ | --------------- | - | ------------ | -------- | -------- | - | ------ | ----- | -------- | - | ------- | ------- | ------------- | - | ------------- | ------ | -------- |  | ------ | ----- | --------- |  | - | --------- | ------- | - | - | ------ | - |  | - | ---- | - |  | - | ---------- | ------- | - | - | ------- | - |  | - | ---------- | ------ | -
|                                                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |         
|                                                                                          |                                                                                                                               | 6% Series C     |        | 6% Series D     |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |         
|                                                                                          |                                                                                                                               | Convertible     |        | Convertible     |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |         
|                                                                                          |                                                                                                                               | Redeemable      |        | Redeemable      |   |              |          |          |   |        |       |          |   |         |         | Accumulated   |   |              
|                                                                                          |                                                                                                                               | Preferred Stock |        | Preferred Stock |   | Common Stock |          |          |   |        |       |          |   |         |         | Other         |   | Total        
|                                                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       | Unearned |   |         |         | Comprehensive |   | Shareholders
|                                                                                          |                                                                                                                               | Shares          |        |                 |   | Shares       |          |          |   | Shares |       |          |   | Paid-In |         | Treasury      |   | Compen-       |        | Retained |  | Income |       | (Deficit)
|                                                                                          |                                                                                                                               | Issued          |        | Amount          |   | Issued       |          | Amount   |   | Issued |       | Amount   |   | Capital |         | Stock         |   | sation        |        | Deficit  |  | (Loss) |       | Equity   
|                                                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |          
|Balance, December 31, 2000.                                                               |                                                                                                                               |                 | 13,498 |                 |   | $            | 665,809  |          |   |        | 8,000 |          |   | $       | 388,204 |               |   |               | 29,832 |          |  | $      | 2,983 |           |  | $ | 2,448,519 |         |   | $ | (3,360 | ) |  | $ | (148 | ) |  | $ | (1,946,507 | )       |   | $ | 30,888  |   |  | $ | 1,586,388  |       
|Shares issued:                                                                            |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            |       
|                                                                                          | Exercise of stock options and related tax benefits                                                                            |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        | 1        |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            |        |  
|                                                                                          | Employee savings plan                                                                                                         |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        | 753      |  |        |       | 76        |  |   |           | 16,455  |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            | 16,531 |  
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        | (3,658          | ) |              |          | (180,438 | ) |        |       |          |   |         |         |               |   |               |        | 2,012    |  |        |       | 201       |  |   |           | 198,453 |   |   |        |   |  |   |      |   |  |   |            | (18,436 | ) |   |         |   |  |   |            | (220   | )
|                                                                                          | Conversion of Series D preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        |                 |   |              |          |          |   |        |       | (1,889   | ) |         |         | (91,675       | ) |               |        | 1,077    |  |        |       | 108       |  |   |           | 101,489 |   |   |        |   |  |   |      |   |  |   |            | (10,089 | ) |   |         |   |  |   |            | (167   | )
|                                                                                          | Warrant exercises                                                                                                             |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        | 4        |  |        |       |           |  |   |           | 1       |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            | 1      |  
|                                                                                          | Warrants issued in connection with Cyberstar debt
    exchanges                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           | 6,720   |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            | 6,720  |  
|Option grants to affiliates                                                               |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   | 214       |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   | 214        |       
|Amortization of unearned compensation                                                     |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   | 26   |   |  |   |            |         |   |   |         |   |  |   | 26         |       
|Amortization of restricted stock                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   | 63   |   |  |   |            |         |   |   |         |   |  |   | 63         |       
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   | 113       |         |   |   |        |   |  |   | (113 | ) |  |   |            |         |   |   |         |   |  |   |            |       
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   | 91   |   |  |   |            |         |   |   |         |   |  |   | 91         |       
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   | (52,218    | )       |   |   |         |   |  |   | (52,218    | )     
|Net loss                                                                                  |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   | (196,460   | )       |   |   |         |   |  |   |            |       
|Other comprehensive loss                                                                  |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   | (10,101 | ) |  |   |            |       
|Comprehensive loss                                                                        |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   | (206,561   | )     
|                                                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            |       
|Balance, December 31, 2001.                                                               |                                                                                                                               |                 | 9,840  |                 |   |              | 485,371  |          |   |        | 6,111 |          |   |         | 296,529 |               |   |               | 33,679 |          |  |        | 3,368 |           |  |   | 2,771,964 |         |   |   | (3,360 | ) |  |   | (81  | ) |  |   | (2,223,710 | )       |   |   | 20,787  |   |  |   | 1,350,868  |       
|Shares issued:                                                                            |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            |       
|                                                                                          | Employee savings plan                                                                                                         |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        | 1,536    |  |        |       | 152       |  |   |           | 11,400  |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            | 11,552 |  
|                                                                                          | Restricted stock option exercise                                                                                              |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        | 40       |  |        |       | 4         |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            | 4      |  
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        | (6,095          | ) |              |          | (300,618 | ) |        |       |          |   |         |         |               |   |               |        | 4,042    |  |        |       | 404       |  |   |           | 319,480 |   |   |        |   |  |   |      |   |  |   |            | (28,701 | ) |   |         |   |  |   |            | (9,435 | )
|                                                                                          | Conversion of Series D preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        |                 |   |              |          |          |   |        |       | (5,377   | ) |         |         | (260,905      | ) |               |        | 3,623    |  |        |       | 363       |  |   |           | 285,201 |   |   |        |   |  |   |      |   |  |   |            | (30,808 | ) |   |         |   |  |   |            | (6,149 | )
|                                                                                          | Orion note conversion                                                                                                         |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        | 6        |  |        |       | 2         |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            | 2      |  
|Reclass of preferred stock to mezzanine                                                   |                                                                                                                               |                 |        |                 |   |              | (104,582 | )        |   |        |       |          |   |         | (20,499 | )             |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   | (125,081   | )     
|Option grants to affiliates                                                               |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   | 924       |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   | 924        |       
|Amortization of unearned compensation                                                     |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   | 6    |   |  |   |            |         |   |   |         |   |  |   | 6          |       
|Restricted stock grant                                                                    |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   | 150       |         |   |   |        |   |  |   | (150 | ) |  |   |            |         |   |   |         |   |  |   |            |       
|Amortization of restricted stock                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   | 2    |   |  |   |            |         |   |   |         |   |  |   | 2          |       
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   | (84       | )       |   |   |        |   |  |   | 84   |   |  |   |            |         |   |   |         |   |  |   |            |       
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   | (12  | ) |  |   |            |         |   |   |         |   |  |   | (12        | )     
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   | (29,677    | )       |   |   |         |   |  |   | (29,677    | )     
|Net loss                                                                                  |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   | (1,469,211 | )       |   |   |         |   |  |   |            |       
|Other comprehensive loss                                                                  |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   | (78,020 | ) |  |   |            |       
|Comprehensive loss                                                                        |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   | (1,547,231 | )     
|                                                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            |       
|Balance, December 31, 2002.                                                               |                                                                                                                               |                 | 3,745  |                 |   |              | 80,171   |          |   |        | 734   |          |   |         | 15,125  |               |   |               | 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   | )
|Reclass of preferred stock on adoption of SFAS
    150.                                   |                                                                                                                               |                 | (3,745 | )               |   |              | (80,171  | )        |   |        | (734  | )        |   |         | (15,125 | )             |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   | (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   | )     
|                                                                                          |                                                                                                                               |                 |        |                 |   |              |          |          |   |        |       |          |   |         |         |               |   |               |        |          |  |        |       |           |  |   |           |         |   |   |        |   |  |   |      |   |  |   |            |         |   |   |         |   |  |   |            |       

See notes to consolidated financial statements.

F-5



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)

|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |          |         |  
|------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------------------------------------- | -------- | -------- | ------- | ---- | ---------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                        |                                                                 |                                                                             
|                                                        |                                                                 | Years ended December 31,                                                    
|                                                        |                                                                 |                                                                             
|                                                        |                                                                 | 2003                                                                         |          | 2002     |         | 2001
|                                                        |                                                                 |                                                                              |          |          |         |     
|Operating activities:                                   |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Net loss                                                |                                                                 | $                                                                            | (382,710 | )        |         | $    | (1,469,211 | )        |         | $ | (196,460 | )       
|Non-cash items:                                         |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|                                                        |                                                                 | Cumulative effect of change in accounting
    principle, net of taxes        |          |          | 1,970   |      |            |          | 890,309 |   |          |          | 1,741   |  
|                                                        |                                                                 | Extraordinary gain on acquisition of minority
    interest                   |          |          | (13,615 | )    |            |          |       |   |          |          |       |  
|                                                        |                                                                 | Equity in net losses of affiliates, net of taxes                             |          |          | 51,153  |      |            |          | 84,478  |   |          |          | 66,677  |  
|                                                        |                                                                 | Minority interest, net of taxes                                              |          |          | (20     | )    |            |          | 226     |   |          |          | (461    | )
|                                                        |                                                                 | Deferred taxes                                                               |          |          | 3,656   |      |            |          | 355,335 |   |          |          | (882    | )
|                                                        |                                                                 | Depreciation and amortization                                                |          |          | 189,268 |      |            |          | 187,002 |   |          |          | 227,779 |  
|                                                        |                                                                 | Provisions for inventory obsolescence                                        |          |          | 49,546  |      |            |          | 14,013  |   |          |          | 5,929   |  
|                                                        |                                                                 | Valuation allowance on vendor financing
    receivables                      |          |          | 10,008  |      |            |          | 32,574  |   |          |          |        |  
|                                                        |                                                                 | Write-off of advances related to Europe*Star                                 |          |          |        |      |            |          | 36,620  |   |          |          |        |  
|                                                        |                                                                 | Loss on cancellation of deposits                                             |          |          | 23,500  |      |            |          | 10,000  |   |          |          |        |  
|                                                        |                                                                 | Loss on acceleration of receipt of long-term
    receivables                 |          |          | 10,893  |      |            |          |       |   |          |          |       |  
|                                                        |                                                                 | Charge on conversion of sales arrangement to
    lease arrangement (Note 17) |          |          | 10,098  |      |            |          |       |   |          |          |       |  
|                                                        |                                                                 | Accrual for Alcatel settlement                                               |          |          | 8,000   |      |            |          |       |   |          |          |       |  
|                                                        |                                                                 | Provisions for bad debts on billed receivables                               |          |          | 7,402   |      |            |          | 4,308   |   |          |          | 3,717   |  
|                                                        |                                                                 | Adjustment to revenue straightlining assessment                              |          |          | 9,034   |      |            |          | 1,407   |   |          |          |       |  
|                                                        |                                                                 | Loss on equipment disposals                                                  |          |          | 4,804   |      |            |          | 6,191   |   |          |          |        |  
|                                                        |                                                                 | (Gain) loss on investments and debt exchanges, net                           |          |          | (17,900 | )    |            |          | 1,189   |   |          |          | (33,941 | )
|                                                        |                                                                 | Non cash net interest and (gain) loss on
    foreign currency transactions   |          |          | 4,887   |      |            |          | 172     |   |          |          | 33,662  |  
|Changes in operating assets and liabilities:            |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|                                                        | Accounts receivable, net                                        |                                                                              |          | (1,478   | )       |      |            | 6,241    |         |   |          | 13,762   |        
|                                                        | Contracts-in-process                                            |                                                                              |          | 31,686   |         |      |            | 97,100   |         |   |          | 15,087   |        
|                                                        | Inventories                                                     |                                                                              |          | 3,731    |         |      |            | (1,604   | )       |   |          | 16,500   |        
|                                                        | Long-term receivables                                           |                                                                              |          | 73,519   |         |      |            | (1,963   | )       |   |          | (51,401  | )      
|                                                        | Deposits                                                        |                                                                              |          | 25,750   |         |      |            | 58,940   |         |   |          | 9,300    |        
|                                                        | Other current assets and other assets                           |                                                                              |          | 34,393   |         |      |            | 27,759   |         |   |          | 24,399   |        
|                                                        | Accounts payable                                                |                                                                              |          | 41,148   |         |      |            | (88,666  | )       |   |          | (12,256  | )      
|                                                        | Accrued expenses and other current liabilities                  |                                                                              |          | 680      |         |      |            | (20,039  | )       |   |          | (29,168  | )      
|                                                        | Customer advances                                               |                                                                              |          | 49,656   |         |      |            | (34,910  | )       |   |          | 78,124   |        
|                                                        | Income taxes payable                                            |                                                                              |          | 1,847    |         |      |            | 3,420    |         |   |          | 2,487    |        
|                                                        | Pension and other postretirement liabilities                    |                                                                              |          | 13,245   |         |      |            | 4,521    |         |   |          | 3,214    |        
|                                                        | Long-term liabilities                                           |                                                                              |          | (19,627  | )       |      |            | (12,714  | )       |   |          | (7,486   | )      
|                                                        | Other                                                           |                                                                              |          | 501      |         |      |            | (28      | )       |   |          | (505     | )      
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Net cash provided by operating activities               |                                                                 |                                                                              | 225,025  |          |         |      | 192,670    |          |         |   | 169,818  |         
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Investing activities:                                   |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|                                                        | Capital expenditures                                            |                                                                              |          | (176,564 | )       |      |            | (98,207  | )       |   |          | (238,373 | )      
|                                                        | Proceeds from the sales of investments                          |                                                                              |          | 45,908   |         |      |            |         |         |   |          |         |        
|                                                        | Investments in and advances to affiliates                       |                                                                              |          | (19,200  | )       |      |            | (40,617  | )       |   |          | (27,692  | )      
|                                                        | Proceeds from the sale leaseback of assets, net                 |                                                                              |          |         |         |      |            |         |         |   |          | 17,393   |        
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Net cash used in investing activities                   |                                                                 |                                                                              | (149,856 | )        |         |      | (138,824   | )        |         |   | (248,672 | )       
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Financing activities:                                   |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|                                                        | Borrowings under revolving credit facilities                    |                                                                              |          | 71,387   |         |      |            | 145,000  |         |   |          | 115,000  |        
|                                                        | Repayments under term loans                                     |                                                                              |          | (32,500  | )       |      |            | (85,000  | )       |   |          | (81,000  | )      
|                                                        | Repayments under revolving credit facilities                    |                                                                              |          |         |         |      |            | (127,000 | )       |   |          | (134,000 | )      
|                                                        | Interest payments on 10% senior notes                           |                                                                              |          | (30,635  | )       |      |            | (45,954  | )       |   |          |         |        
|                                                        | Repayments of export-import facility                            |                                                                              |          | (6,434   | )       |      |            | (2,146   | )       |   |          | (2,145   | )      
|                                                        | Repayments of other long-term obligations                       |                                                                              |          |         |         |      |            | (22      | )       |   |          | (2,497   | )      
|                                                        | Preferred dividends                                             |                                                                              |          |         |         |      |            | (29,677  | )       |   |          | (52,218  | )      
|                                                        | Preferred dividends on exchange offers and
    related expenses |                                                                              |          |         |         |      |            | (15,583  | )       |   |          |         |        
|                                                        | Proceeds from other stock issuances                             |                                                                              |          | 3,852    |         |      |            | 12,523   |         |   |          | 16,531   |        
|                                                        | Payment of bank amendment costs                                 |                                                                              |          | (5,131   | )       |      |            |        |         |   |          |        |        
|                                                        | Payments of debt refinancing costs                              |                                                                              |          |         |         |      |            |         |         |   |          | (14,913  | )      
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Net cash provided by (used in) financing
    activities |                                                                 |                                                                              | 539      |          |         |      | (147,859   | )        |         |   | (155,242 | )       
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Increase (decrease) in cash and cash
    equivalents    |                                                                 |                                                                              | 75,708   |          |         |      | (94,013    | )        |         |   | (234,096 | )       
|Cash and cash equivalents  beginning of
    period     |                                                                 |                                                                              | 65,936   |          |         |      | 159,949    |          |         |   | 394,045  |         
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         
|Cash and cash equivalents  end of period               |                                                                 | $                                                                            | 141,644  |          |         | $    | 65,936     |          |         | $ | 159,949  |         
|                                                        |                                                                 |                                                                              |          |          |         |      |            |          |         |   |          |         

See notes to consolidated financial statements

F-6



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



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

Loral Space & Communications Ltd.
(Loral or the Company, which terms shall
include its subsidiaries unless otherwise indicated or the
context requires) together with its subsidiaries is a leading
satellite communications company with substantial activities in
satellite-based communications services and satellite
manufacturing. Loral is organized into two operating segments
(see Note 18):

Satellite
Services

Satellite Services, managed through Loral Skynet,
a division of Loral, generates substantially all of its revenues
and cash from leasing transponder capacity to customers for
video transmission, direct to home (DTH)
broadcasting, high-speed data services, international Internet
communications and telephone services. Satellite Services also
provides network services such as managed communications
networks, Internet and intranet services, business
television and business media services to customers.

Satellite
Manufacturing

Satellite Manufacturing, conducted by
Lorals subsidiary Space Systems/ Loral (SS/
L), generates its revenues and cash from designing and
manufacturing satellites and satellite systems for commercial
and government applications including satellite services,
television broadcasting, DTH services, broadband communications,
military communications, wireless telephony, digital satellite
radio, weather monitoring and air traffic management.



|   |                                                          
|-- | ---------------------------------------------------------
|2. | Bankruptcy Filings, Sale of Assets and
    Reorganization



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

On July 15, 2003, Loral and certain of its
subsidiaries (the Debtor Subsidiaries and
collectively with Loral, the Debtors), including
Loral Space & Communications Corporation, Loral
SpaceCom Corporation (Loral SpaceCom), Loral
Satellite, Inc. (Loral Satellite), SS/ L and
Loral Orion, Inc. (Loral Orion), filed
voluntary petitions for reorganization under chapter 11 of
title 11 (Chapter 11) of the United States
Code (the Bankruptcy Code) in the United States
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). Loral and its Debtor
Subsidiaries continue to manage their properties and operate
their businesses as debtors in possession under the
jurisdiction of the Bankruptcy Court and in accordance with the
provisions of the Bankruptcy Code (see Basis of PresentationNote 3).

Also on July 15, 2003, Loral and one of its
Bermuda subsidiaries (the Bermuda Group) filed
parallel insolvency proceedings in the Supreme Court of Bermuda
(the Bermuda Court). On such date, the Bermuda Court
entered an order appointing Philip Wallace, Chris Laverty and
Michael Morrison, partners of KPMG, as Joint Provisional
Liquidators (JPLs) in respect of the Bermuda Group.
The Bermuda Court granted the JPLs the power to oversee the
continuation and reorganization of these companies
businesses under the control of their boards of directors and
under the supervision of the U.S. Bankruptcy Court and the
Bermuda Court. The JPLs have not audited the contents of this
report.

As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization, all
of Lorals prepetition debt obligations (aggregating
approximately $2.2 billion at December 31, 2003) have
been accelerated (see below and Notes 9 and 10). On
July 15, 2003, Loral suspended interest payments on all of
its senior unsecured notes, with an aggregate principal amount
of $1.05 billion. A creditors committee has been
appointed in the Chapter 11 Cases to represent all
unsecured creditors, including all holders of Lorals and

F-7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Loral Orions senior unsecured notes, and,
in accordance with the provisions of the Bankruptcy Code, has
the right to be heard on all matters that come before the
Bankruptcy Court (see Note 10).

During the pendency of the Chapter 11 Cases,
Lorals business will be subject to risks and uncertainties
relating to the Chapter 11 Cases. For example, the
Chapter 11 Cases could adversely affect relationships with
Lorals customers, suppliers and employees, which could
adversely affect the going concern value of the business and of
its assets, particularly if the Chapter 11 Cases are
protracted. Also, transactions outside the ordinary course of
business will be subject to the prior approval of the Bankruptcy
Court which may limit Lorals ability to respond to certain
market events or take advantage of certain market opportunities,
and, as a result, Lorals operations could be materially
adversely affected.

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against Loral and its Debtor Subsidiaries arising
prior to or relating to events which occurred prior to the
commencement of the Chapter 11 Cases is generally subject
to an automatic stay under Section 362 of the Bankruptcy
Code, and, absent further order of the Bankruptcy Court, a party
is generally prohibited from taking any action to recover any
prepetition claims, enforce any lien against or obtain
possession of any property from Loral or its Debtor
Subsidiaries. In addition, pursuant to Section 365 of the
Bankruptcy Code, Loral and its Debtor Subsidiaries may reject or
assume prepetition executory contracts and unexpired leases, and
parties affected by rejections of these contracts or leases may
file claims with the Bankruptcy Court which will be addressed in
the context of the Chapter 11 Cases.

On July 15, 2003, the New York Stock
Exchange suspended trading of Lorals common stock and
removed Lorals securities from listing and registration on
September 2, 2003. Lorals common stock is being
quoted under the ticker symbol LRLSQ on the Pink Sheets and on
the Over-The-Counter Bulletin Board Service. The Company
anticipates that, in any plan of reorganization ultimately
confirmed by the Bankruptcy Court, the common and preferred
stock of the Company will, at best, be severely diluted and may
be eliminated entirely, with the result that common and
preferred stockholders would receive no distribution.



| |               
| | --------------
| | Sale of Assets

On July 15, 2003, Loral Space &
Communications Corporation, Loral SpaceCom and Loral Satellite
(collectively, the Sellers), direct or indirect
subsidiaries of Loral, entered into a definitive agreement (the
Asset Purchase Agreement) to sell to Intelsat, Ltd.
and certain of its affiliated companies (together, the
Purchasers or Intelsat), all of the
Sellers satellites serving the North American market, then
comprised of four satellites in-orbit (one of which failed in
September 2003, see below) and two under construction (one of
which has been successfully launched and placed into service on
September 12, 2003 and one scheduled for launch in 2004),
as well as certain related assets and liabilities. In
addition, Intelsat has agreed to order a new satellite from
SS/ L when the sale closes and, subject to obtaining a security
interest in certain of our Brazilian Satellite Services assets,
agreed to make a $100 million down payment on that order.
The Asset Purchase Agreement provides for a base purchase price
of $1.025 billion, subject to certain purchase price
adjustments (which include a reduction for any insurance
proceeds received prior to closing by the Company from the
Telstar 4 failure  see below). On October 24,
2003, after a hearing on the matter, the Bankruptcy Court
approved the transactions contemplated by the Asset Purchase
Agreement.

On March 5, 2004, as part of an arrangement
to reach agreement with Intelsat on the satisfaction of certain
closing conditions, the Company entered into an amendment to the
Asset Purchase Agreement. Among other things, the amendment
reduces the purchase price by $20 million (subject to
further adjustment based on future events) to cover certain
contingent liabilities relating to the transferred assets,
reduces from $100 million to $50 million the deposit
Intelsat is to make for its new satellite construction contract
with SS/L, and provides for a dollar-for-dollar reduction in the
price of this satellite if and to the extent the Telstar 4
insurance proceeds are less than $141 million (see below).
As part of this amendment, Intelsat agreed to pay SS/ L
$12.5 million in full settlement and satisfaction of all
remaining obligations to make certain orbital

F-8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

payments to SS/ L under the construction
contracts relating to the purchased satellites. The
effectiveness of this amendment is subject to approval by the
Bankruptcy Court and Intelsats bank lenders.

Consummation of the transactions is still subject
to a number of conditions, including that certain operating
parameters continue to be met with respect to the assets being
sold and certain other closing conditions typical for
transactions of this type (see Note 17). The Sellers expect
to use the proceeds from the sale of the assets to repay their
outstanding secured bank debt. The Chapter 11 Cases will
enable the Sellers to sell the satellites serving the North
American market to the Purchasers free and clear of any
interests. There can be no assurance, however, that the
transactions contemplated by the Asset Purchase Agreement will
be consummated. The net book value of the satellites to be sold
was $935 million (including insurance proceeds receivable
on the Companys consolidated balance sheet at
December 31, 2003, see below) and of the related assets and
liabilities was $30 million and $31 million,
respectively, as of December 31, 2003. The net assets to be
sold, as well as the results of operations relating to such net
assets, have not been segregated in the accompanying
consolidated financial statements, since the satisfaction of
certain closing conditions are still subject to Bankruptcy Court
approval.

Upon receipt of Bankruptcy Court approval
relating to certain closing conditions, the satellites serving
the North American market will be accounted for as a
discontinued operation, resulting in the Companys
historical consolidated financial statements being reclassified
to reflect such discontinued operations separately from
continuing operations. Income from operations for the satellites
serving the North American market that will be reclassified to
discontinued operations is expected to approximate
$19.0 million, $57.6 million and $61.3 million
for the years ended December 31, 2003, 2002 and 2001,
respectively. For the purpose of this presentation, all indirect
costs normally associated with these operations have been
omitted, including telemetry, tracking and control, access
control, maintenance and engineering, selling and marketing and
general and administrative.

In September 2003, Lorals Telstar 4
satellite experienced a short circuit of its high voltage bus
causing the satellite to cease operations. Loral has been unable
to reestablish contact with the satellite and has declared the
satellite a total loss. At the time of the satellites
failure, Loral initiated a comprehensive restoration plan that
has provided capacity to nearly all Telstar 4 customers on other
Loral satellites. Telstar 4 is insured for
$141 million and the agent for secured lenders of Loral
SpaceCom is currently named as the loss payee on the insurance
policy. During October 2003, Loral filed the proof of loss with
the insurance underwriters to recover $141 million. Under
Lorals agreement to sell its satellites serving the North
American market discussed above, the purchase price will be
reduced by any insurance proceeds received for Telstar 4 by
Loral prior to closing, net of any payments by Loral to
customers for warranty claims. The Company recorded a receivable
for insurance proceeds of $123 million at December 31,
2003, primarily representing the carrying value of Telstar 4 and
the estimated costs of warranty obligations to customers
directly associated with the failure of Telstar 4. Customer
cancellations resulting from the failure of Telstar 4 have
reduced the future minimum lease receipts due from customers
under long-term operating leases for transponder capacity by
approximately $47 million.

Reorganization

Loral intends to reorganize around its satellite
manufacturing operations and its remaining fleet of
international satellites. Loral is in the process now of
completing its long-term business plan. Loral believes it will
not require any additional financing to fund operations.

As provided by the Bankruptcy Code, the Debtors
had the exclusive right to submit their plan or plans of
reorganization for 120 days from the date of the
Chapter 11 filing. On November 12, 2003, the
Bankruptcy Court extended this exclusive period for another
120 days. On March 16, 2004, a hearing will be held to
consider a further extension of the exclusivity period and
additional extensions may be sought and may be granted or
rejected by the Bankruptcy Court. If Loral and its Debtor
Subsidiaries fail to file their plan or plans

F-9



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of reorganization during such period, or if a
plan is filed and such plan or plans is not accepted by the
required number of creditors and equity holders within the
required period, any party in interest may subsequently file its
own plan or plans of reorganization for Loral and its Debtor
Subsidiaries. A plan of reorganization must be confirmed by the
Bankruptcy Court upon certain findings being made by the
Bankruptcy Court which are required by the Bankruptcy Code. The
Bankruptcy Court may confirm a plan of reorganization
notwithstanding rejection of the plan by an impaired class of
creditors or equity holders if certain requirements of the
Bankruptcy Code are met. Although Loral and its Debtor
Subsidiaries expect to file a plan or plans of reorganization
that provide for emergence from bankruptcy sometime in 2004,
Loral cannot now describe the components or features of the
plan, including whether the plan will provide for creditors to
be paid in whole or in part or whether consideration they will
receive will consist of cash, debt, equity or some combination
thereof. In addition, there can be no assurance that Loral will
be able to propose a plan, obtain court approval of any plan we
propose, obtain acceptances from the number of creditors
necessary to confirm a plan, or actually confirm and consummate
a plan.



|   |                                               
|-- | ----------------------------------------------
|3. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

Loral, a Bermuda company has a
December 31 year-end. The consolidated financial
statements for the three years ended December 31, 2003,
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.

The accompanying consolidated financial
statements have been prepared assuming the Company, in its
current structure, will continue as a going concern. However,
the factors mentioned in Note 2 above, among other things,
raise substantial doubt about Lorals ability to continue
as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of
this uncertainty. The ability of the Company to continue as a
going concern is dependent on a number of factors including, but
not limited to, the Company developing a plan of reorganization,
confirmation of the plan by the Bankruptcy Court and Loral
maintaining good relations with its customers, suppliers and
employees. If a plan of reorganization is not confirmed and
implemented, the Company may be forced to liquidate under
applicable provisions of the Bankruptcy Code. There can be no
assurance of the level of recovery that the Companys
creditors would receive in such liquidation. The consolidated
financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities if the Company is forced to liquidate (see
Reorganizationin Note 2).

The consolidated financial statements have been
prepared in accordance with Statement of Position No. 90-7,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code (SOP 90-7). SOP 90-7
requires an entity to distinguish prepetition liabilities
subject to compromise from postpetition liabilities in the
Companys consolidated balance sheet. The caption
liabilities subject to compromise reflects the
Companys best current estimate of the amount of
prepetition claims that will be restructured in Lorals and
its Debtor Subsidiaries Chapter 11 Cases. In
addition, the Companys consolidated statement of
operations portrays the results of operations of the reporting
entity during 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). The Company did not prepare
condensed combined financial statements for Loral and the Debtor
Subsidiaries, since the subsidiaries

F-10



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

that did not file voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code were
immaterial to the Companys consolidated financial position
and results of operations.

Investments in XTAR, L.L.C. (XTAR),
Satelites Mexicanos, S.A. de C.V. (Satmex),
Europe*Star Limited (Europe*Star) and Globalstar,
L.P. (Globalstar) as well as other affiliates, are
accounted for using the equity method, due to the Companys
inability to control significant operating decisions. Income and
losses of affiliates are recorded based on Lorals
beneficial interest. Intercompany profit arising from
transactions with affiliates is eliminated to the extent of the
Companys beneficial interest. Any difference in the
carrying value of these investments as compared to Lorals
interest in the underlying net assets is amortized over the life
of the primary asset of the affiliate. 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. Loral capitalizes interest cost on its 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 the Companys
affiliates are subject to the risks associated with new
businesses. See Note 7.



| |                                                            
| | -----------------------------------------------------------
| | 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 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.

A significant portion of Lorals 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 the Companys satellites and,
prior to 2002, the amortization period of cost in excess of net
assets acquired.



| |                          
| | -------------------------
| | 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.



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

Financial instruments which potentially subject
Loral 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 7). Lorals cash and
cash equivalents are maintained with high-credit-quality
financial institutions. Historically, Lorals customers
have been primarily large multinational corporations and U.S.
and foreign governments for which the creditworthiness was
generally substantial. In recent years, the Company has 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 the Companys current customer base.



| |                   
| | ------------------
| | Billed Receivables

As of December 31, 2003 and 2002, billed
receivables (including accounts receivable) were reduced by an
allowance for doubtful accounts of $11.7 million and
$7.1 million, respectively.

F-11



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | 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.



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

Property, plant and equipment are stated at cost.
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 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 the Companys property, plant and equipment as of
December 31, 2003:

|                                  |  |       |           | 
|--------------------------------- |  | ----- | --------- | 
|                                  |  | Years
|                                  |  |      
|Land improvements                 |  |       | 20        | 
|Buildings                         |  |       | 25 to 45  | 
|Leasehold improvements            |  |       | 5 to 25   | 
|Satellites-in-orbit               |  |       | 9.5 to 18 | 
|Earth stations                    |  |       | 5 to 15   | 
|Equipment, furniture and fixtures |  |       | 3 to 20   | 

Costs incurred in connection with the
construction and successful deployment of the Companys
satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch
costs, launch insurance and construction period interest.
Capitalized interest related to the construction of satellites
for 2003, 2002 and 2001 was $32.9 million,
$28.6 million and $23.0 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 the Companys satellites,
net of insurance proceeds, are recorded in the period a loss
occurs.



| |                                          
| | -----------------------------------------
| | Cost in Excess of Net Assets
    Acquired

On January 1, 2002, the Company adopted
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142), which addresses the initial
recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. In connection with the adoption, the Company
recorded a non-cash charge for the cumulative effect of the
change in accounting principle of $890 million, see
Note 8. Prior to January 1, 2002, the excess of the
cost of purchased businesses over the fair value of net assets
acquired was being amortized over 40 years using the
straight-line method.



