##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE
 COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission file number 1-14180
  LORAL SPACE &
    COMMUNICATIONS INC.
 (Exact name of registrant
    specified in the charter)
  Jurisdiction of incorporation: Delaware
  IRS identification number:
    87-0748324
  600 Third
    Avenue
    New York, New York 10016(Address of principal executive
    offices)
    Telephone:
    (212) 697-1105
  (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which registeredCommon stock, $.01 par value

NASDAQ   Securities registered pursuant to Section 12(g) of the
    Act:
  Indicate by check mark if the registrant is well-known
    seasoned issuer, as defined in Rule 405 of the Securities
    Act.  Yes o
    No þ
  Indicate by check mark if the registrant is not required to
    file reports pursuant to Section 13 or Section 15(d)
    of the
    Act.  Yes o
    No þ
  þ o
  Regulation S-K Form 10-K Form 10-K.  Yes þ o
  12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      þ o
    Part and Item Number ofDocument

Form 10-K into which incorporatedLoral Notice of Annual Meeting of Stockholders and Proxy
    Statement for the Annual Meeting of Stockholders to be held
    May 19, 2009

Part II, Item 5(d)
    Part III, Items 11 through 14




---



##### 





LORAL
    SPACE AND COMMUNICATIONS INC.
    INDEX TO ANNUAL REPORT ON
    FORM 10-K
    For the Year Ended December 31, 2008
   
 PART IItem 1:


Business


1Item 1A:


Risk Factors


16Item 1B:


Unresolved Staff Comments


30Item 2:


Properties


30Item 3:


Legal Proceedings


30Item 4:


Submission of Matters to a Vote of Security
    Holders


30PART IIItem 5:


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


31Item 6:


Selected Financial Data


32Item 7:


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


36Item 7A:


Quantitative and Qualitative Disclosures about
    Market Risk


65Item 8:


Financial Statements and Supplementary Data


66Item 9:


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


66Item 9A:


Controls and Procedures


66Item 9B


Other Information


70PART IIIItem 10:


Directors and Executive Officers of the
    Registrant


70Item 11:


Executive Compensation


70Item 12:


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


70Item 13:


Certain Relationships and Related Transactions


70Item 14:


Principal Accountant Fees and Services


71Part IV:Item 15:


Exhibits and Financial Statement Schedules


71Signatures


75EX-10.16: EMPLOYMENT AGREEMENTEX-10.20: 2005 STOCK INCENTIVE PLANEX-10.21: FORM OF AMENDED AND RESTATED NON-QUALIFIED STOCK OPTION AGREEMENTEX-10.27: FORM OF DIRECTOR 2008 RESTRICTED STOCK AGREEMENTEX-21.1: LIST OF SUBSIDIARIES OF THE REGISTRANTEX-23.1: CONSENT OF DELOITTE & TOUCHE LLPEX-23.2: CONSENT OF DELOITTE & TOUCHE LLPEX-23.3: CONSENT OF DELOITTE & TOUCHE LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



PART I  Item 1.
    Business  THE
    COMPANY
  Overview
        Satellite Manufacturing:
  direct-to-home
  Satellite Services:
    1 3
  and/or
 1




---



##### Table of Contents



Segment
    Overview
  Satellite
    Manufacturing
  direct-to-home
    sub-assemblies.
  Market
    and Competition
   2




---



##### Table of Contents



Satellite
    Manufacturing Performance
  Year ended December 31,2008


2007


2006(In millions)Total segment revenues

$
881


$
814


$
697Eliminations


(12
)


(53
)


(60
)Revenues from satellite manufacturing as reported

$
869


$
761


$
637Segment Adjusted EBITDA before
    eliminations(1)

$
45


$
35


$
66     (1)
    
    See Consolidated Operating Results
    in Managements Discussion and Analysis of Financial
    Condition and Results of Operations for significant items that
    affect comparability between the periods presented (see
    Note 15 to the Loral consolidated financial statements for
    the definition of Adjusted EBITDA).    Satellite
    Services
    end-to-end
    Broadcast:
  DTH.
  Video Distribution.
 3




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##### Table of Contents



Occasional Use Services. on-the-scene
  Enterprise Services:
  North America Data Networks. end-to-end and/or
  International Enterprise Networks. one-to-many
  Ka-band
    Internet Services. Ka-band, Ka-band
  Telecommunication Carrier Services. end-to-end
  Government Services.
  Consulting &
    Other:
     4




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##### Table of Contents



end-to-end
    Market
    and Competition
  point-to-point point-to-multipoint
    point-to-point point-to-multipoint point-to-point
    Satellite
    Fleet & Ground Resources
   5




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##### Table of Contents



end-of-life.
    ExpectedOrbital Location




Manufacturers


End-of-Regions

Launch


End-of-Service-


Commercial-


Transponders(1)Covered

Date


Life


Service Life(1)


C-band(2)

Ku-band(2)

Ka-band

L-band(3)

ModelNimiq 1

91.0 °WL Canada,


May 1999



2011



2024




32@24MHz





A2100 AXContinental United





















(Lockheed Martin)StatesNimiq
    2(4)

91.0°WL Canada,


December 2002



2015



2023




20@24MHz

2@500/100MHz



A2100 AXContinental United





















(Lockheed Martin)StatesNimiq
    3(5)

82 °WL Canada


June 1995



2007



2009




16@24MHz





BSS 601Continental United





















(Boeing)StatesNimiq 4

82 ° WL Canada


September 2008



2023



2027




32@24 MHz

8@54 MHz



E3000 (EADS Astrium)Anik
    F1(6)

107.3 °WL Canada,


November 2000



2016



2013


12@36MHz

16@27MHz





BSS702 (Boeing)Continental United













(S. America)

(S. America)States, South AmericaAnik F2

111.1 ° WL Canada,


July 2004



2019



2028


24@36MHz

32@27MHz

31@56/112 MHz



BSS702Continental United

















6@500MHz



(Boeing)States

















1@56/112MHzAnik F1-R
    (3)

107.3 ° WL North America


September 2005



2020



2023


24@36MHz

32@27MHz



2@20MHz

E3000 (EADS Astrium)Anik
    F3(7)

118.7 °WL Canada,


April 2007



2022



2026


24@36MHz

32@27MHz

2@75MHz



E3000Continental United

















(500MHz)



(EADS Astrium)StatesTelstar
    10(8)

76.5°EL Asia and


October 1997



2009



2012


1@30MHz

7@54MHz





SS/L 1300Portions of Europe,













26@36MHzAfrica and AustraliaTelstar
    12(9)

15 °WL Eastern United


October 1999



2012



2016




37@54MHz





SS/L 1300States, SE Canada,Europe, Russia, MiddleEast, North Africa,portions of South andCentral AmericaTelstar 14/Estrela

63 °WL Brazil And


January 2004



2019



2011




9@72MHz





SS/L 1300do
    Sul(10)

portions of Latin















10@36MHzAmerica, North















2@28MHzAmerica, Atlantic















1@56MHzOceanTelstar
    18(11)(12)

138 ° EL India, South


June 2004



2017



2018


16@36MHz

5@54MHz





SS/L 1300East Asia, China,













1@54MHz

1@40MHzAustralia And Hawaii     (1)
    
    The number of available
    transponders and expected or nominal end of life shown in this
    table reflect Telesat Canadas current estimate of each
    satellites capacity and useful life, taking account of
    anomalies and malfunctions the satellites have experienced and
    other factors such as remaining fuel levels and consumption
    rates and other available engineering data. Telesat Canada
    periodically reviews and updates these estimates based on a
    satellites performance. Accordingly, these estimates are
    subject to change and it is possible that the actual commercial
    life of any of these satellites will be shorter than we
    currently anticipate. See Item 1A  Risk
    Factors  After launch, satellites remain vulnerable
    to in-orbit failures which may result in reduced revenues and
    profits and other financial consequences.(2)
    
    Includes extended C-band and
    extended Ku-band in certain cases.(3)
    
    Telesat Canada has contracted the
    L-band capacity on Anik F1-R to Lockheed Martin for
    10 years. This L-band spectrum is not Telesat
    Canadas; it is a United States spectrum licensed to
    Lockheed Martin. 6




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##### Table of Contents



(4)
    
    Due to malfunctions affecting
    available power on Nimiq 2, not all transponders carried on the
    satellite are operational.(5)
    
    Nimiq 3 is leased from DIRECTV,
    but is in a Telesat Canada orbital position. DIRECTV can
    terminate its lease agreement if it experiences two or more
    catastrophic failures with its other satellites. In the event of
    such termination, Telesat Canada may lose the revenues
    associated with this satellite if it cannot redeploy that
    capacity to other satellites. This spacecraft will be
    decommissioned in the second quarter of 2009.(6)
    
    Due to a gradual decrease in power
    on Anik Fl, transponders providing North American coverage have
    been turned off, and this satellite will experience a premature
    end-of-life
    estimated to be 2013.(7)
    
    Telesat Canada has leased, through
    the satellites end-of-life, all of the Ku-band capacity of
    Anik F3 to EchoStar.(8)
    
    Telstar 10 does not include one
    transponder @ 36MHz and eight transponders @ 54MHz which have
    been turned off for satellite power management, and does not
    include one transponder @ 36MHz owned by APT.(9)
    
    Telstar 12 has
    38-54MHz
    transponders. Four of these transponders were given to Eutelsat
    to settle coordination issues, and Telesat Canada leases back
    three of these transponders.(10)
    
    Telstar 14 has substantially
    reduced transponder capacity and a limited expected life due to
    the failure of a solar array to fully deploy upon launch.(11)
    
    Includes 16.6MHz of C-band
    capacity provided to the Government of Tonga in lieu of a cash
    payment for the use of the orbital location.(12)
    
    Telesat Canada has agreed to
    purchase two additional transponders from APT in 2009.    
    Satmex 5:  3-36MHz Ku transponders;
    Satmex 6:  2-36MHz C-band transponders; 2-36MHz
    Ku transponders; and
    Agila (Mabuhay):  3-36MHz C-band transponders    Nimiq 5

Telstar 11NOrbital Location

72.7o WL

37.55o WLRegions Covered

Canada, Continental United States

North and Central America, Europe, Africa and the maritime
    Atlantic Ocean regionPlanned In-Service Date

2009

2009(1)Manufacturers End-of- Service-Life

15 Years

15 YearsCustomer Committed Capacity

15 Years/FixedTransponders:Ku-band

32@24MHz

39@54MHzModel

SS/L 1300

SS/L 1300     (1)
    
    Telstar 11N was launched on
    February 26, 2009, is currently undergoing in-orbit testing
    and is expected to enter commercial service in the second
    quarter of 2009. 7




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##### Table of Contents



Satellite
    Services Performance
  Year ended December 31,2008


2007


2006(In millions)Revenue:Total segment revenues

$
685


$
241


$
164Eliminations






(2
)


(3
)Affiliate
    eliminations(2)


(685
)


(118
)


Revenues from satellite services as reported

$



$
121


$
161Adjusted EBITDA:Total segment Adjusted EBITDA

$
436


$
118


$
68Eliminations






(2
)


(3
)Affiliate
    eliminations(2)


(427
)


(65
)


Adjusted EBITDA from satellite services after
    eliminations(3)

$
9


$
51


$
65     (1)
    
    Satellite Services segments
    performance includes Loral Skynet through October 30, 2007
    and Telesat Canada for the period from October 31, 2007 to
    December 31, 2007.(2)
    
    Affiliate eliminations represent
    the elimination of amounts attributable to Telesat Canada.(3)
    
    See Consolidated Operating Results
    in Managements Discussion and Analysis of Financial
    Condition and Results of Operations for significant items that
    affect comparability between the periods presented (see
    Note 15 to the consolidated financial statements for the
    definition of Adjusted EBITDA).        Telesat CanadaFor the Period fromJanuary 1,


For The Year2007 to


EndedOctober 30,


December 31,2007


2006Total operating revenues


CAD 457.8



CAD 479.0Adjusted EBITDA


CAD 263.2



CAD 261.0  8




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##### Table of Contents



Other
  o o XTAR-LANT, take-up
 9




---



##### Table of Contents



REGULATION
  Satellite
    Manufacturing
  Export
    Regulation and Economic Sanctions Compliance
        Satellite
    Services
  Telecommunications
    Regulation
    Canadian
    Regulatory Environment
     10




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##### Table of Contents



direct-to-home
  rate-of-return
  winding-up
  United
    States Regulatory Environment
     11




---



##### Table of Contents



15-year
      Ka-band
  case-by-case
    Regulation Outside
    Canada and the United States
     12




---



##### Table of Contents



15-year o
      International
    Regulatory Environment  International
    Telecommunication Union
         13




---



##### Table of Contents



PATENTS
    AND PROPRIETARY RIGHTS
  Satellite
    Manufacturing
    Satellite
    Services
     14




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##### Table of Contents



RESEARCH
    AND DEVELOPMENT
  Satellite
    Manufacturing
    Satellite
    Services
  proof-of-concept
  FOREIGN
    OPERATIONS
    Satellite
    Manufacturing
    Satellite
    Services
  non-U.S. customers,
  EMPLOYEES
     15




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##### Table of Contents



AVAILABLE
    INFORMATION
  Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors  I.
    Financial
    and Telesat Canada Investment Risk Factors  Our
    revenues and profitability may be adversely affected by the
    current global financial downturn, and negative global economic
    conditions may have a material adverse effect on our customers
    and suppliers.
  and/or and/or
  We have
    had a history of losses.
    The Space
    Systems/Loral credit agreement is subject to financial and other
    covenants that must be met for SS/L to utilize the Revolving
    Facility.
   16




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##### Table of Contents



During
    2008, we used significant cash in our operations. For 2009,
    though we are projecting positive operating cash flow, there can
    be no assurances that we will achieve this and have sufficient
    funds to meet our cash requirements.
    Loral
    Space & Communications Inc., the parent company, is a
    holding company with no operations; we are dependent on cash
    flow from our operating subsidiaries and affiliates to meet our
    financial obligations.
  1 3
      While we
    own 64% of Telesat Canada on an economic basis, we own only
    331/3%
    of its voting stock and therefore do not have the right to elect
    or appoint a majority of its Board of Directors.
  1 3 2 3 2 3
 17




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##### Table of Contents



Our
    equity investment in Telesat Canada may be at risk because
    Telesat Canada is highly leveraged.
            Certain
    asset sales by Telesat Canada may trigger material adverse tax
    consequences for us.
   18