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

The carrying value of Lorals 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. Whenever events or changes in circumstances
indicate that an asset may not be recoverable, the Company looks
to current and future profitability, as well as current and
future undiscounted cash flows, excluding financing costs (only
for long-lived assets), as primary indicators of recoverability.
If impairment is determined to exist, any related

F-12



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

impairment loss is calculated based on fair
value. Fair value is determined based on quoted market values,
discounted cash flows or appraisals, as appropriate in the
circumstances.



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

Deposits primarily represent prepaid amounts on
satellite launch vehicles which are expected to be utilized for
the launch of customer or Company-owned satellites.



| |                                                                      
| | ---------------------------------------------------------------------
| | Investments in Available-For-Sale Securities
    and Other Securities

The Companys 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 4 and 16). The
Company accounts for its investment in Globalstars
$500 million credit facility at fair value, with changes in
the value (net of tax) recorded as a component of other
comprehensive loss (see Note 7).

On March 7, 2003, Sirius Satellite
Radio, Inc. (Sirius) completed its
recapitalization plan and as part of this recapitalization, SS/
L converted all of its 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. At December 31,
2002, the receivables from Sirius were classified as short-term
vendor financing receivables.

In 2002, the Company determined that its
investment in The Fantastic Corporation common stock had an
other than temporary decline in its value and recognized a loss
of $1 million.



| |                    
| | -------------------
| | 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 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, the Company is generally entitled
to its 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.

F-13



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

The Company provides 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.

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.



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

Independent research and development costs, which
are expensed as incurred, were $9 million, $16 million
and $32 million for 2003, 2002 and 2001, respectively, and
are included in selling, general and administrative expenses.



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

Prior to filing Chapter 11, Loral entered
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. On January 1, 2001, the Company adopted
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), which among
other things requires that all derivative instruments be
recorded on the balance sheet at their fair value. Upon filing
Chapter 11, SS/ Ls hedges with counterparties
(primarily yen denominated forward contracts) were cancelled
leaving SS/ L vulnerable to foreign currency fluctuations in the
future. The inability to enter into forward contracts exposes
SS/ Ls future revenues, costs and cash associated with
anticipated yen denominated receipts and payments to currency
fluctuations (see Note 16).



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

As permitted by SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS 123), Loral accounts for stock-based
awards to employees using the intrinsic value method in
accordance with APB 25, and its interpretations. The
Company accounts for stock-based awards to non-employees in
accordance with SFAS 123 and its interpretations.

In the fourth quarter of 2002, the Company
adopted SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure
(SFAS 148), an amendment of SFAS 123.
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of
SFAS 123 to

F-14



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results.

Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ
from the Companys stock option awards. These models also
require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect
the calculated values. The Companys calculations were made
using the Black-Scholes option pricing model with the following
weighted average assumptions: expected life, six to twelve
months following vesting; stock volatility, 90% in 2003, 90% in
2002, and 75% in 2001; risk free interest rate, 2.4% to 6.6%
based on date of grant; and no dividends during the expected
term. The Companys calculations are based on a multiple
option valuation approach and forfeitures are recognized as they
occur. The following table summarizes what the Companys
pro forma net loss and pro forma loss per share would have been
if the fair value method under SFAS 123 was used (in
millions except per share amounts):

|                                                                                                                                                                         |  |                                  |        |      |  |      |          |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ------ | ---- |  | ---- | -------- | - |  | - | ------ | -
|                                                                                                                                                                         |  |                                 
|                                                                                                                                                                         |  | For the Years Ended December 31,
|                                                                                                                                                                         |  |                                 
|                                                                                                                                                                         |  | 2003                             |        | 2002 |  | 2001
|                                                                                                                                                                         |  |                                  |        |      |  |     
|Reported loss before cumulative effect of change
    in accounting principle and extraordinary gain on acquisition of
    minority interest                              |  | $                                | (394.4 | )    |  | $    | (578.9   | ) |  | $ | (194.7 | )
|Add: Total stock based compensation charged to
    operations under the intrinsic value method, net of taxes                                                             |  |                                  |        |      |  |      | 1.0      |   |  |   |        |  
|Less: Total stock based employee benefit
    (compensation) determined under the fair value method for all
    awards, net of taxes                                      |  |                                  | 7.6    |      |  |      | (46.3    | ) |  |   | (15.5  | )
|                                                                                                                                                                         |  |                                  |        |      |  |      |          |   |  |   |        |  
|Pro forma net loss before cumulative effect of
    change in accounting principle                                                                                        |  |                                  | (386.8 | )    |  |      | (624.2   | ) |  |   | (210.2 | )
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                                    |  |                                  | (2.0   | )    |  |      | (890.3   | ) |  |   | (1.7   | )
|Extraordinary gain on acquisition of minority
    interest                                                                                                               |  |                                  | 13.6   |      |  |      |          |   |  |   |        |  
|                                                                                                                                                                         |  |                                  |        |      |  |      |          |   |  |   |        |  
|Pro forma net loss                                                                                                                                                       |  |                                  | (375.2 | )    |  |      | (1,514.5 | ) |  |   | (211.9 | )
|Preferred dividends                                                                                                                                                      |  |                                  | (6.7   | )    |  |      | (89.2    | ) |  |   | (80.7  | )
|                                                                                                                                                                         |  |                                  |        |      |  |      |          |   |  |   |        |  
|Pro forma net loss applicable to common
    shareholders                                                                                                                 |  | $                                | (381.9 | )    |  | $    | (1,603.7 | ) |  | $ | (292.6 | )
|                                                                                                                                                                         |  |                                  |        |      |  |      |          |   |  |   |        |  
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest  |  | $                                | (9.15  | )    |  | $    | (17.92   | ) |  | $ | (8.51  | )
|Pro forma basic and diluted loss per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest |  |                                  | (8.98  | )    |  |      | (19.14   | ) |  |   | (8.98  | )
|Reported loss per share applicable to common
    shareholders                                                                                                            |  |                                  | (8.89  | )    |  |      | (41.81   | ) |  |   | (8.56  | )
|Pro forma loss per share applicable to common
    shareholders                                                                                                           |  |                                  | (8.72  | )    |  |      | (43.03   | ) |  |   | (9.04  | )

During the preparation of the Companys 2003
consolidated financial statements, management revised the pro
forma net loss and pro forma net loss per share for fiscal 2002
to appropriately include the effect of the reversal of the
cumulative tax benefit of previous pro forma SFAS 123
charges of $30.4 million. This revision did not impact the
Companys consolidated balance sheet, consolidated
statement of operations, net loss or net loss per share for any
of the periods presented.



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

As a Bermuda company, Loral Space &
Communications Ltd. is subject to U.S. federal, state and
local income taxation at regular corporate rates plus an
additional 30% branch profits tax on any income that
is

F-15



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

effectively connected with the conduct of a
U.S. trade or business. Lorals U.S. subsidiaries
are subject to regular corporate tax on their worldwide income.

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.
The 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 12.



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

The following represents non-cash activities and
supplemental information to the consolidated statements of cash
flows (in thousands):

|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |         |   | 
|------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | - | ------- | ------ | ---- | - | ------- | - |  | - | ------- | - | 
|                          |                                                                                                                                                             |                         
|                          |                                                                                                                                                             | Years ended December 31,
|                          |                                                                                                                                                             |                         
|                          |                                                                                                                                                             | 2003                     |   | 2002    |        | 2001
|                          |                                                                                                                                                             |                          |   |         |        |     
|Non-cash activities:      |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Insurance proceeds receivable recorded for
    satellite loss and warranty obligations                                                                      |                          | $ | 122,770 |        |      |   |         |   |  |   |         |  
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Exchange of Loral Orion senior notes and senior
    discount notes for new 10% senior notes and 0.6 million
    Loral warrants                              |                          |   |         |        |      |   |         |   |  | $ | 910,600 |  
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Conversion of Series C preferred stock and
    Series D preferred stock to common stock and related
    issuance of additional common shares on conversions |                          |   |         |        |      | $ | 605,448 |   |  | $ | 300,328 |  
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Minimum pension liability adjustment                                                                                                                        |                          | $ | (4,526  | )      |      | $ | (63,926 | ) |  | $ | (757    | )
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Unrealized losses on available-for-sale
    securities, net of taxes                                                                                        |                          | $ | (16,815 | )      |      | $ | (12,603 | ) |  | $ | (12,314 | )
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Unrealized net (losses) gains on
    derivatives, net of taxes                                                                                              |                          | $ | (244    | )      |      | $ | (2,676  | ) |  | $ | 3,362   |  
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Accrual of preferred dividends                                                                                                                              |                          | $ | 6,719   |        |      | $ | 5,508   |   |  |   |         |  
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|Supplemental information: |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Interest paid, net of capitalized interest                                                                                                                  |                          | $ | 83,062  |        |      | $ | 106,044 |   |  | $ | 137,472 |  
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Taxes paid, net of refunds                                                                                                                                  |                          | $ | 1,342   |        |      | $ | 2,124   |   |  | $ | 585     |  
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          | Cash received (paid) for reorganization
    items:                                                                                                          |                          |   |         |        |      |   |         |   |  |   |         |  
|                          |                                                                                                                                                             | Professional fees        |   | $       | (7,598 | )    |   |         |   |  |   |         |   | 
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          |                                                                                                                                                             | Retention costs          |   | $       | (2,680 | )    |   |         |   |  |   |         |   | 
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        
|                          |                                                                                                                                                             | Interest income          |   | $       | 708    |      |   |         |   |  |   |         |   | 
|                          |                                                                                                                                                             |                          |   |         |        |      |   |         |   |  |   |        



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



| |         
| | --------
| | SFAS 143

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and the normal
operation of a long-lived asset, except for certain obligations
of lessees. The Company has determined that there was no effect
on its consolidated financial position or results of operations
upon the adoption of SFAS 143 on January 1, 2003.

FIN 45

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others (FIN 45).
FIN 45 elaborates on the disclosures to be made by the
guarantor in its interim and annual

F-16



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

financial statements about its obligations under
certain guarantees that it has issued. It also requires that a
guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement
provisions of this interpretation were applicable on a
prospective basis to guarantees issued or modified after
December 31, 2002; while the provisions of the disclosure
requirements were effective for financial statements of interim
or annual reports ending after December 15, 2002. The
Company adopted the disclosure provisions of FIN 45 during
the fourth quarter of 2002. The Company adopted the recognition
provisions of FIN 45 on January 1, 2003 and determined
that there was no effect on its consolidated financial position
or its results of operation.

FIN 46

In January 2003 and revised in December 2003, the
FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51 (FIN 46) and an
amendment to FIN 46 entitled FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable
Interest Entities (FIN 46R). FIN 46R
requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors
in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46R
will be applied by the Company for those entities that are
considered variable interest entities as of March 31, 2004.
The Company is currently evaluating the provisions of
FIN 46R as it relates to variable interest entities.

SFAS 150

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity
(SFAS 150). SFAS 150 establishes standards
for how an issuer classifies and measures in its statement of
financial position certain financial instruments with
characteristics of both liabilities and equity. SFAS 150
requires that an issuer classify a financial instrument that is
within the scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an
obligation of the issuer. As a result of the Companys
adoption of SFAS 150 on July 1, 2003, the Company
reclassified its redeemable convertible preferred stock to
liabilities and increased the recorded values to their
redemption values (with an offsetting increase to other assets)
and recorded a cumulative effect of accounting change of
$2 million during the third quarter of 2003, which
represents the amortization of expenses incurred on the issuance
of the securities from their issuance dates through
June 30, 2003, that were not previously amortized.

EITF 00-21

In May 2003, the Emerging Issues Task Force of
the FASB (EITF) reached a consensus on Issue
No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21).
EITF 00-21 addresses determination of whether an
arrangement involving more than one deliverable contains more
than one unit of accounting and how the related revenues should
be measured and allocated to the separate units of accounting.
EITF 00-21 applies to revenue arrangements entered into
after June 30, 2003; however, upon adoption, the EITF
allows the guidance to be applied on a retroactive basis, with
the change, if any, reported as a cumulative effect of
accounting change in the statement of operations. Management
determined that the adoption of EITF 00-21 did not have a
significant impact on its consolidated financial position or its
results of operations.

SFAS 132
Revised

In December 2003, the FASB issued
SFAS No. 132, as revised, Employers Disclosures
about Pensions and Other Postretirement Benefits, (Revised
SFAS 132), which requires additional disclosures about

F-17



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assets, obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans and other defined
benefit postretirement plans. The Company adopted the required
revised disclosure provisions of Revised SFAS 132 as of
December 31, 2003, except for the disclosure of estimated
future benefit payments, which the Company is required to and
will disclose as of December 31, 2004.

Reclassifications

Certain reclassifications have been made to
conform prior year amounts to the current years
presentation.



|   |                                     
|-- | ------------------------------------
|4. | Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive
loss are as follows (in thousands):

|                                                                                |                                                                                                                                          |                    |         |                             |  |      |         |      |  |      |         |      |   |   |         |        |   |   |         |         |  
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | --------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- | - | - | ------- | ------ | - | - | ------- | ------- | -
|                                                                                |                                                                                                                                          |                    |         |                             |  |     
|                                                                                |                                                                                                                                          |                    |         | Activity During Years Ended
|                                                                                |                                                                                                                                          | As of December 31, |         | December 31,               
|                                                                                |                                                                                                                                          |                    |         |                            
|                                                                                |                                                                                                                                          | 2003               |         | 2002                        |  | 2003 |         | 2002 |  | 2001
|                                                                                |                                                                                                                                          |                    |         |                             |  |      |         |      |  |     
|Cumulative translation adjustment                                               |                                                                                                                                          | $                  | (939    | )                           |  | $    | (1,909  | )    |  | $    | 970     |      |   | $ | (4      | )      |   | $ | (392    | )      
|Derivatives classified as cash flow hedges, net
    of taxes:                   |                                                                                                                                          |                    |         |                             |  |      |         |      |  |      |         |      |   |   |         |        |   |   |         |        
|                                                                                | Cumulative transition adjustment                                                                                                         |                    |         |                             |  |      |         |      |  |      |         |      |   |   |         |        |   |   |         | 1,220   |  
|                                                                                | Net (decrease) increase in foreign currency
    exchange contracts                                                                       |                    |         |                             |  |      |         |      |  |      |         | 551  |   |   |         | (1,142 | ) |   |         | 13,125  |  
|                                                                                | Reclassifications into revenue and cost of sales
    from other comprehensive income                                                     |                    |         |                             |  |      |         |      |  |      |         | (355 | ) |   |         | (1,534 | ) |   |         | (10,983 | )
|                                                                                | Reclassifications into interest expense from
    other comprehensive income for anticipated transactions that are
    no longer probable |                    |         |                             |  |      |         |      |  |      |         | (440 | ) |   |         |        |   |   |         |         |  
|                                                                                |                                                                                                                                          |                    |         |                             |  |      |         |      |  |      |         |      |   |   |         |        |   |   |         |        
|Unrealized net gains (losses) on derivatives                                    |                                                                                                                                          |                    | 442     |                             |  |      | 686     |      |  |      | (244    | )    |   |   | (2,676  | )      |   |   | 3,362   |        
|Unrealized (losses) gains on available-for-sale
    securities, net of taxes    |                                                                                                                                          |                    | (8,142  | )                           |  |      | 8,673   |      |  |      | (16,815 | )    |   |   | (12,603 | )      |   |   | (12,314 | )      
|Minimum pension liability adjustment                                            |                                                                                                                                          |                    | (69,209 | )                           |  |      | (64,683 | )    |  |      | (4,526  | )    |   |   | (63,926 | )      |   |   | (757    | )      
|Less: realized losses on available-for-sale
    securities included in net loss |                                                                                                                                          |                    |         |                             |  |      |         |      |  |      |         |      |   |   | 1,189   |        |   |   |         |        
|                                                                                |                                                                                                                                          |                    |         |                             |  |      |         |      |  |      |         |      |   |   |         |        |   |   |         |        
|Accumulated other comprehensive loss                                            |                                                                                                                                          | $                  | (77,848 | )                           |  | $    | (57,233 | )    |  | $    | (20,615 | )    |   | $ | (78,020 | )      |   | $ | (10,101 | )      
|                                                                                |                                                                                                                                          |                    |         |                             |  |      |         |      |  |      |         |      |   |   |         |        |   |   |         |        

As of December 31, 2003, the Company
anticipates reclassifying $2.2 million of the balance of
derivatives classified as cash flow hedges (entered into prior
to filing bankruptcy) in accumulated other comprehensive loss to
earnings in the next year. The unrealized (loss) gain on
available for sale securities at December 31, 2003 and 2002
includes a charge of $11.4 million related to deferred
taxes on unrealized gains recorded prior to 2002, which pursuant
to SFAS 109 will be deferred until the related investment
is sold. See Note 12 for the related tax amounts for the
table above.

F-18



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                   
|-- | --------------------------------------------------
|5. | Contracts-in-Process and Long-Term
    Receivables



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

|                           |                      |                |        |        |  |   |         |        | 
|-------------------------- | -------------------- | -------------- | ------ | ------ |  | - | ------- | ------ | 
|                           |                      |               
|                           |                      | December 31,  
|                           |                      |               
|                           |                      | 2003           |        | 2002  
|                           |                      |                |        |       
|                           |                      |               
|                           |                      | (in thousands)
|U.S. government contracts: |                      |                |        |        |  |   |         |       
|                           | Amounts billed       |                | $      | 3,724  |  |   | $       | 1,735  | 
|                           | Unbilled receivables |                |        | 3,459  |  |   |         | 4,829  | 
|                           |                      |                |        |        |  |   |         |       
|                           |                      |                | 7,183  |        |  |   | 6,564   |       
|                           |                      |                |        |        |  |   |         |       
|Commercial contracts:      |                      |                |        |        |  |   |         |       
|                           | Amounts billed       |                |        | 10,380 |  |   |         | 62,002 | 
|                           | Unbilled receivables |                |        | 44,500 |  |   |         | 44,588 | 
|                           |                      |                |        |        |  |   |         |       
|                           |                      |                | 54,880 |        |  |   | 106,590 |       
|                           |                      |                |        |        |  |   |         |       
|                           |                      | $              | 62,063 |        |  | $ | 113,154 |       
|                           |                      |                |        |        |  |   |         |       

Unbilled amounts include recoverable costs and
accrued profit on progress completed, which have not been
billed. Such amounts are billed in accordance with the contract
terms, typically upon shipment of the product, achievement of
contractual milestones, or completion of the contract and, at
such time, are reclassified to billed receivables.

The Company has estimated that it will incur
approximately $50 million to repair a satellite that was
damaged during transit. The Company expects to recover a
significant portion of these costs through insurance coverage.
Management believes that the resolution of the insurance claim
will not have a material adverse effect on its consolidated
financial position or its results of operation.



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

Billed receivables relating to long-term
contracts are expected to be collected within one year. Loral
classifies billings deferred and the orbital component of
unbilled receivables expected to be collected beyond one year as
long-term. Receivable balances related to satellite orbital
incentive payments and billings deferred as of December 31,
2003 are scheduled to be received as follows (in thousands):

|                                                           |  |             |        |  
|---------------------------------------------------------- |  | ----------- | ------ | -
|                                                           |  | Long-Term  
|                                                           |  | Receivables
|                                                           |  |            
|2004                                                       |  | $           | 6,677  |  
|2005                                                       |  |             | 20,669 |  
|2006                                                       |  |             | 4,084  |  
|2007                                                       |  |             | 1,795  |  
|2008                                                       |  |             | 10,869 |  
|Thereafter                                                 |  |             | 33,332 |  
|                                                           |  |             |        |  
|                                                           |  |             | 77,426 |  
|Less, current portion included in
    contracts-in-process |  |             | (6,677 | )
|                                                           |  |             |        |  
|Long-term receivables                                      |  | $           | 70,749 |  
|                                                           |  |             |        |  

F-19



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2003, Loral owed orbital
incentive obligations of $4 million to a subcontractor for
which Loral has a corresponding long-term receivable from the
customer. Payments of such amounts are due in 2004 and are
contingent upon collection of the related receivable.



|   |                              
|-- | -----------------------------
|6. | Property, Plant and Equipment

|                                                                                  |  |                |           |      |  |   |           |  
|--------------------------------------------------------------------------------- |  | -------------- | --------- | ---- |  | - | --------- | -
|                                                                                  |  |               
|                                                                                  |  | December 31,  
|                                                                                  |  |               
|                                                                                  |  | 2003           |           | 2002
|                                                                                  |  |                |           |     
|                                                                                  |  |               
|                                                                                  |  | (in thousands)
|Land and land improvements                                                        |  | $              | 24,827    |      |  | $ | 24,761    |  
|Buildings                                                                         |  |                | 86,065    |      |  |   | 85,664    |  
|Leasehold improvements                                                            |  |                | 16,995    |      |  |   | 21,633    |  
|Satellites in-orbit, including satellite
    transponder rights of $298.4 million |  |                | 1,454,511 |      |  |   | 1,606,427 |  
|Satellites under construction                                                     |  |                | 707,453   |      |  |   | 554,453   |  
|Earth stations                                                                    |  |                | 59,303    |      |  |   | 71,777    |  
|Equipment, furniture and fixtures                                                 |  |                | 290,257   |      |  |   | 279,033   |  
|Other construction in progress                                                    |  |                | 24,728    |      |  |   | 27,759    |  
|                                                                                  |  |                |           |      |  |   |           |  
|                                                                                  |  |                | 2,664,139 |      |  |   | 2,671,507 |  
|Accumulated depreciation and amortization                                         |  |                | (835,857  | )    |  |   | (793,370  | )
|                                                                                  |  |                |           |      |  |   |           |  
|                                                                                  |  | $              | 1,828,282 |      |  | $ | 1,878,137 |  
|                                                                                  |  |                |           |      |  |   |           |  

Depreciation and amortization expense for
property, plant and equipment was $182.3 million,
$180.0 million and $190.0 million in 2003, 2002 and
2001, respectively. Accumulated depreciation and amortization as
of December 31, 2003 and 2002 includes $91.5 million
and $70.2 million, respectively, related to satellite
transponders where Loral has the rights to transponders for the
remaining life of the related satellite.

The transponder capacity on satellites in-orbit
are either leased by customers or held for lease by the Company.
Future minimum lease receipts due from customers under long-term
operating leases for transponder capacity on the Companys
satellites in-orbit (including $446.2 million related to
the satellites to be sold to Intelsat, see Note 2) and for
service agreements as of December 31, 2003, are as follows
(in thousands):

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  | $ | 209,584   | 
|2005       |  |   | 159,945   | 
|2006       |  |   | 139,509   | 
|2007       |  |   | 127,890   | 
|2008       |  |   | 101,229   | 
|Thereafter |  |   | 486,406   | 
|           |  |   |           | 
|           |  | $ | 1,224,563 | 
|           |  |   |           | 

In January 2004, the Companys Telstar 14/
Estrela do Sul-1 satellite was successfully launched, but after
launch the satellite only partially deployed its North solar
array. SS/ L, the manufacturer of the satellite, is raising the
satellite to geostationary orbit. The book value of Telstar14/
Estrela do Sul-1 at December 31, 2003 was $253 million
and is included in satellites under construction. It is insured
for partial and total losses up to a maximum of
$250 million.

F-20



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                              
|-- | ---------------------------------------------
|7. | Investments in and Advances to
    Affiliates

Investments in and Advances to Affiliates
consists of (in thousands):

|                          |                                                                            |              |        |       |  |   |        |        | 
|------------------------- | -------------------------------------------------------------------------- | ------------ | ------ | ----- |  | - | ------ | ------ | 
|                          |                                                                            |             
|                          |                                                                            | December 31,
|                          |                                                                            |             
|                          |                                                                            | 2003         |        | 2002 
|                          |                                                                            |              |        |      
|XTAR equity investment    |                                                                            | $            | 43,382 |       |  | $ | 24,575 |       
|Satmex equity investments |                                                                            |              |        |       |  |   | 50,761 |       
|Globalstar:               |                                                                            |              |        |       |  |   |        |       
|                          | Acquired notes and loans ($630 million
    principal and accrued interest) |              |        | 3,292 |  |   |        | 20,107 | 
|                          | Vendor financing ($250 million principal and
    accrued interest)         |              |        |       |  |   |        |        | 
|                          |                                                                            |              |        |       |  |   |        |       
|                          |                                                                            | $            | 46,674 |       |  | $ | 95,443 |       
|                          |                                                                            |              |        |       |  |   |        |       

Equity in net losses of affiliates, net of taxes
(Note 12) consists of (in thousands):

|                                                            |  |                          |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                            |  |                         
|                                                            |  | Years Ended December 31,
|                                                            |  |                         
|                                                            |  | 2003                     |         | 2002 |  | 2001
|                                                            |  |                          |         |      |  |     
|XTAR                                                        |  | $                        | (230    | )    |  | $    | (7,017  | ) |  | $ | (498    | )
|Satmex                                                      |  |                          | (51,699 | )    |  |      | (25,067 | ) |  |   | (12,046 | )
|Europe*Star                                                 |  |                          |         |      |  |      | (41,586 | ) |  |   | (28,110 | )
|Globalstar and Globalstar service provider
    partnerships |  |                          | 776     |      |  |      | (2,610  | ) |  |   | (24,915 | )
|Other affiliates                                            |  |                          |         |      |  |      |         |   |  |   | (1,108  | )
|                                                            |  |                          |         |      |  |      |         |   |  |   |         |  
|                                                            |  | $                        | (51,153 | )    |  | $    | (76,280 | ) |  | $ | (66,677 | )
|                                                            |  |                          |         |      |  |      |         |   |  |   |         |  

The consolidated statements of operations reflect
the effects of the following amounts related to transactions
with or investments in affiliates (in thousands):

|                                                                                                      |  |                          |        |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                      |  |                         
|                                                                                                      |  | Years Ended December 31,
|                                                                                                      |  |                         
|                                                                                                      |  | 2003                     |        | 2002 |  | 2001
|                                                                                                      |  |                          |        |      |  |     
|Revenues                                                                                              |  | $                        | 28,660 |      |  | $    | 85,920  |   |  | $ | 100,924 |  
|Interest and investment income                                                                        |  |                          | 886    |      |  |      | 1,177   |   |  |   | 1,177   |  
|Interest expense capitalized on development stage
    enterprises                                     |  |                          | 1,196  |      |  |      | 1,252   |   |  |   | 120     |  
|Elimination of Lorals proportionate share
    of losses (profits) relating to affiliate transactions |  |                          | 4,444  |      |  |      | (10,921 | ) |  |   | (1,527  | )
|(Losses) profits relating to affiliate
    transactions not eliminated                                |  |                          | (3,621 | )    |  |      | 9,887   |   |  |   | 3,735   |  
|Amortization of deferred credit and profits
    relating to investments in affiliates                 |  |                          | (783   | )    |  |      | (508    | ) |  |   | (538    | )

XTAR

XTAR, a joint venture between Loral and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat), a
consortium comprised of leading Spanish telecommunications
companies, including Hispasat, S.A., and agencies of the Spanish
government, is constructing and plans to launch an X-band
satellite to provide X-band services to government users in the
United States and Spain, as well as other friendly and allied
nations. XTAR is owned 56% by Loral (accounted for under the
equity method since the Company does not control certain
significant operating decisions) and 44% by Hisdesat. In
addition, XTAR has agreed to lease certain transponders on the
Spainsat satellite, which is being constructed by SS/ L for
Hisdesat. As of December 31, 2003, the partners in
proportion to their respective ownership interests have
contributed $87 million to XTAR.

F-21



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In October 2003, Loral and Hisdesat entered into
an agreement (the Contribution Agreement) to
contribute over time an additional $25.4 million and
$20.0 million, respectively, into XTAR, with Lorals
contribution effected through the cancellation of amounts owed
under XTARs satellite construction contract with SS/ L.
The proceeds from Hisdesats capital contributions have
been and will be largely used to fund the remaining amounts due
under the satellite construction contract. XTAR has entered into
a Launch Services Agreement with Arianespace, S.A. providing for
launch of its satellite on Arianespaces Ariane 5 ECA
launch vehicle. This flight represents the resumption of the
Ariane 5 ECAs missions since the unsuccessful launch in
late 2002. Arianespace has agreed to provide a one-year loan for
a portion of the launch price, which loan is secured by certain
of XTARs assets, including the satellite, ground equipment
and rights to the orbital slot. The remainder of the launch
price consists of a revenue-based fee to be paid over time
following commencement of operations by XTAR. XTAR still
requires additional funds to insure its satellite, complete the
ground station system and fund its operations. XTAR is in
discussions with its shareholders to try and obtain additional
capital contributions and is seeking additional funds through
other third-party financings.

Loral is seeking the approval of the Bankruptcy
Court and its secured lenders to fund an additional
$2.8 million to XTAR, which would be matched by
$2.2 million of contributions to XTAR from Hisdesat. If
XTAR is unable to raise the $5 million from Loral and
Hisdesat or the substantial additional funds for launch
insurance, the Companys investment in XTAR of
$43 million at December 31, 2003, and any additional
investment effected as a result of the Contribution Agreement or
otherwise, would be adversely affected. Moreover, if XTAR is
unable to repay the Arianespace loan when due, Arianespace will
have the right to foreclose on the XTAR assets pledged as
collateral, which will also adversely affect the Companys
investment in XTAR.



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

In connection with the privatization of Satmex by
the Mexican Government of its satellite services business, Loral
and Principia formed a joint venture, Firmamento Mexicano, S.A.
de R.L. de C.V. (Holdings). In 1997, Holdings
acquired 75% of the outstanding capital stock of Satmex. As part
of the acquisition, Servicios Corporativos Satelitales, S.A. de
C.V. (Servicios), a wholly owned subsidiary of
Holdings, issued a seven-year Government Obligation
(Government Obligation) to the Mexican Government in
consideration for the assumption by Satmex of the debt incurred
by Servicios in connection with the acquisition. The Government
Obligation had an initial face amount of $125 million,
which accretes at 6.03% and expires in December 2004. Under the
terms of the Government Obligation, assets equal to 1.2 times
the value of the Government Obligation are to be maintained in a
collateral trust in favor of the Mexican government. Loral and
Principia have pledged their respective shares in Holdings in
this collateral trust. Because of the decline in the value of
Satmex, the shares in Holdings are no longer sufficient to
maintain the 1.2 collateral trust ratio requirement. As a
result, a default has occurred under the Government Obligation
and the government of Mexico could foreclose on the
Companys shares in the parent company of Servicios, which
would result in the Company losing nearly all of its investment
stake in Satmex.

To conserve cash, on August 1, 2003 Satmex
stopped making interest payments on its high yield bonds and is
currently in default. Although Satmex is current on interest due
on its floating rate notes, the default on its high yield bonds
triggered a cross-default provision under the indenture for its
existing floating rate notes. In addition, on September 30,
2003, additional defaults occurred under Satmexs existing
floating rate notes as a result of its failure to complete
certain proposed financings and the default by Servicios on the
Government Obligation, as a result of its failure to maintain
the minimum coverage ratio as discussed above. The occurrence of
the events of default under each of the high yield bonds and the
existing floating rate notes gives the holders of such notes the
right to accelerate Satmexs principal repayment
obligations on such notes. Should this occur, Satmex may seek to
reorganize under either Chapter 11 of the United States
Bankruptcy Code or Mexican reorganization law or both.