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##### Table of Contents



The
    Telesat Canada information in this report is based solely on
    information provided to us by Telesat Canada.
    Telesat
    Canadas financial results and our U.S. dollar
    reporting of Telesat Canadas financial results will be
    affected by volatility in the Canadian/U.S. dollar exchange
    rate.
      Our
    indebtedness makes us vulnerable to adverse
    developments.
  In re: Loral
    Space & Communications Consolidated Litigation
  XTAR has
    not generated sufficient revenues to meet all of its contractual
    obligations, which are substantial.
  take-up
 19




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##### Table of Contents



Significant
    changes in discount rates, actual investment return on pension
    assets and other factors could affect our statement of
    operations, equity and pension contributions in future
    periods.
      II.
    Segment
    Risk Factors   Risk
    Factors Associated With Satellite Manufacturing
  The
    satellite manufacturing market is highly competitive and fixed
    costs are high.
     20




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##### Table of Contents



SS/Ls
    contracts are subject to adjustments, cost overruns and
    termination.
          Certain
    of SS/Ls customers are not creditworthy and may not
    fulfill their contractual payment obligations to SS/L.
    start-up
 21




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##### Table of Contents



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.
        Some
    satellites built by SS/L, including three satellites operated by
    Telesat Canada, have experienced minor losses of power from
    their solar arrays.
    Some
    satellites built by SS/L have the same design as another
    SS/L-built satellite that has experienced a partial
    failure.
    We are
    subject to export control and economic sanctions laws, which may
    result in delays, lost business and additional costs.
   22




---



##### Table of Contents



and/or
  non-U.S. competitors
  The
    recent trend toward industry consolidation in the satellite
    services industry may adversely affect us; we do not control
    satellite procurement decisions at Telesat Canada.
  back-up
    The
    availability of facility space and qualified personnel may
    affect SS/Ls ability to perform its contracts in a timely
    and efficient manner.
   23




---



##### Table of Contents



Our
    ability to obtain certain satellite contract awards depends, in
    part, on our ability to provide the customer with
    financing.
    SS/L
    relies on certain key suppliers whose failure or delay in
    performance would adversely affect us.
  and/or
  We face
    risks in conducting business internationally.
    We rely
    on patents, trade secrets and know-how.
     Risk
    Factors Associated With Satellite Services
  Telesat
    Canada derives a substantial amount of its revenues from only a
    few of its customers. A loss of one or more of these major
    customers, or a material adverse change in any of such
    customers business, could materially reduce its revenues
    and backlog.
   24




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##### Table of Contents



Launch
    delays or failures may result in delays in operations.
        After
    launch, satellites remain vulnerable to in-orbit failures which
    may result in reduced revenues and profits and other financial
    consequences.
    back-up back-up
  It may be
    difficult to obtain full insurance coverage for satellites that
    have, or are part of a family of satellites that has,
    experienced problems in the past; moreover, not all
    satellite-related losses will be covered by insurance.
   25




---



##### Table of Contents



Telesat
    Canada competes for market share, customers and orbital
    slots.
    point-to-point
  Changes
    in the Canadian competitive environment could adversely affect
    Telesat Canada.
      Telesat
    Canada operates in a highly regulated industry and government
    regulations may adversely affect its business.
   26




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##### Table of Contents



later-in-time
    Telesat
    Canadas ability to replace two of its satellites is
    subject to additional risk and cannot be assured.
    III.
    Other Risks
  We had a
    material weakness in our internal control over financial
    reporting as of December 31, 2007 related to income tax
    accounting; we corrected such material weakness in 2008, but our
    ability to continue to timely file our future financial reports
    depends on maintenance of the corrective measures that we
    implemented, as well as the timely delivery by Telesat Canada of
    its financial statements.
  Form 10-K 15-day Rule 12b-25.
   27




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##### Table of Contents



Form 10-K Form S-3 Form 10-Q Form S-3. Form S-3 Form S-3,
  Third
    parties have significant rights with respect to our
    affiliates.
  1 3
  We rely
    on key personnel.
    MHR may
    be viewed as our controlling stockholder and may have conflicts
    of interest with us in the future.
    Compliance
    with the Sarbanes-Oxley Act increases our operating
    expenses.
   28




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##### Table of Contents



The
    future use of tax attributes is limited upon emergence from
    bankruptcy.
    There is
    a thin trading market for our common stock.
    The
    market for our stock could be adversely affected by future
    issuance of significant amounts of our common stock.
         29




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##### Table of Contents



Litigation
    and Disputes
  We are
    involved in a number of ongoing lawsuits.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  Corporate
    Satellite
    Manufacturing
    Satellite
    Services
  tenants-in-common.
  back-up
    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   30




---



##### 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        High


LowYear ended December 31, 2008Quarter ended December 31, 2008

$
15.86


$
6.04Quarter ended September 30, 2008


18.81



13.29Quarter ended June 30, 2008


25.42



15.02Quarter ended March 31, 2008


34.20



21.78Year ended December 31, 2007Quarter ended December 31, 2007

$
45.27


$
31.67Quarter ended September 30, 2007


50.42



34.83Quarter ended June 30, 2007


51.82



44.50Quarter ended March 31, 2007


53.10



39.00   (b)
    Approximate
    Number of Holders of Common Stock   31




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##### Table of Contents



(c)
    Dividends    (d)
    Securities
    Authorized for Issuance under Equity Compensation
    Plans    (e)
    Comparison
    of Cumulative Total Returns    
  Item 6.
    Selected
    Financial Data       32




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##### Table of Contents



SOP 90-7 Business Combinations
     33




---



##### Table of Contents



Form 10-K.
  LORAL
    SPACE & COMMUNICATIONS INC.
    (In thousands, except per share data)
  Successor Registrant



Predecessor RegistrantFor the Period



For the PeriodOctober 2,



January 1,2005 to



2005 to


Year EndedYear Ended December 31,


December 31,



October 1,


December 31,2008


2007


2006


2005



2005


2004Statement of operations data:Revenues:Satellite Manufacturing

$
869,398


$
761,363


$
636,632


$
161,069



$
318,587


$
299,608Satellite Services






121,091



160,701



36,096




110,596



222,519
(1)Total Revenues


869,398



882,454



797,333



197,165




429,183



522,127Operating (loss) income from continuing
    operations(2)


(193,977
)


45,256



29,818



(4,945
)



(67,095
)


(214,345
)Gain on discharge of pre-petition obligations and fresh-start
    adjustments



















1,101,453
(3)


(Loss) income from continuing operations before income taxes,
    equity in net losses of affiliates and minority
    interest(4)(5)


(151,523
)


157,786



30,117



(5,395
)



1,022,651



(207,852
)Income tax (provision) benefit


(45,744
)


(83,457
)


(20,880
)


(1,752
)



10,901



(13,284
)(6)(Loss) income from continuing operations before equity in net
    losses of affiliates and minority interest


(197,267
)


74,329



9,237



(7,147
)



1,033,552



(221,136
)Equity in net (losses) income of
    affiliates(7)


(495,649
)


(21,430
)


(7,163
)


(5,447
)



(2,796
)


46,654Minority interest






(23,240
)


(24,794
)


(2,667
)



126



135(Loss) income from continuing operations


(692,916
)


29,659



(22,720
)


(15,261
)



1,030,882



(174,347
)Loss from discontinued operations, net of taxes























(2,348
)Gain on sale of discontinued operations, net of taxes



















13,967



Net (loss) income


(692,916
)


29,659



(22,720
)


(15,261
)



1,044,849



(176,695
)Preferred dividends


(24,067
)


(19,379
)















Beneficial conversion feature related to the issuance of Loral
    Series A-1
    Preferred
    Stock(8)






(25,685
)















Net (loss) income applicable to common shareholders


(716,983
)


(15,405
)


(22,720
)


(15,261
)



1,044,849



(176,695
)Basic and diluted (loss) earnings per share:Continuing operations

$
(35.13
)

$
(0.77
)

$
(1.14
)

$
(0.76
)


$
23.37


$
(3.96
)Discontinued operations



















0.32



(0.05
)(Loss) earnings per share

$
(35.13
)

$
(0.77
)

$
(1.14
)

$
(0.76
)


$
23.69


$
(4.01
)Cash flow data:(Used in) provided by operating
    activities(9)


(202,210
)


27,123



88,002



(38,531
)



(143,827
)


66,129(Used in) provided by investing
    activities(10)


(47,308
)


61,519



(175,978
)


(5,089
)



194,707



906,887Provided by (used in) financing activities


52,372



39,510



(1,278
)


120,763








(966,887
)   34




---



##### Table of Contents



PredecessorSuccessor Registrant


RegistrantDecember 31,


December 31,2008


2007


2006


2005


2004Balance sheet data:Cash and cash equivalents

$
117,548


$
314,694


$
186,542


$
275,796


$
147,773Short-term investments










106,588







Total assets


995,867



1,702,939



1,729,911



1,678,977



1,218,733Debt, including current portion


55,000







128,084



128,191



Non-current liabilities and minority interest


381,836



289,602



535,271



603,374



84,677Liabilities subject to
    compromise(11)


















1,916,000Shareholders equity (deficit)


209,657



973,558



647,002



627,164



(1,044,101
)     (1)
    
    Satellite Services revenues for
    2004 include $87.2 million relating to a sales-type lease.(2)
    
    During 2008, we recorded a goodwill
    impairment charge of $187.9 million. In connection with the
    Telesat Canada transaction, which closed on October 31,
    2007, we recognized a gain of $104.9 million in 2007 on the
    contribution of substantially all of the assets and related
    liabilities of Loral Skynet to Telesat Canada. See Note 6
    to the Loral consolidated financial statements.(3)
    
    In connection with our emergence
    from Chapter 11 and our adoption of fresh-start accounting
    on October 1, 2005, we recognized a gain on discharge of
    pre-petition obligations and fresh-start adjustments of
    $1.101 billion, related interest expense of
    $13.2 million related to the holders of claims to be paid
    in cash and a tax benefit of $15.4 million, each of which
    is reflected separately in our statement of operations.(4)
    
    In connection with the Telesat
    Canada transaction during 2007, we recognized a gain on foreign
    exchange contracts of $89.4 million (see Note 13 to
    the Loral consolidated financial statements).(5)
    
    During 2008, we recorded income of
    $58.3 million related to a gain on litigation recovery from
    Rainbow DBS and a loss of $19.5 million related to the
    award of attorneys fees and expenses to the plaintiffs for
    shareholder litigation concluded during 2008.(6)
    
    2004 includes an $11 million
    increase to the deferred tax valuation allowance relating to the
    reversal of deferred tax liabilities arising from the write-off
    of our investment in Globalstar, L.P.s $500 million
    credit facility, upon Globalstar, L.P.s dissolution in
    June 2004.(7)
    
    Beginning October 31, 2007,
    our principal affiliate is Telesat Canada. Loral also has
    investments in XTAR and joint ventures providing Globalstar
    service, which are accounted for under the equity method. On
    December 21, 2007 Loral agreed to sell its interest in
    Globalstar do Brazil S.A. which resulted in Loral recording a
    charge of $11.3 million in 2007 (see Note 6 to the
    Loral consolidated financial statements). During 2004, we
    recorded $47 million of equity income on the reversal of
    vendor financing liabilities that were non-recourse to SS/L in
    the event of non-payment by Globalstar, L.P.(8)
    
    As of December 23, 2008, in
    accordance with a court ordered restated certificate of
    incorporation, the previously issued Loral Series-1 Preferred
    stock was cancelled. As the fair value of Lorals common
    stock from January 1, to December 23, 2008 was less
    than the conversion price ($30.1504), we did not record any
    beneficial conversion feature during 2008 (see Note 10 to
    the Loral consolidated financial statements).(9)
    
    Cash flow (used in) provided by
    operating activities includes cash flow from operating
    activities provided by discontinued operations in 2004.(10)
    
    Cash flow (used in) provided by
    investing activities includes cash flow provided by (used in)
    investing activities of discontinued operations for the period
    January 1, 2005 to October 1, 2005 and 2004.(11)
    
    As a result of our Chapter 11
    filing, Old Lorals debt obligations, preferred stock
    obligations and certain other liabilities existing at
    July 15, 2003, the date Old Loral and certain of its
    subsidiaries filed voluntary petition for reorganization, were
    classified as liabilities subject to compromise on our balance
    sheets at December 31, 2004. These obligations were
    extinguished as of the Effective Date. 35




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis should be read in
    conjunction with our consolidated financial statements (the
    financial statements) included in Item 15 of
    this Annual Report on
    Form 10-K
      1 3
  and/or
  Disclosure
    Regarding Forward-Looking Statements
  Except for the historical information contained in the
    following discussion and analysis, the matters discussed below
    are not historical facts, but are forward-looking
    statements as that term is defined in the Private
    Securities Litigation Reform Act of 1995. In addition, we or our
    representatives have made and may continue to make
    forward-looking statements, orally or in writing, in other
    contexts. These forward-looking statements can be identified by
    the use of words such as believes,
    expects, plans, may,
    will, would, could,
    should, anticipates,
    estimates, project, intend,
    or outlook or other variations of these words. These
    statements, including without limitation those relating to
    Telesat Canada, are not guarantees of future performance and
    involve risks and uncertainties that are difficult to predict or
    quantify. Actual events or results may differ materially as a
    result of a wide variety of factors and conditions, many of
    which are beyond our control. For a detailed discussion of these
    and other factors and conditions, please refer to the
    Commitments and Contingencies section below and to our other
    periodic reports filed with the Securities and Exchange
    Commission (SEC). We operate in an industry sector
    in which the value of securities may be volatile and may be
    influenced by economic and other factors beyond our control. We
    undertake no obligation to update any forward-looking
    statements.
 36




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##### Table of Contents



Overview
  Businesses
    Satellite
    Manufacturing
            Satellite
    Services
     37




---



##### Table of Contents



Future
    Outlook
      1 3
     38




---



##### Table of Contents



Ka-band
  Consolidated
    Operating Results
       39




---



##### Table of Contents



Disclosures about
    Segments of an Enterprise and Related Information.
    Revenues:
  Year Ended December 31,2008


2007


2006(in millions)Satellite Manufacturing

$
881.4


$
814.3


$
696.5Satellite Services


685.2



241.2



163.8Segment revenues


1,566.6



1,055.5



860.3Eliminations(1)


(12.0
)


(55.2
)


(63.0
)Affiliate
    eliminations(2)


(685.2
)


(117.8
)


Revenues as
    reported(3)

$
869.4


$
882.5


$
797.3      40




---



##### Table of Contents



Adjusted
    EBITDA:
  Year Ended December 31,2008


2007


2006(in millions)Satellite Manufacturing

$
45.1


$
34.5


$
65.9Satellite Services


436.5



118.4



68.0Corporate
    expenses(4)


(14.9
)


(37.9
)


(26.8
)Segment Adjusted EBITDA before eliminations


466.7



115.0



107.1Eliminations(1)


(1.6
)


(6.1
)


(6.0
)Affiliate
    eliminations(2)


(427.2
)


(65.3
)


Adjusted EBITDA

$
37.9


$
43.6


$
101.1      41




---



##### Table of Contents



Reconciliation
    of Adjusted EBITDA to Net (Loss) Income:
   Year Ended December 31,2008


2007


2006(in millions)Adjusted EBITDA

$
37.9


$
43.6


$
101.1Depreciation, amortization and stock-based
    compensation(5)


(44.0
)


(103.3
)


(71.3
)Impairment of
    goodwill(6)


(187.9
)






Gain on contribution of Loral
    Skynet(7)






104.9



Operating (loss) income


(194.0
)


45.2



29.8Interest and investment income


11.9



39.3



31.5Interest
    expense(8)


(2.3
)


(2.3
)


(23.4
)Gain (loss) on foreign exchange contracts






89.4



(5.8
)Gain on litigation, net


38.8







Impairment of available for sale securities


(5.8
)






Loss on extinguishment of debt






(16.2
)


Other (expense) income


(0.1
)


2.4



(2.0
)Income tax provision


(45.7
)


(83.5
)


(20.8
)Equity in net losses of affiliates


(495.7
)


(21.4
)


(7.2
)Minority interest






(23.2
)


(24.8
)Net (loss) income

$
(692.9
)

$
29.7


$
(22.7
)     (1)

    
    Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/L for Loral and its wholly owned subsidiaries
    and for Satellite Services leasing transponder capacity to SS/L.(2)

    
    Represents the elimination of amounts attributed to Telesat
    Canada whose results are reported in our consolidated statements
    of operations as equity in net losses of affiliates.(3)

    
    Includes revenues from affiliates of $84.0 million,
    $22.0 million and $11.3 million for the years ended
    December 31, 2008, 2007 and 2006, respectively.(4)

    
    Represents corporate expenses incurred in support of our
    operations and for the years ended December 31, 2008, 2007
    and 2006 includes $0 million, $0.3 million and
    $1.2 million, respectively, of continuing expenses for
    bankruptcy related matters, which after the adoption of
    fresh-start accounting were classified as corporate general and
    administrative expenses.(5)

    
    Includes non-cash stock-based compensation of $6.2 million
    and $21.5 million for the years ended December 31,
    2008 and 2007, respectively, as a result of shareholder approval
    of the Stock Incentive Plan amendment on May 22, 2007 (see
    Note 10 to the financial statements).(6)

    
    During the fourth quarter of 2008, we determined that the
    implied fair value of SS/L goodwill had dropped below its
    carrying value, and we recorded a charge to expense to reflect
    this impairment.(7)

    
    In connection with the Telesat Canada transaction, which closed
    on October 31, 2007, we recognized a gain on the
    contribution of substantially all of the assets and related
    liabilities of Loral Skynet to Telesat Canada (see Note 6
    to the financial statements).(8)

    
    Interest expense for the year ended December 31, 2007
    includes a reduction of $9 million resulting from the
    reduction of warranty liability. 42




---



##### Table of Contents



2008
    Compared with 2007 and 2007 Compared with 2006
    Revenues
    from Satellite Manufacturing
  % Increase(Decrease)Year Ended


2008


2007December 31,


vs.


vs.2008


2007


2006


2007


2006(in millions)Revenues from Satellite Manufacturing

$
881


$
814


$
697



8
%


17
%Eliminations


(12
)


(53
)


(60
)


(77
)%


(12
)%Revenues from Satellite Manufacturing as reported

$
869


$
761


$
637



14
%


20
%       Revenues
    from Satellite Services
  % Increase(Decrease)Year Ended


2007December 31,


vs.2008


2007


2006


2006(in millions)Revenues from Satellite Services before specific items

$



$
126


$
149



(17
)%Customer termination payment










15Cash basis customer payments






(3
)


Eliminations






(2
)


(3
)


(26
)%Revenues from Satellite Services as reported

$



$
121


$
161



(25
)%      43




---



##### Table of Contents



Cost of
    Satellite Manufacturing
  % Increase(Decrease)2008


2007Year Ended December 31,


vs.


vs.2008


2007


2006


2007


2006(In millions)Cost of Satellite Manufacturing includes:Cost of Satellite Manufacturing before specific identified
    charges

$
747


$
657


$
537



14
%


23
%Depreciation, amortization and stock-based compensation


39



36



23



7
%


56
%Transponder rights provided to SS/L in the Satmex settlement
    agreement










(19
)Accrued warranty obligations


2



(4
)


8Provisions for inventory obsolescence










2Cost of Satellite Manufacturing

$
788


$
689


$
551



14
%


25
%Cost of Satellite Manufacturing as a% of Satellite Manufacturing
    revenues as reported


91
%


90
%


87
%      44




---



##### Table of Contents



Cost of
    Satellite Services
  % Increase(Decrease)Year Ended


2007December 31,


vs.2008


2007


2006


2006(In millions)Cost of Satellite Services includes:Cost of Satellite Services before specific identified charges

$



$
42


$
53



(21
)%Depreciation and amortization






44



46



(3
)%Cost of Satellite Services

$



$
86


$
99



(13
)%Cost of Satellite Services as a% of Satellite Services revenues
    as reported






71
%


61
%       Selling,
    General and Administrative Expenses
  % Increase(Decrease)2008


2007Year Ended December 31,


vs.


vs.2008


2007


2006


2007


2006(in millions)Selling, general and administrative expenses includes:Selling, general and administrative expenses before specific
    charges

$
87


$
133


$
118



(35
)%


12
%Litigation costs


5



11



6



(58
)%


90
%Stock based compensation


5



23



2



(77
)%Continuing expenses for bankruptcy related matters










1Selling, general and administrative expenses as reported

$
97


$
167


$
127



(42
)%


31
%% of revenues as reported


11
%


19
%


16
%      45




---



##### Table of Contents



Gain on
    Recovery from Customer Bankruptcy
    Impairment
    of Goodwill
    Gain on
    Contribution of Loral Skynet to Telesat Canada
    Consideration received for the contribution of Loral Skynet to
    Telesat Holdco:Cash and marketable securities

$
61.5Fair value of equity in Telesat Holdco


670.5Total consideration


732.0Book value of contributed net assets of Loral Skynet


440.5Consideration in excess of book value

$
291.5Gain recognized

$
104.9   EITF 01-2, Interpretations of APB Opinion No. 29
  Gain on
    Litigation Settlement
   46




---



##### Table of Contents



Interest
    and Investment Income
  Year EndedDecember 31,2008


2007


2006(in millions)Interest and investment income

$
12


$
39


$
32       Interest
    Expense
  Year EndedDecember 31,2008


2007


2006(In millions)Interest cost before capitalized interest

$
3


$
12


$
26Capitalized interest


(1
)


(10
)


(3
)Interest expense

$
2


$
2


$
23       Gain
    (Loss) on Foreign Exchange Contracts
   47




---



##### Table of Contents



Gain on
    Litigation, Net
    Impairment
    of Available for Sale Securities
    Loss on
    Extinguishment of Debt
    Other
    (Expense) Income
      Income
    Tax Provision
       48




---



##### Table of Contents



Employers Accounting
    for Defined Benefit Pension and Other Postretirement Plans
  Taxation
  Equity in
    Net Losses of Affiliates
  Year EndedDecember 31,2008


2007


2006(In millions)Telesat Canada

$
(479.6
)

$
(1.8
)

$
XTAR


(16.1
)


(10.6
)


(7.4
)Other






(9.0
)


0.2$
(495.7
)

$
(21.4
)

$
(7.2
)   1 3
 49




---



##### Table of Contents



For the PeriodOctober 31,Year Ended


2007December 31,


to December 31,2008


2007Statement of Operations Data:Revenues

$
685.2


$
117.8Operating expenses


(258.0
)


(52.5
)Impairment of long-lived and intangible assets


(454.9
)


Depreciation, amortization and stock-based compensation


(226.0
)


(41.2
)Operating income


(253.7
)


24.1Interest expense


(231.1
)


(41.3
)Other expense, net


(403.1
)


(45.6
)Income tax benefit


139.9



61.5Net loss


(748.0
)


(1.3
)   December 31, 2008


December 31, 2007Balance Sheet Data:Current assets

$
179.8


$
143.7Total assets


4,273.2



5,610.0Current liabilities


171.4



229.5Long-term debt, including current portion


2,901.6



2,828.0Total liabilities


3,760.2



4,156.7Redeemable preferred stock


116.0



143.1Shareholders equity


397.0



1,310.2          50




---



##### Table of Contents



Minority
    Interest
    Backlog
    2008


2007Satellite Manufacturing

$
1,381


$
1,025Satellite Services


4,207



5,251Total backlog before eliminations


5,588



6,276Satellite Manufacturing eliminations


(25
)


Satellite Services eliminations


(4,207
)


(5,251
)Total backlog

$
1,356


$
1,025       and/or
  Critical
    Accounting Matters
    Fresh-Start
    Accounting
   51




---



##### Table of Contents



Revenue
    recognition
    Billed
    receivables, vendor financing and long-term
    receivables
    Inventories
    Fair
    Value Measurements
  Fair Value Measurements 157-2, Effective Date of FASB Statement No. 157
 52




---



##### Table of Contents



Level 1 Accounting for Certain Investments
    in Debt and Equity Securities
  Level 2
  Evaluation
    of Investments in Affiliates for Impairment
  Equity Method of
    Accounting for Investments in Common Stock
  Taxation
     53




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes, an
    interpretation of FASB Statement No. 109
      Pension
    and other employee benefits
       54




---



##### Table of Contents



Stock-Based
    Compensation
  Share-Based Payment No. 96-18, Accounting for Equity Instruments That Are Issued to
    Other Than Employees for Acquiring, or in Conjunction with
    Selling, Goods or Services
  Goodwill
    and Other Intangible Assets
  Goodwill and Other Intangible Assets
    build-up build-up
 55




---



##### Table of Contents



Contingencies
    Liquidity
    and Capital Resources
  Loral
    Cash and
    Available Credit
    Cash
    Management
   56




---



##### Table of Contents



Liquidity
        Space
    Systems/Loral
  Cash
     57




---



##### Table of Contents



Available
    Credit and Liquidity
  2 3
  FM-5 milestone
  FM-6
     58




---



##### Table of Contents



Telesat
    Canada
  Cash and
    Available Credit
     59




---



##### Table of Contents



Liquidity
        Debt
    Senior
    Secured Credit Facilities
      Revolving
    Facility
   60




---



##### Table of Contents



Canadian
    Term Loan Facility
    U.S. Term
    Loan Facility
    1 2
    Senior
    Bridge Loan
      Senior
    Subordinated Bridge Loan
     61




---



##### Table of Contents



Interest
    Expense
    Derivatives
          Capital
    Expenditures
    XTAR
   62




---



##### Table of Contents



Contractual
    Obligations and Other Commercial Commitments
    Contractual Obligations:
  Payments Due by PeriodLess than








More thanTotal


1 Year


1-3 Years


4-5 Years


5 YearsOperating
    leases(1)

$
38,011


$
9,723


$
15,295


$
5,904


$
7,089Unconditional purchase
    obligations(2)


507,862



356,992



150,870







Other long-term
    obligations(3)


53,209



24,010



29,199







Revolving credit
    agreement(4)


55,000







55,000







Total contractual cash
    obligations(5)

$
654,082


$
390,725


$
250,364


$
5,904


$
7,089   Other
    Commercial Commitments:
  Total


Amount of Commitment Expiration Per PeriodAmounts


Less than








More thanCommitted


1 Year


1-3 Years


4-5 Years


5 YearsStand by letter of credit

$
4,927


$
4,927


$



$



$
     (1)
    
    Represents future minimum payments
    under operating leases with initial or remaining terms of one
    year or more.(2)
    
    SS/L has entered into various
    purchase commitments with suppliers due to the long lead times
    required to produce purchased parts.(3)
    
    Represents our commitment in
    connection with an agreement entered into between Loral and
    ViaSat for the purchase by Loral of a portion of the ViaSat-1
    satellite which is being constructed by SS/L for ViaSat (see
    Note 16 to the financial statements).(4)
    
    On October 16, 2008, SS/L
    entered into a Credit Agreement with several banks and other
    financial institutions. The Credit Agreement provides for a
    $100 million senior secured revolving credit facility. The
    Revolving Facility includes a $50 million letter of credit
    sublimit. The Credit Agreement is for a term of three years,
    maturing on October 16, 2011 (see Note 8 to the
    financial statements). Payment amounts shown exclude interest
    which is not expected to be significant.(5)
    
    Does not include our FIN 48
    liabilities for uncertain tax positions of $109.0 million.
    Because the timing of future cash outflows associated with our
    FIN 48 liabilities for uncertain tax positions is highly
    uncertain, we are unable to make reasonably reliable estimates
    of the period of cash settlement with the respective taxing
    authorities (see Note 9 to the financial statements).  Net Cash
    (Used in) Provided by Operating Activities
    contracts-in-process
   63




---



##### Table of Contents



Net Cash
    (Used in) Provided By Investing Activities
        Net Cash
    Provided by (Used in) Financing Activities
        Other
    Affiliate
    Matters
   64




---



##### Table of Contents



Year Ended December 31,2008


2007


2006(In millions)Revenues

$
84.0


$
22.0


$
11.3Elimination of Lorals proportionate share of (profits)
    losses relating to affiliate transactions


(5.0
)


1.9



0.4Profits (losses) relating to affiliate transactions not
    eliminated


2.8



(1.1
)


(0.3
)   Commitments
    and Contingencies
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk  Foreign
    Currency
    U.S.Foreign Currency


$Future revenues  Japanese Yen

¥
64.9


$
0.7Future expenditures  Japanese Yen

¥
3,491.2


$
38.6Contracts-in-process,
    unbilled receivables  Japanese Yen

¥
10.4


$
0.1Future expenditures  EUROs


6.2


$
8.8   Derivatives
           65




---



##### Table of Contents



To SellAt


AtEuro


Contract


MarketMaturity

Amount


Rate


Rate2009


65,540


$
99,793


$
91,3762010


19,210



29,388



26,7342011


23,493



35,663



32,608
108,243


$
164,844


$
150,718   To BuyAt


AtEuro


Contract


MarketMaturity

Amount


Rate


Rate2009


4,520


$
6,294


$
6,315       Interest
      Item 8.
    Financial
    Statements and Supplementary Data  page F-1.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
 66




---



##### Table of Contents



Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f) Internal Control  Integrated Framework
    Remediation
    of Previously Disclosed Material Weakness
  Form 10-K
    