F-22



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2003, Loral had a 65%
economic interest in Holdings and a 49% indirect economic
interest in Satmex. Loral accounts for Satmex using the equity
method. The covenants of Satmexs debt instruments restrict
the ability of Satmex to pay dividends to Loral. As a result of
these recent events, under U.S. GAAP, Loral wrote-off its
investment in Satmex of $29 million (as an increase to its
equity loss) in the third quarter of 2003. Accordingly, there is
no longer any requirement for Loral to provide for its 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 the Companys operating loss of approximately
$24 million during 2003.

Satmex has two satellites in operation and a
third satellite, Satmex 6, scheduled for launch this year.
Satmex will require additional liquidity to complete the launch
of Satmex 6. In order to fund the construction, insurance and
launch of Satmex 6, Satmex pursued export credit agency
financing and a proposed private placement of secured notes. The
Export-Import Bank of the United States (Ex-Im Bank)
has advised Satmex that it will not extend the commitment for
the Ex-Im Bank loan guarantee for which Satmex had previously
received approval.

The Ex-Im Bank financing was an important element
in a financial restructuring of Satmex, which included an
exchange offer for its high yield bonds, a prepayment of its
secured floating rate notes and funding for the payments
remaining for the launch of Satmex 6. Given the recent
developments, Satmex is actively exploring, with its financial
advisors, alternative means of restructuring its debt
obligations and financing the remaining amount for Satmex 6.

The following table presents summary financial
data for Satmex as of September 30, 2003 and
December 31, 2002 and for the nine months ended
September 30, 2003 and for each of the two years in the
period ended December 31, 2002 (in thousands):

|                                           |  |               |         |              |  |      |         |   |  |   |         |  
|------------------------------------------ |  | ------------- | ------- | ------------ |  | ---- | ------- | - |  | - | ------- | -
|                                           |  |               |         |             
|                                           |  | Nine Months   |         | Years Ended 
|                                           |  | Ended         |         | December 31,
|                                           |  | September 30, |         |             
|                                           |  | 2003          |         | 2002         |  | 2001
|Statement of operations data:              |  |               |         |              |  |     
|Revenues                                   |  | $             | 59,212  |              |  | $    | 85,011  |   |  | $ | 128,044 |  
|Operating (loss) income                    |  |               | (4,195  | )            |  |      | (1,388  | ) |  |   | 35,095  |  
|Net loss                                   |  |               | (31,687 | )            |  |      | (19,932 | ) |  |   | (3,112  | )
|Net loss applicable to common stockholders |  |               | (32,818 | )            |  |      | (21,440 | ) |  |   | (4,619  | )

|                      |  |                    |         |                   |  |   |           | 
|--------------------- |  | ------------------ | ------- | ----------------- |  | - | --------- | 
|                      |  | September 30, 2003 |         | December 31, 2002
|Balance sheet data:   |  |                    |         |                  
|Current assets        |  | $                  | 30,816  |                   |  | $ | 51,857    | 
|Total assets          |  |                    | 988,649 |                   |  |   | 1,011,094 | 
|Current liabilities   |  |                    | 560,603 |                   |  |   | 31,036    | 
|Long-term debt        |  |                    |         |                   |  |   | 523,374   | 
|Long-term liabilities |  |                    | 91,053  |                   |  |   | 88,005    | 
|Shareholders equity  |  |                    | 336,993 |                   |  |   | 368,677   | 



| |            
| | -----------
| | Europe*Star

Pursuant to a master settlement agreement on
June 30, 2003 with Alcatel, Loral transferred to Alcatel
its minority interest in Europe*Star, a joint venture between
Loral and Alcatel that owns and operates the Europe*Star 1
satellite (see Note 17). In the fourth quarter of 2002, the
Companys investment in Europe*Star was reduced to zero,
which resulted from the Company recording valuation allowances
of $38 million on the vendor financing and the receivables
advanced to Europe*Star due to collection concerns and recording
an impairment charge relating to its investment in Europe*Star
of $7 million. Accordingly,

F-23



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

there is no longer any requirement for Loral to
provide for its allocated share of Europe*Stars net losses
subsequent to December 31, 2002.

The following table presents summary financial
data for Europe*Star as of December 31, 2002 and for each
of the two years in the period ended December 31, 2002 (in
thousands):

|                                    |  |              |         |      |  |   |         |  
|----------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                    |  |             
|                                    |  | Years Ended 
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2002         |         | 2001
|Statement of operations data:       |  |              |         |     
|Revenues                            |  | $            | 16,090  |      |  | $ | 13,743  |  
|Operating loss                      |  |              | (23,162 | )    |  |   | (33,714 | )
|Net loss applicable to shareholders |  |              | (74,773 | )    |  |   | (58,995 | )

|                      |  |              |         |  
|--------------------- |  | ------------ | ------- | -
|                      |  | December 31,
|                      |  | 2002        
|Balance sheet data:   |  |             
|Current assets        |  | $            | 2,320   |  
|Total assets          |  |              | 332,327 |  
|Current liabilities   |  |              | 86,976  |  
|Long-term liabilities |  |              | 4,088   |  
|Loans from partners  |  |              | 263,215 |  
|Net partners deficit |  |              | (21,952 | )

Globalstar

The Company accounts for its investment in
Globalstar on the equity method due to its inability to control
significant operating decisions at Globalstar. In 2000,
Lorals allocated share of Globalstars losses and
Globalstars impairment charges reduced Lorals
investment in and advances to Globalstar to zero. Accordingly,
there is no longer any requirement for Loral to provide for its
allocated share of Globalstars net losses subsequent to
December 31, 2000. The Company accounts for its investment
in Globalstars $500 million credit facility at fair
value, with changes in the value (net of tax) recorded as a
component of other comprehensive loss (see Notes 4 and 16).
The Company recorded unrealized net losses after taxes as a
component of other comprehensive loss of $17 million,
$13 million and $12 million in 2003, 2002 and 2001,
respectively, in connection with this security.

During 2002, the Company recorded a
$9 million charge to equity in net losses of affiliates
relating to liabilities it had guaranteed in connection with a
Globalstar service provider partnership, which were paid in
2002. In connection with recording its share of
Globalstars operating losses in 2000, the Company recorded
as a charge to equity in net losses of affiliates of
$22.3 million representing the estimated probable
uncollectible costs relating to subcontractor obligations to be
incurred by the Company on Globalstars behalf. In 2002,
the Company recovered a claim with a vendor on the Globalstar
program. Of this recovery, $14 million ($8 million
after taxes) is reflected in the statement of operations as
equity income related to Globalstar, which, when combined with
the recovery of $8.5 million ($5.5 million, after
taxes) recorded in 2001, fully offset the probable uncollectible
costs originally recorded. Globalstar or its creditors may
assert a claim to some portion or all of the 2002 recovery. If
so, the Company will vigorously dispute any such claim.

As of December 31, 2003, the remaining
amount of SS/ L provided vendor financing to Globalstar that
subcontractors assumed was $70 million (which is included
in liabilities subject to compromise). The amount assumed by
subcontractors includes $47 million which is non-recourse
to SS/ L in the event of non-payment by Globalstar as a result
of its bankruptcy.

On February 15, 2002, Globalstar and certain
of its direct subsidiaries filed voluntary bankruptcy petitions
under the Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware (the

F-24



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Court). In connection therewith,
Loral/ Qualcomm Satellite Services, L.P., the managing general
partner of Globalstar, its general partner, Loral/ Qualcomm
Partnership, L.P. (LQP), and certain of Lorals
subsidiaries that serve as general partners of LQP also filed
voluntary bankruptcy petitions with the Court.

During the pendency of the Globalstar bankruptcy
cases, Loral entered into a settlement and release agreement
with Globalstar and Globalstars official creditors
committee to resolve certain issues related to Globalstar and
Globalstars restructuring (the Settlement).
This Settlement was approved on April 14, 2003 by the Court
and closed on July 10, 2003. Among other things, the
Settlement provided that Globalstar grants to Loral, subject to
certain conditions, a general release of all claims Globalstar
might have against Loral in exchange for certain consideration
including, effective upon Globalstars emergence from
Chapter 11 reorganization, an approximate 50% reduction in
the amount of Lorals unsecured claims against Globalstar
of approximately $875 million. Loral does not expect any
material impact on its results of operations or financial
position as a result of this Settlement.

On April 24, 2003, one of Globalstars
creditors filed with the bankruptcy court a motion seeking
reconsideration by the bankruptcy court of the bankruptcy
courts approval of the Settlement. The Globalstar Court
denied this motion for reconsideration on May 30, 2003,
and, on June 9, 2003, the creditor filed a notice of appeal
of the bankruptcy courts order approving the Settlement.
Although the Company believes that the appeal, which is
currently pending, is without merit, no assurance can be given
in this regard or as to what relief, if any, might be granted in
the event the appeal were to be successful.

On December 8, 2003, Globalstar and Thermo
Capital Partners, LLC (Thermo) reached an
acquisition agreement for Thermo to acquire a majority interest
in a reorganized Globalstar (the Thermo
Transaction). The Court approved the sale of
Globalstars assets to a new company (New
Globalstar) to be controlled by Thermo in exchange for an
investment of $43 million for which Thermo would receive an
81.25% equity stake in the new operating company. Following
consummation of the Thermo Transaction and upon resolution of
the Globalstar bankruptcy cases, Globalstars creditors
will be allocated the remaining 18.75% equity interest.
Lorals share of any such equity interest allocation is
estimated at approximately 2.5% of New Globalstar.
Globalstars transaction with Thermo is subject to a number
of material closing conditions. There can be no assurance that
Globalstar will be successful in completing the Thermo
Transaction or that Globalstar will be successfully reorganized.

The Companys investment in Globalstar
related activities on its balance sheet as of December 31,
2003 was $3 million, representing the fair value of its
investment in Globalstars $500 million credit
facility which was based on the trading values of
Globalstars public debt at December 31, 2003. If
Globalstar is unable to effectuate a successful restructuring,
the Companys investment in Globalstar would likely be
worthless, which would have no effect on the Companys
results of operations.

Loral holds various indirect ownership interests
in three foreign companies that currently serve as exclusive
service providers for Globalstar service in Brazil, Mexico and
Russia and an indirect ownership in a U.S.-based distributor
that has the exclusive right to sell Globalstar services to
certain agencies within the U.S. Government. In 2002, the
Company paid $10 million it had guaranteed in connection
with a Globalstar service provider partnership.



|   |                                                                 
|-- | ----------------------------------------------------------------
|8. | Accounting for Goodwill and Other Acquired
    Intangible Assets

On January 1, 2002, the Company adopted
SFAS 142, which addresses the initial recognition and
measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible
assets subsequent to their acquisition. SFAS 142 provides
that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives not be
amortized, but rather be tested at least annually for
impairment. SFAS 142 also changed the evaluation criteria
for testing goodwill for impairment from an undiscounted cash
flow approach, which was previously utilized under the

F-25



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

guidance in SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of (SFAS 121) and
Accounting Principles Board Opinion No. 17, Intangible
Assets (APB 17), to a test based on fair value.
Fair value is determined by the amount at which an asset or
liability could be bought or sold in a current transaction
between willing parties, that is, other than in a forced or
liquidation sale. Quoted market prices in active markets are the
best evidence of fair value and must be used as the basis for
the measurement, if available. If quoted market prices are not
available, the estimate of fair value must be based on the best
information available, including prices for similar assets and
liabilities and the results of using other valuation techniques,
such as public company trading multiples, future discounted cash
flows and merger and acquisition transaction multiples.

Goodwill

In accordance with SFAS 142, the
Companys previously recognized cost in excess of net
assets acquired (goodwill) of $892 million for
business acquisitions accounted for under the purchase method of
accounting completed prior to July 1, 2001, was reviewed
under the new transitional guidance as of January 1, 2002.
Goodwill had been previously assigned to the Companys
business segments as follows (based on the net book value at
December 31, 2001): Satellite Services $606 million
and Satellite Manufacturing $286 million. The Company hired
professionals in the valuation consulting business to determine
the fair value of each of the Companys reporting units.
Since there were no quoted market prices in active markets for
the Companys reporting units, the measurement of fair
value for each reporting unit was based on the best information
available for that reporting unit, including reasonable and
supportable assumptions and projections, as follows: (1)
Satellite Services  public company trading multiples
and merger and acquisition transaction multiples and
(2) Satellite Manufacturing  future discounted
cash flows. Based on the fair values concluded on by those
professionals, management determined that the goodwill for each
of the Companys reporting units under the new guidance in
SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$890 million.

The charge was the result of a change in the
evaluation criteria for goodwill from an undiscounted cash flow
approach, which was previously utilized under the guidance in
SFAS 121 and APB 17, to the fair value approach which
is stipulated in SFAS 142.

F-26



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table presents the actual financial
results and as adjusted financial results without the
amortization of goodwill for the Company for the year ended
December 31, 2001 (in thousands, except per share amounts):

|                                                                                                         |  |                         |          |             |  |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | ----------- |  | - | -------- | -
|                                                                                                         |  |                        
|                                                                                                         |  | Year Ended December 31,
|                                                                                                         |  | 2001                   
|                                                                                                         |  |                        
|                                                                                                         |  | Actual                  |          | As Adjusted
|                                                                                                         |  |                         |          |            
|Reported loss before cumulative effect of change
    in accounting principle                             |  | $                       | (194,719 | )           |  | $ | (194,719 | )
|Add back amortization of goodwill, net of taxes                                                          |  |                         |          |             |  |   | 26,628   |  
|                                                                                                         |  |                         |          |             |  |   |          |  
|Loss before cumulative effect of change in
    accounting principle                                      |  |                         | (194,719 | )           |  |   | (168,091 | )
|Cumulative effect of change in accounting
    principle, net of taxes                                    |  |                         | (1,741   | )           |  |   | (1,741   | )
|                                                                                                         |  |                         |          |             |  |   |          |  
|Net loss                                                                                                 |  |                         | (196,460 | )           |  |   | (169,832 | )
|Preferred dividends                                                                                      |  |                         | (80,743  | )           |  |   | (80,743  | )
|                                                                                                         |  |                         |          |             |  |   |          |  
|Net loss applicable to common shareholders                                                               |  | $                       | (277,203 | )           |  | $ | (250,575 | )
|                                                                                                         |  |                         |          |             |  |   |          |  
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle |  |                         |          |             |  | $ | (8.51    | )
|Add back goodwill amortization per share                                                                 |  |                         |          |             |  |   | 0.82     |  
|                                                                                                         |  |                         |          |             |  |   |          |  
|As adjusted loss per share before cumulative
    effect of change in accounting principle                |  |                         |          |             |  |   | (7.69    | )
|Cumulative effect of change in accounting
    principle                                                  |  |                         |          |             |  |   | (0.05    | )
|                                                                                                         |  |                         |          |             |  |   |          |  
|Adjusted loss per share                                                                                  |  |                         |          |             |  | $ | (7.74    | )
|                                                                                                         |  |                         |          |             |  |   |          |  

Other
Acquired Intangible Assets

The Company evaluated the useful lives of its
other acquired intangible assets in connection with the adoption
of SFAS 142 and determined that no changes to the useful
lives were necessary.

Other acquired intangible assets are included in
other assets in the Companys consolidated balance sheets
as follows (in millions):

|                              |       |                   |      |                   |  |        |       |              |   |   |      |      |  |   |       |       |  
|----------------------------- | ----- | ----------------- | ---- | ----------------- |  | ------ | ----- | ------------ | - | - | ---- | ---- |  | - | ----- | ----- | -
|                              |       |                   |      |                  
|                              |       | December 31, 2003 |      | December 31, 2002
|                              |       |                   |      |                  
|                              |       | Gross             |      | Accumulated       |  | Gross  |       | Accumulated 
|                              |       | Amount            |      | Amortization      |  | Amount |       | Amortization
|                              |       |                   |      |                   |  |        |       |             
|Satellite related intangibles |       | $                 | 40.7 |                   |  | $      | (23.4 | )            |   | $ | 40.7 |      |  | $ | (19.9 | )    
|Regulatory fees               |       |                   | 22.7 |                   |  |        | (6.2  | )            |   |   | 22.7 |      |  |   | (4.6  | )    
|Other intangibles             |       |                   | 13.0 |                   |  |        | (10.2 | )            |   |   | 13.0 |      |  |   | (8.4  | )    
|                              |       |                   |      |                   |  |        |       |              |   |   |      |      |  |   |       |      
|                              | Total |                   | $    | 76.4              |  |        | $     | (39.8        | ) |   | $    | 76.4 |  |   | $     | (32.9 | )
|                              |       |                   |      |                   |  |        |       |              |   |   |      |      |  |   |       |      

As of December 31, 2003, the weighted
average remaining amortization period for satellite related
intangibles was six years, 12 years for regulatory fees and
two years for other intangibles.

F-27



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Total pre-tax amortization expense for other
acquired intangible assets was $6.9 million for each of the
three years in the period ended December 31, 2003. Annual
pre-tax amortization expense for other acquired intangible
assets for the five years ended December 31, 2008 is
estimated to be as follows (in millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2004 |  | $ | 6.9 | 
|2005 |  |   | 5.8 | 
|2006 |  |   | 4.3 | 
|2007 |  |   | 4.3 | 
|2008 |  |   | 4.3 | 



|   |                                  
|-- | ---------------------------------
|9. | Liabilities Subject to Compromise

As discussed in Note 2, the Company and its
Debtor Subsidiaries have been operating as a debtor in
possession under the jurisdiction of the Bankruptcy Court and in
accordance with the provisions of the Bankruptcy Code.

In the consolidated balance sheet, the caption
liabilities subject to compromise reflects
Lorals current estimate of the amount of prepetition
claims that will be restructured in Lorals and its Debtor
Subsidiaries Chapter 11 Cases. Pursuant to court
order, Loral has been authorized to pay certain prepetition
operating liabilities incurred in the ordinary course of
business (e.g. salaries and insurance). Since July 15,
2003, as permitted under the Bankruptcy Code, the Company has
rejected certain of its prepetition obligations. Loral is in the
process of calculating its estimated liability to the unsecured
creditors affected by these contract rejections. The Bankruptcy
Court established January 26, 2004 as the bar date in the
Debtors Chapter 11 Cases, which is the date by which
claims against Loral and its Debtor Subsidiaries were required
to have been filed for claimants to receive any distribution in
the Chapter 11 Cases. Differences between liability amounts
estimated by the Company and claims filed by creditors are being
investigated and the Bankruptcy Court will make a final
determination of the allowable claim. The determination of how
liabilities will ultimately be treated cannot be made until the
Bankruptcy Court approves a Chapter 11 plan of
reorganization. Loral and its Debtor Subsidiaries will continue
to evaluate the amount and classification of their prepetition
liabilities in general through the remainder of their
Chapter 11 Cases. Should Loral or its Debtor Subsidiaries,
through this ongoing evaluation, identify additional liabilities
subject to compromise, such amounts will be recognized
accordingly. As a result, liabilities subject to
compromise are subject to change. Claims classified as
liabilities subject to compromise represent secured
as well as unsecured claims. Liabilities subject to compromise
at December 31, 2003 consisted of the following (in
thousands):

|                                                           |                                         |   |           |           | 
|---------------------------------------------------------- | --------------------------------------- | - | --------- | --------- | 
|Debt obligations (Note 10)                                 |                                         | $ | 2,236,864 |          
|Accounts payable                                           |                                         |   | 50,605    |          
|Accrued employment costs                                   |                                         |   | 6,295     |          
|Customer advances                                          |                                         |   | 36,430    |          
|Accrued interest and preferred dividends                   |                                         |   | 44,610    |          
|Income taxes payable                                       |                                         |   | 39,514    |          
|Pension and other postretirement liabilities
    (Note 15) |                                         |   | 130,981   |          
|Other liabilities(1)                                       |                                         |   | 136,815   |          
|6% Series C convertible redeemable preferred
    stock     |                                         |   | 187,274   |          
|6% Series D convertible redeemable preferred
    stock     |                                         |   | 36,707    |          
|                                                           |                                         |   |           |          
|                                                           | Total liabilities subject to compromise |   | $         | 2,906,095 | 
|                                                           |                                         |   |           |          






|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $47 million of vendor financing
    that is non-recourse to SS/ L in the event of non-payment by
    Globalstar due to bankruptcy.

Preferred Stock

The Companys 6% Series C convertible
redeemable preferred stock (the Series C Preferred
Stock) and 6% Series D convertible redeemable
preferred stock (the Series D Preferred Stock)
have mandatory redemption dates in 2006 and 2007, respectively.
The Company has the right to make mandatory redemption payments
to the holders in either cash or common stock, or a combination
of the two. On July 1, 2003, the

F-28



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company adopted SFAS 150. As a result of the
adoption of SFAS 150, the Company reclassified its
preferred stock to liabilities from shareholders deficit
at June 30, 2003 and the related dividends since adoption
have been included in interest expense (see Note 3).

In August 2002, Lorals Board of Directors
approved a plan to suspend indefinitely the future payment of
dividends on its two series of preferred stock. Accordingly,
Loral has deferred the payments of quarterly dividends due on
its Series C and Series D preferred stock. On
July 15, 2003, Loral stopped accruing dividends on the two
series of its preferred stock in its consolidated financial
statements, as a result of the Companys Chapter 11
filing. Because Loral failed to pay dividends on the
Series C and the Series D preferred stock for six
quarters, holders of the majority of each class of such
preferred stock are now entitled, subject to the applicable
effects of the Chapter 11 Cases and Lorals Bermuda
insolvency proceedings, to elect two additional members, for a
total of four, to Lorals Board of Directors.

6%
Series C Convertible Preferred Stock

The Series C Preferred Stock is non-voting
unless Loral does not pay dividends for an aggregate of six
quarters, and with respect to dividend rights and rights upon
liquidation, winding up and dissolution, ranks pari passuwith the Series D Preferred Stock and senior to or
pari passuwith all other existing and future series of
preferred stock of Loral and senior to Loral common stock. Prior
to redemption, the Series C Preferred Stock is redeemable
in cash at any time, in whole or in part, at the option of the
Company (at a premium which declines over time). The
Series C Preferred Stock is redeemable in cash, Loral
common stock or a combination thereof, at the option by the
Company, on the mandatory redemption date. As a consequence of
the Chapter 11 Cases, it is not likely that a mandatory
redemption will occur.

6%
Series D Convertible Preferred Stock

The Series D Preferred Stock is non-voting,
unless Loral does not pay dividends for six consecutive
quarters, and with respect to dividend rights and rights upon
liquidation, winding up and dissolution, ranks pari passuwith the Series C Preferred Stock and all other
existing and future series of preferred stock of Loral and
senior to Loral common stock. The Series D Preferred Stock
is redeemable in cash, Loral common stock or a combination
thereof, at the option by the Company, on the mandatory
redemption date. As a consequence of the Chapter 11 Cases,
it is not likely that a mandatory redemption will occur.

As of December 31, 2003, the Company had
12 million authorized shares of preferred stock for which
the series had not been designated.

F-29



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |     
|--- | ----
|10. | Debt

|                                                                                                                                               |                                                                                                                        |                |           |         |  |   |           |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | -------------- | --------- | ------- |  | - | --------- | ------- | 
|                                                                                                                                               |                                                                                                                        |               
|                                                                                                                                               |                                                                                                                        | December 31,  
|                                                                                                                                               |                                                                                                                        |               
|                                                                                                                                               |                                                                                                                        | 2003           |           | 2002   
|                                                                                                                                               |                                                                                                                        |                |           |        
|                                                                                                                                               |                                                                                                                        |               
|                                                                                                                                               |                                                                                                                        | (In thousands)
|Loral Orion 10.00% senior notes due 2006:                                                                                                      |                                                                                                                        |                |           |         |  |   |           |        
|                                                                                                                                               | Principal amount                                                                                                       |                | $         | 612,704 |  |   | $         | 612,704 | 
|                                                                                                                                               | Accrued interest (deferred gain on debt exchanges)                                                                     |                |           | 214,446 |  |   |           | 245,080 | 
|Bank debt:                                                                                                                                     |                                                                                                                        |                |           |         |  |   |           |        
|                                                                                                                                               | Loral Satellite term loan, 5.75% and 5.60% at
    December 31, 2003 and 2002, respectively                             |                |           | 226,500 |  |   |           | 249,000 | 
|                                                                                                                                               | Loral Satellite revolving credit facility, 5.75%
    and 4.67% at December 31, 2003 and 2002, respectively             |                |           | 200,000 |  |   |           | 179,000 | 
|                                                                                                                                               | LSC term loan facility, 5.25% and 5.03% at
    December 31, 2003 and 2002, respectively                                |                |           | 350,000 |  |   |           | 360,000 | 
|                                                                                                                                               | LSC revolving credit facility, 5.25% and 5.05% at
    December 31, 2003 and 2002, respectively                         |                |           | 190,387 |  |   |           | 140,000 | 
|9.50% Senior notes due 2006                                                                                                                    |                                                                                                                        |                | 350,000   |         |  |   | 350,000   |        
|Export-Import credit facility                                                                                                                  |                                                                                                                        |                |           |         |  |   | 6,434     |        
|Other                                                                                                                                          |                                                                                                                        |                |           |         |  |   | 535       |        
|Non-recourse debt of Loral Orion:                                                                                                              |                                                                                                                        |                |           |         |  |   |           |        
|                                                                                                                                               | 11.25% Senior notes due 2007 (principal
    amount $37 million)                                                        |                |           | 39,402  |  |   |           | 39,762  | 
|                                                                                                                                               | 12.50% Senior discount notes due 2007
    (principal amount at maturity and accreted principal amount
    $49 million) |                |           | 53,425  |  |   |           | 53,982  | 
|                                                                                                                                               |                                                                                                                        |                |           |         |  |   |           |        
|Total debt                                                                                                                                     |                                                                                                                        |                | 2,236,864 |         |  |   | 2,236,497 |        
|Less, current maturities at December 31,
    2002, and amounts included in liabilities subject to compromise
    at December 31, 2003 (Note 9) |                                                                                                                        |                | 2,236,864 |         |  |   | 130,167   |        
|                                                                                                                                               |                                                                                                                        |                |           |         |  |   |           |        
|                                                                                                                                               |                                                                                                                        | $              |           |         |  | $ | 2,106,330 |        
|                                                                                                                                               |                                                                                                                        |                |           |         |  |   |           |        

Loral currently has approximately
$2.2 billion in debt (including future accrued interest of
$214 million associated with the deferred gain on the Loral
Orion debt exchanges). This debt includes $967 million of
bank debt that is secured by liens on the assets of Loral
SpaceCom and Loral Satellite, consisting primarily of
Lorals satellite manufacturing assets and satellites
serving the North American market. As a result of the
commencement of its Chapter 11 Cases, Loral continues to
pay interest only on its bank debt, which has significantly
reduced its cash interest payments. Loral expects to use the
proceeds from the sale of the satellites serving the North
American market to the Purchasers to repay its outstanding
secured bank debt (see Note 2). From July 15, 2003 to
December 31, 2003, Loral did not recognize
$22.3 million of interest expense and $28.1 million of
a reduction to its 10% senior notes as a result of the
suspension of interest payments on its debt obligations.

As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization, all
of Lorals prepetition debt obligations (aggregating
approximately $2.2 billion at December 31, 2003) have
been accelerated. On July 15, 2003, Loral suspended
interest payments on the 9.50% Senior Notes due 2006, on
the 10% Senior Notes due 2006, on the 11.25% Senior
Notes due 2007 and on the 12.50% Senior Notes due 2007. A
creditors committee has been appointed in the
Chapter 11 Cases to represent all unsecured creditors,
including all holders of Lorals and Loral Orions
senior unsecured notes, and, in accordance with the provisions
of the Bankruptcy Code, it has the right to be heard on all
matters that come before the Bankruptcy Court (see Note 2).

F-30



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Substantially all of the assets of Loral SpaceCom
and Loral Satellite constitute collateral security for the
obligations that are owed to their bank lenders. Under the
provisions of the Bankruptcy Code, Loral SpaceCom and Loral
Satellite are not authorized to use the existing cash or cash
proceeds of this collateral (the Cash Collateral)
without either an order of the Bankruptcy Court authorizing the
use of the Cash Collateral or the consent of their bank lenders.

On the date the Chapter 11 cases were
commenced, the Bankruptcy Court entered an order authorizing the
Debtors to use the Cash Collateral to fund all operating
expenses associated with their businesses in accordance with an
agreed upon budget and in accordance with certain other terms
set forth in the order. The use of the Cash Collateral can be
terminated by the bank lenders upon the occurrence of certain
events specified in the order. The bank lenders have granted the
Debtors a number of waivers in the past. In fact, the Debtors
currently are operating under a waiver that temporarily sets
aside certain of the orders requirements, among them, the
requirement for an agreed upon business plan, certain financial
tests, maintenance of in-orbit insurance at certain levels and
delivery of financial statements. There can be no assurance that
the bank lenders will grant future waivers. In the event the
Debtors ability to use the Cash Collateral were
terminated, the Debtors would still have the right to seek the
authority of the Bankruptcy Court to use the Cash Collateral
notwithstanding any objection by the bank lenders. There can be
no assurance that the Bankruptcy Court would grant such request.



| |                           
| | --------------------------
| | Satellite Credit Agreement

On December 21, 2001, Loral Satellite, a
subsidiary of Loral Space & Communications Corporation,
which in turn is a subsidiary of Loral, entered into the first
amendment to the $500 million secured credit agreement
dated as of November 17, 2000 by and among Loral Satellite,
Bank of America as Administrative Agent, and the other lending
parties thereto (the Satellite Credit Agreement).
The first amendment provides for a $200 million revolving
credit facility expiring January 7, 2005 and a term loan of
which $226.5 million was outstanding as of
December 31, 2003. During the first quarter of 2003, Loral
had drawn down the full amount of the revolving credit facility.
The first amendment also effected certain changes to provisions
relating to the collateral pool provided to lenders under the
Loral Satellite credit facility and imposed additional
limitations on the application of proceeds from any sale of
assets from this collateral pool.

Borrowings under the Satellite Credit Agreement
bear interest, at Loral Satellites option, at various
rates based on fixed margins over the lead banks base rate
or the London Interbank Offer Rate for specified periods. Loral
Satellite pays a commitment fee on the unused portion of the
revolver. The Satellite Credit Agreement contains customary
limitations, including those on indebtedness, fundamental
changes, asset sales, dividends, investments, capital
expenditures, creating liens (other than those created pursuant
to the Satellite Credit Agreement), prepayments or amendments of
indebtedness, and transactions with affiliates. During 2002,
Loral Satellite paid dividends of $35 million to its parent.

The Satellite Credit Agreement is secured by
certain assets of Loral Satellite, including the Telstar 6 and
Telstar 7 satellites and the payments due to Loral Satellite
under Globalstars $500 million credit facility (see
Note 7). In addition, as part of the first amendment,
lenders under the Satellite Credit Agreement received a junior
lien on the assets of Loral SpaceCom and its subsidiaries
pledged in favor of the banks under the LSC Amended Credit
Agreement (as defined below). Loral has also agreed to guarantee
Loral Satellites obligations under the Satellite Credit
Agreement, which guarantee agreement contains a minimum net
worth covenant.

On March 31, 2003, Loral Satellite amended
the Satellite Credit Agreement to provide for certain
modifications, including to its financial covenants (the
Loral Satellite Amendment). Loral Satellites
ability to dividend funds to its parent was substantially
reduced in connection with this amendment.