    The Company hired a Director of Tax, who assists our Vice
    President of Tax with the management of all tax planning,
    accounting and reporting processes.
    The Company augmented its internal resources by engaging an
    accounting firm to assist in the preparation of our tax
    accounting and disclosure.
    A full process evaluation was completed and process improvements
    were implemented.  Changes
    in Internal Controls Over Financial Reporting
    Inherent
    Limitations on Effectiveness of Controls
   67




---



##### Table of Contents



68




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control 
    Integrated Framework
        Internal Control  Integrated Framework
    DELOITTE &
    TOUCHE LLP
    69




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##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Executive
    Officers of the Registrant
    Name

Age

PositionMichael B. Targoff


64


Chief Executive Officer since March 1, 2006, President since
    January 2008 and Vice Chairman of the Board of Directors since
    November 2005. Prior to that, founder of Michael B. Targoff
    & Co.C. Patrick DeWitt


62


Senior Vice President since January 2008. Vice President from
    November 2005 to January 2008. Vice President of Old Loral from
    January 2002 to November 2005. Chief Executive Officer of SS/L
    since June 2006. President of SS/L from November 2001 to June
    2006.Avi Katz


50


Senior Vice President, General Counsel and Secretary since
    January 2008. Vice President, General Counsel and Secretary from
    November 2005 to January 2008. Vice President, General Counsel
    and Secretary of Old Loral from November 1999 to November 2005.Richard P. Mastoloni


44


Senior Vice President of Finance and Treasurer since January
    2008. Vice President and Treasurer from November 2005 to January
    2008. Vice President and Treasurer of Old Loral from February
    2002 to November 2005. Vice President of Old Loral from
    September 2001 to February 2002.Harvey B. Rein


55


Senior Vice President and Chief Financial Officer since January
    2008. Vice President and Controller from November 2005 to
    January 2008. Vice President and Controller of Old Loral from
    April 1996 to November 2005.John Capogrossi


55


Vice President and Controller since January 2008. Executive
    Director, Financial Planning and Analysis, from October 2006 to
    January 2008. Assistant Controller from November 2005 to October
    2006. Assistant Controller of Old Loral from January 2001 to
    November 2005.     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   70




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##### Table of Contents



Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Index to Financial Statements and Financial Statement Schedule


F-1Loral Space & Communications Inc. and
    Subsidiaries:Report of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets as of December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the years ended
    December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Shareholders Equity for the
    years ended December 31, 2008, 2007 and 2006


F-5Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7(a) 2. Financial Statement ScheduleSchedule II


F-69Separate Financial Statements of Subsidiaries not consolidated
    Pursuant to
    Rule 3-09
    of
    Regulation S-XTelesat Holdings Inc. and Subsidiaries:Report of Independent Registered Accountants


F-70Comments by Independent Registered Chartered Accountants on
    Canada  United States of America Reporting Difference


F-71Consolidated Statements of (Loss) Earnings for the year ended
    December 31, 2008 and the period October 31, 2007 to
    December 31, 2007


F-72Consolidated Statements of Comprehensive (Loss) Income for the
    year ended December 31, 2008 and the period
    October 31, 2007 to December 31, 2007


F-73Consolidated Statements of Shareholders Equity for the
    year ended December 31, 2008 and the period
    October 31, 2007 to December 31, 2007


F-74Consolidated Balance Sheets as of December 31, 2008 and 2007


F-75Consolidated Statements of Cash Flow for the year ended
    December 31, 2008 and the period October 31, 2007 to
    December 31, 2007


F-76Notes to Consolidated Financial Statements


F-77XTAR, L.L.C.:Report of Independent Registered Public Accounting Firm


F-121Consolidated Balance Sheets as of December 31, 2008 and 2007


F-122Consolidated Statements of Operations for the years ended
    December 31, 2008, 2007, and 2006


F-123Consolidated Statements of Members Equity for the years
    ended December 31, 2008, 2007, and 2006


F-124Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, 2007, and 2006


F-125Notes to Consolidated Financial Statements


F-126  71




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##### Table of Contents



INDEX TO
    EXHIBITS
  ExhibitNumber

Description2
.1

Debtors Fourth Amended Joint Plan of Reorganization Under
    Chapter 11 of the Bankruptcy Code dated June 3, 2005(1)2
.2

Modification to Debtors Fourth Amended Plan of
    Reorganization Under Chapter 11 of the Bankruptcy Code
    dated August 1, 2005(2)2
.3

Letter Agreement among Loral Space & Communications
    Inc., Loral Skynet Corporation, Public Sector Pension Investment
    Board, 4363205 Canada Inc. and 4363213 Canada Inc. dated
    December 14, 2006(6)2
.4

Share Purchase Agreement among 4363213 Canada Inc., BCE Inc. and
    Telesat Canada dated December 16, 2006(6)2
.5

Letter Agreement among Loral Space & Communications
    Inc., Public Sector Pension Investment Board and BCE Inc. dated
    December 16, 2006(6)2
.6

Asset Transfer Agreement, dated as of August 7, 2007, by
    and among 4363205 Canada Inc., Loral Skynet Corporation and
    Loral Space & Communications Inc.(9)2
.7

Amendment No. 1 to Asset Transfer Agreement, dated as of
    September 24, 2007, by and among 4363205 Canada Inc., Loral
    Skynet Corporation and Loral Space & Communications
    Inc.(10)2
.8

Asset Purchase Agreement, dated as of August 7, 2007, by
    and among Loral Skynet Corporation, Skynet Satellite Corporation
    and Loral Space & Communications Inc.(9)3
.1

Amended and Restated Certificate of Incorporation of Loral
    Space & Communications Inc. dated December 23,
    2008(20)3
.2

Amended and Restated Bylaws of Loral Space &
    Communications Inc. dated December 23, 2008(20)10
.1

Amended and Restated Customer Credit Agreement, dated as of
    July 30, 2007, by and between Sirius Satellite Radio Inc.
    and Space Systems/Loral, Inc.(8)10
.2

First Amendment and Waiver to Amended and Restated Credit
    Agreement dated as of May 22, 2008 between Sirius Satellite
    Radio Inc. and Space Systems/Loral, Inc.(15)10
.3

Credit Agreement, dated as of October 16, 2008, among Space
    Systems/Loral, Inc., as Borrower, the several lenders from time
    to time party thereto, Bank of America, N.A., as Documentation
    Agent, ING Bank, N.V., as Syndication Agent, and JPMorgan Chase
    Bank, N.A., as Administrative Agent(18)10
.4

Parent Guarantee Agreement, dated as of October 22, 2008,
    by Loral Space & Communications Inc. in favor of
    JPMorgan Chase Bank, N.A., as Administrative Agent.(18)10
.5

Ancillary Agreement, dated as of August 7, 2007, by and
    among Loral Space & Communications Inc., Loral Skynet
    Corporation, Public Sector Pension Investment Board, 4363205
    Canada Inc. and 4363230 Canada Inc.(9)10
.6

Adjustment Agreement, dated as of October 29, 2007, between
    Telesat Interco Inc. (formerly 4363213 Canada Inc.), BCE Inc.
    and Telesat Canada(11)10
.7

Omnibus Agreement, dated as of October 30, 2007, by and
    among Loral Space & Communications Inc., Loral Skynet
    Corporation, Public Sector Pension Investment Board, Red Isle
    Private Investments Inc. and Telesat Holdings Inc. (formerly
    4363205 Canada Inc.)(11)10
.8

Shareholders Agreement, dated as of October 31, 2007,
    between Public Sector Pension Investment Board, Red Isle Private
    Investments Inc., Loral Space & Communications Inc.,
    Loral Space & Communications Holdings Corporation,
    Loral Holdings Corporation, Loral Skynet Corporation, John P.
    Cashman, Colin D. Watson, Telesat Holdings Inc. (formerly
    4363205 Canada Inc.), Telesat Interco Inc. (formerly 4363213
    Canada Inc.), Telesat Canada and MHR Fund Management LLC(11)10
.9

Consulting Services Agreement, dated as of October 31,
    2007, by and between Loral Space & Communications Inc.
    and Telesat Canada(11)10
.10

Indemnity Agreement, dated as of October 31, 2007, by and
    among Loral Space & Communications Inc., Telesat
    Canada, Telesat Holdings Inc., Telesat Interco Inc. and Henry
    Gerard (Hank) Intven(11)10
.11

Acknowledgement and Indemnity Agreement, dated as of
    October 31, 2007, between Loral Space &
    Communications Inc., Telesat Canada, Telesat Holdings Inc.
    (formerly 4363205 Canada Inc.), Telesat Interco Inc. (formerly
    4363213 Canada Inc.) and McCarthy Tétrault LLP(11)10
.12

Amended and Restated Registration Rights Agreement dated
    December 23, 2008 by and among Loral Space &
    Communications Inc. and the Persons Listed on the Signature
    Pages Thereof(20) 72




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##### Table of Contents



ExhibitNumber

Description10
.13

Partnership Interest Purchase Agreement dated December 21,
    2007 by and among GSSI, LLC, Globalstar, Inc., Loral/DASA
    Globalstar, LP, Globalstar do Brasil, SA., Loral/DASA do Brasil
    Holdings Ltda., Loral Holdings LLC, Global DASA LLC, LGP
    (Bermuda) Ltd., Mercedes-Benz do Brasil Ltda. (f/k/a
    DaimlerChrysler do Brasil Ltda.) and Loral Space &
    Communications Inc.(12)10
.14

Beam Sharing Agreement, dated as of January 11, 2008, by
    and between Loral Space & Communications Inc. and
    ViaSat Inc.(13)10
.15

Option Agreement, dated as of January 11, 2008, by and
    between Loral Space & Communications Inc. and Telesat
    Canada(13)10
.16

Employment Agreement between Loral Space &
    Communications Inc. and Michael B. Targoff dated as of
    March 28, 2006 and amended and restated as of
    December 17, 2008 10
.17

Form of Officers and Directors Indemnification
    Agreement between Loral Space & Communications Inc.
    and Loral Executives(3) 10
.18

Officers and Directors Indemnification Agreement
    between Space Systems/Loral, Inc. and C. Patrick DeWitt dated
    November 21, 2005(3)10
.19

Loral Space Management Incentive Bonus Program (Adopted as of
    December 17, 2008) (20) 10
.20

Loral Space & Communications Inc. 2005 Stock Incentive
    Plan (Amended and Restated as of November 7, 2008)
    10
.21

Form of Amended and Restated Non-Qualified Stock Option
    Agreement under Loral Space & Communications Inc. 2005
    Stock Incentive Plan for Senior Management dated as of
    December 21, 2005 and amended and restated as of
    November 10, 2008 10
.22

Non-Qualified Stock Option Agreement under Loral
    Space & Communications Inc. 2005 Stock Incentive Plan
    between Loral Space & Communications Inc. and Michael
    B. Targoff dated March 28, 2006(4) 10
.23

Restricted Stock Unit Agreement dated March 5, 2009 between
    Loral Space & Communications Inc. and Michael B.
    Targoff(21)10
.24

Restricted Stock Unit Agreement dated March 5, 2009 between
    Loral Space & Communications Inc. and C. Patrick
    DeWitt(21)10
.25

Form of Director 2006 Restricted Stock Agreement(7) 10
.26

Form of Director 2007 Restricted Stock Agreement(7) 10
.27

Form of Director 2008 Restricted Stock Agreement 10
.28

Form of Employee Restricted Stock Agreement(7) 10
.29

Amended and Restated Space Systems/Loral, Inc. Supplemental
    Executive Retirement Plan (Amended and Restated as of
    December 17, 2008) (20) 10
.30

Loral Savings Supplemental Executive Retirement Plan (Amended
    and Restated as of December 17, 2008) (20) 10
.31

Loral Space & Communications Inc. Severance Policy for
    Corporate Officers (Amended and Restated as of December 17,
    2008) (20) 14
.1

Code of Conduct, Revised as of June 11, 2008(16)21
.1

List of Subsidiaries of the Registrant23
.1

Consent of Deloitte & Touche LLP23
.2

Consent of Deloitte & Touche LLP23
.3

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 73




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##### Table of Contents



ExhibitNumber

Description32
.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99
.1

Credit Agreement, dated as of October 31, 2007, among
    Telesat Interco Inc. (formerly 4363213 Canada Inc.), Telesat
    Holdings Inc. (formerly 4363205 Canada Inc.), 4363230 Canada
    Inc., Telesat LLC, certain subsidiaries of Telesat Holdings
    Inc., as guarantors, the lenders party thereto from time to
    time, Morgan Stanley Senior Funding, Inc., as administrative
    agent, and Morgan Stanley & Co. Incorporated, as
    collateral agent for the lenders, UBS Securities LLC, as
    syndication agent, JPMorgan Chase Bank, N.A., The Bank of Nova
    Scotia, as issuing bank, and Citibank, N.A., Canadian Branch or
    any of its lending affiliates, as co-documentation agents, and
    Morgan Stanley & Co. Incorporated, UBS Securities LLC
    and J.P. Morgan Securities Inc., as joint lead arrangers
    and joint book running managers(11)99
.2

Articles of Incorporation of Telesat Holdings Inc. (formerly
    4363205 Canada Inc.)(11)99
.3

By-Law No. 1 of Telesat Holdings Inc. (formerly 4363205
    Canada Inc.)(11)99
.4

Letter Agreement dated March 28, 2008 among Loral
    Space & Communications Inc., Loral Skynet Corporation,
    Public Sector Pension Investment Board, Red Isle Private
    Investment Inc. and Telesat Holdings Inc.(14)99
.5

Memorandum Opinion dated September 19, 2008 of the Court of
    Chancery of the State of Delaware in In re Loral
    Space & Communications Inc. Consolidated Litigation
    and GPC XLI L.L.C., et al. v. Loral Space &
    Communications Inc., et al.(17)99
.6

Implementing Order of the Court of Chancery of the State of
    Delaware dated November 10, 2008(19)     (1)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on June 8, 2005.(2)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on August 5, 2005.(3)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on November 23, 2005.(4)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the fiscal year ended December 31, 2005.(5)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K/A
    filed by the Company on June 26, 2006.(6)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 21, 2006.(7)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 29, 2007.(8)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on August 2, 2007.(9)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on August 9, 2007.(10)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on September 27, 2007.(11)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on November 2, 2007.(12)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed December 21, 2007.(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on January 16, 2008.(14)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on March 31, 2008.(15)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 28, 2008.(16)
    
    Incorporated by reference from the Companys Current
    Quarterly Report on
    Form 10-Q
    filed on June 16, 2008.(17)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on September 23, 2008.(18)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on October 22, 2008.(19)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on November 12, 2008.(20)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 23, 2008.(21)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on March 10, 2009.
    
    Filed herewith.
    
    Management compensation plan. 74




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##### Table of Contents



SIGNATURES      By:
    /s/  MICHAEL
    B. TARGOFF    
    Signatures

Title

Date/s/  MICHAEL
    B. TARGOFFMichael
    B. Targoff

Vice Chairman of the Board, Chief
    Executive Officer and President

March 16, 2009/s/  MARK
    H. RACHESKY, M.D.Mark
    H. Rachesky, M.D.

Director, Non-Executive Chairman of the Board

March 16, 2009/s/  SAI
    S. DEVABHAKTUNISai
    S. Devabhaktuni

Director

March 16, 2009/s/  HAL
    GOLDSTEINHal
    Goldstein

Director

March 16, 2009/s/  JOHN
    D. HARKEY, JR.John
    D. Harkey, Jr.

Director

March 16, 2009/s/  ARTHUR
    L. SIMONArthur
    L. Simon

Director

March 16, 2009/s/  JOHN
    P. STENBITJohn
    P. Stenbit

Director

March 16, 2009/s/  HARVEY
    B. REINHarvey
    B. Rein

Senior Vice President and CFO 
    (Principal Financial Officer)

March 16, 2009/s/  JOHN
    CAPOGROSSIJohn
    Capogrossi

Vice President and Controller 
    (Principal Accounting Officer)

March 16, 2009  75




---



##### 



INDEX TO
    FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES   
 Loral Space & Communications Inc. and
    SubsidiariesReport of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Shareholders
    Equity for the years ended December 31, 2008, 2007 and
    2006


F-5Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7Schedule II


F-69Separate Financial Statements of Subsidiaries not consolidated
    Pursuant to
    Rule 3-09
    of
    Regulation S-XTelesat Holdings Inc. and Subsidiaries:Report of Independent Registered Accountants


F-70Comments by Independent Registered Chartered
    Accountants on Canada  United States of America
    Reporting Difference


F-71Consolidated Statements of Earnings for the year
    ended December 31, 2008 and the period October 31,
    2007 to December 31, 2007


F-72Consolidated Statements of Comprehensive (Loss)
    Income for the year ended December 31, 2008 and the period
    October 31, 2007 to December 31, 2007


F-73Consolidated Statements of Shareholders
    Equity for the year ended December 31, 2008 and the period
    October 31, 2007 to December 31, 2007


F-74Consolidated Balance Sheets as of
    December 31, 2008 and 2007


F-75Consolidated Statements of Cash Flow for the year
    ended December 31, 2008 and the period October 31,
    2007 to December 31, 2007


F-76Notes to Consolidated Financial Statements


F-77XTAR, L.L.C.:Report of Independent Registered Public
    Accounting Firm


F-121Consolidated Balance Sheets as of
    December 31, 2008 and 2007


F-122Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006


F-123Consolidated Statements of Members Equity
    for the years ended December 31, 2008, 2007 and 2006


F-124Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


F-125Notes to Consolidated Financial Statements


F-126   F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Accounting for
    Uncertainty in Income Taxes, an interpretation of FASB
    No. 109.
  Employers Accounting
    for Defined Benefit Pension and other Postretirement Plans.
  Internal Control  Integrated Framework
  DELOITTE &
    TOUCHE LLP
    F-2




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##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.CONSOLIDATED BALANCE SHEETS 
    (In thousands, except share data)
  December 31,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
117,548


$
314,694Contracts-in-process


213,651



109,376Inventories


109,755



96,968Restricted cash


690



12,816Other current assets


53,596



36,034Total current assets


495,240



569,888Property, plant and equipment, net


188,270



147,828Long-term receivables


184,701



132,400Investments in affiliates


72,642



566,196Goodwill






227,058Intangible assets, net


31,578



42,854Other assets


23,436



16,715Total assets

$
995,867


$
1,702,939LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
91,052


$
69,205Accrued employment costs


41,819



42,890Customer advances and billings in excess of costs and profits


184,592



251,954Income taxes payable


233



31,239Accrued interest and preferred dividends


207



4,979Other current liabilities


31,471



39,512Total current liabilities


349,374



439,779Borrowings under revolving credit facility


55,000



Pension and other postretirement liabilities


230,660



152,341Long-term liabilities


151,176



137,261Total liabilities


786,210



729,381Commitments and contingencies Shareholders equity:Preferred stock, $0.01 par value, 10,000,000 shares
    authorized, no shares issued and outstanding at
    December 31, 2008






Series A-1
    cumulative 7.5% convertible preferred stock, $0.01 par
    value; 2,200,000 shares authorized, 141,953 shares
    issued and outstanding at December 31, 2007






41,873Series B-1
    cumulative 7.5% convertible preferred stock, $0.01 par
    value; 2,000,000 shares authorized, 900,821 shares
    issued and outstanding at December 31, 2007






265,777Common Stock:Voting common stock, $.01 par value; 30,494,327 shares
    authorized, 20,286,992 and 20,292,746 shares issued and
    outstanding


203



203Non-voting common stock, $0.1 par value;
    9,505,673 shares authorized, issued and outstanding at
    December 31, 2008


95



Paid-in capital


1,007,011



663,127Accumulated deficit


(750,922
)


(33,939
)Accumulated other comprehensive (loss) income


(46,730
)


36,517Total shareholders equity


209,657



973,558Total liabilities and shareholders equity

$
995,867


$
1,702,939    F-3




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.CONSOLIDATED STATEMENTS OF OPERATIONS 
    (In thousands, except per share amounts)
  Year Ended December 31,2008


2007


2006Revenues from satellite manufacturing

$
869,398


$
761,363


$
636,632Revenues from satellite services






121,091



160,701Total revenues


869,398



882,454



797,333Cost of satellite manufacturing


787,758



688,991



550,821Cost of satellite services






86,213



98,614Selling, general and administrative expenses


97,015



166,936



127,080Gain on recovery from customer bankruptcy


(9,338
)






Impairment of goodwill


187,940







Gain on contribution of Loral Skynet






(104,942
)


Gain on litigation settlement










(9,000
)Operating (loss) income


(193,977
)


45,256



29,818Interest and investment income


11,857



39,279



31,526Interest expense


(2,268
)


(2,312
)


(23,449
)Gain (loss) on foreign exchange contracts






89,364



(5,750
)Gain on litigation, net


38,823







Impairment of available for sale securities


(5,823
)






Loss on extinguishment of debt






(16,155
)


Other (expense) income


(135
)


2,354



(2,028
)(Loss) income before income taxes, equity in net losses of
    affiliates and minority interest


(151,523
)


157,786



30,117Income tax provision


(45,744
)


(83,457
)


(20,880
)(Loss) income before equity in net losses of affiliates and
    minority interest


(197,267
)


74,329



9,237Equity in net losses of affiliates


(495,649
)


(21,430
)


(7,163
)Minority interest






(23,240
)


(24,794
)Net (loss) income


(692,916
)


29,659


$
(22,720
)Preferred dividends


(24,067
)


(19,379
)


Beneficial conversion feature related to the issuance of Loral
    Series A-1
    Preferred Stock






(25,685
)


Net loss applicable to common shareholders

$
(716,983
)

$
(15,405
)

$
(22,720
)Basic and diluted loss per share:Basic and diluted loss per share

$
(35.13
)

$
(0.77
)

$
(1.14
)Weighted average shares outstanding:Basic and diluted


20,407



20,087



20,000    F-4




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##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY 
    (In thousands)
 Series A-1


Series B-1




















AccumulatedConvertible


Convertible


Common Stock








OtherPreferred Stock


Preferred Stock


Voting


Non-Voting





Accumulated


Comprehensive


TotalShares





Shares





Shares





Shares





Paid-In


Earnings


Income


ShareholdersIssued


Amount


Issued


Amount


Issued


Amount


Issued


Amount


Capital


(Deficit)


(Loss)


EquityBalance, January 1, 2006


















20,000


$
200










$
642,210


$
(15,261
)

$
15


$
627,164Adjustment to initially apply SFAS 158, net of tax










































29,951



29,951Net loss






































(22,720
)Other comprehensive income










































10,109Comprehensive loss














































(12,611
)Stock based compensation


































2,498











2,498Balance, December 31, 2006


















20,000



200











644,708



(37,981
)


40,075



647,002Cumulative effect related to adoption of FIN 48






































(6,238
)






(6,238
)Net income






































29,659Other comprehensive loss










































(3,558
)Comprehensive income














































26,101Issuance of Series -1 preferred stock


137


$
40,237



859


$
253,013



















(8,864
)










284,386Issuance of Series -1 preferred stock as payment for dividend


5



1,636



42



12,764































14,400Exercise of stock options


















108



1











1,920











1,921Restricted shares surrendered to fund withholding taxes


















(20
)














(982
)










(982
)Stock based compensation


















205



2











26,345











26,347Preferred stock dividends






































(19,379
)






(19,379
)Balance, December 31, 2007


142



41,873



901



265,777



20,293



203











663,127



(33,939
)


36,517



973,558Net loss






































(692,916
)Other comprehensive loss










































(83,247
)Comprehensive loss














































(776,163
)Issuance of Series -1 preferred stock as payment for dividend


3



822



78



23,427































24,249Restricted shares surrendered to fund withholding taxes


















(18
)














(338
)










(338
)Stock based compensation


















12















7,621











7,621Series-1 preferred dividends






618







4,179































4,797Cancellation and conversion of Series-1 preferred stock to
    non-voting common stock


(145
)


(43,313
)


(979
)


(293,383
)










9,506



95



336,601Preferred stock dividends






































(24,067
)






(24,067
)Balance, December 31, 2008





$







$




20,287


$
203



9,506


$
95


$
1,007,011


$
(750,922
)

$
(46,730
)

$
209,657     F-5




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  (in
    thousands)
  Year Ended December 31,2008


2007


2006Operating activities:Net (loss) income

$
(692,916
)

$
29,659


$
(22,720
)Adjustments to reconcile net income (loss) to net cash (used in)
    provided by operating activities:Non-cash items


762,210



(35,971
)


108,584Changes in operating assets and liabilities:Accounts receivable






64,828



(9,129
)Contracts-in-process


(216,354
)


(60,884
)


5,551Inventories


(12,787
)


(15,872
)


(31,990
)Long-term receivables


13,947



(266
)


(2,214
)Other current assets and other assets


3,393



6,369



7,964Accounts payable


23,681



6,041



(12,812
)Accrued expenses and other current liabilities


(22,455
)


15,866



17,756Customer advances


(19,710
)


(17,751
)


50,634Income taxes payable


(55,034
)


28,719



391Pension and other postretirement liabilities


(19,010
)


8,663



(20,453
)Long-term liabilities


32,825



(2,282
)


(3,725
)Other






4



165Net cash (used in) provided by operating activities


(202,210
)


27,123



88,002Investing activities:Capital expenditures


(64,559
)


(95,761
)


(82,157
)Decrease (increase) in restricted cash in escrow


18,637



(19,709
)


(323
)Proceeds received for the contribution of Loral Skynet net of
    cash contributed






57,591



Proceeds received from disposition of orbital slot










5,742Distribution from an equity investment






2,955



250Proceeds from the sale of short-term investments and
    available-for-sale securities


162



468,571



7,098Purchase of short-term investments


(500
)


(350,895
)


(106,588
)Investments in and advances to affiliates


(1,048
)


(1,233
)


Net cash (used in) provided by investing activities


(47,308
)


61,519



(175,978
)Financing activities:Borrowings under SS/L revolving credit facility


55,000







Debt issuance costs


(2,628
)






Proceeds from term loan (Loral Skynet Notes refinancing facility)






141,050



Repayment of Loral Skynet Notes






(126,000
)


10% redemption fee on extinguishment of Loral Skynet Notes






(12,600
)


Preferred stock issuance costs






(8,864
)


Proceeds from the sale of Series-1 preferred stock






293,250



Redemption of Loral Skynet Preferred Stock






(237,599
)


Proceeds from the exercise of stock options






2,097



Cash dividends paid on Loral Skynet Preferred Stock






(11,824
)


(1,278
)Net cash provided by (used in) financing activities


52,372



39,510



(1,278
)(Decrease) increase in cash and cash equivalents


(197,146
)


128,152



(89,254
)Cash and cash equivalents  beginning of year


314,694



186,542



275,796Cash and cash equivalents  end of year

$
117,548


$
314,694


$
186,542    F-6




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization
    and Principal Business        Satellite
    Manufacturing:
    Satellite
    Services:
    1 3
  and/or
 F-7




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.
    Basis of
    Presentation    No. 90-7, Financial Reporting of Entities in Reorganization Under the
    Bankruptcy Code (SOP 90-7), Business Combinations
    Use of
    Estimates in Preparation of Financial Statements
      Cash and
    Cash Equivalents, Restricted Cash and Available for Sale
    Securities
    Concentration
    of Credit Risk
  contracts-in-process,
 F-8




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Inventories
  contracts-in-process, first-in-first-out
  Fair
    Value Measurements
  Fair Value Measurements 157-2, Effective Date of FASB Statement No. 157
      Level 1 Accounting for Certain Investments in
    Debt and Equity Securities
  Level 2
 F-9




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The Fair Value Option
    for Financial Assets and Financial Liabilities
  Property,
    Plant and Equipment
    YearsLand improvements


20Buildings and building improvements


10 to 45Leasehold improvements


2 to 17Equipment, furniture and fixtures


5 to 10     Valuation
    of Long-Lived Assets
  Accounting for the Impairment or Disposal of Long-lived
    Assets
 F-10




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Goodwill
    and Other Intangible Assets
  Goodwill and Other Intangible Assets
    build-up build-up
  Contingencies
   F-11




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue
    Recognition
  Satellite
    Manufacturing
  81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts
      contracts-in-process
  Loral
    Skynet
       F-12




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Research
    and Development
    Derivative
    Instruments
  Accounting for Derivative
    Instruments and Hedging Activities
  Minority
    Interest
      Stock-Based
    Compensation
  Share-Based Payment No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services (EITF 96-18).
   F-13




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share-Based Payment
  Deferred
    Compensation
    Income
    Taxes
    SOP 90-7, paid-in-capital.
  Accounting for Uncertainty in Income Taxes, an
    interpretation of FASB Statement No. 109
 F-14




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Additional
    Cash Flow Information
    Year Ended December 31,2008


2007


2006Non-cash operating items:Gain on contribution of Loral Skynet

$



$
(104,942
)