F-31



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Loral guarantee was also amended in March
2003 to impose additional restrictions on Lorals ability
to pay dividends and to effect voluntary repayment or purchase
of indebtedness. Moreover, under the amended guarantee,
Lorals ability to make investments or otherwise make
payment to any of its subsidiaries is limited to a maximum
amount of $5 million.



| |                             
| | ----------------------------
| | LSC Amended Credit Agreement

On December 21, 2001, Loral SpaceCom entered
into an Amended and Restated Credit Agreement with Bank of
America, N.A., as Administrative Agent, and the other lenders
parties thereto (the LSC Amended Credit Agreement).
The Loral SpaceCom Amended Credit Agreement provides for a
$200 million revolving credit facility expiring
January 7, 2005 and a term loan of which $350 million
was outstanding at December 31, 2003. During the first
quarter of 2003, Loral SpaceCom had substantially utilized the
revolving credit facility through drawdowns and letters of
credit. Borrowings under the LSC Amended Credit Agreement bear
interest, at Loral SpaceComs option, at various rates
based on margins over the lead banks base rate or the
London Interbank Offered Rate for specified periods.

The Loral SpaceCom Amended Credit Agreement
contains limitations on Loral SpaceCom and its subsidiaries,
including those on indebtedness, liens, fundamental changes,
asset sales, dividends, investments, capital expenditures,
transactions with affiliates and certain other intercompany
transactions.

The Loral SpaceCom Amended Credit Agreement is
secured by substantially all of the assets of and the stock of
Loral SpaceCom and its subsidiaries, including SS/ L. Loral
SpaceComs obligations under the Loral SpaceCom Amended
Credit Agreement have been guaranteed by certain of its
subsidiaries, including SS/ L. As of December 31, 2003, the
net book value of the assets that secure the Loral SpaceCom
Amended Credit Agreement was approximately $250 million.

On March 31, 2003, Loral SpaceCom further
amended the LSC Amended Credit Agreement to provide for
additional modifications, including to Loral SpaceComs
financial covenants (the LSC Amendment). The
amendment imposed additional restrictions on Loral SpaceCom and
its subsidiaries, including further restricting their ability to
incur capital expenditures, sell assets, incur debt, provide
vendor financing and make investments. The lenders under the
Loral SpaceCom facilities also received a junior lien on the
stock of Loral Satellite as part of this amendment.

In connection with the amendment of the Loral
SpaceCom and the Loral Satellite credit facilities, Loral agreed
to the continued retention of a financial advisor to assist it
in various matters, including advising the Company on strategic
alternatives, which may include asset sales and other actions to
reduce indebtedness.



| |                       
| | ----------------------
| | Loral Orion Indentures

On December 21, 2001, Loral Orion issued
$613 million principal amount of 10% senior notes due
2006 and guaranteed by Loral, in exchange for the extinguishment
of $841 million principal amount of Loral Orion
11.25% senior notes due 2007 and 12.5% senior discount
notes due 2007 as discussed below.

As part of the exchange, Loral issued to the new
note holders 604,299 five-year warrants to purchase Loral common
stock at a price of $23.70 per share. The warrants were
valued at $7 million using the Black Scholes option pricing
model with the following assumptions: stock volatility, 75%,
risk free interest rate, 4.36%, and no dividends during the
expected term. As of December 31, 2003, principal amount of
$37 million of the existing 11.25% senior notes and
principal amount of $49 million of the existing
12.5% senior discount notes remain outstanding at their
original maturities and interest rates.

The interest rate on the 10% senior notes is
a reduction from the 11.25% interest rate on the existing senior
notes and the 12.5% rate on the existing senior discount notes.
Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. Under
U.S. GAAP dealing with debt restructurings, in 2001 the
Company recorded a gain of $34 million on the exchange,
after expenses of $8 million. The carrying value of the
10% senior notes on the balance sheet at December 31,
2003 was $827 million, although the actual

F-32



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

principal amount of the 10% senior notes is
$613 million. The difference between this carrying value
and the actual principal amount of the 10% senior notes is
being amortized over the remaining life of the 10% senior
notes, fully offsetting interest expense through maturity of the
10% senior notes. The indenture relating to the
10% senior notes contains covenants, including, without
limitation, restrictions on Loral Orions ability to pay
dividends or make loans to Loral.

In connection with the consummation of the
exchange offer, LSC canceled its $79.7 million intercompany
note issued to it by Loral Orion, which ranked pari passu to the
senior debt, in exchange for the transfer of Loral Orions
data services business and the issuance of a new note to LSC in
the principal amount of $29.7 million due 2006, having an
interest rate of 10% per annum payable in kind,
subordinated to Loral Orions 10% senior notes.

The Loral Orion 11.25% senior notes are due
in 2007 and require interest payments semi-annually. The
12.5% senior discount notes are due in 2007 and require
interest payments semi-annually commencing on July 15,
2002. In connection with the Loral Orion acquisition in 1998,
the carrying value of the senior notes and senior discount notes
were increased to reflect a fair value adjustment based on
quoted market prices at the date of acquisition. Such adjustment
resulted in effective interest rates of 8.69% and 9.69% on the
senior notes and senior discount notes, respectively, through
maturity. Along with the issuance of each 11.25% senior
note and 12.5% senior discount note, one warrant was
originally issued to purchase shares of common stock. Upon the
acquisition of Loral Orion, each warrant was converted so that
it could purchase shares of Loral common stock. As of
December 31, 2003, exercisable warrants for
4,530 shares of Loral common stock at an exercise price of
$0.23 per share under the Loral Orion 11.25% senior
notes and 8,397 shares of Loral common stock at an exercise
price of $0.30 per share under the Loral Orion
12.5% senior discount notes are yet to be exercised.

Loral
Senior Notes

In 1999, Loral sold $350 million principal
amount of 9.5% Senior Notes due 2006 (Senior
Notes). The Senior Notes are general unsecured obligations
of Loral that: (1) are structurally junior in right of
payment to all existing and future indebtedness of Lorals
subsidiaries; (2) are equal in right of payment with all
existing and future senior indebtedness of Loral (except as to
assets pledged to secure such indebtedness); and (3) are
senior in right of payment to any future indebtedness which is
by its terms junior in right of payment to any senior
indebtedness of Loral. Interest on the Senior Notes accrues at
the rate of 9.5% per annum and is payable semi-annually on
January 15 and July 15. The Senior Notes were
scheduled to mature on January 15, 2006. Upon a change of
control (as defined), each holder of Senior Notes will have the
right to require Loral to repurchase such holders Senior
Notes at a price equal to 101% of the principal amount thereof
plus accrued interest to the date of repurchase.



|    |                                              
|--- | ---------------------------------------------
|11. | Reorganization Expenses Due to
    Bankruptcy

Reorganization expenses due to bankruptcy for the
period from July 15, 2003 (filing date) to
December 31, 2003, include professional fees associated
with bankruptcy services, employee retention costs, lease
rejection claims, vendor settlement gains and interest income
earned, excluding interest earned related to satellite
activities, and were as follows (in thousands):

|                         |                                                 |   |        |        | 
|------------------------ | ----------------------------------------------- | - | ------ | ------ | 
|Professional fees        |                                                 | $ | 15,489 |       
|Employee retention costs |                                                 |   | 4,692  |       
|Lease rejection claims   |                                                 |   | 5,872  |       
|Vendor settlement gains  |                                                 |   | (61    | )     
|Interest income          |                                                 |   | (708   | )     
|                         |                                                 |   |        |       
|                         | Total reorganization expenses due to bankruptcy |   | $      | 25,284 | 
|                         |                                                 |   |        |       

F-33



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |             
|--- | ------------
|12. | Income Taxes

The provision for income taxes on the loss before
income taxes, equity in net losses of affiliates, minority
interest, cumulative effect of change in accounting principle
and extraordinary gain on acquisition of minority interest
consists of the following (in thousands):

|                           |                     |                          |        |         |   |      |          |          |   |   |        |        |  
|-------------------------- | ------------------- | ------------------------ | ------ | ------- | - | ---- | -------- | -------- | - | - | ------ | ------ | -
|                           |                     |                         
|                           |                     | Years Ended December 31,
|                           |                     |                         
|                           |                     | 2003                     |        | 2002    |   | 2001
|                           |                     |                          |        |         |   |     
|Current:                   |                     |                          |        |         |   |      |          |          |   |   |        |       
|                           | U.S. Federal        |                          | $      | 358     |   |      | $        | 5,347    |   |   | $      | (2,147 | )
|                           | State and local     |                          |        | (745    | ) |      |          | (4,013   | ) |   |        | 1,164  |  
|                           | Foreign             |                          |        | (604    | ) |      |          | (1,041   | ) |   |        | (2,069 | )
|                           |                     |                          |        |         |   |      |          |          |   |   |        |       
|                           | Total               |                          |        | (991    | ) |      |          | 293      |   |   |        | (3,052 | )
|                           |                     |                          |        |         |   |      |          |          |   |   |        |       
|Deferred:                  |                     |                          |        |         |   |      |          |          |   |   |        |       
|                           | U.S. Federal        |                          |        | 108,480 |   |      |          | 25,463   |   |   |        | 7,635  |  
|                           | State and local     |                          |        | (17,470 | ) |      |          | 13,980   |   |   |        | (6,753 | )
|                           | Foreign             |                          |        | 960     |   |      |          | 880      |   |   |        |        |  
|                           | Valuation allowance |                          |        | (95,626 | ) |      |          | (395,658 | ) |   |        |        |  
|                           |                     |                          |        |         |   |      |          |          |   |   |        |       
|                           | Total               |                          |        | (3,656  | ) |      |          | (355,335 | ) |   |        | 882    |  
|                           |                     |                          |        |         |   |      |          |          |   |   |        |       
|Total income tax provision |                     | $                        | (4,647 | )       |   | $    | (355,042 | )        |   | $ | (2,170 | )     
|                           |                     |                          |        |         |   |      |          |          |   |   |        |       

The above income tax provision excludes the
following (in thousands):

|                                                   |                                                                          |                          |  |      |  |      |  |        |        |   |  |        |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------ |  | ---- |  | ---- |  | ------ | ------ | - |  | ------ | ------ | -
|                                                   |                                                                          |                         
|                                                   |                                                                          | Years Ended December 31,
|                                                   |                                                                          |                         
|                                                   |                                                                          | 2003                     |  | 2002 |  | 2001
|                                                   |                                                                          |                          |  |      |  |     
|Items effecting net income (loss):                 |                                                                          |                          |  |      |  |      |  |        |        |   |  |       
|                                                   | Equity in net loss of Globalstar partnership:                            |                          |  |      |  |      |  |        |        |   |  |        |       
|                                                   |                                                                          | Current tax (provision)  |  |      |  |      |  | $      | (5,639 | ) |  | $      |        |  
|                                                   |                                                                          | Deferred tax (provision) |  |      |  |      |  |        |        |   |  |        | (4,356 | )
|                                                   | Equity in net loss of Satmex:                                            |                          |  |      |  |      |  |        |        |   |  |        |       
|                                                   |                                                                          | Deferred tax benefit     |  |      |  |      |  |        |        |   |  |        | 988    |  
|                                                   | Equity in net loss of other affiliates:                                  |                          |  |      |  |      |  |        |        |   |  |        |       
|                                                   |                                                                          | Deferred tax benefit     |  |      |  |      |  |        |        |   |  |        | 318    |  
|                                                   |                                                                          |                          |  |      |  |      |  |        |        |   |  |       
|                                                   | Subtotal of amounts attributable to equity in net
    loss of affiliates |                          |  |      |  |      |  | (5,639 | )      |   |  | (3,050 | )     
|                                                   | Minority interest for CyberStar L.P.:                                    |                          |  |      |  |      |  |        |        |   |  |        |       
|                                                   |                                                                          | Current tax (provision)  |  |      |  |      |  |        |        |   |  |        | (125   | )
|                                                   |                                                                          | Deferred tax benefit     |  |      |  |      |  |        |        |   |  |        | 36     |  
|                                                   | Cumulative effect of change in accounting
    principle:                 |                          |  |      |  |      |  |        |        |   |  |        |       
|                                                   |                                                                          | Deferred tax benefit     |  |      |  |      |  |        |        |   |  |        | 1,197  |  
|Items impacting other comprehensive income (loss): |                                                                          |                          |  |      |  |      |  |        |        |   |  |       
|                                                   | Unrealized gain on available-for-sale securities:                        |                          |  |      |  |      |  |        |        |   |  |        |       
|                                                   |                                                                          | Deferred tax benefit     |  |      |  |      |  |        |        |   |  |        | 6,157  |  
|                                                   | Unrealized gains on derivatives:                                         |                          |  |      |  |      |  |        |        |   |  |        |       
|                                                   |                                                                          | Deferred tax provision   |  |      |  |      |  |        |        |   |  |        | (2,312 | )

F-34



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision for income taxes on the loss before
income taxes, equity in net losses of affiliates, minority
interest, cumulative effect of change in accounting principle
and extraordinary gain on acquisition of minority interest
differs from the amount computed by applying the statutory
U.S. Federal income tax rate because of the effect of the
following items (in thousands):

|                                                          |                                                                          |                          |         |         |   |      |          |          |   |   |        |         |  
|--------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------ | ------- | ------- | - | ---- | -------- | -------- | - | - | ------ | ------- | -
|                                                          |                                                                          |                         
|                                                          |                                                                          | Years Ended December 31,
|                                                          |                                                                          |                         
|                                                          |                                                                          | 2003                     |         | 2002    |   | 2001
|                                                          |                                                                          |                          |         |         |   |     
|Tax benefit at U.S. Statutory Rate of 35%                 |                                                                          | $                        | 118,501 |         |   | $    | 51,574   |          |   | $ | 44,217 |        
|Permanent adjustments which change statutory
    amounts: |                                                                          |                          |         |         |   |      |          |          |   |   |        |        
|                                                          | State and local income taxes, net of federal
    income tax              |                          |         | (11,840 | ) |      |          | 6,479    |   |   |        | (3,633  | )
|                                                          | Non-U.S. income and losses taxed at lower
    rates                      |                          |         | (9,121  | ) |      |          | (16,212  | ) |   |        | (26,141 | )
|                                                          | Non-deductible amortization of cost in excess of
    net assets acquired |                          |         |         |   |      |          |          |   |   |        | (8,738  | )
|                                                          | Government export controls settlement                                    |                          |         | (180    | ) |      |          | (204     | ) |   |        | (4,034  | )
|                                                          | Reorganization expenses due to bankruptcy                                |                          |         | (5,885  | ) |      |          |          |   |   |        |         |  
|                                                          | Change in valuation allowance                                            |                          |         | (95,626 | ) |      |          | (395,658 | ) |   |        |         |  
|                                                          | Other, net                                                               |                          |         | (496    | ) |      |          | (1,021   | ) |   |        | (3,841  | )
|                                                          |                                                                          |                          |         |         |   |      |          |          |   |   |        |        
|Total income tax provision                                |                                                                          | $                        | (4,647  | )       |   | $    | (355,042 | )        |   | $ | (2,170 | )      
|                                                          |                                                                          |                          |         |         |   |      |          |          |   |   |        |        

For the years ended December 31, 2003, 2002
and 2001, loss before income taxes includes approximately
$22 million, $49 million and $71 million,
respectively, of non-U.S. source loss. As of
December 31, 2003, the Company had net operating loss
carryforwards or NOLs of approximately $1.8 billion, which
includes $203 million related to foreign partner interests
in Globalstar and CyberStar L.P. (Cyberstar), as
well as tax credit carryforwards of approximately
$11.7 million, which expire at varying dates from 2012
through 2023. While the NOLs can be used to offset future
taxable income, including the tax gain that will be recognized
upon the sale of the satellite assets to Intelsat (see
Note 2), future use may be impaired depending upon various
factors relating to the Companys plan of reorganization
such as how creditor claims are satisfied, how the equity
interests in the reorganized company are distributed, the extent
of any capital infusion by new investors and the Companys
value and level of debt at the time the Company emerges from
bankruptcy, which are unknown at this time. Moreover, if it is
determined that an ownership change occurred in the
three-year period preceding the emergence from bankruptcy,
future use of these NOLs would be severely limited. An ownership
change would be triggered if shareholders owning 5% or more of
the Companys total equity value change their holdings
during this three-year period by more than 50% in the aggregate.
On August 22, 2003, the Bankruptcy Court entered an order
to assist the Company in protecting the NOLs by establishing
procedures that require certain proposed acquirers of the
Companys securities to notify the Company about a
prospective acquisition, thus giving the Company an opportunity
to file an objection with the Bankruptcy Court if deemed
necessary. While there is no guarantee that the Bankruptcy Court
will rule in the Companys favor in the event of a dispute
between a proposed acquirer and the Company, a ruling against
the Company could jeopardize a substantial portion of its NOLs.

The Company assesses the recoverability of its
NOLs and other deferred tax assets and based upon this analysis,
records a valuation allowance to the extent recoverability does
not satisfy the more likely than not recognition
criteria in SFAS No. 109. Based upon this analysis,
management concluded during the fourth quarter of 2002 that, due
to insufficient positive evidence substantiating recoverability,
a 100% valuation allowance should be established for the entire
balance of the Companys net deferred tax assets. During
2003, Loral continued to maintain the valuation allowance
increasing the reserve by $94.4 million to a balance of
$670.9 million. Of this net increase, $7.8 million
represented deferred tax assets applied directly to
shareholders deficit for other comprehensive loss items,
$12.0 million was applied to equity in net losses of

F-35



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

affiliates and $21.0 million represented a
reduction to the allowance which was applied directly against
the deferred tax asset. The balance of $95.6 million was
charged to the 2003 results.

During 2002, the valuation allowance was
increased by $390.4 million to a balance of
$576.5 million. Of this net increase, $31.9 million
represented deferred tax assets applied directly to
shareholders deficit for other comprehensive loss items,
$18.7 million primarily related to the cumulative effect of
a change in accounting principles on the adoption of
SFAS 142 and $55.9 million represented a reduction to
the allowance which was applied directly against the deferred
tax asset. Included in the reduction was the elimination of the
benefit for NOLs related to certain foreign partners interests
in Globalstar that will expire unrealized. The balance of
$395.7 million was charged to the 2002 results. The
valuation allowance was $186.1 million at December 31,
2001.

As of December 31, 2003 and 2002, valuation
allowances of $670.9 million and $576.5 million,
respectively, have been established for the entire balances of
the Companys net deferred tax assets. Loral will maintain
the valuation allowance until sufficient positive evidence
exists to support its reversal. Until such time, we expect to
report no income tax provision net of valuation allowance
adjustments, except for potential alternative minimum taxes and
minor state, local and foreign tax provisions. When Loral
determines that it will be able to realize its deferred tax
assets, an adjustment to the valuation allowance will increase
income in the period such determination is made.

The significant components of the net deferred
income tax asset (liability) are (in thousands):

|                           |                                                          |              |         |          |   |   |         |          |  
|-------------------------- | -------------------------------------------------------- | ------------ | ------- | -------- | - | - | ------- | -------- | -
|                           |                                                          |             
|                           |                                                          | December 31,
|                           |                                                          |             
|                           |                                                          | 2003         |         | 2002    
|                           |                                                          |              |         |         
|Deferred tax assets:       |                                                          |              |         |          |   |   |         |         
|                           | Postretirement benefits other than pensions              |              | $       | 18,959   |   |   | $       | 17,144   |  
|                           | Inventoried costs                                        |              |         | 28,448   |   |   |         | 18,755   |  
|                           | Net operating loss and tax credit carryforwards          |              |         | 624,702  |   |   |         | 207,568  |  
|                           | Compensation and benefits                                |              |         | 10,201   |   |   |         | 12,022   |  
|                           | Premium on senior notes                                  |              |         | 113,847  |   |   |         | 157,042  |  
|                           | Investments in and advances to affiliates                |              |         | 18,938   |   |   |         | 335,588  |  
|                           | Other, net                                               |              |         | 3,430    |   |   |         | 26,591   |  
|                           | Pension costs                                            |              |         | 35,113   |   |   |         | 25,462   |  
|                           |                                                          |              |         |          |   |   |         |         
|                           | Total deferred tax assets before valuation
    allowance |              |         | 853,638  |   |   |         | 800,172  |  
|                           | Less valuation allowance                                 |              |         | (670,922 | ) |   |         | (576,525 | )
|                           |                                                          |              |         |          |   |   |         |         
|                           | Net deferred tax asset                                   |              | $       | 182,716  |   |   | $       | 223,647  |  
|                           |                                                          |              |         |          |   |   |         |         
|Deferred tax liabilities:  |                                                          |              |         |          |   |   |         |         
|                           | Property, plant and equipment                            |              | $       | 199,883  |   |   | $       | 210,778  |  
|                           | Income recognition on long-term contracts                |              |         | 13,440   |   |   |         | 39,820   |  
|                           |                                                          |              |         |          |   |   |         |         
|                           | Total deferred tax liability                             |              | $       | 213,323  |   |   | $       | 250,598  |  
|                           |                                                          |              |         |          |   |   |         |         
|Net deferred tax liability |                                                          | $            | (30,607 | )        |   | $ | (26,951 | )       
|                           |                                                          |              |         |          |   |   |         |         

The net deferred income tax liability is included
in other long-term liabilities.

F-36



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                      
|--- | ---------------------
|13. | Shareholders Deficit

Common
Stock

On June 4, 2003, the Companys Board of
Directors approved a reverse stock split of the Companys
common stock at a ratio of one-for-ten, resulting in a new par
value of $0.10 per common share (previously $0.01 par
value per common share). The reverse stock split became
effective after the close of business on June 13, 2003 and
reduced the number of shares of common stock then outstanding
from 440 million to 44 million. All share and per
share amounts for all periods presented have been retroactively
restated to reflect the reverse stock split.

At its annual shareholders meeting on
May 29, 2003, the Company obtained shareholder approval to
increase the authorized number of shares of its common stock
from 75,000,000 to 125,000,000 (as adjusted for the
above-mentioned reverse stock split).

Series B
Preferred Stock

The Series B Preferred Stock will, if
issued, be junior to any other series of preferred stock which
may be authorized and issued. The Series B Preferred Stock
becomes issuable upon exercise by holders of rights issued under
the Companys rights plan. The rights are issued with the
Companys common stock and become detachable, and thus
exercisable, only upon the occurrence of certain events. Each
right, when it becomes exercisable, entitles the holder to
purchase from the Company a unit consisting initially of
one-thousandth of a share of Series B Preferred Stock at a
purchase price of $50 per unit, subject to adjustment.

6%
Series C and Series D Convertible Redeemable Preferred
Stock

Based upon the price of the Companys common
stock at December 31, 2002, the Company did not have
available a sufficient number of authorized shares of its common
stock to effect payment of the total mandatory redemptions of
its preferred stock into common stock in 2006 and 2007.
Accordingly, as of December 31, 2002, the Company
classified an aggregate of $125 million of its
Series C Preferred Stock and Series D Preferred Stock
outside the shareholders deficit section of the balance
sheet, based on the average of the volume weighted average daily
price of the Companys common stock as defined. As a
consequence of the Chapter 11 Cases, it is not likely that
a mandatory redemption will occur. See Note 9.

Series C
and Series D Preferred Stock Conversions

In connection with the conversions of the
Companys preferred stock for common stock in 2002 and 2001
detailed below, the Company retired preferred stock with
mandatory redemptions in 2006 and 2007 aggregating
$921 million (representing 80% of the aggregate redemption
values prior to these exchanges).

On October 8, 2002, Loral completed exchange
offers for its Series C and Series D preferred stock
and converted 4.3 million shares of its Series C
Preferred Stock and 2.7 million shares of its Series D
Preferred Stock for 4.6 million shares of its common stock
and $13.4 million in cash. In connection with the exchange
offers, Loral incurred $21.6 million of dividend charges,
comprised of the $13.4 million in cash and non-cash
dividend charges of $8.2 million. The non-cash dividend
charges relate to the difference between the value of the common
stock issued in the exchanges and the value of the shares that
were issuable under the stated conversion terms of the preferred
stock and will have no impact on Lorals total
shareholders deficit as the offset was an increase in
common stock and paid-in capital.

During the second quarter of 2002, in privately
negotiated exchange transactions, Loral converted
1.8 million shares of its Series C Preferred Stock and
2.7 million shares of its Series D Preferred Stock
into 3.1 million shares of its common stock. In connection
with these transactions, Loral incurred non-cash dividend
charges of $38 million, which primarily relate to the
difference between the value of the common

F-37



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stock issued in the exchanges and the value of
the shares that were issuable under the stated conversion terms
of the preferred stock. The non-cash dividend charges had no
impact on Lorals total shareholders deficit, as the
offset was an increase in common stock and paid-in capital.

On April 16, 2001, the Company completed
exchange offers for its Series C Preferred Stock and its
Series D Preferred Stock. As a result, 3.7 million
shares of its Series C Preferred Stock and 1.9 million
shares of its Series D Preferred Stock were tendered and
exchanged into 3.1 million shares of the Companys
common stock. Loral incurred non-cash dividend charges in the
second quarter of 2001 of $29 million, which primarily
relate to the difference between the value of the common stock
issued in the exchanges and the value of the shares that were
issuable under the stated conversion terms of the preferred
stock. The non-cash dividend charges had no impact on
Lorals total shareholders deficit, as the offset was
an increase in common stock and paid-in capital.

Stock
Plans

On April 18, 2000, the Board of Directors of
Loral approved a new stock option plan (the 2000
Plan) in order to provide an inducement to attract and
retain the services of qualified employees. The 2000 Plan is
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 provides for the grant
of non-qualified stock options only. As of December 31,
2003, up to 3.7 million shares of common stock may be
issued under the 2000 Plan, of which approximately
1.6 million options at a weighted average exercise price of
$20.30 per share were outstanding as of December 31,
2003.

In April 1996, Loral established the 1996 Stock
Option Plan. An aggregate of 1.8 million shares of common
stock have been reserved for issuance, of which approximately
0.8 million options at a weighted average exercise price of
$95.63 per share were outstanding as of December 31,
2003.

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

F-38



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the status of the Companys
stock option plans as of December 31, 2003, 2002 and 2001
and changes during the periods then ended is presented below:

|                                                                                  |  |        |            |          |  |   |        | 
|--------------------------------------------------------------------------------- |  | ------ | ---------- | -------- |  | - | ------ | 
|                                                                                  |  |        |            | Weighted
|                                                                                  |  |        |            | Average 
|                                                                                  |  |        |            | Exercise
|                                                                                  |  | Shares |            | Price   
|                                                                                  |  |        |            |         
|Outstanding at January 1, 2001                                                    |  |        | 3,274,824  |          |  | $ | 92.60  | 
|Granted at fair market value (weighted average
    fair value $8.10 per share)    |  |        | 1,608,452  |          |  |   | 16.00  | 
|Exercised                                                                         |  |        | (550       | )        |  |   | 0.10   | 
|Forfeited                                                                         |  |        | (116,660   | )        |  |   | 98.00  | 
|                                                                                  |  |        |            |          |  |   |        | 
|Outstanding at December 31, 2001                                                  |  |        | 4,766,066  |          |  |   | 66.60  | 
|Granted at fair market value (weighted average
    fair value $10.80 per share)   |  |        | 93,950     |          |  |   | 18.60  | 
|Granted below fair market value (weighted average
    fair value $3.76 per share) |  |        | 40,000     |          |  |   | 0.10   | 
|Exercised                                                                         |  |        | (40,000    | )        |  |   | 0.10   | 
|Forfeited                                                                         |  |        | (575,132   | )        |  |   | 86.40  | 
|                                                                                  |  |        |            |          |  |   |        | 
|Outstanding at December 31, 2002                                                  |  |        | 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  | 
|                                                                                  |  |        |            |          |  |   |        | 
|Options exercisable at December 31, 2001                                          |  |        | 1,554,177  |          |  | $ | 110.60 | 
|                                                                                  |  |        |            |          |  |   |        | 
|Options exercisable at December 31, 2002                                          |  |        | 2,555,606  |          |  | $ | 77.40  | 
|                                                                                  |  |        |            |          |  |   |        | 
|Options exercisable at December 31, 2003                                          |  |        | 1,945,227  |          |  | $ | 52.21  | 
|                                                                                  |  |        |            |          |  |   |        | 

The following table summarizes information about
Lorals outstanding stock options at December 31, 2003:

|                     |  |                   |           |             |  |          |      |        |  |          |        |  |  |  |           |  |  |   |        | 
|-------------------- |  | ----------------- | --------- | ----------- |  | -------- | ---- | ------ |  | -------- | ------ |  |  |  | --------- |  |  | - | ------ | 
|                     |  |                  
|                     |  | December 31, 2003
|                     |  |                  
|                     |  |                   |           |            
|                     |  | Outstanding       |           |            
|                     |  |                   |           | Exercisable
|                     |  |                   |           | Weighted    |  |          |      |       
|                     |  |                   |           | Average     |  | Weighted |      |        |  | Weighted
|                     |  |                   |           | Remaining   |  | Average  |      |        |  | Average 
|                     |  |                   |           | Contractual |  | Exercise |      |        |  | Exercise
|Exercise Price Range |  | Number            |           | Life-Years  |  | Price    |      | Number |  | Price   
|                     |  |                   |           |             |  |          |      |        |  |         
|$3.80  $19.60       |  |                   | 1,184,629 |             |  |          | 7.79 |        |  | $        | 13.17  |  |  |  | 872,584   |  |  | $ | 13.29  | 
|$21.95  $34.70      |  |                   | 527,262   |             |  |          | 7.01 |        |  |          | 31.86  |  |  |  | 408,201   |  |  |   | 32.29  | 
|$60.60  $81.30      |  |                   | 307,430   |             |  |          | 6.51 |        |  |          | 80.05  |  |  |  | 307,430   |  |  |   | 80.05  | 
|$105.00  $157.50    |  |                   | 218,159   |             |  |          | 2.75 |        |  |          | 112.59 |  |  |  | 216,839   |  |  |   | 112.52 | 
|$158.10  $221.30    |  |                   | 93,185    |             |  |          | 5.12 |        |  |          | 165.80 |  |  |  | 83,625    |  |  |   | 166.19 | 
|$238.50  $272.80    |  |                   | 56,548    |             |  |          | 3.17 |        |  |          | 245.34 |  |  |  | 56,548    |  |  |   | 245.34 | 
|                     |  |                   |           |             |  |          |      |        |  |          |        |  |  |  |           |  |  |   |        | 
|                     |  |                   | 2,387,213 |             |  |          | 6.78 |        |  |          | 46.45  |  |  |  | 1,945,227 |  |  |   | 52.21  | 
|                     |  |                   |           |             |  |          |      |        |  |          |        |  |  |  |           |  |  |   |        | 

All options granted during 2002 and 2001 were
non-qualified stock options. As of December 31, 2003,
2,996,265 shares of common stock were available for future
grant under the plans.

F-39



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In connection with its exchange offer for certain
outstanding stock options completed on March 7, 2003, 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 Lorals
Chapter 11 filing, however, Loral will not be able to grant
the new stock options. Any claims or rights that option holders
whose options were cancelled may have will be addressed in the
context of the Chapter 11 Cases. These cancellations have
been reflected as forfeitures in 2003.



|    |               
|--- | --------------
|14. | Loss Per Share

Basic 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 (see Note 13), as their effect would have been
antidilutive in 2003, 2002 and 2001, respectively. For 2003,
2002 and 2001, weighted options equating to zero, 151,632 and
38,966 shares of common stock, respectively, as calculated
using the treasury stock method, were excluded from the
calculation of diluted loss per share, as the effect would have
been antidilutive.

The following table sets forth the computation of
basic and diluted loss per share:

|                                                |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |          |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | -------- | - | ---- | ------- | ---------- | - |  | ------- | -------- | -
|                                                |                                                                                                                                    |                                      
|                                                |                                                                                                                                    | Years Ended December 31,             
|                                                |                                                                                                                                    |                                      
|                                                |                                                                                                                                    | 2003                                  |         | 2002     |   | 2001
|                                                |                                                                                                                                    |                                       |         |          |   |     
|                                                |                                                                                                                                    |                                      
|                                                |                                                                                                                                    | (in thousands, except per share data)
|Numerator for basic and diluted loss per share: |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         
|                                                | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |                                       | $       | (394,355 | ) |      | $       | (578,902   | ) |  | $       | (194,719 | )
|                                                | Preferred dividends                                                                                                                |                                       |         | (6,719   | ) |      |         | (89,186    | ) |  |         | (80,743  | )
|                                                |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         
|                                                |                                                                                                                                    |                                       | 401,074 |          |   |      | 668,088 |            |   |  | 275,462 |         
|                                                | Cumulative effect of change in accounting
    principle, net of taxes                                                              |                                       |         | (1,970   | ) |      |         | (890,309   | ) |  |         | (1,741   | )
|                                                | Extraordinary gain on acquisition of minority
    interest                                                                         |                                       |         | 13,615   |   |      |         |            |   |  |         |          |  
|                                                |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         
|                                                | Net loss applicable to common stockholders                                                                                         |                                       | $       | (389,429 | ) |      | $       | (1,558,397 | ) |  | $       | (277,203 | )
|                                                |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         
|Denominator:                                    |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         
|                                                | Weighted average common shares outstanding                                                                                         |                                       |         | 43,819   |   |      |         | 37,272     |   |  |         | 32,379   |  
|                                                |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         
|Basic and diluted loss per share:               |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         
|                                                | Before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest      |                                       | $       | (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 per share                                                                                                                     |                                       | $       | (8.89    | ) |      | $       | (41.81     | ) |  | $       | (8.56    | )
|                                                |                                                                                                                                    |                                       |         |          |   |      |         |            |   |  |         |         



|    |                                     
|--- | ------------------------------------
|15. | Pensions and Other Employee Benefits



| |         
| | --------
| | Pensions

The Company maintains a pension plan and a
supplemental retirement plan. These plans are defined benefit
pension plans and members in certain locations may contribute to
the pension plan in order to receive enhanced benefits.
Eligibility for participation in these plans vary and benefits
are based on members

F-40



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

compensation and/or years of service. The
Companys funding policy is to fund the pension plan in
accordance with the Internal Revenue Code and regulations
thereon and to fund the supplemental retirement plan on a
discretionary basis. Plan assets are generally invested in
U.S. government and agency obligations and listed stocks
and bonds.

Other
Benefits

In addition to providing pension benefits, the
Company provides certain health care and life insurance benefits
for retired employees and dependents. Participants are eligible
for these benefits when they retire from active service and meet
the eligibility requirements for the Companys pension
plan. These benefits are funded primarily on a pay-as-you-go
basis, with the retiree generally paying a portion of the cost
through contributions, deductibles and coinsurance provisions.

The following tables provide a reconciliation of
the changes in the plans benefit obligations and fair
value of assets for 2003 and 2002, and a statement of the funded
status as of December 31, 2003 and 2002, respectively. The
Company uses a December 31 measurement date for the pension
plans and other post retirement benefit plans.

|                                                |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ---------------- | -------- | -------------- |  | ---- | -------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                |  |                  |          |               
|                                                |  | Pension Benefits |          | Other Benefits
|                                                |  |                  |          |               
|                                                |  | 2003             |          | 2002           |  | 2003 |          | 2002
|                                                |  |                  |          |                |  |      |          |     
|                                                |  |                 
|                                                |  | (in thousands)  
|Reconciliation of benefit obligation            |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  
|Obligation at January 1                         |  | $                | 319,950  |                |  | $    | 277,297  |      |  | $ | 71,990  |   |  | $ | 49,309  |  
|Service cost                                    |  |                  | 10,647   |                |  |      | 9,382    |      |  |   | 3,139   |   |  |   | 2,135   |  
|Interest cost                                   |  |                  | 22,021   |                |  |      | 21,041   |      |  |   | 5,647   |   |  |   | 4,111   |  
|Participant contributions                       |  |                  | 1,033    |                |  |      | 1,348    |      |  |   | 1,055   |   |  |   | 961     |  
|Plan amendments                                 |  |                  |          |                |  |      | 61       |      |  |   | (20,842 | ) |  |   |         |  
|Actuarial loss                                  |  |                  | 24,405   |                |  |      | 26,229   |      |  |   | 21,981  |   |  |   | 17,671  |  
|Curtailment gain                                |  |                  | (6,207   | )              |  |      |          |      |  |   | (9,893  | ) |  |   |         |  
|Benefit payments                                |  |                  | (17,968  | )              |  |      | (15,408  | )    |  |   | (3,740  | ) |  |   | (2,197  | )
|                                                |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  
|Obligation at December 31                       |  | $                | 353,881  |                |  | $    | 319,950  |      |  | $ | 69,337  |   |  | $ | 71,990  |  
|Reconciliation of fair value of plan
    assets |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at January 1          |  | $                | 211,296  |                |  | $    | 243,818  |      |  | $ | 1,549   |   |  | $ | 1,426   |  
|Actual return (loss) on plan assets             |  |                  | 32,607   |                |  |      | (20,721  | )    |  |   | 40      |   |  |   | 124     |  
|Employer contributions                          |  |                  |          |                |  |      | 2,259    |      |  |   | 2,476   |   |  |   | 1,235   |  
|Participant contributions                       |  |                  | 1,033    |                |  |      | 1,348    |      |  |   | 1,055   |   |  |   | 961     |  
|Benefit payments                                |  |                  | (17,968  | )              |  |      | (15,408  | )    |  |   | (3,740  | ) |  |   | (2,197  | )
|                                                |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  
|                                                |  | $                | 226,968  |                |  | $    | 211,296  |      |  | $ | 1,380   |   |  | $ | 1,549   |  
|Funded status                                   |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  
|Unfunded status at December 31                  |  | $                | (126,913 | )              |  | $    | (108,654 | )    |  | $ | (67,957 | ) |  | $ | (70,441 | )
|Unrecognized prior service cost                 |  |                  | (261     | )              |  |      | (279     | )    |  |   | (25,362 | ) |  |   | (5,110  | )
|Unrecognized loss                               |  |                  | 102,486  |                |  |      | 103,949  |      |  |   | 45,252  |   |  |   | 33,086  |  
|                                                |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  
|Net amount recognized                           |  | $                | (24,688  | )              |  | $    | (4,984   | )    |  | $ | (48,067 | ) |  | $ | (42,465 | )
|                                                |  |                  |          |                |  |      |          |      |  |   |         |   |  |   |         |  

F-41



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table provides the details of the
net pension liability recognized in the balance sheet as of
December 31, 2003 and 2002, respectively (in thousands):

|                                     |  |      |         |      |  |   |         |  
|------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|                                     |  | 2003 |         | 2002
|                                     |  |      |         |     
|Prepaid benefit cost                 |  | $    |         |      |  | $ | 12,833  |  
|Accrued benefit liability            |  |      | (93,897 | )    |  |   | (82,500 | )
|Accumulated other comprehensive loss |  |      | 69,209  |      |  |   | 64,683  |  
|                                     |  |      |         |      |  |   |         |  
|Net amount recognized                |  | $    | (24,688 | )    |  | $ | (4,984  | )
|                                     |  |      |         |      |  |   |         |  

Included in liabilities subject to compromise
(Note 9) is $131 million of the accrued benefit
liability for pensions and the net amount recognized for other
benefits.

The accumulated pension benefit obligation was
$321.0 million and $281.1 million at December 31,
2003 and 2002, respectively.

For 2003, the Companys qualified pension
plan, under the Internal Revenue Code and regulations
thereunder, was considered fully funded (i.e. assets are greater
than liabilities) and there was no contribution required for
2003. During 2004, based on current estimates, the Company
expects to contribute $13 million to the qualified pension
plan. The significant declines experienced in the financial
markets in previous years have unfavorably impacted pension plan
asset performance. This, coupled with historically low interest
rates (a key factor when estimating pension plan liabilities),
caused the Company to recognize an additional $4.5 million
during 2003, for a total of $69.2 million of non-cash
charges to other comprehensive income (loss) as of
December 31, 2003. Market conditions and interest rates
significantly impact future assets and liabilities of the
Companys pension plans, and this charge to equity will be
revalued in the future based upon plan assets and the
measurement of plan obligations which is completed at the end of
each fiscal year.

The following table provides the components of
net periodic cost for the plans for 2003, 2002 and 2001,
respectively (in thousands):

|                                       |  |                  |         |                |  |      |         |      |  |      |         |      |  |   |        |   |  |   |        |   |  |   |        |  
|-------------------------------------- |  | ---------------- | ------- | -------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                       |  |                  |         |               
|                                       |  | Pension Benefits |         | Other Benefits
|                                       |  |                  |         |               
|                                       |  | 2003             |         | 2002           |  | 2001 |         | 2003 |  | 2002 |         | 2001
|                                       |  |                  |         |                |  |      |         |      |  |      |         |     
|Service cost                           |  | $                | 10,647  |                |  | $    | 9,382   |      |  | $    | 8,804   |      |  | $ | 3,139  |   |  | $ | 2,135  |   |  | $ | 1,790  |  
|Interest cost                          |  |                  | 22,021  |                |  |      | 21,041  |      |  |      | 19,867  |      |  |   | 5,647  |   |  |   | 4,111  |   |  |   | 3,504  |  
|Expected return on plan assets         |  |                  | (18,318 | )              |  |      | (22,640 | )    |  |      | (25,900 | )    |  |   | (139   | ) |  |   | (135   | ) |  |   | (148   | )
|Amortization of prior service cost     |  |                  | (36     | )              |  |      | (36     | )    |  |      | (41     | )    |  |   | (1,429 | ) |  |   | (1,272 | ) |  |   | (1,272 | )
|Amortization of net loss               |  |                  | 5,372   |                |  |      | 540     |      |  |      | 23      |      |  |   | 2,120  |   |  |   | 733    |   |  |   | 380    |  
|Recognition of curtailment loss (gain) |  |                  | 18      |                |  |      |         |      |  |      |         |      |  |   | (1,257 | ) |  |   |        |   |  |   |        |  
|                                       |  |                  |         |                |  |      |         |      |  |      |         |      |  |   |        |   |  |   |        |   |  |   |        |  
|Net periodic cost                      |  | $                | 19,704  |                |  | $    | 8,287   |      |  | $    | 2,753   |      |  | $ | 8,081  |   |  | $ | 5,572  |   |  | $ | 4,254  |  
|                                       |  |                  |         |                |  |      |         |      |  |      |         |      |  |   |        |   |  |   |        |   |  |   |        |  

The principal actuarial assumptions were:

Assumptions used to determine net periodic cost:

|                               |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                               |  | 2003 |      | 2002 |  | 2001
|                               |  |      |      |      |  |     
|Discount rate                  |  |      | 6.75 | %    |  |      | 7.50 | % |  |  | 7.75 | %
|Expected return on plan assets |  |      | 9.00 | %    |  |      | 9.50 | % |  |  | 9.50 | %
|Rate of compensation increase  |  |      | 4.25 | %    |  |      | 4.25 | % |  |  | 4.25 | %

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Assumptions used to determine the benefit
obligation:

|                              |  |      |      |      |  |  |      |  
|----------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|                              |  | 2003 |      | 2002
|                              |  |      |      |     
|Discount rate                 |  |      | 6.25 | %    |  |  | 6.75 | %
|Rate of compensation increase |  |      | 4.25 | %    |  |  | 4.25 | %

The expected long-term rate of return on pension
plan assets is selected by taking into account the expected
duration of the projected benefit obligation for the plans, the
asset mix of the plans and the fact that the plan 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., which
allocates the assets into specified Russell designed funds as
per the Companys directed asset allocation. Each specified
Russell fund is then managed by investment managers chosen by
Russell. The targeted allocation of the Companys 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 the Companys investment managers has
been 10.9%. The Company believes that its long-term asset
allocation will approximate 60% in equity investments and 40% in
fixed income investments. The expected long-term rate of return
on plan assets determined on this basis was 9.0% for 2003, a
decline of 50 basis points from 2002.

The Companys pension and other employee
benefits plan asset allocations by asset category as of
December 31, 2003 and 2002 are as follows:

|                         |  |      |     |      |  |  |     |  
|------------------------ |  | ---- | --- | ---- |  |  | --- | -
|                         |  | 2003 |     | 2002
|                         |  |      |     |     
|Equity investments       |  |      | 55  | %    |  |  | 47  | %
|Fixed income investments |  |      | 45  | %    |  |  | 53  | %
|                         |  |      |     |      |  |  |     |  
|                         |  |      | 100 | %    |  |  | 100 | %
|                         |  |      |     |      |  |  |     |  

Actuarial assumptions used a health care cost
trend rate of 11.0% decreasing gradually to 4.50% by 2010.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A 1% change
in assumed health care cost trend rates for 2003 would have the
following effects (in thousands):

|                                                                                                                        |  |             |       |             |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----- | ----------- |  | - | ------ | -
|                                                                                                                        |  | 1% Increase |       | 1% Decrease
|                                                                                                                        |  |             |       |            
|Effect on total of service and interest cost
    components of net periodic postretirement health care benefit
    cost |  | $           | 1,556 |             |  | $ | (1,219 | )
|Effect on the health care component of the
    accumulated postretirement benefit obligation                            |  | $           | 6,707 |             |  | $ | (5,654 | )

On December 8, 2003, President Bush signed
the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (DIMA). The Act introduces a federal
subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to
Medicare Part D. In accordance with the FASB Staff Position
No. 106-1, Loral is electing to defer recognition of any
potential savings on the measure of accumulated postretirement
benefit obligation or net periodic benefit cost as a result of
DIMA until specific authoritative guidance on the accounting of
the federal subsidy is issued. Therefore, the consolidated
financial statements do not reflect the effects of the Act on
the plan.

Employee
Savings Plan

The Company has an employee savings plan, which
provides that the Company match the contributions of
participating employees up to a designated level. Under this
plan, the matching contributions in Loral common stock or cash
were $5.3 million, $6.6 million and $6.7 million
in 2003, 2002 and 2001, respectively. Employees vested in the
savings plan are able to redirect the Company match to any
available fund. In addition, employees are able to direct their
individual contributions to any available fund.

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                              
|--- | -------------------------------------------------------------
|16. | Financial Instruments, Derivative Instruments
    and Hedging

Financial
Instruments

The estimated fair values of the Companys
financial instruments are as follows (in thousands):

|                                             |  |              |           |            |  |          |           |            |  |   |           |  |  |   |           | 
|-------------------------------------------- |  | ------------ | --------- | ---------- |  | -------- | --------- | ---------- |  | - | --------- |  |  | - | --------- | 
|                                             |  |             
|                                             |  | December 31,
|                                             |  |             
|                                             |  |              |           |           
|                                             |  | 2003         |           | 2002      
|                                             |  |              |           |           
|                                             |  | Carrying     |           |            |  | Carrying |           |           
|                                             |  | Amount       |           | Fair Value |  | Amount   |           | Fair Value
|                                             |  |              |           |            |  |          |           |           
|Cash and cash equivalents                    |  | $            | 141,644   |            |  | $        | 141,644   |            |  | $ | 65,936    |  |  | $ | 65,936    | 
|Investments in available-for-sale securities |  |              | 3,440     |            |  |          | 3,440     |            |  |   | 20,255    |  |  |   | 20,255    | 
|Debt                                         |  |              | 2,236,864 |            |  |          | 1,650,035 |            |  |   | 2,236,497 |  |  |   | 1,273,483 | 
|6% Series C Preferred Stock                  |  |              | 187,274   |            |  |          | 13,000    |            |  |   |           |  |  |   |           | 
|6% Series D Preferred Stock                  |  |              | 36,707    |            |  |          | 3,000     |            |  |   |           |  |  |   |           | 

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments for which it is practicable to estimate fair value:

The carrying amount of cash and cash equivalents
approximates fair value because of the short maturity of those
instruments. The fair value of the investments in
available-for-sale securities are based on market quotations or,
for the Companys investment in Globalstars
$500 million credit facility (as adjusted for the
settlement agreement), the quoted market price of
Globalstars public debt securities (see Note 7). The
fair value of the Companys debt is based on the carrying
value for those obligations that have short-term variable
interest rates on the outstanding borrowings and quoted market
prices for obligations with long-term or fixed interest rates
(the fair value for the Loral Orion 11.25% and 12.5% senior
notes was based on the quoted market price of the Loral Orion
10% senior notes, as there was no active market for those
senior notes). The fair value of the Companys preferred
stock is based on market quotations.

The fair value of the investments in
available-for-sale securities includes unrealized gains of
$3 million and $20 million as of December 31,
2003 and 2002, respectively, which relates to the Companys
investment in Globalstars $500 million credit
facility (see Note 4). Approximately $214 million and
$245 million of the carrying amount of debt as of
December 31, 2003 and 2002, respectively, is attributable
to the accounting for the Loral Orion exchange offer (see
Note 10).

Foreign
Currency

The Company, in the normal course of business, is
subject to the risks associated with fluctuations in foreign
currency exchange rates. Prior to filing Chapter 11, the
Company entered into forward exchange contracts to establish
with certainty the U.S. dollar amount of future anticipated
cash receipts and payments and firm commitments for cash
payments denominated in a foreign currency. The primary business
objective of this hedging program is to minimize the gains and
losses resulting from exchange rate changes. As of
December 31, 2002, the Company had foreign currency
exchange contracts (forwards) with several banks to
purchase and sell foreign currencies, primarily Japanese yen,
with aggregate notionals of $101.8 million. Such contracts
were designated as hedges of certain foreign contracts and
subcontracts to be performed by SS/ L through May 2006. The fair
value of these foreign currency hedges and forward contracts
based on quoted market prices as of December 31, 2002 was
$11.7 million and were included in cash (foreign currency
cash balances designated as hedges) and other current assets
(forward contracts) on the consolidated balance sheets.

Ineffectiveness from all hedging activity was
immaterial for the years ended December 31, 2003, 2002 and
2001. For the year ended December 31, 2001, SS/ L
recognized charges of $0.7 million, for hedges that no

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

longer qualified as fair value hedges and
$1.5 million for excluded forward points on accelerated or
delayed cash flows, which were recorded as interest expense.

Upon filing Chapter 11, SS/ Ls hedges
with counterparties (primarily yen denominated forward
contracts) were cancelled leaving SS/ L vulnerable to foreign
currency fluctuations in the future. The inability to enter into
forward contracts exposes SS/ Ls future revenues, costs
and cash associated with anticipated yen denominated receipts
and payments to currency fluctuations. As of December 31,
2003, SS/ L had the following amounts denominated in Japanese
Yen that were unhedged (in millions):

|                                            |  |              |       |       |  |   |      | 
|------------------------------------------- |  | ------------ | ----- | ----- |  | - | ---- | 
|                                            |  | Japanese Yen |       | U.S.$
|                                            |  |              |       |      
|Future revenues                             |  | ¥            | 2,263 |       |  | $ | 21.6 | 
|Future expenditures                         |  |              | 1,339 |       |  |   | 12.5 | 
|Contracts-in-process (unbilled receivables) |  |              | 3,449 |       |  |   | 31.0 | 

At December 31, 2003, SS/ L also had future
expenditures in EUROs of $1.5 million
($1.8 million U.S.) that were unhedged.

Derivative
Instruments and Hedging

On January 1, 2001, the Company adopted
SFAS 133, which requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives that do not qualify, or are not
effective as hedges, must be recognized currently in earnings.
Upon adoption, the Company recorded a $1.7 million
reduction in net income, net of tax, and a $1.2 million
increase in other comprehensive income (OCI), net of
tax, relating to the cumulative effect of the change in adopting
this new accounting principle. The Company recorded these
adjustments to recognize the fair value of foreign currency
forward contracts that qualify as derivatives under
SFAS 133 and to recognize the fair value of firm
commitments designated as hedged items in fair value hedge
relationships. Furthermore, the transition adjustments reflect
the derecognition of any deferred gains or losses recorded on
the balance sheet prior to the effective date of
SFAS No. 133 on foreign exchange contracts designated
as hedges of foreign currency exposures on long-term
construction contracts in process.



|    |                              
|--- | -----------------------------
|17. | Commitments and Contingencies

The Company had outstanding letters of credit of
approximately $6 million as of December 31, 2003.

Due to the long lead times required to produce
purchased parts and launch vehicles, the Company has entered
into various purchase commitments with suppliers. These
commitments aggregated approximately $108 million as of
December 31, 2003, and primarily relate to satellite
backlog. The Companys commitments for unassigned launch
vehicles were immaterial as of December 31, 2003. The
Company is also obligated to pay $10 million over the next
five years pursuant to a consent agreement with the
U.S. Department of State, which can be reduced by the
Company incurring certain costs as required under the consent
agreement.

SS/ L has deferred revenue for performance
warranty obligations relating to satellites sold to customers
which could be impacted 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 obligation based on historical satellite
performance. Management periodically reviews and adjusts the
deferred revenue for warranty reserves based on the actual
performance of each satellite and remaining

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

warranty period. A reconciliation of such
deferred amounts for each of the three years in the period ended
December 31, 2003, is as follows (in millions):

|                                                                                 |  |   |      |  
|-------------------------------------------------------------------------------- |  | - | ---- | -
|Balance of deferred amounts at January 1,
    2001                               |  | $ | 9.3  |  
|Accruals for deferred amounts issued during the
    period                       |  |   | 6.1  |  
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | (0.6 | )
|                                                                                 |  |   |      |  
|Balance of deferred amounts at December 31,
    2001                             |  |   | 14.8 |  
|Accruals for deferred amounts issued during the
    period                       |  |   | 1.0  |  
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | (1.7 | )
|                                                                                 |  |   |      |  
|Balance of deferred amounts at December 31,
    2002                             |  |   | 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 |  
|                                                                                 |  |   |      |  

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 continues to operate the satellites
which carry the transponders and originally provided for a
warranty for a period of 10 to 14 years, in the case of
sales contracts and other arrangements (19 transponders), and
the lease term, in the case of the prepaid leases (six
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. In the case of 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. As a result of the Telstar 4 failure, during the third
quarter of 2003 Loral Skynet established warranty liabilities of
$11 million for previously sold transponders to customers
who were restored and who were not restored (three transponders)
on other Loral satellites (see Note 2).

Fourteen of the satellites built by SS/ L and
launched since 1997, six of which are owned and operated by
Lorals subsidiaries or affiliates, have experienced minor
losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected
satellites have experienced any degradation in performance,
there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder
capacity or reduction in power transmitted. 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 and the number
and type of use being made of transponders then in service. 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 of the
remaining transponders. In the case of one satellite, Loral
Skynet has removed one transponder from service in order to
maintain proper power balance for the remaining transponders,
none of which have been degraded in performance as a result of
the power loss. A complete or partial loss of satellites could
result in a loss of orbital incentive payments and, in the case
of satellites owned by Loral subsidiaries and affiliates, a loss
of revenues and profits. With respect to satellites under
construction and 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

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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, the Company believes that this
matter will not have a material adverse effect on the
consolidated financial position or results of operations of
Loral.

In September 2001, the PAS 7 satellite built by
SS/ L for PanAmSat experienced an electrical power failure on
its solar arrays that resulted in the loss of use of certain
transponders on the satellite. Also, the PAS 8 satellite has
experienced minor losses of power from its solar arrays, the
cause of which is unrelated to the loss of power on the PAS 7
satellite. On June 30, 2003, PanAmSat commenced an
arbitration claiming that under its contract with SS/ L it is
entitled to $23.7 million as a result of these losses. As a
result of SS/ Ls Chapter 11 filing, this arbitration
is subject to the automatic stay, and further proceedings in the
matter have been suspended. In March 2004, the Company
reached an agreement in principle to settle this matter with
PanAmSat, which is subject to documentation and Bankruptcy Court
approval and has recorded a charge to operations of
$8 million in the fourth quarter of 2003. In addition, a
Loral Skynet satellite has experienced a minor loss of power
from its solar arrays, the cause of which may be similar to the
cause of the PAS 7 anomaly. SS/ L believes, however, that these
failures are isolated events and do not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, SS/ L does not believe that these anomalies will
affect other on-orbit satellites built by SS/ L.

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. SS/ L had suspended work
on this program since December 2001 while the customer and SS/ L
were in discussions to resolve a dispute under the contract. In
March 2003, SS/ L and the customer reached an agreement in
principle to restart the satellite construction program, and in
June 2003, SS/ L and the customer executed a definitive
agreement. As of December 31, 2003, SS/ L had billed and
unbilled accounts receivable and vendor financing arrangements
of $51 million (including accrued interest of
$9 million) with this customer. Under the agreement, the
customer will pay the remainder of the purchase price under the
contract of $65 million plus accrued interest (including
$51 million owed to SS/ L at December 31, 2003) in
installments over time, most of which will be due subsequent to
completion of the satellite.

SS/ L was a party to an Operational Agreement
with Alcatel Space Industries, pursuant to which the parties had
agreed to cooperate on certain satellite programs, and an
Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which
Alcatel had certain rights with respect to SS/ L. On
June 30, 2003, Loral, SS/ L and Alcatel entered into a
master settlement agreement in settlement of all claims among
the parties, including arbitration claims brought by Alcatel
against Loral alleging breaches of the Operational Agreement and
Alliance Agreement. Pursuant to the master settlement agreement,
Loral paid Alcatel $5 million and agreed to pay an
additional $8 million within one year, resulting in a
charge to operations of $13 million. In addition, Alcatel
transferred to Loral its minority interest in CyberStar, and
Loral transferred to Alcatel its minority interests in
Europe*Star and SkyBridge Limited Partnership that Loral had
previously written off. As a result of receiving Alcatels
minority interest in CyberStar, Loral recognized an
extraordinary gain of $14 million, which represents the
extinguishment of the minority interest liability less the fair
value of the acquired net assets. Under the terms of the master
settlement agreement, the arbitration and a related court
proceeding to confirm the arbitral tribunals January
partial award were suspended, with termination to occur on the
date of confirmation of a plan of reorganization or a
liquidation, provided that if any action is commenced in the
Chapter 11 Cases seeking the repayment, disgorgement or
turnover of the transfers made in connection with the master
settlement agreement, because of the commencement of the
Chapter 11 Cases, the arbitration and related court
confirmation proceeding would not be terminated until such
repayment, disgorgement or turnover action had been dismissed.
The master settlement agreement also provides that Alcatel is
entitled to reinstate the arbitration if it is required by

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

judicial order to repay, disgorge or turn over
the consideration paid to it under the agreement in the context
of the Chapter 11 Cases.

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, as well as
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.

The launch of ChinaSat 8 has been delayed pending
SS/ Ls obtaining the approvals required for the launch.
SS/ L is continuing to seek the State Department approvals
required for the launch of ChinaSat 8. If ChinaSat were to
terminate its contract with SS/ L for ChinaSat 8 as a result of
these delays, ChinaSat may seek a refund of $82 million for
payments made to SS/ L as well as penalties of up to
$11 million. The Company does not believe that ChinaSat is
entitled to such a refund or penalties and would vigorously
contest any such claims by ChinaSat. If ChinaSat were to
terminate the contract, SS/ L estimates that it would incur
costs of approximately $38 million to refurbish and
retrofit the satellite so that it could be sold to another
customer, which resale cannot be guaranteed. In addition,
subject to approval of the launch vehicle provider and approval
of the Bankruptcy Court, the receipt of which cannot be assured,
ChinaSat has agreed to release SS/ L from any claim ChinaSat
might have to recover some or all of the $52 million
deposit that ChinaSat paid to SS/ L, and SS/ L paid to the
launch vehicle provider, for a Chinese launch vehicle.

On September 20, 2002, and as further
amended in March 2003, Loral agreed with APT Satellite Company
Limited (APT) to jointly acquire the Apstar V
satellite, a satellite then under construction by SS/ L for APT
pursuant to which Loral and APT agreed to share, on a 50/50
basis, the project cost of constructing, launching and insuring
the satellite. Under this agreement, Loral was to initially
acquire 23% of the satellite in return for paying 25% of the
project cost, and was to pay to APT over time an additional 25%
of the project cost to acquire an additional 23% interest in the
satellite. At December 31, 2003, the project cost of the
satellite was estimated at $230 million.

In August 2003, in order to expedite the receipt
of necessary export licenses from the U.S. government,
Loral and APT amended their various agreements to convert their
arrangement from a joint ownership arrangement to a lease
arrangement, but leaving unchanged the cost allocation between
the parties relating to the project cost of the satellite. Under
this arrangement, Loral retains title to the entire satellite,
now known as Telstar 18, and will lease to APT transponders
representing initially 77% of the transponder capacity on the
satellite. The number of transponders leased to APT would be
reduced over time upon repayment by Loral of the second 25% of
the satellites project cost, ultimately to 54% of the
satellites transponder capacity. As a result of this
conversion from joint ownership to a lease arrangement in the
third quarter of 2003, Loral (a) reversed the cumulative
sales of $83 million and cost of satellite manufacturing of
$73 million and (b) recorded an increase to self
constructed assets of $73 million and recorded long-term
obligations of $80 million which, in addition to the
$34 million received from APT and subject to repayment, is
included in long-term liabilities as of December 31, 2003.

In November 2003, Loral and APT agreed to further
revise their existing arrangement. Under this revised
arrangement, Loral agreed, among other things, to accelerate the
termination of APTs leasehold interest in 4.5 transponders
by assuming $20.4 million of project cost which otherwise
would have been initially paid by APT, decreasing APTs
initial leased transponder capacity from 77% to 69%. In
addition, Loral will provide to APT, free of charge, available
capacity on Telstar 10/ Apstar IIR, during an interim
period, and provide APT with certain rights to exchange Ku-band
transponder capacity on Telstar 18 for equivalent Ku-band
transponder capacity on Telstar 10/ Apstar IIR.

F-48



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
three launches. In November 2002, SS/ L terminated 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 all three launches.
Despite ILSs termination of all three launches, to protect
its interest SS/ L also terminated a second launch, which had a
termination liability equal to its deposit of $5 million.
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 in the second
quarter of 2003 with respect to this launch. ILS has asserted
that it is entitled to termination charges of up to
$54.75 million with respect to the three terminated
launches. SS/ L believes that ILSs claims are without
merit and intends to defend against them vigorously and to seek
recovery of its deposits and termination liabilities. The
Company does not believe that this matter will have a material
adverse effect on its consolidated financial position and its
results of operations, although no assurances can be provided.

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot assure that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. Five satellites
owned by Loral Skynet and Loral Orion 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, the Company does
not believe that this anomaly will affect the Companys
satellites with the same solar array configuration. The
insurance coverage for three of the Companys satellites,
however, provides for coverage of losses due to solar array
failures only in the event of a capacity loss of between 75% and
80% or more. The Company believes that the insurers will require
either exclusions of, or limitations on, coverage due to solar
array failures in connection with renewals of insurance of its
five satellites each year. An uninsured loss of a satellite
would have a material adverse effect on the Companys
consolidated financial position and its results of operations.
Moreover, the Company is required under the terms of its bank
facilities and cash collateral order to use the insurance
proceeds from any launch or in-orbit failure of a satellite
owned by Loral SpaceCom or Loral Satellite to prepay the bank
loans (see Note 2), and as a result, these insurance
proceeds would not be available to Loral to build a replacement
for the lost satellite, which would result in an adverse effect
on its future revenue.

Loral Orion did not renew its in-orbit insurance
policy on Telstar 11 due to the high cost of such insurance and
the relative age of the satellite. As of December 31, 2003,
the net book value of Telstar 11 was $42 million and its
end of life, as determined in the fourth quarter of 2003, was
June 2004.