$
Equity in net losses of affiliates


495,649



21,430



7,163Satmex settlement










(18,605
)Minority interest






23,240



24,794Deferred taxes


29,385



32,205



9,105Depreciation and amortization


36,367



76,910



68,300Stock based compensation


7,621



26,347



2,997Impairment of cost basis investment










3,000Provisions for inventory obsolescence






543



1,678Warranty expense accruals (accrual reversals)


431



(18,879
)


12,180(Recoveries of) provisions for bad debts on billed receivables


700



(1,917
)


356Adjustment to revenue straightlining assessment






(204
)


Write-off of construction in process






2,164



Loss on disposition of fixed assets


63







Loss on extinguishment of debt






16,155



Impairment of goodwill


187,940Impairment of available for sale securities


5,823







Curtailment gain






(1,686
)


Amortization of prior service credit and actuarial gains


(3,200
)


(3,285
)


Gain on disposition of an orbital slot






(3,600
)


(1,149
)Amortization of fair value adjustments related to orbital
    incentives


(3,088
)






Gain on disposition of available for sale securities


(162
)


(11,088
)


(7,098
)Unrealized loss on non-qualified pension plan assets


1,391







Non-cash net interest


(149
)






113Loss/(gain) on foreign currency transactions and contracts


3,439



(89,364
)


5,750Net non-cash operating items

$
762,210


$
(35,971
)

$
108,584Non-cash investing activities:Available for sale securities received in connection with the
    sale of Globalstar do Brazil

$
6,000


$



$
Capital expenditures incurred not yet paid

$
1,706


$



$
Investment in affiliate not yet paid

$
1,048


$



$
 F-15




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2008


2007


2006Non-cash financing activities:Issuance of Preferred stock by subsidiary as payment for dividend

$



$
23,343


$
14,260Issuance of Loral Series-1 Preferred Stock as payment for
    dividend

$
24,248


$
14,400


$
Accrued dividends on Loral
    Series-1
    Preferred Stock

$
4,797


$
4,979


$
Issuance of non-voting common stock and cancellation of Loral
    Series-1
    Preferred Stock

$
336,696


$



$
Supplemental information:Interest paid

$
2,380


$
24,891


$
17,921Taxes paid, net of refunds

$
29,835


$
5,292


$
6,365Cash paid for reorganization items:Professional fees





$
(160
)

$
(9,581
)Restructuring costs





$



$
(740
)Interest income





$



$
Vendor settlement





$



$
(432
)   Recent
    Accounting Pronouncements
  SFAS 141(R)
  Business Combinations
  FSP
    FAS 142-3
  FAS 142-3, Determination of the Useful Life of Intangible Assets FAS 142-3). FAS 142-3 FAS 142-3 FAS 142-3 FAS 142-3
  FSP
    FAS 157-3
  FAS 157-3, Determining the Fair Value of a Financial Asset When the
    Market for that Asset is Not Active FAS 157-3). FAS 157-3 FAS 157-3
 F-16




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  FAS 157-3
  SFAS 160
  Non-controlling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  SFAS 161
  Disclosures About Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133 Disclosure about Fair
    Value of Financial Instruments
  FSP
    FAS 132(R)-1
  Employers Disclosure about Postretirement Benefit Pan
    Assets Employers
    Disclosure about Postretirement Benefits
  EITF
    08-6
  No. 08-6, Equity Method Investment Accounting
    Considerations (EITF 08-6) EITF 08-6
 F-17




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Accumulated
    Other Comprehensive Income (Loss)    Accumulated Other Comprehensive Income (Loss)December 31,2008


2007Cumulative translation adjustment

$



$
498Proportionate share of Telesat Holdco other comprehensive income


(4,065
)


Reclassification of our proportionate share of Telesat Holdco
    other comprehensive income


4,065



Unrealized gain on foreign currency hedge


18,182



Unrealized gains on available-for-sale securities, net of taxes
    of $(2,108) and $(4,447) for 2008 and 2007, respectively


3,302



6,987Reclassification adjustment for (losses) included in net income,
    net of taxes of $2,204 and $4,542 for 2008 and 2007, respectively


(3,186
)


(6,546
)Net actuarial (losses) gains, net of taxes of $(26,123) and
    $(26,086) for 2008 and 2007, respectively


(57,288
)


40,072Amortization of actuarial gains and prior service credits


(5,246
)


(2,000
)Reclassification due to contribution of Loral Skynet, net of
    taxes of $3,015 for 2008 and 2007


(2,494
)


(2,494
)Total

$
(46,730
)

$
36,517   Other Comprehensive Income (Loss)Year Ended December 31,2008


2007


2006Cumulative translation adjustment

$
(498
)

$
211


$
272Proportionate share of Telesat Holdco other comprehensive income


(4,065
)






Reclassification of our proportionate share of Telesat Holdco
    other comprehensive income


4,065







Unrealized gain on foreign currency hedge


18,182







Unrealized (losses) gains on available-for-sale securities, net
    of taxes of $2,339, $1,976 and $(6,423) for 2008,2007 and 2006,
    respectively


(3,685
)


(2,850
)


9,837Reclassification adjustment for gains (losses) included in net
    income, net of taxes of $(2,338) and $4,542 for 2008 and 2007,
    respectively


3,360



(6,546
)


Net actuarial (losses) gains, net of taxes of $(37) and $(6,532)
    for 2008 and 2007, respectively


(97,360
)


10,121



Amortization of actuarial gains and prior service credits


(3,246
)


(2,000
)


Reclassification due to contribution of Loral Skynet, net of
    taxes of $3,015 for 2007






(2,494
)


Adjustment to initially apply SFAS 158, net of taxes of
    $(19,554) for 2006










29,951Total

$
(83,247
)

$
(3,558
)

$
40,060  F-18




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Contracts-in-Process
    and Long-Term Receivables  Contracts-in-Process
  Contracts-in-Process
  December 31,2008


2007U.S. government contracts:Amounts billed

$
2,218


$
193Unbilled receivables


2,448



1,1664,666



1,359Commercial contracts:Amounts billed


120,237



60,355Unbilled receivables


88,748



47,662208,985



108,017$
213,651


$
109,376   contracts-in-process
  Long-Term
    Receivables
      Long-TermReceivables2009

$
2,7282010


4,6692011


16,7462012


12,3092013


12,757Thereafter


138,220187,429Less, current portion included in
    contracts-in-process


(2,728
)Long-term receivables

$
184,701  F-19




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  contracts-in-process,
  5.
    Property,
    Plant and Equipment    December 31,2008


2007Land and land improvements

$
26,913


$
26,799Buildings


59,038



49,917Leasehold improvements


10,870



8,691Equipment, furniture and fixtures


133,916



94,844Satellite capacity under construction (see note 16)


10,478



Other construction in progress


21,863



18,552263,078



198,803Accumulated depreciation and amortization


(74,808
)


(50,975
)$
188,270


$
147,828        F-20




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Investments
    in Affiliates    December 31,2008


2007Telesat Holdings
    Inc.(1)

$



$
479,579XTAR, LLC


70,547



86,617Other


2,095



$
72,642


$
566,196     (1)

    
    As of December 31, 2008 our investment in Telesat Canada
    has been reduced to zero as a result of recording our interest
    in Telesat Canadas losses. 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 funding obligations exist.    Year Ended December 31,2008


2007


2006Telesat Holdings Inc.

$
(479,579
)

$
(1,792
)

$
XTAR, LLC


(16,070
)


(10,585
)


(7,413
)Globalstar, L.P. and Globalstar service provider partnerships






(9,053
)


250$
(495,649
)

$
(21,430
)

$
(7,163
)     Year Ended December 31,2008


2007


2006Revenues

$
83,974


$
21,968


$
11,262Elimination of Lorals proportionate share of (profits)
    losses relating to affiliate transactions


(4,969
)


1,935



412Profits (losses) relating to affiliate transactions not
    eliminated


2,808



(1,082
)


(324
)   Telesat
    Canada
  1 3 2 3
  Contribution
    of Loral Skynet
   F-21




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  true-up
      Current assets

$
25,360Property, plant and equipment, net


443,776Foreign currency contracts


83,614Goodwill


42,246Intangible assets, net


50,404Other assets


3,183Total assets

$
648,583Current liabilities

$
181,045Long-term liabilities


27,000Total liabilities

$
208,045     Consideration received for the contribution of Loral Skynet to
    Telesat Holdco:Cash and marketable securities

$
61,480Fair value of equity in Telesat Holdco


670,562Total consideration


732,042Book value of contributed net assets of Loral Skynet


440,538Consideration in excess of book value

$
291,504Gain recognized

$
104,942   EITF 01-2, Interpretations of APB Opinion No. 29
 F-22




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      For the PeriodOctober 31,For the Year Ended


2007December 31,


to December 31,2008


2007Statement of Operations Data:Revenues

$
685,187


$
117,767Operating expenses


(258,010
)


(52,484
)Impairment of long-lived and intangible assets


(454,896
)


Depreciation, amortization and stock-based compensation


(225,949
)


(41,200
)Operating income


(253,668
)


24,083Interest expense


(231,062
)


(41,375
)Other expense, net


(403,102
)


(45,550
)Income tax benefit


139,872



61,520Net loss


(747,960
)


(1,322
)   December 31, 2008


December 31, 2007Balance Sheet Data:Current assets

$
179,769


$
143,656Total assets


4,273,162



5,610,047Current liabilities


171,423



229,540Long-term debt, including current portion


2,901,620



2,828,017Total liabilities


3,760,164



4,156,720Redeemable preferred stock


116,044



143,138Shareholders equity


396,954



1,310,189     1 3
 F-23




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    XTAR
    XTAR-LANT,
    XTAR-LANT XTAR-LANT
  paid-in-kind
 F-24




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Year Ended December 31,2008


2007


2006Revenues

$
20,405


$
19,339


$
15,334Operating expenses


(34,500
)


(24,015
)


(14,262
)Depreciation and amortization


(9,650
)


(9,747
)


(9,681
)Operating loss


(23,751
)


(14,423
)


(8,633
)Net loss


(28,597
)


(18,421
)


(12,629
)   December 31,2008


2007Balance Sheet Data:Current assets

$
9,107


$
8,899Total assets


115,437



124,898Current liabilities


41,314



29,650Total liabilities


79,386



64,440Members equity


36,051



60,458   Satmex
      usufructo usufructo usufructo
  usufructo usufructo usufructo
 F-25




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
        7.
    Goodwill
    and Intangible Assets  Goodwill
   F-26




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Goodwill  January 1, 2007

$
305,691Cumulative effect of adopting FIN 48


7,542Settlement of FIN 48 liabilities


(2,000
)Reversal of excess valuation allowance on deferred tax assets


(35,088
)Reversal of Old Loral deferred state tax liabilities


(6,840
)Contribution of Loral Skynet to Telesat Canada


(42,247
)Goodwill  December 31, 2007


227,058Reversal of FIN 48 liabilities for statute expiration


(531
)Reversal of excess valuation allowance on deferred tax assets


(38,587
)Goodwill impairment charge


(187,940
)Goodwill  December 31, 2008

$
   Intangible
    Assets
    Weighted AverageRemaining


December 31, 2008


December 31, 2007Amortization Period


Gross


Accumulated


Gross


Accumulated(Years)


Amount


Amortization


Amount


AmortizationInternally developed software and technology


3


$
59,027


$
(35,154
)

$
59,027


$
(24,338
)Trade names


17



9,200



(1,495
)


9,200



(1,035
)Total





$
68,227


$
(36,649
)

$
68,227


$
(25,373
)     2009

$
11,2762010


9,1922011


2,9312012


2,3152013


460   8.
    Debt
    Obligations    December 31,2008


2007Space Systems/Loral, Inc Revolving Credit Facility

$
55,000


$
  F-27




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SS/L
    Credit Agreement
      2 3
      
    SS/L must not permit its consolidated leverage ratio as of
    (i) the last day of any period of four consecutive fiscal
    quarters or (ii) the date of incurrence of certain
    indebtedness to exceed 3.50 to 1.00 from October 16, 2008
    to September 29, 2009, 3.25 to 1.00 from September 30,
    2009 through December 30, 2009 and 3.00 to 1.00 from
    December 31, 2009 and thereafter until the Maturity Date.
    SS/L must maintain a minimum consolidated interest coverage
    ratio of at least 3.50 to 1.00 as of the last day of any fiscal
    quarter for the period of four consecutive fiscal quarters
    ending on such day.   F-28




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      SS/L
    Letter of Credit Facility
    Loan
    Payable Valley National Bank
        Loral
    Skynet Notes
     F-29




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      9.
    Income
    Taxes    Year Ended December 31,2008


2007


2006Current:U.S. Federal

$
(21,213
)

$
31,142


$
4,018State and local


37,572



19,712



2,467Foreign






398



5,290Total current

$
16,359


$
51,252


$
11,775Deferred:U.S. Federal


(137,102
)


47,209



7,342State and local


(36,023
)


(31,291
)


1,763Valuation allowance


202,510



16,287



Total deferred


29,385



32,205



9,105Total income tax provision

$
45,744


$
83,457


$
20,880      F-30




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007Unrecognized tax benefits

$
25,962


$
12,652Interest expense


6,169



4,186Interest income






(41
)Penalties


9,427



303Total

$
41,558


$
17,100          F-31




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006Tax provision( benefit) at U.S. Statutory Rate of 35%

$
(53,033
)

$
55,225


$
10,541Permanent adjustments which change statutory amounts:State and local income taxes, net of federal income tax


1,496



(5,101
)


2,749Additional tax imposed on foreign source income


21



94



3,438Equity in net losses of affiliates


(173,477
)


(7,162
)


(2,585
)Impairment of goodwill


65,779







Losses in litigation


6,815







Tax gain on transfer of Loral Skynet assets to Telesat Canada






16,419



Provision for unrecognized tax benefits


(5,811
)


8,370



Nondeductible expenses


1,501



2,682



3,065Change in valuation allowance


202,510



16,287



Other, net


(57
)


( 3,357
)


3,672Total income tax provision

$
45,744


$
83,457


$
20,880        F-32




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007Balance at January 1

$
59,903


$
42,484Increases related to prior year tax positions


5,312



157Decreases related to prior year tax positions


(1,225
)


(342
)Decrease as a result of statute expirations


(1,832
)


Decrease as a result of tax settlements






(1,508
)Increases related to current year tax positions


46,434



21,707Decrease for indemnified liabilities transferred to Telesat
    Canada and recorded in other long term liabilities






(2,595
)Balance at December 31

$
108,592


$
59,903            F-33




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                     F-34




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007Deferred tax assets:Postretirement benefits other than pensions