In an order released on August 8, 2003, the
FCC added Telstar 13 to the Permitted Space Station
List in the C-Band frequency at 121 degrees W.L. As a
result of this action, earth stations located in the
U.S. will be able to communicate with the Telstar 13
satellite, which was successfully launched on August 7,
2003, and Telstar 13 will be permitted to operate in the
U.S. using a non-U.S. ITU filing. The order contains
several conditions on this authorization, including (1) a
requirement that Telstar 13 be in compliance with all applicable
current and future operational requirements as a result of
coordination agreements reached with other satellite systems;
and (2) that, in the absence of a coordination agreement
with a satellite network with higher ITU priority, Telstar 13
must cease service to the U.S. market immediately upon
launch and operation of the higher ITU priority satellite, or be
subject to further conditions designed to address potential
harmful interference to a satellite with ITU date precedence.
New Skies Satellites has asserted that its non-U.S. ITU
filing at 120.8 degrees W.L. has ITU priority over Telstar 13.
Loral Skynet is continuing its international

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

coordination of the 121 degrees W.L. slot. There
can be no assurance, however, that coordination discussions will
be successful (see Note 2).

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against 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.
Loral believes that the claims are without merit and intends to
vigorously defend against them. As a result of the commencement
of the Chapter 11 Cases, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended.

Lawsuits
against our Directors and Officers

In August 2003, plaintiffs Robert Beleson and
Harvey Matcovsky filed a purported class action complaint
against Bernard Schwartz in the United States District Court for
the Southern District of New York. The complaint alleges
(a) that Mr. Schwartz 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 Lorals financial condition relating to the sale of
assets to Intelsat and Lorals 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
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of 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 them. 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 on March 2,
2004, and discovery has commenced.

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 Schwartz and
Richard J. Townsend in the United States District Court for the
Southern District of New York. 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 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 defendants are secondarily liable
for these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as an alleged
controlling person of Loral. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
buyers of 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. This case is in its preliminary stages, and, on
March 11, 2004, a conference was held with the court
concerning selection of a lead plaintiff.

In December 2003, plaintiff Wendy Koch, a former
employee, filed a purported class action complaint against the
Loral Space & Communications Ltd. Savings Plan
Administrative Committee, all Loral directors, Richard J.
Townsend and certain other Loral officers and employees in the
United States District Court for the Southern District of
New York. The 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 Loral
Savings Plan (the Plan) by including Loral common
stock as an investment alternative and by providing matching
contributions under the Plan in Loral stock, (b) that the
director defendants violated Section 404 of ERISA by
breaching their fiduciary duties to monitor the

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

committee defendants and (c) that defendants
violated Sections 404 and 405 of ERISA by failing to
provide complete and accurate information to Plan participants
and beneficiaries. The class of plaintiffs on whose behalf the
lawsuit has been asserted consists of all participants in or
beneficiaries of the Plan at any time between November 4,
1999 and the present and whose accounts included investments in
Loral stock. One other similar complaint against the defendants
with substantially similar allegations has been filed, and a
motion to consolidate the cases is pending.

Loral is obligated to indemnify its directors and
officers for any losses or costs they may incur as a result of
these lawsuits. Loral is unable to estimate the maximum
potential impact of these obligations on its future results of
operations.

Other

The Company is 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 claims cannot be predicted with certainty, the Company
does not believe that any of these other existing legal matters
will have a material adverse effect on its consolidated
financial position or results of operations. These claims
against the Company are subject to the automatic stay as a
result of the commencement of the Chapter 11 Cases.

Globalstar
Related Matters

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, 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, Loral
and Bernard L. Schwartz alleging (a) that all defendants
(except Loral) 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
Globalstars business and prospects, (b) that
defendants 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 Loral and Mr. Schwartz 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. Loral and Mr. Schwartz have filed a motion to dismiss
the amended complaint in its entirety as to Loral and
Mr. Schwartz, which motion is pending before the court.
Loral believes that it has meritorious defenses to this class
action lawsuit and intends to pursue them vigorously. As a
result of the commencement of the Chapter 11 Cases,
however, this lawsuit is subject to the automatic stay and
further proceedings in the matter have been suspended insofar as
Loral is concerned but are proceeding as to GTL and
Mr. Schwartz. Loral is obligated to indemnify
Mr. Schwartz for any losses or costs he may incur as a
result of this lawsuit. Loral is unable to estimate the maximum
potential impact of these obligations on its future results of
operations. In December 2003, a motion to dismiss the amended
complaint in its entirety was denied by the court insofar as GTL
and Mr. Schwartz are concerned, and discovery has commenced.

F-51



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 Loral common stock against Loral, Bernard L.
Schwartz and Richard 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 alleging (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 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
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of 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. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety. After oral argument on a
motion to dismiss filed by 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. Loral believes that it has
meritorious defenses to this class action lawsuit and intends to
pursue them vigorously. As a result of the commencement of the
Chapter 11 Cases, however, this lawsuit is subject to the
automatic stay, and further proceedings in the matter have been
suspended, insofar as Loral is concerned but are proceeding as
to the other defendants. Loral is obligated to indemnify
Messrs. Schwartz and Townsend for any losses or costs they
may incur as a result of this lawsuit. Loral is unable to
estimate the maximum potential impact of these obligations on
its future results of operations. On February 23, 2004, a
motion to dismiss the amended complaint was granted by the court
insofar as Messrs. Schwartz and Townsend are concerned.

In addition, the primary insurer under
Lorals directors and officers liability insurance policy
has denied coverage for the case filed by Loral shareholders
under the policy and, on March 24, 2003, filed a lawsuit in
the Supreme Court of New York county seeking a declaratory
judgment upholding their coverage position. In May 2003, Loral
and the other defendants served their 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, 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. Loral believes that the insurers
have wrongfully denied coverage and intends to defend against
the denial vigorously. As a result of the commencement of the
Chapter 11 Cases, however, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended insofar as Loral is concerned but are proceeding as to
the other defendants.

Lease
Arrangements

The Company leases 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 the Company. Rent
expense, net of sublease income of $1.0 million,
$2.0 million and $4.3 million, was $41.6 million,
$61.7 million and $62.9 million in 2003, 2002 and 2001
respectively.

F-52



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2003 (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 30,452  | 
|2005       |  |   | 22,829  | 
|2006       |  |   | 20,913  | 
|2007       |  |   | 17,160  | 
|2008       |  |   | 15,036  | 
|Thereafter |  |   | 68,692  | 
|           |  |   |         | 
|           |  | $ | 175,082 | 
|           |  |   |         | 

Future minimum payments have been reduced by
minimum sublease rentals of $2.0 million due in the future
under non-cancelable subleases.



|    |         
|--- | --------
|18. | Segments

Loral is organized into two operating segments:
Satellite Services and Satellite Manufacturing (see Note 1
and Note 2 regarding the sale of the Companys
satellite assets to Intelsat).

The common definition of EBITDA is Earnings
Before Interest, Taxes, Depreciation and Amortization. In
evaluating financial performance, management uses revenues and
operating income (loss) 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 (loss) on investments and debt
exchanges; equity in net losses of affiliates, net of tax;
minority interest, net of tax; cumulative effect of change in
accounting principle, net of tax, and extraordinary gain on
acquisition of minority interest, net of tax. 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 the Companys liquidity or
as an alternative to net income as an indicator of the
Companys operating performance.

The Company believes the use of Adjusted EBITDA
along with GAAP financial measures enhances the understanding of
the Companys 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, 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 the Company. Adjusted
EBITDA as used here may not be comparable to similarly titled
measures reported by other companies. The Company also uses
Adjusted EBITDA to evaluate operating performance, to allocate
resources and capital, to measure performance for incentive
compensation programs, and to evaluate future growth
opportunities.

Intersegment revenues primarily consist of
satellites under construction by Satellite Manufacturing for
Satellite Services and the leasing of transponder capacity by
Satellite Manufacturing from Satellite Services. In the first
quarter of 2003, management changed its basis of evaluating and
reporting the financial performance of the Satellite
Manufacturing segment to conform it to U.S. GAAP principles
for commercial contracts and has restated the segment
information for 2002 and 2001, accordingly. Previously the
segment was evaluated and reported by management in accordance
with accounting principles applicable to government contracts
whereby all costs incurred, including G&A were allocated to
customer programs.

F-53



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Summarized financial information concerning the
reportable segments is as follows (in millions):

2003 Segment Information

|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ------ | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                                                                                   |  | Satellite |         | Satellite     |  |              |        |      
|                                                                                                                                   |  | Services  |         | Manufacturing |  | Corporate(1) |        | Total
|                                                                                                                                   |  |           |         |               |  |              |        |      
|Revenues and Adjusted EBITDA:                                                                                                      |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Revenue from external customers(2)                                                                                                 |  | $         | 291.4   |               |  | $            | 245.0  |       |  |   |       |   |  | $ | 536.4   |  
|Intersegment revenues                                                                                                              |  |           | 4.3     |               |  |              | 229.0  |       |  |   |       |   |  |   | 233.3   |  
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Operating segment revenues                                                                                                         |  | $         | 295.7   |               |  | $            | 474.0  |       |  |   |       |   |  |   | 769.7   |  
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                                                                                    |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (236.3  | )
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Operating revenues as reported                                                                                                     |  |           |         |               |  |              |        |       |  |   |       |   |  | $ | 533.4   |  
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Segment Adjusted EBITDA before eliminations                                                                                        |  | $         | 141.1   |               |  | $            | (158.6 | )     |  | $ | (36.0 | ) |  | $ | (53.5   | )
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                                                                                    |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (41.9   | )
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Adjusted EBITDA                                                                                                                    |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (95.4   | )
|Depreciation and amortization(4)(5)                                                                                                |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (189.2  | )
|Reorganization expenses due to bankruptcy                                                                                          |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (25.3   | )
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Operating loss                                                                                                                     |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (309.9  | )
|Interest and investment income                                                                                                     |  |           |         |               |  |              |        |       |  |   |       |   |  |   | 15.2    |  
|Interest expense                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (61.8   | )
|Gain on investments                                                                                                                |  |           |         |               |  |              |        |       |  |   |       |   |  |   | 17.9    |  
|Income tax provision                                                                                                               |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (4.6    | )
|Equity in net losses of affiliates, net of taxes                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   | (51.2   | )
|Minority interest, net of taxes                                                                                                    |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |  |           |         |               |  |              |        |       |  |   |       |   |  | $ | (394.4  | )
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Other Data:                                                                                                                        |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Depreciation and amortization(4)(5)                                                                                                |  | $         | 161.5   |               |  | $            | 27.2   |       |  | $ | 0.5   |   |  | $ | 189.2   |  
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Capital expenditures(5)                                                                                                            |  | $         | 170.6   |               |  | $            | 6.0    |       |  | $ |       |   |  | $ | 176.6   |  
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  
|Total assets(5)                                                                                                                    |  | $         | 1,975.8 |               |  | $            | 362.0  |       |  | $ | 117.9 |   |  | $ | 2,455.7 |  
|                                                                                                                                   |  |           |         |               |  |              |        |       |  |   |       |   |  |   |         |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support
    of the Companys operations.                                                                                                                                                                                                                                                                                                              
|   
|(2) | Includes revenues from affiliates of
    $28.7 million, $85.9 million and $100.9 million
    in 2003, 2002 and 2001, respectively.                                                                                                                                                                                                                                                              
|   
|(3) | Represents the elimination of intercompany sales
    and Adjusted EBITDA, primarily for satellites under construction
    by SS/ L for wholly owned subsidiaries and the reversal of sales
    of $83 million and $73 million of cost of satellite
    manufacturing on a satellite program with a customer where the
    contract was changed to a lease arrangement in 2003 (see
    Note 17).
|   
|(4) | Includes amortization of unearned stock
    compensation charges.                                                                                                                                                                                                                                                                                                                               
|   
|(5) | The amounts are presented after the elimination
    of intercompany profit.                                                                                                                                                                                                                                                                                                                     

F-54



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2002 Segment Information

|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                    |  | Satellite |         | Satellite     |  |              |       |      
|                                                                    |  | Services  |         | Manufacturing |  | Corporate(1) |       | Total
|                                                                    |  |           |         |               |  |              |       |      
|Revenues and Adjusted EBITDA:                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Revenue from external customers(2)                                  |  | $         | 391.2   |               |  | $            | 708.5 |       |  |   |       |   |  | $ | 1,099.7 |  
|Intersegment revenues                                               |  |           | 4.2     |               |  |              | 144.6 |       |  |   |       |   |  |   | 148.8   |  
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating segment revenues                                          |  | $         | 395.4   |               |  | $            | 853.1 |       |  |   |       |   |  |   | 1,248.5 |  
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                     |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (150.1  | )
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating revenues as reported                                      |  |           |         |               |  |              |       |       |  |   |       |   |  | $ | 1,098.4 |  
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Segment Adjusted EBITDA before eliminations                         |  | $         | 219.9   |               |  | $            | (34.0 | )     |  | $ | (36.8 | ) |  | $ | 149.1   |  
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                     |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (44.1   | )
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Adjusted EBITDA                                                     |  |           |         |               |  |              |       |       |  |   |       |   |  |   | 105.0   |  
|Depreciation and amortization(4)(5)                                 |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (187.0  | )
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating loss                                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (82.0   | )
|Interest and investment income                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   | 12.9    |  
|Interest expense                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (77.1   | )
|Loss on investments                                                 |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (1.2    | )
|Income tax provision                                                |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (355.0  | )
|Equity in net losses of affiliates, net of taxes                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (76.3   | )
|Minority interest, net of taxes                                     |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (0.2    | )
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Loss before cumulative effect of change in
    accounting principle |  |           |         |               |  |              |       |       |  |   |       |   |  | $ | (578.9  | )
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Other Data:                                                         |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Depreciation and amortization(4)(5)                                 |  | $         | 153.3   |               |  | $            | 33.1  |       |  | $ | 0.6   |   |  | $ | 187.0   |  
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Capital expenditures(5)                                             |  | $         | 84.8    |               |  | $            | 13.3  |       |  | $ | 0.1   |   |  | $ | 98.2    |  
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Total assets(5)                                                     |  | $         | 1,904.7 |               |  | $            | 690.3 |       |  | $ | 97.8  |   |  | $ | 2,692.8 |  
|                                                                    |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  

2001 Segment Information

|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                    |  | Satellite |       | Satellite     |  |              |       |      
|                                                                    |  | Services  |       | Manufacturing |  | Corporate(1) |       | Total
|                                                                    |  |           |       |               |  |              |       |      
|Revenues and Adjusted EBITDA:                                       |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Revenue from external customers(2)                                  |  | $         | 457.4 |               |  | $            | 613.9 |       |  |   |       |   |  | $ | 1,071.3 |  
|Intersegment revenues                                               |  |           | 6.8   |               |  |              | 200.9 |       |  |   |       |   |  |   | 207.7   |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating segment revenues                                          |  | $         | 464.2 |               |  | $            | 814.8 |       |  |   |       |   |  |   | 1,279.0 |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                     |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (209.4  | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating revenues as reported                                      |  |           |       |               |  |              |       |       |  |   |       |   |  | $ | 1,069.6 |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Segment Adjusted EBITDA before eliminations                         |  | $         | 263.4 |               |  | $            | 44.1  |       |  | $ | (37.5 | ) |  | $ | 270.0   |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                     |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (47.4   | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Adjusted EBITDA                                                     |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 222.6   |  
|Depreciation and amortization(4)                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (227.8  | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating loss                                                      |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (5.2    | )
|Interest and investment income                                      |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 28.9    |  
|Interest expense                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (183.9  | )
|Gain on debt exchanges                                              |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 33.9    |  
|Income tax provision                                                |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (2.2    | )
|Equity in net losses of affiliates, net of taxes                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (66.7   | )
|Minority interest, net of taxes                                     |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 0.5     |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Loss before cumulative effect of change in
    accounting principle |  |           |       |               |  |              |       |       |  |   |       |   |  | $ | (194.7  | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Other Data:                                                         |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Depreciation and amortization(4)(5)                                 |  | $         | 185.0 |               |  | $            | 40.9  |       |  | $ | 1.9   |   |  | $ | 227.8   |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Capital expenditures(5)                                             |  | $         | 212.0 |               |  | $            | 26.1  |       |  | $ | 0.3   |   |  | $ | 238.4   |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  

F-55



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The following table presents revenues by country
based on customer location for each of the three years in the
period ended December 31, 2003 (in thousands).

|                              |  |      |         |      |  |      |           |  |  |   |           | 
|----------------------------- |  | ---- | ------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                              |  | 2003 |         | 2002 |  | 2001
|                              |  |      |         |      |  |     
|United States                 |  | $    | 379,929 |      |  | $    | 596,378   |  |  | $ | 698,260   | 
|Japan                         |  |      | 69,573  |      |  |      | 174,629   |  |  |   | 118,635   | 
|Thailand                      |  |      | 54,436  |      |  |      | 89,875    |  |  |   | 22,508    | 
|Spain                         |  |      | 30,903  |      |  |      | 31,814    |  |  |   | 8,411     | 
|Mexico                        |  |      | (2,805  | )    |  |      | 57,409    |  |  |   | 79,088    | 
|Peoples Republic of China(1) |  |      | (66,047 | )    |  |      | 64,373    |  |  |   | 27,275    | 
|Other                         |  |      | 67,396  |      |  |      | 83,947    |  |  |   | 115,398   | 
|                              |  |      |         |      |  |      |           |  |  |   |           | 
|                              |  | $    | 533,385 |      |  | $    | 1,098,425 |  |  | $ | 1,069,575 | 
|                              |  |      |         |      |  |      |           |  |  |   |           | 






|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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 17).

During 2003, two customers of Loral accounted for
approximately 15% and 10% of its consolidated revenues. During
2002, two customers of Loral accounted for approximately 12% and
10% of its consolidated revenues. During 2001, one customer of
Loral accounted for approximately 14% of its consolidated
revenues.

With the exception of the Companys
satellites in-orbit (see Note 6), the Companys
long-lived assets are primarily located in the United States.



|    |                           
|--- | --------------------------
|19. | Related Party Transactions

In connection with contract performance, Loral
acquired services from Lockheed Martin. A summary of such
transactions and balances as of December 31, 2003 and 2002,
and for the three years in the period ended December 31,
2003, respectively, is as follows (in thousands):

|                                     |            |                          |        |        |   |      |        |      |   |   |        |  | 
|------------------------------------ | ---------- | ------------------------ | ------ | ------ | - | ---- | ------ | ---- | - | - | ------ |  | 
|                                     |            |                         
|                                     |            | Years Ended December 31,
|                                     |            |                         
|                                     |            | 2003                     |        | 2002   |   | 2001
|                                     |            |                          |        |        |   |     
|Cost of purchased goods and services |            | $                        | 8,573  |        |   | $    | 21,675 |      |   | $ | 15,966 | 
|Balance at year end:                 |            |                          |        |        |   |      |        |      |   |   |        | 
|                                     | Receivable |                          | $      | 525    |   |      | $      | 376  |   |   |        |  | 
|                                     | Payable    |                          |        | (3,115 | ) |      |        | (304 | ) |   |        |  | 
|                                     |            |                          |        |        |   |      |        |      |   |   |        | 
|Net (payable) receivable             |            | $                        | (2,590 | )      |   | $    | 72     |      |   |   |        | 
|                                     |            |                          |        |        |   |      |        |      |   |   |        | 

In 2002, Alcatel ceased being a related party of
Loral. Lorals sales to, purchases from, and balances with
Alcatel as of December 31, 2002, and for the two years in
the period ended December 31, 2002, respectively, were as
follows (in thousands):

|                                     |            |      |         |        |   |   |        |  | 
|------------------------------------ | ---------- | ---- | ------- | ------ | - | - | ------ |  | 
|                                     |            | 2002 |         | 2001  
|                                     |            |      |         |       
|Revenue from goods and services sold |            | $    | 752     |        |   | $ | 216    | 
|Cost of purchased goods and services |            |      | 120,395 |        |   |   | 76,821 | 
|Balance at year end:                 |            |      |         |        |   |   |        | 
|                                     | Receivable |      | $       | 923    |   |   |        |  | 
|                                     | Payable    |      |         | (2,025 | ) |   |        |  | 
|                                     |            |      |         |        |   |   |        | 
|Net payable                          |            | $    | (1,102  | )      |   |   |        | 
|                                     |            |      |         |        |   |   |        | 

F-56



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

Loral is a holding company (the Parent
Company), which is the ultimate parent of all Loral
subsidiaries. In December 2001, the Companys wholly owned
subsidiary, Loral Orion (the Subsidiary Issuer),
issued new senior notes in an exchange offer (see
Note 10) which are fully and unconditionally
guaranteed, on a joint and several basis, by the Parent Company
and several of Loral Orions wholly-owned subsidiaries (the
Guarantor Subsidiaries). The Parent Company, the
Subsidiary Issuer and the Guarantor Subsidiaries, as well as
certain other non-guarantor subsidiaries of the Parent Company
(including the Sellers and SS/ L) filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code on
July 15, 2003.

Presented below is condensed consolidating
financial information for the Parent Company, the Subsidiary
Issuer, the Guarantor Subsidiaries and the other wholly-owned
subsidiaries of the Parent Company (the Non-Guarantor
Subsidiaries) as of December 31, 2003 and 2002 and
for the years ended December 31, 2003, 2002 and 2001. The
condensed consolidating financial information has been presented
to show the nature of assets held, results of operations and
cash flows of the Parent Company, Subsidiary Issuer, Guarantor
Subsidiaries and Non-Guarantor Subsidiaries.

The supplemental condensed consolidating
financial information reflects the investments of the Parent
Company in the Subsidiary Issuer, the Guarantor Subsidiaries and
the Non-Guarantor Subsidiaries using the equity method of
accounting. The Companys significant transactions with its
subsidiaries other than the investment account and related
equity in net loss of unconsolidated subsidiaries are
intercompany payables and receivables between its subsidiaries
resulting primarily from the funding of the construction of
satellites for the Satellite Services segment and the management
fee charged by Loral SpaceCom to the Parent Company (in 2001).
Lorals $200 million note receivable from
unconsolidated subsidiaries is due from Loral Space &
Communications Corporation (LSCC) and bears interest
at 8.2% per annum. Loral SpaceCom (a non-guarantor
subsidiary) holds a $29.7 million subordinated note
receivable from the subsidiary issuer. The note is subordinated
to all existing and future indebtedness of the subsidiary issuer
and guaranteed by the Parent Company. The note bears interest at
a rate of 10% per annum. Loral Satellite has provided
$59.8 million to Loral as of December 31, 2003, in the
form of a note receivable which bears no interest and is payable
upon maturity of the Loral Satellite Credit Agreement. As a
result of filing Chapter 11, the accrual of interest on all
related party notes in the following condensed consolidating
financial statements was suspended.

F-57



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2003

(in thousands)


|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |            |         |         | 
|-------------------------------------------- | -------------------------------------------------------- | ---------------------------------------- | ------------------------------------------- | ---------- | ----- | ---------- | --------- | ------------- | ------ | ------------ | -------- | ------------ | ----- | ------ | ---------- | ---------- | ------- | ------- | --------- | --------- | ---- | ------- | --------- | ---------- | ------- | ------- | 
|                                             |                                                          | Parent                                   |                                             | Subsidiary |       | Guarantor  |           | Non-Guarantor |        |              |          |             
|                                             |                                                          | Company                                  |                                             | Issuer     |       | Subsidiary |           | Subsidiaries  |        | Eliminations |          | Consolidated
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |             
|Current assets:                              |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             | Cash and cash equivalents                                |                                          | $                                           | 4,481      |       |            | $         | 46,831        |        |              | $        |             |       |        | $          | 90,332     |         |         | $         |          |      |         | $         | 141,644    |        
|                                             | Accounts receivable, net                                 |                                          |                                             |           |       |            |           | 6,912         |        |              |          | 968          |       |        |            | 15,089     |         |         |           |          |      |         |           | 22,969     |        
|                                             | Contracts-in-process                                     |                                          |                                             |           |       |            |           |              |        |              |          |             |       |        |            | 62,063     |         |         |           |          |      |         |           | 62,063     |        
|                                             | Inventories                                              |                                          |                                             |           |       |            |           |              |        |              |          |             |       |        |            | 42,456     |         |         |           |          |      |         |           | 42,456     |        
|                                             | Insurance proceeds receivable                            |                                          |                                             |           |       |            |           |              |        |              |          |             |       |        |            | 122,770    |         |         |           |          |      |         |           | 122,770    |        
|                                             | Other current assets                                     |                                          |                                             | 2,341      |       |            |           | 2,925         |        |              |          | 5,859        |       |        |            | 25,859     |         |         |           | (980      | )    |         |           | 36,004     |        
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             |                                                          | Total current assets                     |                                             |            | 6,822 |            |           |               | 56,668 |              |          |              | 6,827 |        |            |            | 358,569 |         |           |           | (980 | )       |           |            | 427,906 |        
|Property, plant and equipment, net           |                                                          |                                          |                                            |            |       |            | 390,649   |               |        |              | 183,688  |              |       |        | 1,289,281  |            |         |         | (35,336   | )         |      |         | 1,828,282 |           
|Long-term receivables                        |                                                          |                                          |                                            |            |       |            |          |               |        |              |         |              |       |        | 70,749     |            |         |         |          |           |      |         | 70,749    |           
|Due (to) from unconsolidated subsidiaries    |                                                          |                                          | (3,055                                      | )          |       |            | (24,622   | )             |        |              | 17,598   |              |       |        | 47,199     |            |         |         | (37,120   | )         |      |         |          |           
|Investments in unconsolidated subsidiaries   |                                                          |                                          | (375,795                                    | )          |       |            | 311,487   |               |        |              | (271,698 | )            |       |        | (1,625,765 | )          |         |         | 1,961,771 |           |      |         |          |           
|Investments in and advances to affiliates    |                                                          |                                          | 20                                          |            |       |            |          |               |        |              |         |              |       |        | 46,654     |            |         |         |          |           |      |         | 46,674    |           
|Deposits                                     |                                                          |                                          |                                            |            |       |            |          |               |        |              |         |              |       |        | 9,000      |            |         |         |          |           |      |         | 9,000     |           
|Other assets                                 |                                                          |                                          | 4,253                                       |            |       |            | 5,030     |               |        |              | 549      |              |       |        | 63,298     |            |         |         |          |           |      |         | 73,130    |           
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             | Total assets                                             |                                          | $                                           | (367,755   | )     |            | $         | 739,212       |        |              | $        | (63,036      | )     |        | $          | 258,985    |         |         | $         | 1,888,335 |      |         | $         | 2,455,741  |        
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|Liabilities not subject to compromise:       |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             | Current liabilities:                                     |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |            |        
|                                             |                                                          | Accounts payable                         |                                             | $          |      |            |           | $             | 824    |              |          | $            |      |        |            | $          | 49,832  |         |           | $         |     |         |           | $          | 50,656  |        
|                                             |                                                          | Accrued employment costs                 |                                             |            |      |            |           |               |       |              |          |              |      |        |            |            | 23,532  |         |           |           |     |         |           |            | 23,532  |        
|                                             |                                                          | Customer advances                        |                                             |            |      |            |           |               | 1,508  |              |          |              |      |        |            |            | 118,839 |         |           |           |     |         |           |            | 120,347 |        
|                                             |                                                          | Accrued interest and preferred dividends |                                             |            |      |            |           |               |       |              |          |              |      |        |            |            | 1,319   |         |           |           |     |         |           |            | 1,319   |        
|                                             |                                                          | Income taxes payable                     |                                             |            |      |            |           |               |       |              |          |              |      |        |            |            | 269     |         |           |           |     |         |           |            | 269     |        
|                                             |                                                          | Other current liabilities                |                                             |            | 1,191 |            |           |               |       |              |          |              |      |        |            |            | 8,679   |         |           |           |     |         |           |            | 9,870   |        
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             |                                                          |                                          | Total current liabilities                   |            |       | 1,191      |           |               |        | 2,332        |          |              |       |       |            |            |         | 202,470 |           |           |      |        |           |            |         | 205,993 | 
|Pension and other postretirement liabilities |                                                          |                                          |                                            |            |       |            |          |               |        |              |         |              |       |        | 10,983     |            |         |         |          |           |      |         | 10,983    |           
|Long-term liabilities                        |                                                          |                                          | 52,233                                      |            |       |            | 123,180   |               |        |              | 13,835   |              |       |        | 32,038     |            |         |         | (35,461   | )         |      |         | 185,825   |           
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             |                                                          |                                          | Total liabilities not subject to compromise |            |       | 53,424     |           |               |        | 125,512      |          |              |       | 13,835 |            |            |         | 245,491 |           |           |      | (35,461 | )         |            |         | 402,801 | 
|Liabilities subject to compromise            |                                                          |                                          | 434,491                                     |            |       |            | 1,120,295 |               |        |              | (116,663 | )            |       |        | 1,472,168  |            |         |         | (4,196    | )         |      |         | 2,906,095 |           
|Minority interest                            |                                                          |                                          |                                            |            |       |            |          |               |        |              |         |              |       |        | 2,515      |            |         |         |          |           |      |         | 2,515     |           
|Shareholders (deficit) equity:              |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             | Common stock, par value $.01                             |                                          |                                             | 4,413      |       |            |           |              |        |              |          |             |       |        |            |           |         |         |           |          |      |         |           | 4,413      |        
|                                             | Paid-in capital                                          |                                          |                                             | 3,392,829  |       |            |           | 604,166       |        |              |          |             |       |        |            |           |         |         |           | (604,166  | )    |         |           | 3,392,829  |        
|                                             | Treasury stock, at cost                                  |                                          |                                             | (3,360     | )     |            |           |              |        |              |          |             |       |        |            |           |         |         |           |          |      |         |           | (3,360     | )      
|                                             | Unearned compensation                                    |                                          |                                             | (168       | )     |            |           |              |        |              |          |             |       |        |            |           |         |         |           |          |      |         |           | (168       | )      
|                                             | Due from related parties                                 |                                          |                                             |           |       |            |           | (59,601       | )      |              |          |             |       |        |            | 59,601     |         |         |           |          |      |         |           |           |        
|                                             | Retained (deficit) earnings                              |                                          |                                             | (4,171,536 | )     |            |           | (1,051,160    | )      |              |          | 39,792       |       |        |            | (1,520,790 | )       |         |           | 2,532,158 |      |         |           | (4,171,536 | )      
|                                             | Accumulated other comprehensive income                   |                                          |                                             | (77,848    | )     |            |           |              |        |              |          |             |       |        |            |           |         |         |           |          |      |         |           | (77,848    | )      
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|Total shareholders (deficit) equity         |                                                          |                                          | (855,670                                    | )          |       |            | (506,595  | )             |        |              | 39,792   |              |       |        | (1,461,189 | )          |         |         | 1,927,992 |           |      |         | (855,670  | )         
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           
|                                             | Total liabilities and shareholders
    (deficit) equity |                                          | $                                           | (367,755   | )     |            | $         | 739,212       |        |              | $        | (63,036      | )     |        | $          | 258,985    |         |         | $         | 1,888,335 |      |         | $         | 2,455,741  |        
|                                             |                                                          |                                          |                                             |            |       |            |           |               |        |              |          |              |       |        |            |            |         |         |           |           |      |         |           |           

F-58



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year ended December 31, 2003