$
28,321


$
31,591Inventoried costs


19,456



17,943Net operating loss and tax credit carryforwards


199,460



205,209Compensation and benefits


20,663



22,802Deferred research & development costs


14,126



18,948Income recognition on long-term contracts


13,382



26,707Investments in and advances to affiliates


138,524



Other, net


7,370



7,086Federal benefit of uncertain tax positions


21,431



3,610Pension costs


69,772



35,612Total deferred tax assets before valuation allowance


532,505



369,508Less valuation allowance


(487,762
)


(241,228
)Net deferred tax asset


44,743



128,280Deferred tax liabilities:Property, plant and equipment


(18,637
)


(18,653
)Intangible assets


(13,582
)


(18,569
)Investments in and advances to affiliates






(87,704
)Total deferred tax liability


(32,219
)


(124,926
)Net deferred tax asset

$
12,524


$
3,354     10.
    Shareholders
    Equity and Minority Interest  Common
    Stock
    In re: Loral
    Space & Communications Consolidated Litigation
   F-35




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                 F-36




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Preferred
    Stock
  Series A-1 Series A-1 Series B-1 Series B-1 Series A-1
    Series A-1
  Series A-1 Series B-1 Series A-1 Series B-1
  Series A-1
    Loral
    Skynet Series A Preferred Stock
     F-37




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash


PIK Dividends


TotalPayment Date

Dividend Period


Dividends


Shares


Amount


DividendsNovember 5, 2007


7/14/07 to 11/05/07


$
8,790






$



$
8,790July 13, 2007


1/14/07 to 7/13/07



1,260



61,282



12,260



13,520January 12, 2007


7/14/06 to 1/13/07



1,770



55,434



11,090



12,860July 14, 2006


11/21/05 to 7/13/06



1,270



71,281



14,260



15,530     Stock
    Plans
      EITF 96-18
 F-38




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2007


2006Risk  free interest rate


4.5
%


4.3
%Expected life (years)


2.80



4.75
%Estimated volatility


32.8
%


27.4
%Expected dividends


None



None     WeightedWeighted


Average


AggregateAverage


Remaining


IntrinsicExercise


Contractual


ValueShares


Price


Term


(In thousands)Outstanding at January 1, 2006


746,952


$
28.44



7 yearsGranted (weighted average grant date fair value $7.66 per share)


643,500


$
28.44Exercised


Forfeited


(80,000
)

$
28.44Outstanding at December 31, 2006


1,310,452


$
28.44



5.8 years


$
16,091Granted (weighted average grant date fair value $23.46 per share)


965,000


$
26.95Exercised


(208,750
)

$
27.82






$
2,930Forfeited


(15,000
)

$
27.57Outstanding at December 31, 2007


2,051,702


$
27.81



4.2 years


$
13,216Forfeited


(17,500
)

$
27.69Outstanding at December 31, 2008


2,034,202


$
27.81



3.2 years


$
0.0Vested and expected to vest at December 31, 2008


2,031,936


$
27.81



3.2 years


$
0.0Exercisable at December 31, 2008


1,806,077


$
27.85



3.3 years


$
0.0  F-39




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted AverageGrant- DateShares


Fair ValueNon-vested restricted stock at January 1, 2007






Granted


206,700


$
46.65Vested (intrinsic value of $3.0 million)


(62,777
)

$
46.65Forfeited


(1,919
)

$
46.65Non-vested restricted stock at December 31, 2007


142,004


$
46.65Granted


15,000


$
19.70Vested (intrinsic value of $1.1 million)


(57,463
)

$
46.65Forfeited


(3,836
)

$
46.65Non-vested restricted stock at December 31, 2008


95,705


$
42.43              F-40




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    Earnings
    (Loss) Per Share    12.
    Pensions
    and Other Employee Benefits  Pensions
  and/or
  non-U.S. and
    Other
    Benefits
   F-41




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Curtailment
    Funded
    Status
    Pension BenefitsYear Ended


Other BenefitsDecember 31,


Year Ended December 31,2008


2007


2008


2007(In thousands)


(In thousands)Reconciliation of benefit obligationObligation at beginning of period

$
367,870


$
371,883


$
73,788


$
85,652Service cost


9,214



10,145



1,056



1,607Interest cost


23,367



22,455



4,108



4,995Participant contributions


1,385



1,612



1,792



1,827Amendments














(2,815
)Actuarial loss (gain)


2,146



(15,492
)


(9,393
)


(3,125
)Benefit payments


(22,630
)


(21,382
)


(4,764
)


(5,008
)Curtailment gain


(433
)


(1,351
)






(1,169
)Transfer of liability due to Telesat Canada transaction














(8,176
)Obligation at December 31,

$
380,919


$
367,870


$
66,587


$
73,788Reconciliation of fair value of plan assetsFair value of plan assets at beginning of period

$
284,283


$
284,275


$
955


$
866Actual return on plan assets


(80,059
)


18,936



27



89Employer contributions


27,904







2,732



3,181Participant contributions


1,385



1,612



1,792



1,827Benefit payments


(21,531
)


(20,540
)


(4,764
)


(5,008
)Fair value of plan assets at December 31,

$
211,982


$
284,283


$
742


$
955Funded status at end of period

$
(168,937
)

$
(83,587
)

$
(65,845
)

$
(72,833
)    F-42




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Employers Accounting
    For Defined Benefit Pension and Other Postretirement Plans
    Pension Benefits


Other BenefitsDecember 31,


December 31,2008


2007


2008


2007Actuarial (loss) gain

$
(80,213
)

$
26,477


$
7,216


$
(2,103
)Amendments-prior service credit


28,111



30,829



2,966



3,446$
(52,102
)

$
57,306


$
10,182


$
1,343     Pension Benefits


Other BenefitsActuarial (loss) gain during the period

$
(106,672
)

$
9,349Amortization of actuarial gain


(18
)


(30
)Amortization of prior service credit


(2,718
)


(480
)Total recognized in other comprehensive income

$
(109,408
)

$
8,839     Pension Benefits


Other BenefitsDecember 31,


December 31,2008


2007


2008


2007Current Liabilities

$
1,070


$
892


$
3,051


$
3,187Long-Term Liabilities


167,867



82,695



62,794



69,646$
168,937


$
83,587


$
65,845


$
72,833      F-43




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Pension Benefits


Other BenefitsFor the Year Ended December 31,


For the Year Ended December 31,2008


2007


2006


2008


2007


2006Service cost

$
9,214


$
10,145


$
10,926


$
1,056


$
1,607


$
1,482Interest cost


23,367



22,455



21,835



4,108



4,995



4,834Expected return on plan assets


(24,469
)


(23,768
)


(22,229
)


(72
)


(36
)


(52
)Amortization of prior service credit


(2,718
)


(2,784
)


(1,399
)


(480
)


(553
)


(239
)Amortization of net actuarial loss (gain)


(18
)


(59
)






(30
)


111



127Curtailment gain


(433
)


(2,345
)










(1,862
)


Net periodic cost

$
4,943


$
3,644


$
9,133


$
4,582


$
4,262


$
6,152     For the Year Ended December 31,2008

2007

2006Discount rate


6.50%


6.00%/6.50%


5.75
%Expected return on plan assets


8.50%


8.50%


9.00
%Rate of compensation increase


4.25%


4.25%


4.25
%     December 31,2008


2007


2006Discount rate


6.50
%


6.50
%


6.00
%Rate of compensation increase


4.25
%


4.25
%


4.25
%    F-44




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007Equity investments


51
%


54
%Fixed income investments


49
%


46
%100
%


100
%     1% Increase


1% DecreaseEffect on total of service and interest cost components of net
    periodic postretirement health care benefit cost

$
421


$
(342
)Effect on the health care component of the accumulated
    postretirement benefit obligation

$
5,300


$
(4,408
)     Other BenefitsGross


MedicarePension


Benefit


SubsidyBenefits


Payments


Receipts2009

$
24,640


$
4,209


$
2952010


25,385



4,496



3242011


26,053



4,771



3572012


26,170



5,017



3932013


26,508



5,219



4262014 to 2018


143,117



28,685



2,671     Employee
    Savings (401k) Plan
  2 3
 F-45




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    Financial
    Instruments, Derivative Instruments and Hedging  Financial
    Instruments
    Foreign
    Currency
      Foreign Currency

U.S. $Future revenues  Japanese Yen

¥ 64,874

$
718Future expenditures  Japanese Yen

¥ 3,491,204

$
38,637Contracts-in-process,
    unbilled receivables  Japanese Yen

¥ 10,374

$
115Future expenditures  EUROs

 6,270

$
8,839   Derivatives
           F-46




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    To SellAt


AtEuro


Contract


MarketMaturity

Amount


Rate


Rate2009


65,540


$
99,793


$
91,3762010


19,210



29,388



26,7342011


23,493



35,663



32,608
108,243


$
164,844


$
150,718   To BuyAt


AtEuro


Contract


MarketMaturity

Amount


Rate


Rate2009


4,520


$
6,294


$
6,315              F-47




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14.
    Commitments
    and Contingencies  Financial
    Matters
          Balance of deferred amounts at January 1, 2006

$
41,692Accruals for deferred amounts issued during the period


4,800Accruals relating to pre-existing contracts (including changes
    in estimates)


7,380Balance of deferred amounts at December 31, 2006


53,872Warranty costs incurred including payments


(10,790
)Accruals relating to pre-existing contracts (including changes
    in estimates)


(8,056
)Balance of deferred amounts at December 31, 2007


35,026Warranty costs incurred including payments


(956
)Accruals relating to pre-existing contracts (including changes
    in estimates)


2,185Balance of deferred amounts at December 31, 2008

$
36,255     SS/L.
   F-48




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  start-up
  5 8
     F-49




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Transactions with Affiliates
     Telesat Canada
  Satellite
    Matters
    and/or
      Transactions with Affiliates
     Telesat Canada
  Regulatory
    Matters
   F-50




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Lease
    Arrangements
  and/or
  Gross


SubleaseRent


Income


Net RentYear ended December 31, 2008

$
12,154


$
(6
)

$
12,148Year ended December 31, 2007

$
26,302


$
(76
)

$
26,226Year ended December 31, 2006

$
27,317


$
(20
)

$
27,297     2009

$
9,7232010


8,9672011


6,3282012


3,7822013


2,122Thereafter


7,089$
38,011   Legal
    Proceedings
  Delaware
    Shareholder Litigation
  In re:
    Loral Space and Communications Inc. Consolidated Litigation
   F-51




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Shareholders Equity and
    Minority Interest
      New York
    Shareholder Litigation
   F-52




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Babus Babus
  Insurance
    Coverage Litigation
    In re: Loral Space
    and Communications Inc. Consolidated Litigation Babus
  Informal
    SEC Inquiry
   F-53




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Reorganization
    Matters
  No. 03-41710 03-41709 03-41728
  Appeals of Confirmation Order.
  Disputed Claims.
  Indemnification Claims of Directors and Officers of Old
    Loral.
 F-54




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Class Action Securities Litigations Class Action ERISA Litigation Globalstar
    Related Class Action Securities Litigations In re: Loral Space ERISA Litigation In re: Loral Space & Communications Ltd. Securities
    Litigation
  Class Action
    Securities Litigations
  Beleson. Rule 10b-5 Beleson Reorganization
    Matters  Indemnification Claims
  Christ. Rule 10b-5
 F-55




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Reorganization
    Matters  Indemnification Claims
  Class Action
    ERISA Litigation
  In re: Loral Space ERISA Litigation. In re: Loral Space ERISA
    Litigation
  Insurance Coverage Litigation. In re: Loral Space ERISA Litigation
  In re: Loral Space ERISA Litigation In re: Loral Space ERISA Litigation
 F-56




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Globalstar
    Related Class Action Securities Litigations
  In re:  Globalstar Securities
    Litigation. In re: Globalstar Securities Litigation
  In re:  Loral Space & Communications Ltd.
    Securities Litigation. In re: Loral
    Space & Communications Ltd. Securities Litigation Rule 10b-5
  Insurance Coverage Litigation. In re: Loral Space & Communications Ltd. Securities
    Litigation In re:
    Loral Space ERISA Litigation In re: Loral Space & Communications Ltd.
    Securities Litigation
 F-57




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Reorganization Matters  Indemnification
    Claims
  Other and
    Routine Litigation
    15.
    Segments  Disclosures about
    Segments of an Enterprise and Related Information
         F-58




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2008
    Segment Information
    (in thousands)
  Satellite


SatelliteManufacturing


Services(1)


Corporate(2)


TotalRevenues and Adjusted EBITDA:Revenues

$
785,534


$
685,187






$
1,470,721Intersegment
    revenues(3)


95,913











95,913Operating segment revenues

$
881,447



685,187







1,566,634Intercompany
    eliminations(4)














(12,049
)Affiliate
    eliminations(1)














(685,187
)Revenues as reported













$
869,398Segment Adjusted EBITDA before
    eliminations(5)(6)

$
45,055


$
436,514


$
(14,875
)

$
466,694Intercompany
    eliminations(4)














(1,569
)Affiliate
    eliminations(1)














(427,176
)Adjusted EBITDA














37,949Depreciation, amortization and stock-based compensation














(43,986
)Impairment of
    goodwill(7)














(187,940
)Operating loss














(193,977
)Interest and investment income














11,857Interest expense














(2,268
)Gain on litigation, net














38,823Impairment of available for sale securities














(5,823
)Other expense














(135
)Income tax provision














(45,744
)Equity loss in affiliates





$
(479,579
)

$
(16,070
)


(495,649
)Net loss













$
(692,916
)Other Data:Segment depreciation, amortization and stock-based compensation

$
38,646


$
220,843


$
5,342


$
264,831Affiliate
    eliminations(1)






(220,843
)






(220,843
)Depreciation, amortization and stock-based compensation as
    reported

$
38,646


$



$
5,342


$
43,988Segment capital
    expenditures(7)

$
53,883


$
255,506


$
10,676


$
320,065Affiliate
    eliminations(1)






(255,506
)






(255,506
)Capital expenditures as reported

$
53,883


$



$
10,676


$
64,559Segment total assets

$
799,476


$
4,273,162


$
196,391


$
5,269,029Affiliate
    eliminations(1)






(4,273,162
)






(4,273,162
)Total assets as
    reported(7)

$
799,476


$



$
196,391


$
995,867  F-59




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007
    Segment Information
    (in thousands)
  Satellite


SatelliteManufacturing


Services(1)


Corporate(2)


TotalRevenues and Adjusted EBITDA:Revenues

$
739,815


$
238,858






$
978,673Intersegment
    revenues(3)


74,500



2,298







76,798Operating segment revenues

$
814,315


$
241,156







1,055,471Intercompany
    eliminations(4)














(55,250
)Affiliate
    eliminations(1)