(in thousands)


|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------- | ---------- |  | ---------- | ------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | ------- |  | - | ------- | -------- | - | - | -------- | ------- | 
|                                                                                                                                                                                                                                                     |                | Parent  |          | Subsidiary |  | Guarantor  |         | Non-Guarantor |  |              |        |             
|                                                                                                                                                                                                                                                     |                | Company |          | Issuer     |  | Subsidiary |         | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |             
|Revenues from satellite services                                                                                                                                                                                                                     |                | $       |         |            |  | $          | 86,119  |               |  | $            | 39,828 |              |  | $ | 206,203  |         |  | $ | (43,652 | )        |   | $ | 288,498  |        
|Revenues from satellite manufacturing                                                                                                                                                                                                                |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 341,737  |         |  |   | (96,850 | )        |   |   | 244,887  |        
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        
|                                                                                                                                                                                                                                                     | Total revenues |         |          |           |  |            |         | 86,119        |  |              |        | 39,828       |  |   |          | 547,940 |  |   |         | (140,502 | ) |   |          | 533,385 | 
|Cost of satellite services                                                                                                                                                                                                                           |                |         |         |            |  |            | 111,509 |               |  |              | 31,523 |              |  |   | 152,248  |         |  |   | (41,088 | )        |   |   | 254,192  |        
|Cost of satellite manufacturing                                                                                                                                                                                                                      |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 504,026  |         |  |   | (81,935 | )        |   |   | 422,091  |        
|Selling, general and administrative expenses                                                                                                                                                                                                         |                |         | 8,937    |            |  |            | 10,192  |               |  |              | 3,572  |              |  |   | 119,032  |         |  |   |        |          |   |   | 141,733  |        
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        
|Operating (loss) income before reorganization
    expenses due to bankruptcy                                                                                                                                                                         |                |         | (8,937   | )          |  |            | (35,582 | )             |  |              | 4,733  |              |  |   | (227,366 | )       |  |   | (17,479 | )        |   |   | (284,631 | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                                                                            |                |         | (1,900   | )          |  |            | (5,561  | )             |  |              |       |              |  |   | (17,823  | )       |  |   |        |          |   |   | (25,284  | )      
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        
|Operating (loss) income                                                                                                                                                                                                                              |                |         | (10,837  | )          |  |            | (41,143 | )             |  |              | 4,733  |              |  |   | (245,189 | )       |  |   | (17,479 | )        |   |   | (309,915 | )      
|Interest and investment income                                                                                                                                                                                                                       |                |         | 12,198   |            |  |            | 18      |               |  |              |       |              |  |   | 16,954   |         |  |   | (13,967 | )        |   |   | 15,203   |        
|Interest expense                                                                                                                                                                                                                                     |                |         | (21,675  | )          |  |            | (6,522  | )             |  |              |       |              |  |   | (50,132  | )       |  |   | 16,566  |          |   |   | (61,763  | )      
|Gain on investment                                                                                                                                                                                                                                   |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 17,900   |         |  |   |        |          |   |   | 17,900   |        
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, minority
    interest, cumulative effect of change in accounting principle
    and extraordinary gain on acquisition of minority interest |                |         | (20,314  | )          |  |            | (47,647 | )             |  |              | 4,733  |              |  |   | (260,467 | )       |  |   | (14,880 | )        |   |   | (338,575 | )      
|Income tax (provision) benefit                                                                                                                                                                                                                       |                |         | (3,656   | )          |  |            | (4,174  | )             |  |              | (2,146 | )            |  |   | (849     | )       |  |   | 6,178   |          |   |   | (4,647   | )      
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        
|(Loss) income before equity in net losses of
    subsidiaries and affiliates, minority interest, cumulative
    effect of change in accounting principle and extraordinary gain
    on acquisition of minority interest                              |                |         | (23,970  | )          |  |            | (51,821 | )             |  |              | 2,587  |              |  |   | (261,316 | )       |  |   | (8,702  | )        |   |   | (343,222 | )      
|Equity in net income (losses) of unconsolidated
    subsidiaries                                                                                                                                                                                     |                |         | (334,995 | )          |  |            | 2,587   |               |  |              |       |              |  |   |         |         |  |   | 332,408 |          |   |   |         |        
|Equity in net income (losses) of affiliates                                                                                                                                                                                                          |                |         | (21,775  | )          |  |            |        |               |  |              |       |              |  |   | (29,378  | )       |  |   |        |          |   |   | (51,153  | )      
|Minority interest                                                                                                                                                                                                                                    |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 20       |         |  |   |        |          |   |   | 20       |        
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        
|(Loss) income before cumulative effect of change
    in accounting principle and extraordinary gain on acquisition of
    minority interest                                                                                                          |                |         | (380,740 | )          |  |            | (49,234 | )             |  |              | 2,587  |              |  |   | (290,674 | )       |  |   | 323,706 |          |   |   | (394,355 | )      
|Cumulative effect of change in accounting
    principle                                                                                                                                                                                              |                |         | (1,970   | )          |  |            |        |               |  |              |       |              |  |   |         |         |  |   |        |          |   |   | (1,970   | )      
|Extraordinary gain on acquisition of minority
    interest                                                                                                                                                                                           |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 13,615   |         |  |   |        |          |   |   | 13,615   |        
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        
|Net (loss) income                                                                                                                                                                                                                                    |                | $       | (382,710 | )          |  | $          | (49,234 | )             |  | $            | 2,587  |              |  | $ | (277,059 | )       |  | $ | 323,706 |          |   | $ | (382,710 | )      
|                                                                                                                                                                                                                                                     |                |         |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |          |   |   |          |        

F-59



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year Ended December 31, 2003

(in thousands)


|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |          |          |  
|------------------------------------------------------- | ----------------- | ------------------------------------------------------------------ | ------- | ---------- | ------- | ---------- | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | -------- | -------- | -------- | - | ------- | ------- | -------- | - | -------- | -------- | -------- | -
|                                                        |                   | Parent                                                             |         | Subsidiary |         | Guarantor  |         | Non-Guarantor |         |              |   |             
|                                                        |                   | Company                                                            |         | Issuer     |         | Subsidiary |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |             
|Operating activities:                                   |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|                                                        | Net (loss) income |                                                                    | $       | (382,710   | )       |            | $       | (49,234       | )       |              | $ | 2,587        |         |   | $        | (277,059 | )        |   | $       | 323,706 |          |   | $        | (382,710 | )       
|                                                        | Non-cash items:   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |          |         
|                                                        |                   | Cumulative effect of change in accounting
    principle            |         |            | 1,970   |            |         |               |        |              |   |              |        |   |          |          |         |   |         |         |         |   |          |          | 1,970    |  
|                                                        |                   | Extraordinary gain on acquisition of minority
    interest         |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (13,615  | ) |         |         |         |   |          |          | (13,615  | )
|                                                        |                   | Equity in net losses of affiliates                                 |         |            | 21,775  |            |         |               |        |              |   |              |        |   |          |          | 29,378   |   |         |         |         |   |          |          | 51,153   |  
|                                                        |                   | Minority interest                                                  |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (20      | ) |         |         |         |   |          |          | (20      | )
|                                                        |                   | Equity in net losses of unconsolidated
    subsidiaries            |         |            | 334,995 |            |         |               | (2,587  | )            |   |              |        |   |          |          |         |   |         |         | (332,408 | ) |          |          |         |  
|                                                        |                   | Deferred taxes                                                     |         |            | 3,656   |            |         |               |        |              |   |              | 3,401   |   |          |          |         |   |         |         | (3,401   | ) |          |          | 3,656    |  
|                                                        |                   | Depreciation and amortization                                      |         |            |        |            |         |               | 68,532  |              |   |              | 21,013  |   |          |          | 99,723   |   |         |         |         |   |          |          | 189,268  |  
|                                                        |                   | Provisions for inventory obsolescence                              |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 49,546   |   |         |         |         |   |          |          | 49,546   |  
|                                                        |                   | Charge on vendor financing receivables                             |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 10,008   |   |         |         |         |   |          |          | 10,008   |  
|                                                        |                   | Loss on cancellation of deposit                                    |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 23,500   |   |         |         |         |   |          |          | 23,500   |  
|                                                        |                   | Loss on acceleration of receipt of long-term
    receivables       |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 10,893   |   |         |         |         |   |          |          | 10,893   |  
|                                                        |                   | Charge on conversion of sales arrangement to
    lease arrangement |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 10,098   |   |         |         |         |   |          |          | 10,098   |  
|                                                        |                   | Accrual for Alcatel settlement                                     |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 8,000    |   |         |         |         |   |          |          | 8,000    |  
|                                                        |                   | Provisions for bad debts on billed receivables                     |         |            |        |            |         |               | 1,601   |              |   |              | 329     |   |          |          | 5,472    |   |         |         |         |   |          |          | 7,402    |  
|                                                        |                   | Adjustment to revenue straightlining assessment                    |         |            |        |            |         |               | 5,315   |              |   |              |        |   |          |          | 3,719    |   |         |         |         |   |          |          | 9,034    |  
|                                                        |                   | Loss on equipment disposals                                        |         |            |        |            |         |               | 2,151   |              |   |              |        |   |          |          | 2,653    |   |         |         |         |   |          |          | 4,804    |  
|                                                        |                   | Gain on investment                                                 |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (17,900  | ) |         |         |         |   |          |          | (17,900  | )
|                                                        |                   | Net interest and (gain) loss of foreign
    currency transactions  |         |            |        |            |         |               | 670     |              |   |              |        |   |          |          | 4,217    |   |         |         |         |   |          |          | 4,887    |  
|Changes in operating assets and liabilities:            |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|                                                        |                   | Accounts receivable, net                                           |         |            |        |            |         |               | (1,036  | )            |   |              | (1,159  | ) |          |          | 717      |   |         |         |         |   |          |          | (1,478   | )
|                                                        |                   | Contracts-in-process                                               |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 31,686   |   |         |         |         |   |          |          | 31,686   |  
|                                                        |                   | Inventories                                                        |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 3,731    |   |         |         |         |   |          |          | 3,731    |  
|                                                        |                   | Long-term receivables                                              |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 73,519   |   |         |         |         |   |          |          | 73,519   |  
|                                                        |                   | Deposits                                                           |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 25,750   |   |         |         |         |   |          |          | 25,750   |  
|                                                        |                   | Due (to) from unconsolidated subsidiaries                          |         |            | 2,080   |            |         |               | 25,870  |              |   |              | (28,595 | ) |          |          | (3,175   | ) |         |         | 3,820    |   |          |          |         |  
|                                                        |                   | Other current assets and other assets                              |         |            | (964    | )          |         |               | 6,871   |              |   |              | 2,871   |   |          |          | 25,615   |   |         |         |         |   |          |          | 34,393   |  
|                                                        |                   | Accounts payable                                                   |         |            |        |            |         |               | 410     |              |   |              | (192    | ) |          |          | 40,930   |   |         |         |         |   |          |          | 41,148   |  
|                                                        |                   | Accrued expenses and other current liabilities                     |         |            | 1,253   |            |         |               | 435     |              |   |              |        |   |          |          | (1,008   | ) |         |         |         |   |          |          | 680      |  
|                                                        |                   | Customer advances                                                  |         |            |        |            |         |               | (2,324  | )            |   |              | (324    | ) |          |          | 52,304   |   |         |         |         |   |          |          | 49,656   |  
|                                                        |                   | Income taxes payable                                               |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 4,624    |   |         |         | (2,777   | ) |          |          | 1,847    |  
|                                                        |                   | Pension and other postretirement liabilities                       |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 13,245   |   |         |         |         |   |          |          | 13,245   |  
|                                                        |                   | Long-term liabilities                                              |         |            |        |            |         |               | (1,738  | )            |   |              | 69      |   |          |          | (17,958  | ) |         |         |         |   |          |          | (19,627  | )
|                                                        |                   | Other                                                              |         |            | 67      |            |         |               |        |              |   |              |        |   |          |          | 434      |   |         |         |         |   |          |          | 501      |  
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|Net cash provided by (used in) operating
    activities |                   |                                                                    | (17,878 | )          |         |            | 54,936  |               |         |              |  |              |         |   | 199,027  |          |          |   | (11,060 | )       |          |   | 225,025  |         
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|Investing activities:                                   |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|                                                        |                   | Capital expenditures                                               |         |            |        |            |         |               | (20,434 | )            |   |              |        |   |          |          | (167,190 | ) |         |         | 11,060   |   |          |          | (176,564 | )
|                                                        |                   | Proceeds from the sale of investments                              |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 45,908   |   |         |         |         |   |          |          | 45,908   |  
|                                                        |                   | Investments in and advances to unconsolidated
    subsidiaries     |         |            | (288    | )          |         |               |        |              |   |              |        |   |          |          | 288      |   |         |         |         |   |          |          |         |  
|                                                        |                   | Investments in and advances to affiliates                          |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (19,200  | ) |         |         |         |   |          |          | (19,200  | )
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|Net cash used in investing activities                   |                   |                                                                    | (288    | )          |         |            | (20,434 | )             |         |              |  |              |         |   | (140,194 | )        |          |   | 11,060  |         |          |   | (149,856 | )       
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|Financing activities:                                   |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|                                                        |                   | Borrowings under revolving credit facilities                       |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 71,387   |   |         |         |         |   |          |          | 71,387   |  
|                                                        |                   | Repayments under term loans                                        |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (32,500  | ) |         |         |         |   |          |          | (32,500  | )
|                                                        |                   | Interest payments on 10% senior notes                              |         |            |        |            |         |               | (30,635 | )            |   |              |        |   |          |          |         |   |         |         |         |   |          |          | (30,635  | )
|                                                        |                   | Repayments of export-import facility                               |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (6,434   | ) |         |         |         |   |          |          | (6,434   | )
|                                                        |                   | Payment of bank amendment costs                                    |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (5,131   | ) |         |         |         |   |          |          | (5,131   | )
|                                                        |                   | Note receivable from unconsolidated affiliate                      |         |            | 17,284  |            |         |               |        |              |   |              |        |   |          |          | (17,284  | ) |         |         |         |   |          |          |         |  
|                                                        |                   | Proceeds from other stock issuances                                |         |            | 3,849   |            |         |               |        |              |   |              |        |   |          |          | 3        |   |         |         |         |   |          |          | 3,852    |  
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|Net cash provided by (used in) financing
    activities |                   |                                                                    | 21,133  |            |         |            | (30,635 | )             |         |              |  |              |         |   | 10,041   |          |          |   |        |         |          |   | 539      |         
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|Increase (decrease) in cash and cash equivalents        |                   |                                                                    | 2,967   |            |         |            | 3,867   |               |         |              |  |              |         |   | 68,874   |          |          |   |        |         |          |   | 75,708   |         
|Cash and cash equivalents  beginning
    of period     |                   |                                                                    | 1,514   |            |         |            | 42,964  |               |         |              |  |              |         |   | 21,458   |          |          |   |        |         |          |   | 65,936   |         
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         
|Cash and cash equivalents  end of
    period           |                   | $                                                                  | 4,481   |            |         | $          | 46,831  |               |         | $            |  |              |         | $ | 90,332   |          |          | $ |        |         |          | $ | 141,644  |         
|                                                        |                   |                                                                    |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |         |         |          |   |          |         

F-60



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2002

(in thousands)


|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |            |           | 
|------------------------------------------------------------------ | ------------------------------------------------------ | -------------------------------------------------------- | -------- | ---------- | ------- | ---------- | -------- | ------------- | ------- | ------------ | -------- | ------------ | ------ |  | ---------- | ---------- | ------- |  | --------- | --------- | --------- | - | --------- | ---------- | --------- | 
|                                                                   |                                                        | Parent                                                   |          | Subsidiary |         | Guarantor  |          | Non-Guarantor |         |              |          |             
|                                                                   |                                                        | Company                                                  |          | Issuer     |         | Subsidiary |          | Subsidiaries  |         | Eliminations |          | Consolidated
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |             
|Current assets:                                                    |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                                   | Cash and cash equivalents                              |                                                          | $        | 1,514      |         |            | $        | 42,964        |         |              | $        |             |        |  | $          | 21,458     |         |  | $         |          |           |   | $         | 65,936     |          
|                                                                   | Accounts receivable, net                               |                                                          |          |           |         |            |          | 7,477         |         |              |          | 138          |        |  |            | 21,278     |         |  |           |          |           |   |           | 28,893     |          
|                                                                   | Contracts-in-process                                   |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 113,154    |         |  |           |          |           |   |           | 113,154    |          
|                                                                   | Vendor financing receivable                            |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 38,016     |         |  |           |          |           |   |           | 38,016     |          
|                                                                   | Inventories                                            |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 95,733     |         |  |           |          |           |   |           | 95,733     |          
|                                                                   | Other current assets                                   |                                                          |          | 823        |         |            |          | 5,540         |         |              |          | 8,584        |        |  |            | 34,659     |         |  |           | (911      | )         |   |           | 48,695     |          
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                                   |                                                        | Total current assets                                     |          |            | 2,337   |            |          |               | 55,981  |              |          |              | 8,722  |  |            |            | 324,298 |  |           |           | (911      | ) |           |            | 390,427   | 
|Property, plant and equipment, net                                 |                                                        |                                                          |         |            |         |            | 319,998  |               |         |              | 204,701  |              |        |  | 1,377,714  |            |         |  | (24,276   | )         |           |   | 1,878,137 |           
|Long-term receivables                                              |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 163,191    |            |         |  |          |           |           |   | 163,191   |           
|Notes receivable from (payable to) unconsolidated
    subsidiaries |                                                        |                                                          | 157,500  |            |         |            | (31,540  | )             |         |              |         |              |        |  | (125,960   | )          |         |  |          |           |           |   |          |           
|Due from (to) unconsolidated subsidiaries                          |                                                        |                                                          | 36,448   |            |         |            | (97,652  | )             |         |              | 107,917  |              |        |  | (13,413    | )          |         |  | (33,300   | )         |           |   |          |           
|Investments in unconsolidated subsidiaries                         |                                                        |                                                          | (20,185  | )          |         |            | 304,590  |               |         |              | (271,698 | )            |        |  | (1,642,070 | )          |         |  | 1,629,363 |           |           |   |          |           
|Investments in and advances to affiliates                          |                                                        |                                                          | 21,507   |            |         |            |         |               |         |              |         |              |        |  | 73,936     |            |         |  |          |           |           |   | 95,443    |           
|Deposits                                                           |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 58,250     |            |         |  |          |           |           |   | 58,250    |           
|Deferred tax assets                                                |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  |           |            |         |  |          |           |           |   |          |           
|Other assets                                                       |                                                        |                                                          | 3,191    |            |         |            | 16,622   |               |         |              | 696      |              |        |  | 86,845     |            |         |  |          |           |           |   | 107,354   |           
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                                   |                                                        | Total assets                                             |          | $          | 200,798 |            |          | $             | 567,999 |              |          | $            | 50,338 |  |            | $          | 302,791 |  |           | $         | 1,570,876 |   |           | $          | 2,692,802 | 
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|Current liabilities:                                               |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                                   | Current portion of long-term debt                      |                                                          | $        |           |         |            | $        | 62,996        |         |              | $        |             |        |  | $          | 67,171     |         |  | $         |          |           |   | $         | 130,167    |          
|                                                                   | Accounts payable                                       |                                                          |          | 2,404      |         |            |          | 1,194         |         |              |          | 1,193        |        |  |            | 53,532     |         |  |           |          |           |   |           | 58,323     |          
|                                                                   | Accrued employment costs                               |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 34,531     |         |  |           |          |           |   |           | 34,531     |          
|                                                                   | Customer advances                                      |                                                          |          |           |         |            |          | 1,208         |         |              |          | 521          |        |  |            | 112,351    |         |  |           |          |           |   |           | 114,080    |          
|                                                                   | Accrued interest and preferred dividends               |                                                          |          | 20,840     |         |            |          | 4,700         |         |              |          |             |        |  |            | 11,830     |         |  |           |          |           |   |           | 37,370     |          
|                                                                   | Income taxes payable                                   |                                                          |          | 8,123      |         |            |          |              |         |              |          |             |        |  |            | 31,232     |         |  |           | (1,419    | )         |   |           | 37,936     |          
|                                                                   | Other current liabilities                              |                                                          |          |           |         |            |          | 3,699         |         |              |          | 35           |        |  |            | 45,002     |         |  |           |          |           |   |           | 48,736     |          
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                                   |                                                        | Total current liabilities                                |          |            | 31,367  |            |          |               | 73,797  |              |          |              | 1,749  |  |            |            | 355,649 |  |           |           | (1,419    | ) |           |            | 461,143   | 
|Pension and other postretirement liabilities                       |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 124,193    |            |         |  |          |           |           |   | 124,193   |           
|Long-term liabilities                                              |                                                        |                                                          | 48,577   |            |         |            | 14,040   |               |         |              | 11,387   |              |        |  | 172,119    |            |         |  | (31,991   | )         |           |   | 214,132   |           
|Long-term debt                                                     |                                                        |                                                          | 350,000  |            |         |            | 888,532  |               |         |              |         |              |        |  | 867,798    |            |         |  |          |           |           |   | 2,106,330 |           
|Minority interest                                                  |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 16,150     |            |         |  |          |           |           |   | 16,150    |           
|                                                                   | 6% Series C convertible redeemable preferred
    stock |                                                          |          | 104,582    |         |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | 104,582    |          
|                                                                   | 6% Series D convertible redeemable preferred
    stock |                                                          |          | 20,499     |         |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | 20,499     |          
|Shareholders (deficit) equity:                                    |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                                   | 6% Series C convertible redeemable preferred
    stock |                                                          |          | 80,171     |         |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | 80,171     |          
|                                                                   | 6% Series D convertible redeemable preferred
    stock |                                                          |          | 15,125     |         |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | 15,125     |          
|                                                                   | Common stock, par value $.01                           |                                                          |          | 4,293      |         |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | 4,293      |          
|                                                                   | Paid-in capital                                        |                                                          |          | 3,389,035  |         |            |          | 604,166       |         |              |          |             |        |  |            |           |         |  |           | (604,166  | )         |   |           | 3,389,035  |          
|                                                                   | Treasury stock, at cost                                |                                                          |          | (3,360     | )       |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | (3,360     | )        
|                                                                   | Unearned compensation                                  |                                                          |          | (151       | )       |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | (151       | )        
|                                                                   | Retained (deficit) earnings                            |                                                          |          | (3,782,107 | )       |            |          | (1,012,536    | )       |              |          | 37,202       |        |  |            | (1,233,118 | )       |  |           | 2,208,452 |           |   |           | (3,782,107 | )        
|                                                                   | Accumulated other comprehensive loss                   |                                                          |          | (57,233    | )       |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | (57,233    | )        
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|Total shareholders (deficit) equity                               |                                                        |                                                          | (354,227 | )          |         |            | (408,370 | )             |         |              | 37,202   |              |        |  | (1,233,118 | )          |         |  | 1,604,286 |           |           |   | (354,227  | )         
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                                   |                                                        | Total liabilities and shareholders
    (deficit) equity |          | $          | 200,798 |            |          | $             | 567,999 |              |          | $            | 50,338 |  |            | $          | 302,791 |  |           | $         | 1,570,876 |   |           | $          | 2,692,802 | 
|                                                                   |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           

F-61



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year ended December 31, 2002

(in thousands)


|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ---------- | ---------- |  | ---------- | -------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | --------- |  | - | --------- | -------- | - | - | ---------- | --------- | 
|                                                                                                                                                               |                | Parent  |            | Subsidiary |  | Guarantor  |          | Non-Guarantor |  |              |        |             
|                                                                                                                                                               |                | Company |            | Issuer     |  | Subsidiary |          | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |             
|Revenues from satellite services                                                                                                                               |                | $       |           |            |  | $          | 99,717   |               |  | $            | 48,198 |              |  | $ | 293,577  |           |  | $ | (51,534   | )        |   | $ | 389,958    |          
|Revenues from satellite manufacturing                                                                                                                          |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 761,793  |           |  |   | (53,326   | )        |   |   | 708,467    |          
|Management fee from parent                                                                                                                                     |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 18       |           |  |   | (18       | )        |   |   |           |          
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|                                                                                                                                                               | Total revenues |         |            |           |  |            |          | 99,717        |  |              |        | 48,198       |  |   |          | 1,055,388 |  |   |           | (104,878 | ) |   |            | 1,098,425 | 
|Cost of satellite services                                                                                                                                     |                |         |           |            |  |            | 100,360  |               |  |              | 29,231 |              |  |   | 190,070  |           |  |   | (48,484   | )        |   |   | 271,177    |          
|Cost of satellite manufacturing                                                                                                                                |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 805,690  |           |  |   | (46,190   | )        |   |   | 759,500    |          
|Selling, general and administrative expenses                                                                                                                   |                |         | 7,198      |            |  |            | 10,089   |               |  |              | 964    |              |  |   | 131,526  |           |  |   |          |          |   |   | 149,777    |          
|Management fee expense                                                                                                                                         |                |         | 18         |            |  |            |         |               |  |              |       |              |  |   |         |           |  |   | (18       | )        |   |   |           |          
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|Operating (loss) income                                                                                                                                        |                |         | (7,216     | )          |  |            | (10,732  | )             |  |              | 18,003 |              |  |   | (71,898  | )         |  |   | (10,186   | )        |   |   | (82,029    | )        
|Interest and investment income                                                                                                                                 |                |         | 21,514     |            |  |            | 631      |               |  |              |       |              |  |   | 15,155   |           |  |   | (24,391   | )        |   |   | 12,909     |          
|Interest expense                                                                                                                                               |                |         | (39,327    | )          |  |            | (13,016  | )             |  |              | 3      |              |  |   | (51,843  | )         |  |   | 27,138    |          |   |   | (77,045    | )        
|Loss on investment                                                                                                                                             |                |         | (1,189     | )          |  |            |         |               |  |              |       |              |  |   |         |           |  |   |          |          |   |   | (1,189     | )        
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|(Loss) income from continuing operations before
    income taxes, equity in net losses of unconsolidated
    subsidiaries and affiliates and minority interest |                |         | (26,218    | )          |  |            | (23,117  | )             |  |              | 18,006 |              |  |   | (108,586 | )         |  |   | (7,439    | )        |   |   | (147,354   | )        
|Income tax provision                                                                                                                                           |                |         | (6,398     | )          |  |            | (14,739  | )             |  |              | (6,455 | )            |  |   | (150,708 | )         |  |   | (176,742  | )        |   |   | (355,042   | )        
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|(Loss) income from continuing operations before
    equity in net losses of unconsolidated subsidiaries and
    affiliates and minority interest               |                |         | (32,616    | )          |  |            | (37,856  | )             |  |              | 11,551 |              |  |   | (259,294 | )         |  |   | (184,181  | )        |   |   | (502,396   | )        
|Equity in net income (losses) of unconsolidated
    subsidiaries, net of taxes                                                                                 |                |         | (1,360,150 | )          |  |            | 11,551   |               |  |              |       |              |  |   |         |           |  |   | 1,348,599 |          |   |   |           |          
|Equity in net income (losses) of affiliates, net
    of taxes                                                                                                  |                |         | (76,445    | )          |  |            |         |               |  |              |       |              |  |   | 165      |           |  |   |          |          |   |   | (76,280    | )        
|Minority interest, net of taxes                                                                                                                                |                |         |           |            |  |            |         |               |  |              |       |              |  |   | (226     | )         |  |   |          |          |   |   | (226       | )        
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                   |                |         | (1,469,211 | )          |  |            | (26,305  | )             |  |              | 11,551 |              |  |   | (259,355 | )         |  |   | 1,164,418 |          |   |   | (578,902   | )        
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                          |                |         |           |            |  |            | (562,201 | )             |  |              |       |              |  |   | (328,108 | )         |  |   |          |          |   |   | (890,309   | )        
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|Net (loss) income                                                                                                                                              |                | $       | (1,469,211 | )          |  | $          | (588,506 | )             |  | $            | 11,551 |              |  | $ | (587,463 | )         |  | $ | 1,164,418 |          |   | $ | (1,469,211 | )        
|                                                                                                                                                               |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          

F-62



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year ended December 31, 2002

(in thousands)


|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |            |         |  
|---------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------------------------- | ------- | ---------- | --------- | ---------- | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | -------- | -------- | ------- | - | ------ | --------- | ---------- | - | -------- | ---------- | ------- | -
|                                                           |                                                                 | Parent                                                                |         | Subsidiary |           | Guarantor  |         | Non-Guarantor |         |              |   |             
|                                                           |                                                                 | Company                                                               |         | Issuer     |           | Subsidiary |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |             
|Operating activities:                                      |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|                                                           | Net (loss) income                                               |                                                                       | $       | (1,469,211 | )         |            | $       | (588,506      | )       |              | $ | 11,551       |         |   | $        | (587,463 | )       |   | $      | 1,164,418 |            |   | $        | (1,469,211 | )      
|                                                           | Non-cash items:                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |            |        
|                                                           |                                                                 | Equity in net losses of affiliates, net of taxes                      |         |            | 76,445    |            |         |               |        |              |   |              |        |   |          |          | 8,033   |   |        |           |           |   |          |            | 84,478  |  
|                                                           |                                                                 | Minority interest, net of taxes                                       |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 226     |   |        |           |           |   |          |            | 226     |  
|                                                           |                                                                 | Cumulative effect of change in accounting
    principle, net of taxes |         |            |          |            |         |               | 562,201 |              |   |              |        |   |          |          | 328,108 |   |        |           |           |   |          |            | 890,309 |  
|                                                           |                                                                 | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |         |            | 1,360,150 |            |         |               | (11,551 | )            |   |              |        |   |          |          |        |   |        |           | (1,348,599 | ) |          |            |        |  
|                                                           |                                                                 | Deferred taxes                                                        |         |            | 6,214     |            |         |               | 32,130  |              |   |              | 5,143   |   |          |          | 152,285 |   |        |           | 159,563    |   |          |            | 355,335 |  
|                                                           |                                                                 | Depreciation and amortization                                         |         |            | (47       | )          |         |               | 54,279  |              |   |              | 21,013  |   |          |          | 111,757 |   |        |           |           |   |          |            | 187,002 |  
|                                                           |                                                                 | Valuation allowance on Europe*Star advances                           |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 36,620  |   |        |           |           |   |          |            | 36,620  |  
|                                                           |                                                                 | Charge on vendor financing receivables                                |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 32,574  |   |        |           |           |   |          |            | 32,574  |  
|                                                           |                                                                 | Loss on cancellation of deposits                                      |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 10,000  |   |        |           |           |   |          |            | 10,000  |  
|                                                           |                                                                 | Provision for inventory obsolescence                                  |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 14,013  |   |        |           |           |   |          |            | 14,013  |  
|                                                           |                                                                 | Provisions for bad debts on billed receivables                        |         |            |          |            |         |               | 822     |              |   |              | (78     | ) |          |          | 3,564   |   |        |           |           |   |          |            | 4,308   |  
|                                                           |                                                                 | Adjustment to revenue straightlining assessment                       |         |            |          |            |         |               | 387     |              |   |              |        |   |          |          | 1,020   |   |        |           |           |   |          |            | 1,407   |  
|                                                           |                                                                 | Loss on equipment disposals                                           |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 6,191   |   |        |           |           |   |          |            | 6,191   |  
|                                                           |                                                                 | Loss on investments                                                   |         |            | 1,189     |            |         |               |        |              |   |              |        |   |          |          |        |   |        |           |           |   |          |            | 1,189   |  
|                                                           |                                                                 | Non-cash interest (income) expense                                    |         |            |          |            |         |               | 503     |              |   |              |        |   |          |          | (331    | ) |        |           |           |   |          |            | 172     |  
|                                                           | Changes in operating assets and liabilities:                    |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |            |        
|                                                           |                                                                 | Accounts receivable, net                                              |         |            |          |            |         |               | 4,772   |              |   |              | 437     |   |          |          | 1,032   |   |        |           |           |   |          |            | 6,241   |  
|                                                           |                                                                 | Contracts-in-process                                                  |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 97,100  |   |        |           |           |   |          |            | 97,100  |  
|                                                           |                                                                 | Inventories                                                           |         |            |          |            |         |               |        |              |   |              |        |   |          |          | (1,604  | ) |        |           |           |   |          |            | (1,604  | )
|                                                           |                                                                 | Long-term receivables                                                 |         |            |          |            |         |               |        |              |   |              |        |   |          |          | (1,963  | ) |        |           |           |   |          |            | (1,963  | )
|                                                           |                                                                 | Deposits                                                              |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 58,940  |   |        |           |           |   |          |            | 58,940  |  
|                                                           |                                                                 | Due to (from) unconsolidated subsidiaries                             |         |            | (17,135   | )          |         |               | 33,882  |              |   |              | (34,931 | ) |          |          | (904    | ) |        |           | 19,088     |   |          |            |        |  
|                                                           |                                                                 | Other current assets and other assets                                 |         |            | 2,260     |            |         |               | 3,202   |              |   |              | (3,296  | ) |          |          | 25,593  |   |        |           |           |   |          |            | 27,759  |  
|                                                           |                                                                 | Accounts payable                                                      |         |            | (1,357    | )          |         |               | (1,484  | )            |   |              | 481     |   |          |          | (86,306 | ) |        |           |           |   |          |            | (88,666 | )
|                                                           |                                                                 | Accrued expenses and other current liabilities                        |         |            | 715       |            |         |               | 2,382   |              |   |              |        |   |          |          | (23,136 | ) |        |           |           |   |          |            | (20,039 | )
|                                                           |                                                                 | Customer advances                                                     |         |            |          |            |         |               | (3,739  | )            |   |              | (320    | ) |          |          | (30,851 | ) |        |           |           |   |          |            | (34,910 | )
|                                                           |                                                                 | Income taxes payable                                                  |         |            | 184       |            |         |               |        |              |   |              |        |   |          |          | 3,572   |   |        |           | (336       | ) |          |            | 3,420   |  
|                                                           |                                                                 | Pension and other postretirement liabilities                          |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 4,521   |   |        |           |           |   |          |            | 4,521   |  
|                                                           |                                                                 | Long-term liabilities                                                 |         |            |          |            |         |               | (1,728  | )            |   |              |        |   |          |          | (10,986 | ) |        |           |           |   |          |            | (12,714 | )
|                                                           |                                                                 | Other                                                                 |         |            | (2        | )          |         |               |        |              |   |              |        |   |          |          | (26     | ) |        |           |           |   |          |            | (28     | )
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Net cash provided by (used in) operating
    activities    |                                                                 |                                                                       | (40,595 | )          |           |            | 87,552  |               |         |              |  |              |         |   | 151,579  |          |         |   | (5,866 | )         |            |   | 192,670  |           
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Investing activities:                                      |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|                                                           | Capital expenditures                                            |                                                                       |         |           |           |            |         | (18,033       | )       |              |   |             |         |   |          | (86,040  | )       |   |        | 5,866     |            |   |          | (98,207    | )      
|                                                           | Investments in and advances to unconsolidated
    subsidiaries  |                                                                       |         | (2,243     | )         |            |         |              |         |              |   |             |         |   |          | 2,243    |         |   |        |          |            |   |          |           |        
|                                                           | Investments in and advances to affiliates                       |                                                                       |         | (11,479    | )         |            |         |              |         |              |   |             |         |   |          | (29,138  | )       |   |        |          |            |   |          | (40,617    | )      
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Net cash (used in) provided by in investing
    activities |                                                                 |                                                                       | (13,722 | )          |           |            | (18,033 | )             |         |              |  |              |         |   | (112,935 | )        |         |   | 5,866  |           |            |   | (138,824 | )         
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Financing activities:                                      |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|                                                           | Borrowings under revolving credit facilities                    |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | 145,000  |         |   |        |          |            |   |          | 145,000    |        
|                                                           | Repayments under term loans                                     |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | (85,000  | )       |   |        |          |            |   |          | (85,000    | )      
|                                                           | Repayments under revolving credit facilities                    |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | (127,000 | )       |   |        |          |            |   |          | (127,000   | )      
|                                                           | Interest payments on 10% senior notes                           |                                                                       |         |           |           |            |         | (45,954       | )       |              |   |             |         |   |          |        |         |   |        |          |            |   |          | (45,954    | )      
|                                                           | Repayment of export-import facility                             |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | (2,146   | )       |   |        |          |            |   |          | (2,146     | )      
|                                                           | Repayments of other long-term obligations                       |                                                                       |         |           |           |            |         |             |         |              |   |             |         |   |          | (22      | )       |   |        |          |            |   |          | (22        | )      
|                                                           | Note receivable from unconsolidated affiliate                   |                                                                       |         | 42,500     |           |            |         |              |         |              |   |             |         |   |          | (42,500  | )       |   |        |          |            |   |          |           |        
|                                                           | Preferred dividends                                             |                                                                       |         | (29,677    | )         |            |         |              |         |              |   |             |         |   |          |         |         |   |        |          |            |   |          | (29,677    | )      
|                                                           | Preferred dividends on exchange offers and
    related expenses |                                                                       |         | (15,583    | )         |            |         |              |         |              |   |             |         |   |          |         |         |   |        |          |            |   |          | (15,583    | )      
|                                                           | Proceeds from stock issuances                                   |                                                                       |         | 12,523     |           |            |         |              |         |              |   |             |         |   |          |         |         |   |        |          |            |   |          | 12,523     |        
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Net cash used in financing activities                      |                                                                 |                                                                       | 9,763   |            |           |            | (45,954 | )             |         |              |  |              |         |   | (111,668 | )        |         |   |       |           |            |   | (147,859 | )         
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|(Decrease) increase in cash and cash equivalents           |                                                                 |                                                                       | (44,554 | )          |           |            | 23,565  |               |         |              |  |              |         |   | (73,024  | )        |         |   |       |           |            |   | (94,013  | )         
|Cash and cash equivalents  beginning
    of period        |                                                                 |                                                                       | 46,068  |            |           |            | 19,399  |               |         |              |  |              |         |   | 94,482   |          |         |   |       |           |            |   | 159,949  |           
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Cash and cash equivalents  end of
    period              |                                                                 | $                                                                     | 1,514   |            |           | $          | 42,964  |               |         | $            |  |              |         | $ | 21,458   |          |         | $ |       |           |            | $ | 65,936   |           
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           

F-63



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year ended December 31, 2001

(in thousands)


|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------- | ------- | -------- | ---------- |  | ---------- | ------- | ------------- |  | ------------ | ------ | ------------ |  | - | ------- | --------- |  | - | ------- | -------- | - | - | -------- | --------- | 
|                                                                                                                                                             |                | Parent  |          | Subsidiary |  | Guarantor  |         | Non-Guarantor |  |              |        |             
|                                                                                                                                                             |                | Company |          | Issuer     |  | Subsidiary |         | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |             
|Revenues from satellite services                                                                                                                             |                | $       |         |            |  | $          | 96,623  |               |  | $            | 51,461 |              |  | $ | 372,919 |           |  | $ | (65,308 | )        |   | $ | 455,695  |          
|Revenues from satellite manufacturing                                                                                                                        |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 621,284 |           |  |   | (7,404  | )        |   |   | 613,880  |          
|Management fee from parent                                                                                                                                   |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 36,730  |           |  |   | (36,730 | )        |   |   |         |          
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|                                                                                                                                                             | Total revenues |         |          |           |  |            |         | 96,623        |  |              |        | 51,461       |  |   |         | 1,030,933 |  |   |         | (109,442 | ) |   |          | 1,069,575 | 
|Cost of satellite services                                                                                                                                   |                |         |         |            |  |            | 119,917 |               |  |              | 26,407 |              |  |   | 215,553 |           |  |   | (58,551 | )        |   |   | 303,326  |          
|Cost of satellite manufacturing                                                                                                                              |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 586,147 |           |  |   | (5,624  | )        |   |   | 580,523  |          
|Selling, general and administrative expenses                                                                                                                 |                |         | 1,243    |            |  |            | 10,796  |               |  |              |       |              |  |   | 180,095 |           |  |   | (1,180  | )        |   |   | 190,954  |          
|Management fee expense                                                                                                                                       |                |         | 36,730   |            |  |            |        |               |  |              |       |              |  |   |        |           |  |   | (36,730 | )        |   |   |         |          
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|Operating (loss) income                                                                                                                                      |                |         | (37,973  | )          |  |            | (34,090 | )             |  |              | 25,054 |              |  |   | 49,138  |           |  |   | (7,357  | )        |   |   | (5,228   | )        
|Interest and investment income                                                                                                                               |                |         | 23,238   |            |  |            | 644     |               |  |              | 9      |              |  |   | 38,428  |           |  |   | (33,434 | )        |   |   | 28,885   |          
|Interest expense                                                                                                                                             |                |         | (37,629  | )          |  |            | (98,310 | )             |  |              | (29    | )            |  |   | (84,279 | )         |  |   | 36,316  |          |   |   | (183,931 | )        
|Gain on debt exchanges                                                                                                                                       |                |         |         |            |  |            | 34,541  |               |  |              |       |              |  |   | (600    | )         |  |   |        |          |   |   | 33,941   |          
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|(Loss) income from continuing operations before
    income taxes, equity in net losses of unconsolidated affiliates
    and affiliates and minority interest |                |         | (52,364  | )          |  |            | (97,215 | )             |  |              | 25,034 |              |  |   | 2,687   |           |  |   | (4,475  | )        |   |   | (126,333 | )        
|Income tax (provision) benefit                                                                                                                               |                |         | (6,315   | )          |  |            | (1,744  | )             |  |              | (8,762 | )            |  |   | (19,105 | )         |  |   | 33,756  |          |   |   | (2,170   | )        
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|(Loss) income from continuing operations before
    equity in net losses of unconsolidated affiliates and minority
    interest                              |                |         | (58,679  | )          |  |            | (98,959 | )             |  |              | 16,272 |              |  |   | (16,418 | )         |  |   | 29,281  |          |   |   | (128,503 | )        
|Equity in net (losses) income of unconsolidated
    subsidiaries, net of tax benefit                                                                         |                |         | (66,128  | )          |  |            | 11,950  |               |  |              |       |              |  |   |        |           |  |   | 54,178  |          |   |   |         |          
|Equity in net (losses) income of affiliates, net
    of taxes                                                                                                |                |         | (71,653  | )          |  |            |        |               |  |              |       |              |  |   | 4,976   |           |  |   |        |          |   |   | (66,677  | )        
|Minority interest, net of taxes                                                                                                                              |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 461     |           |  |   |        |          |   |   | 461      |          
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|(Loss) income from continuing operations                                                                                                                     |                |         | (196,460 | )          |  |            | (87,009 | )             |  |              | 16,272 |              |  |   | (10,981 | )         |  |   | 83,459  |          |   |   | (194,719 | )        
|(Loss) income from discontinued operations                                                                                                                   |                |         |         |            |  |            | (7,765  | )             |  |              |       |              |  |   |        |           |  |   | 7,765   |          |   |   |         |          
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                 |                |         | (196,460 | )          |  |            | (94,774 | )             |  |              | 16,272 |              |  |   | (10,981 | )         |  |   | 91,224  |          |   |   | (194,719 | )        
|Cumulative effect of change in accounting
    principle                                                                                                      |                |         |         |            |  |            |       |               |  |              |       |              |  |   | (1,741  | )         |  |   |       |          |   |   | (1,741   | )        
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|Net (loss) income                                                                                                                                            |                | $       | (196,460 | )          |  | $          | (94,774 | )             |  | $            | 16,272 |              |  | $ | (12,722 | )         |  | $ | 91,224  |          |   | $ | (196,460 | )        
|                                                                                                                                                             |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          

F-64



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|20. | Financial Information for Subsidiary Issuer,
    Guarantor Subsidiaries and Non-Guarantor Subsidiaries

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year ended December 31, 2001

(in thousands)


|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |          |         |  
|---------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------------------------------ | -------- | ---------- | ------ | ---------- | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | -------- | -------- | ------- | - | ------ | ------ | ------- | - | -------- | -------- | ------- | -
|                                                           |                                                              | Parent                                                                         |          | Subsidiary |        | Guarantor  |         | Non-Guarantor |         |              |   |             
|                                                           |                                                              | Company                                                                        |          | Issuer     |        | Subsidiary |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |             
|Operating activities:                                      |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|                                                           | Net (loss) income                                            |                                                                                | $        | (196,460   | )      |            | $       | (94,774       | )       |              | $ | 16,272       |         |   | $        | (12,722  | )       |   | $      | 91,224 |         |   | $        | (196,460 | )      
|                                                           | Non-cash items:                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |          |        
|                                                           |                                                              | Loss (income) from discontinued operations, net
    of taxes                   |          |            |       |            |         |               | 7,765   |              |   |              |        |   |          |          |        |   |        |        | (7,765  | ) |          |          |        |  
|                                                           |                                                              | Equity in net losses (income) of affiliates, net
    of taxes                  |          |            | 71,653 |            |         |               |        |              |   |              |        |   |          |          | (4,976  | ) |        |        |        |   |          |          | 66,677  |  
|                                                           |                                                              | Equity in net losses (income) of unconsolidated
    subsidiaries, net of taxes |          |            | 66,128 |            |         |               | (11,950 | )            |   |              |        |   |          |          |        |   |        |        | (54,178 | ) |          |          |        |  
|                                                           |                                                              | Minority interest, net of taxes                                                |          |            |       |            |         |               |        |              |   |              |        |   |          |          | (461    | ) |        |        |        |   |          |          | (461    | )
|                                                           |                                                              | Cumulative effect of change in accounting
    principle, net of taxes          |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 1,741   |   |        |        |        |   |          |          | 1,741   |  
|                                                           |                                                              | Deferred taxes                                                                 |          |            | 5,905  |            |         |               | 12,852  |              |   |              | 6,517   |   |          |          | 21,838  |   |        |        | (47,994 | ) |          |          | (882    | )
|                                                           |                                                              | Depreciation and amortization                                                  |          |            |       |            |         |               | 72,992  |              |   |              | 21,013  |   |          |          | 133,774 |   |        |        |        |   |          |          | 227,779 |  
|                                                           |                                                              | Provision for inventory obsolescence                                           |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 5,929   |   |        |        |        |   |          |          | 5,929   |  
|                                                           |                                                              | Provisions for bad debts on billed receivables                                 |          |            |       |            |         |               | 1,839   |              |   |              | (107    | ) |          |          | 1,985   |   |        |        |        |   |          |          | 3,717   |  
|                                                           |                                                              | Gain on debt exchanges                                                         |          |            |       |            |         |               | (34,541 | )            |   |              |        |   |          |          | 600     |   |        |        |        |   |          |          | (33,941 | )
|                                                           |                                                              | Non-cash interest expense                                                      |          |            |       |            |         |               | 39,609  |              |   |              |        |   |          |          | (5,947  | ) |        |        |        |   |          |          | 33,662  |  
|                                                           | Changes in operating assets and liabilities:                 |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |          |        
|                                                           |                                                              | Accounts receivable, net                                                       |          |            |       |            |         |               | (3,055  | )            |   |              | 1,312   |   |          |          | 15,505  |   |        |        |        |   |          |          | 13,762  |  
|                                                           |                                                              | Contracts-in-process                                                           |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 15,087  |   |        |        |        |   |          |          | 15,087  |  
|                                                           |                                                              | Inventories                                                                    |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 16,500  |   |        |        |        |   |          |          | 16,500  |  
|                                                           |                                                              | Long-term receivables                                                          |          |            |       |            |         |               |        |              |   |              |        |   |          |          | (51,401 | ) |        |        |        |   |          |          | (51,401 | )
|                                                           |                                                              | Deposits                                                                       |          |            |       |            |         |               | 863     |              |   |              | (863    | ) |          |          | 9,300   |   |        |        |        |   |          |          | 9,300   |  
|                                                           |                                                              | Due to (from) unconsolidated subsidiaries                                      |          |            | 6,075  |            |         |               | 58,281  |              |   |              | (38,795 | ) |          |          | (43,834 | ) |        |        | 18,273  |   |          |          |        |  
|                                                           |                                                              | Investments in unconsolidated affiliates                                       |          |            |       |            |         |               |        |              |   |              |        |   |          |          |        |   |        |        |        |   |          |          |        |  
|                                                           |                                                              | Other current assets and other assets                                          |          |            |       |            |         |               | (4,972  | )            |   |              | (3,085  | ) |          |          | 32,456  |   |        |        |        |   |          |          | 24,399  |  
|                                                           |                                                              | Accounts payable                                                               |          |            | 96     |            |         |               | (8,011  | )            |   |              |        |   |          |          | (4,341  | ) |        |        |        |   |          |          | (12,256 | )
|                                                           |                                                              | Accrued expenses and other current liabilities                                 |          |            | (2,538 | )          |         |               | 3,663   |              |   |              | (2,166  | ) |          |          | (28,127 | ) |        |        |        |   |          |          | (29,168 | )
|                                                           |                                                              | Customer advances                                                              |          |            |       |            |         |               | (724    | )            |   |              | (98     | ) |          |          | 78,946  |   |        |        |        |   |          |          | 78,124  |  
|                                                           |                                                              | Income taxes payable                                                           |          |            | 402    |            |         |               |        |              |   |              |        |   |          |          | (1,140  | ) |        |        | 3,225   |   |          |          | 2,487   |  
|                                                           |                                                              | Pension and other postretirement liabilities                                   |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 3,214   |   |        |        |        |   |          |          | 3,214   |  
|                                                           |                                                              | Long-term liabilities                                                          |          |            |       |            |         |               | 5,701   |              |   |              |        |   |          |          | (13,187 | ) |        |        |        |   |          |          | (7,486  | )
|                                                           |                                                              | Other                                                                          |          |            | 918    |            |         |               |        |              |   |              |        |   |          |          | (1,423  | ) |        |        |        |   |          |          | (505    | )
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash provided by (used in) operating
    activities    |                                                              |                                                                                | (47,821  | )          |        |            | 45,538  |               |         |              |  |              |         |   | 169,316  |          |         |   | 2,785  |        |         |   | 169,818  |         
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash (used in) provided by discontinued
    operations |                                                              |                                                                                |         |            |        |            | 2,236   |               |         |              |  |              |         |   |         |          |         |   | (2,236 | )      |         |   |         |         
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Investing activities:                                      |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |         |         
|                                                           | Capital expenditures                                         |                                                                                |          |           |        |            |         | (579          | )       |              |   |             |         |   |          | (237,245 | )       |   |        | (549   | )       |   |          | (238,373 | )      
|                                                           | Investments in and advances to affiliates                    |                                                                                |          | (19,668    | )      |            |         |              |         |              |   |             |         |   |          | (8,024   | )       |   |        |       |         |   |          | (27,692  | )      
|                                                           | Investments in and advances to unconsolidated
    Affiliates |                                                                                |          | (2,102     | )      |            |         |              |         |              |   |             |         |   |          | 2,102    |         |   |        |       |         |   |          |         |        
|                                                           | Proceeds from the sale leaseback of assets, net              |                                                                                |          |           |        |            |         |              |         |              |   |             |         |   |          | 17,393   |         |   |        |       |         |   |          | 17,393   |        
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash used in investing activities                      |                                                              |                                                                                | (21,770  | )          |        |            | (579    | )             |         |              |  |              |         |   | (225,774 | )        |         |   | (549   | )      |         |   | (248,672 | )       
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Financing activities:                                      |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|                                                           | Borrowings under revolving credit facilities                 |                                                                                |          |           |        |            |         |              |         |              |   |             |         |   |          | 115,000  |         |   |        |       |         |   |          | 115,000  |        
|                                                           | Repayments under term loans                                  |                                                                                |          |           |        |            |         |              |         |              |   |             |         |   |          | (81,000  | )       |   |        |       |         |   |          | (81,000  | )      
|                                                           | Repayments under revolving credit facilities                 |                                                                                |          |           |        |            |         |              |         |              |   |             |         |   |          | (134,000 | )       |   |        |       |         |   |          | (134,000 | )      
|                                                           | Repayments of export-import facility                         |                                                                                |          |           |        |            |         |              |         |              |   |             |         |   |          | (2,145   | )       |   |        |       |         |   |          | (2,145   | )      
|                                                           | Repayments of other long-term obligations                    |                                                                                |          |           |        |            |         | (2,332        | )       |              |   |             |         |   |          | (165     | )       |   |        |       |         |   |          | (2,497   | )      
|                                                           | Preferred dividends                                          |                                                                                |          | (52,218    | )      |            |         |              |         |              |   |             |         |   |          |         |         |   |        |       |         |   |          | (52,218  | )      
|                                                           | Proceeds from other stock issuances                          |                                                                                |          | 16,472     |        |            |         |              |         |              |   |             |         |   |          | 59       |         |   |        |       |         |   |          | 16,531   |        
|                                                           | Payment of debt refinancing costs                            |                                                                                |          |           |        |            |         |              |         |              |   |             |         |   |          | (14,913  | )       |   |        |       |         |   |          | (14,913  | )      
|                                                           | Equity contribution from parent                              |                                                                                |          |           |        |            |         | 2,700         |         |              |   |             |         |   |          | (2,700   | )       |   |        |       |         |   |          |         |        
|                                                           | Repayment of note due to Loral SpaceCom                      |                                                                                |          |           |        |            |         | (28,166       | )       |              |   |             |         |   |          | 28,166   |         |   |        |       |         |   |          |         |        
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash (used in) provided by financing
    activities    |                                                              |                                                                                | (35,746  | )          |        |            | (27,798 | )             |         |              |  |              |         |   | (91,698  | )        |         |   |       |        |         |   | (155,242 | )       
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|(Decrease) increase in cash and cash equivalents           |                                                              |                                                                                | (105,337 | )          |        |            | 19,397  |               |         |              |  |              |         |   | (148,156 | )        |         |   |       |        |         |   | (234,096 | )       
|Cash and cash equivalents  beginning
    of period        |                                                              |                                                                                | 151,405  |            |        |            | 2       |               |         |              |  |              |         |   | 242,638  |          |         |   |       |        |         |   | 394,045  |         
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Cash and cash equivalents  end of
    period              |                                                              | $                                                                              | 46,068   |            |        | $          | 19,399  |               |         | $            |  |              |         | $ | 94,482   |          |         | $ |       |        |         | $ | 159,949  |         
|                                                           |                                                              |                                                                                |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         

F-65



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|21. | Selected Quarterly Financial Information
    (unaudited, in thousands, except per share amounts)

|                                                                                                                                   |      |               |         |          |  |               |          |              |  |   |          |      |  |   |          |      | 
|---------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------- | ------- | -------- |  | ------------- | -------- | ------------ |  | - | -------- | ---- |  | - | -------- | ---- | 
|                                                                                                                                   |      |              
|                                                                                                                                   |      | Quarter ended
|                                                                                                                                   |      |              
|                                                                                                                                   |      | March 31,     |         | June 30, |  | September 30, |          | December 31,
|                                                                                                                                   |      |               |         |          |  |               |          |             
|Year ended December 31, 2003                                                                                                       |      |               |         |          |  |               |          |              |  |   |          |      |  |   |          |     
|Revenues                                                                                                                           |      | $             | 198,233 |          |  | $             | 142,649  |              |  | $ | 47,323   |      |  | $ | 145,180  |     
|Operating loss                                                                                                                     |      |               | (28,999 | )        |  |               | (100,876 | )            |  |   | (77,258  | )    |  |   | (102,782 | )   
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |      |               | (48,174 | )        |  |               | (109,404 | )            |  |   | (125,909 | )    |  |   | (110,868 | )   
|Net loss                                                                                                                           |      |               | (48,174 | )        |  |               | (95,789  | )            |  |   | (127,879 | )    |  |   | (110,868 | )   
|Preferred dividends                                                                                                                |      |               | (3,360  | )        |  |               | (3,359   | )            |  |   |          |      |  |   |          |     
|Net loss applicable to common shareholders                                                                                         |      |               | (51,534 | )        |  |               | (99,148  | )            |  |   | (127,879 | )    |  |   | (110,868 | )   
|Basic and diluted loss per share(1):                                                                                               |      |               |         |          |  |               |          |              |  |   |          |      |  |   |          |     
|Before cumulative effect of change in accounting
    principle                                                                     |      |               | (1.19   | )        |  |               | (2.57    | )            |  |   | (2.86    | )    |  |   | (2.51    | )   
|Cumulative effect of change in accounting
    principle                                                                            |      |               |         |          |  |               |          |              |  |   | (0.04    | )    |  |   |          |     
|Extraordinary gain on acquisition of minority
    interest                                                                         |      |               |         |          |  |               | 0.31     |              |  |   |          |      |  |   |          |     
|                                                                                                                                   |      |               |         |          |  |               |          |              |  |   |          |      |  |   |          |     
|Loss per share                                                                                                                     |      |               | (1.19   | )        |  |               | (2.26    | )            |  |   | (2.90    | )    |  |   | (2.51    | )   
|Market price per share(2)                                                                                                          |      |               |         |          |  |               |          |              |  |   |          |      |  |   |          |     
|                                                                                                                                   | High |               |         | 5.20     |  |               |          | 4.60         |  |   |          | 3.06 |  |   |          | 0.48 | 
|                                                                                                                                   | Low  |               |         | 3.00     |  |               |          | 2.59         |  |   |          | 0.15 |  |   |          | 0.26 | 

|                                                                    |      |               |          |          |  |               |         |              |  |   |         |       |  |   |          |      | 
|------------------------------------------------------------------- | ---- | ------------- | -------- | -------- |  | ------------- | ------- | ------------ |  | - | ------- | ----- |  | - | -------- | ---- | 
|                                                                    |      |              
|                                                                    |      | Quarter ended
|                                                                    |      |              
|                                                                    |      | March 31,     |          | June 30, |  | September 30, |         | December 31,
|                                                                    |      |               |          |          |  |               |         |             
|Year ended December 31, 2002                                        |      |               |          |          |  |               |         |              |  |   |         |       |  |   |          |     
|Revenues                                                            |      | $             | 308,176  |          |  | $             | 316,360 |              |  | $ | 210,982 |       |  | $ | 262,907  |     
|Operating income (loss)                                             |      |               | 14,705   |          |  |               | 8,675   |              |  |   | (15,805 | )     |  |   | (89,604  | )   
|Loss before cumulative effect of change in
    accounting principle |      |               | (19,860  | )        |  |               | (22,569 | )            |  |   | (48,712 | )     |  |   | (487,761 | )   
|Net loss                                                            |      |               | (896,360 | )        |  |               | (22,569 | )            |  |   | (48,712 | )     |  |   | (501,570 | )   
|Preferred dividends                                                 |      |               | (11,963  | )        |  |               | (46,810 | )            |  |   | (8,607  | )     |  |   | (21,806  | )   
|Net loss applicable to common shareholders                          |      |               | (908,323 | )        |  |               | (69,379 | )            |  |   | (57,319 | )     |  |   | (523,376 | )   
|Basic and diluted loss per share(1):                                |      |               |          |          |  |               |         |              |  |   |         |       |  |   |          |     
|Before cumulative effect of change in accounting
    principle      |      |               | (0.94    | )        |  |               | (1.94   | )            |  |   | (1.53   | )     |  |   | (12.08   | )   
|Cumulative effect of change in accounting
    principle             |      |               | (26.01   | )        |  |               |         |              |  |   |         |       |  |   | (0.32    | )   
|                                                                    |      |               |          |          |  |               |         |              |  |   |         |       |  |   |          |     
|Loss per share                                                      |      |               | (26.95   | )        |  |               | (1.94   | )            |  |   | (1.53   | )     |  |   | (12.40   | )   
|Market price per share(2)                                           |      |               |          |          |  |               |         |              |  |   |         |       |  |   |          |     
|                                                                    | High |               |          | 32.70    |  |               |         | 24.40        |  |   |         | 10.80 |  |   |          | 7.00 | 
|                                                                    | Low  |               |          | 18.00    |  |               |         | 9.10         |  |   |         | 2.20  |  |   |          | 2.30 | 



---



|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.   
|   
|(2) | Represents the reported high and low closing
    prices of Lorals common stock as reported on the Pink
    Sheets and the NYSE for 2003 and the intra-day high and low
    sales prices for 2002.

F-66



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##### Table of Contents



INDEPENDENT AUDITORS REPORT ON
SUPPLEMENTAL SCHEDULE

To the Board of Directors and Stockholders of
Loral Space & Communications Ltd. (a Debtor In
Possession):

We have audited the consolidated financial
statements of Loral Space & Communications Ltd. (a
Bermuda Company) and its subsidiaries (collectively, the
Company) (a Debtor In Possession) as of
December 31, 2003 and 2002, and for each of the three years
in the period ended December 31, 2003 and have issued our
report thereon dated March 15, 2004 included elsewhere in
this Annual Report on Form 10-K. Our audits also included
the consolidated financial statement schedule of the Company
listed in Item 15 (a) (2) of this Annual Report on
Form 10-K. Our audits were conducted for the purpose of
forming an opinion on the basic consolidated financial
statements taken as a whole. This consolidated schedule is the
responsibility of the Companys management. Such
consolidated schedule has been subjected to the auditing
procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in
all material respects when considered in relation to the basic
consolidated financial statements taken as a whole. The basic
consolidated financial statements have been prepared assuming
the Company will continue as a going concern; our report
thereon, included elsewhere in this Annual Report on
Form 10-K, includes explanatory paragraphs which indicate
that (1) the Company changed its methods of accounting to
adopt the provisions of Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity,
effective July 1, 2003, and Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible
Assets, effective January 1, 2002 and (2) the Company
has filed for reorganization under Chapter 11 of the
Federal Bankruptcy Code and that (i) the consolidated
financial statements do not purport to reflect or provide for
the consequences of the bankruptcy proceedings and (ii) the
aforementioned matter, among others, raises substantial doubt
about its ability to continue as a going concern.

DELOITTE & TOUCHE LLP

San Jose, California

March 15, 2004


F-67



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##### Table of Contents



SCHEDULE II

LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

VALUATION AND QUALIFYING ACCOUNTS


For the Years Ended December 31, 2003,
2002 and 2001


(in thousands)


|                                    |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|----------------------------------- |  | ---------- | ------ | ---------- |  | ---------- | ------ | ----------- |  | ---------- | ----- |  |  | - | ------- | - |  | - | ------ | 
|                                    |  |            |        |            |  |            |        |            
|                                    |  |            |        | Additions  |  |            |        |            
|                                    |  |            |        |            |  |            |        |            
|                                    |  | Balance at |        | Charged to |  | Charged to |        | Deductions  |  | Balance at
|                                    |  | Beginning  |        | Costs and  |  | Other      |        | From        |  | End of    
|Description                         |  | of Year    |        | Expenses   |  | Accounts   |        | Reserves(1) |  | Year      
|                                    |  |            |        |            |  |            |        |             |  |           
|Year ended 2001                     |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|Allowance for billed receivables    |  | $          | 11,286 |            |  | $          | 3,717  |             |  | $          | 1,049 |  |  | $ | (11,640 | ) |  | $ | 4,412  | 
|                                    |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|Year ended 2002                     |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|Allowance for billed receivables    |  | $          | 4,412  |            |  | $          | 4,308  |             |  | $          | 3,403 |  |  | $ | (5,029  | ) |  | $ | 7,094  | 
|Allowance for long-term receivables |  |            |       |            |  |            | 32,574 |             |  |            |      |  |  |   |        |   |  |   | 32,574 | 
|                                    |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|                                    |  | $          | 4,412  |            |  | $          | 36,882 |             |  | $          | 3,403 |  |  | $ | (5,029  | ) |  | $ | 39,668 | 
|                                    |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|Year ended 2003                     |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|Allowance for billed receivables    |  | $          | 7,094  |            |  | $          | 7,402  |             |  | $          | 1,405 |  |  | $ | (4,198  | ) |  | $ | 11,703 | 
|Allowance for long-term receivables |  |            | 32,574 |            |  |            | 18,134 |             |  |            |      |  |  |   | (42,582 | ) |  |   | 8,126  | 
|                                    |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 
|                                    |  | $          | 39,668 |            |  | $          | 25,536 |             |  | $          | 1,405 |  |  | $ | (46,780 | ) |  | $ | 19,829 | 
|                                    |  |            |        |            |  |            |        |             |  |            |       |  |  |   |         |   |  |   |        | 

(1)Write-offs of
uncollectible accounts.

F-68