(117,767
)Revenues as reported













$
882,454Segment Adjusted EBITDA before
    eliminations(5)(6)

$
34,479


$
118,385


$
(37,935
)

$
114,929Intercompany
    eliminations(4)














(6,075
)Affiliate
    eliminations(1)














(65,283
)Adjusted EBITDA














43,571Depreciation, amortization and stock-based compensation














(103,257
)Gain on the contribution of Loral Skynet to Telesat Canada














104,942Operating income














45,256Interest and investment income














39,279Interest expense














(2,312
)Gain on foreign exchange contracts














89,364Loss on extinguishment of debt














(16,155
)Other expense














2,354Income tax provision














(83,457
)Equity loss in affiliates





$
(1,792
)

$
(19,638
)


(21,430
)Minority interest














(23,240
)Income from continuing operations













$
29,659Other Data:Segment depreciation, amortization and
    stock-based
    compensation

$
36,282


$
85,905


$
22,270


$
144,457Affiliate
    eliminations(1)






(41,200
)






(41,200
)Depreciation, amortization and stock-based compensation as
    reported

$
36,282


$
44,705


$
22,270


$
103,257Segment capital
    expenditures(7)

$
37,477


$
88,647


$
39


$
126,163Affiliate
    eliminations(1)






(30,400
)






(30,400
)Capital expenditures as reported

$
37,477


$
58,247


$
39


$
95,763Segment total assets

$
963,388


$
6,221,408


$
128,190


$
7,312,986Affiliate
    eliminations(1)






(5,610,047
)






(5,610,047
)Total assets as
    reported(7)

$
963,388


$
611,361


$
128,190


$
1,702,939  F-60




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006
    Segment Information
    (in thousands)
  Satellite


SatelliteManufacturing


Services


Corporate(2)


TotalRevenues and Adjusted EBITDA:Revenues

$
636,632


$
160,701






$
797,333Intersegment revenues


59,894



3,085







62,979Operating segment revenues

$
696,526


$
163,786







860,312Intercompany
    eliminations(4)














(62,979
)Revenues as reported













$
797,333Segment Adjusted EBITDA before
    eliminations(5)(6)

$
65,884


$
67,956


$
(26,784
)

$
107,056Intercompany
    eliminations(4)














(5,941
)Adjusted EBITDA














101,115Depreciation, amortization and stock based compensation














(71,297
)Operating income from continuing operations














29,818Interest and investment income














31,526Interest expense














(23,449
)Loss on foreign exchange contracts














(5,750
)Other expense














(2,028
)Income tax provision














(20,880
)Equity loss in affiliates














(7,163
)Minority interest














(24,794
)Loss from continuing operations













$
(22,720
)Other Data:Depreciation, amortization and stock-based compensation as
    reported

$
23,284


$
45,881


$
2,132


$
71,297Capital Expenditures as reported

$
18,411


$
63,617


$
129


$
82,157Total assets as
    reported(7)

$
944,630


$
750,412


$
34,869


$
1,729,911     (1)
    
    Satellite Services for 2008
    represents Telesat Canada. Satellite Services for 2007 include
    Loral Skynet for the period January 1, 2007 to
    October 30, 2007 and Telesat Canada for the period
    October 31, 2007 to December 31, 2007. Affiliate
    eliminations represent the elimination of amounts attributable
    to Telesat Canada whose results are reported in our consolidated
    statements of operations as equity in net losses of affiliates
    and in our consolidated balance sheet as investment in
    affiliates.(2)
    
    Includes corporate expenses
    incurred in support of our operations. Corporate for 2008 and
    2007 includes our equity investments in XTAR and Globalstar
    service providers.(3)
    
    Intersegment revenues includes
    $84.0 million and $22.0 million for the years ended
    December 31, 2008 and 2007, respectively, of revenue from
    affiliates.(4)
    
    Represents the elimination of
    intercompany sales and intercompany Adjusted EBITDA, primarily
    for satellites under construction by SS/L for Loral and its
    wholly owned subsidiaries and for satellite services leasing
    transponder capacity at SS/L.(5)
    
    Satellite manufacturing includes
    (in thousands):  F-61




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2008


2007


2006Adjusted EBITDA before specific identified charges

$
44,684


$
27,167


$
57,139Transponders rights provided to SS/L in the Satmex settlement
    agreement










18,605Accrued warranty obligations


371



6,769



(8,182
)Provisions for inventory obsolescence






543



(1,678
)Satellite manufacturing segment Adjusted EBITDA before
    eliminations

$
45,055


$
34,479


$
65,884   (6)
    
    Satellite Services Revenue and
    EBITDA include $14.9 million resulting from receipt of a
    customer termination payment for the year ended
    December 31, 2006.(7)
    
    Amounts are presented after the
    elimination of intercompany profit and include goodwill of
    $227 million and $306 million for Satellite
    Manufacturing, as of December 31, 2007 and 2006,
    respectively. During 2008, we determined that the implied fair
    value of SS/L goodwill had decreased below its carrying value,
    and we recorded an impairment charge for the entire goodwill
    balance of $187.9 million to reflect this impairment. In
    addition, total assets as reported excludes $2.0 billion
    and $2.5 billion of satellite services goodwill related to
    Telesat Canada as of December 31, 2008 and 2007,
    respectively.  Revenue
    by Customer Location
    For the Year Ended December 31,2008


2007


2006United States

$
612,282


$
702,605


$
691,986Peoples Republic of China (including Hong Kong)


13,236



47,591



26,607United Kingdom


68,956



45,596



11,943Canada


83,767



43,552



252Luxembourg


11,398







Spain


25,506



385



5,682The Netherlands


50,110



6,849



8,941Other


4,143



35,876



51,922$
869,398


$
882,454


$
797,333     16.
    Related
    Party Transactions  Transactions
    with Affiliates
  Telesat
    Canada
   F-62




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           F-63




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           F-64




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      XTAR
    Other
    Equity Investments
    MHR
    Fund Management LLC
     F-65




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,


December 31,


December 31,2008


2007


2006Loral Series-1 Preferred StockDividends paid in the form of additional shares Number of shares


80,423



47,762



 Amount

$
24,248


$
14,400


$
Loral Skynet Preferred StockDividends paid in cash

$



$
4,513


$
500Dividends paid in the form of additional shares Number of shares






44,539



27,011 Amount

$



$
8,908


$
5,400Loral Skynet NotesInterest payments paid in cash

$



$
8,967


$
5,100Redemption premium paid in cash

$



$
5,624


$
          F-66




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
    Relationships
          17.
    Selected
    Quarterly Financial Information (unaudited, in thousands, except
    per share amounts)  Quarter EndedMarch 31,


June 30,


September 30,


December 31,Year ended December 31, 2008Revenues

$
218,537


$
208,061


$
212,519


$
230,281Operating income (loss),


(10,810
)


4,536



(5,795
)


(181,908
)Income (loss) before income taxes, equity in net income (losses)
    of affiliates and minority interest


(4,904
)


60,755



(5,433
)


(201,941
)Equity in net income (losses) of affiliates


(64,537
)


2,838



(39,353
)


(394,597
)Net (loss) income


(71,217
)


51,950



(44,225
)


(629,424
)Basic and diluted income (loss) per share(1):Basic income (loss) per share


(3.83
)


2.27



(2.50
)


(31.13
)Diluted income (loss) per share


(3.83
)


2.16



(2.50
)


(31.13
)   F-67




---



##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Quarter EndedMarch 31,


June 30,


September 30,


December 31,Year ended December 31, 2007Revenues

$
220,532


$
226,000


$
235,640


$
200,282Operating income (loss),


(11,798
)


(15,121
)


66



72,109Income (loss) before income taxes, equity in net losses of
    affiliates and minority interest


(4,011
)


54,990



58,441



48,366Minority interest


(6,986
)


(6,487
)


(7,078
)


(2,689
)Net income (loss)


(16,823
)


20,627



25,929



(74
)Basic and diluted loss per
    share(1):Basic income (loss) per share


(2.16
)


0.70



0.99



(0.30
)Diluted income (loss) per share


(2.16
)


0.67



0.96



(0.30
)     (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. F-68




---



##### Table of Contents



SCHEDULE II  LORAL
    SPACE & COMMUNICATIONS INC.
    VALUATION AND QUALIFYING ACCOUNTS
    For the Year Ended December 31, 2008, 2007 and 2006
    (in thousands)
  AdditionsBalance at


Charged to


Charged to


Deductions


Balance atBeginning


Costs and


Other


From


End ofDescription

of Period


Expenses


Accounts(1)


Reserves(2)


PeriodYear ended 2006Allowance for billed receivables

$
5,462


$
(307
)

$
1


$
(3,532
)

$
1,624Inventory allowance

$
33,742


$
1,678


$



$
(5,822
)

$
29,598Deferred tax valuation allowance

$
337,346


$



$
3,905


$
(36,367
)

$
304,884Year ended 2007Allowance for billed receivables

$
1,624


$
(397
)

$
20


$
(1,024
)

$
223Inventory allowance

$
29,598


$
(543
)

$



$
(609
)

$
28,446Deferred tax valuation allowance

$
304,884


$
16,287


$
(34,749
)

$
(45,194
)

$
241,228Year ended 2008Allowance for billed receivables

$
223


$
700


$



$



$
923Inventory allowance

$
28,446


$



$



$
(1,246
)

$
27,200Deferred tax valuation allowance

$
241,228


$
202,510


$
82,611


$
(38,587
)

$
487,762     (1)
    
    The allowance for long-term
    receivables is recorded as a reduction to revenues. Changes in
    the deferred tax valuation allowance which have been charged to
    other accounts have been recorded in accumulated other
    comprehensive income, goodwill and other deferred tax assets.(2)
    
    Deductions from reserves reflect
    write-offs of uncollectible billed receivables, disposals of
    inventory and reversal of excess deferred tax valuation
    allowance recorded as a reduction to goodwill. F-69




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS                  F-70




---



##### Table of Contents



Comments by Independent Registered Chartered Accountants on
    Canada-United States of America Reporting Difference          F-71




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  CONSOLIDATED
    STATEMENTS OF (LOSS) EARNINGS
 (In
    thousands of Canadian dollars)
  Successor Entity



Predecessor EntityFor the Period



For the PeriodOctober 31



January 1Year Ended


to



to


Year EndedDecember 31,


December 31,



October 30,


December 31,Notes


2008


2007



2007


2006Operating revenuesService revenues






680,791



103,509




384,428



435,123Equipment sales revenues






30,584



7,907




40,760



41,280Sales-type lease revenues















32,599



2,562Operating revenues


(4
)


711,375



111,416




457,787



478,965Amortization






235,640



40,046




105,788



120,712Operations and administration






247,550



43,276




144,307



183,388Cost of equipment sales






24,368



6,485




34,723



33,625Cost of sales-type lease















15,519



953Impairment loss on long-lived assets


(11
)


2,373








2,116



Impairment loss on intangible assets


(12
)


483,000












Total operating expenses






992,931



89,807




302,453



338,678Earnings from operations






(281,556
)


21,609




155,334



140,287Interest expense


(5
)


(257,641
)


(43,861
)



(8,548
)


(12,459
)Other expense


(6
)


(448,083
)


(43,969
)



(7,967
)


(2,155
)(Loss) earnings before income taxes






(987,280
)


(66,221
)



138,819



125,673Income tax recovery (expense)


(7
)


164,879



62,170




(57,077
)


(21,688
)Net (loss) earnings






(822,401
)


(4,051
)



81,742



103,985Dividends on preferred shares



















(1,487
)Net (loss) earnings applicable to common shares






(822,401
)


(4,051
)



81,742



102,498  F-72




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 (In
    thousands of Canadian dollars)
  Successor Entity



Predecessor EntityFor the Period



For the PeriodOctober 31



January 1Year Ended


to



to


Year EndedDecember 31,


December 31,



October 30,


December 31,2008


2007



2007


2006Net (loss) earnings


(822,401
)


(4,051
)



81,742



103,985Other comprehensive (loss) income:Unrealized gain (loss) on translation of financial statements of
    self sustaining foreign operations


(5,053
)


(665
)



2,542



(526
)Related tax


(2,090
)


66




(827
)


78Loss on derivatives designated as cash flow hedges











(29,061
)


Related tax











9,242



Gain on derivatives designated as cash flow hedges in prior
    periods transferred to net income in the current period











8,190



Related tax











(2,605
)


Comprehensive (loss) income


(829,544
)


(4,650
)



69,223



103,537  F-73




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
 (In
    thousands of Canadian dollars)
  FOR THE
    YEAR ENDED DECEMBER 31, 2008 WITH COMPARATIVE FIGURES FOR THE
    PERIODS ENDED DECEMBER 31, 2007, OCTOBER 30, 2007 AND DECEMBER
    31, 2006


Total(AccumulatedDeficit)RetainedEarningsand(Accumulated


Accumulated


AccumulatedDeficit)


Other


Other


TotalCommon


Contributed


Preferred


Retained


Comprehensive


Comprehensive


ShareholdersNotes


Shares


Surplus


Shares


Earnings


(Loss) Income


(Loss) Income


EquityPredecessor entityBalance at January 1, 2006






341,116



5,152



50,000



283,865



(1,835
)


282,030



678,298Acquisition of 3652041 Canada Inc.


(3
)






(21,200
)


















(21,200
)Sale of investment in TMI Telecommunications


(3
)






200,291



















200,291Stock-based compensation










173



















173Net earnings


















103,985







103,985



103,985Dividends declared on preferred shares


















(1,487
)






(1,487
)


(1,487
)Other


















35







35



35Change in cumulative translation adjustment






















(448
)


(448
)


(448
)Redemption of preferred shares














(50,000
)














(50,000
)Balance at December 31, 2006






341,116



184,416







386,398



(2,283
)


384,115



909,647Adjustment for changes in accounting policies


















(401
)


1,239



838



838Stock compensation










617



















617Net earnings


















81,742







81,742



81,742Reorganization


(1
)






(185,033
)






(579,807
)






(579,807
)


(764,840
)Unrealized gains on translation of financial statements of self
    sustaining foreign operations






















1,715



1,715



1,715Gains and losses on derivatives designated as cash flow hedges






















(19,819
)


(19,819
)


(19,819
)Gains and losses on derivatives designated as cash flow hedges
    in prior periods transferred to net income in the current period






















5,585



5,585



5,585Balance at October 30, 2007 (prior to acquisition
    transactions)






341,116











(112,068
)


(13,563
)


(125,631
)


215,485Telesat Holdings Inc. Acquisition Transactions and adjustments






(341,116
)










112,068



13,563



125,631



(215,485
)Successor entityBalance at October 31, 2007






























Common shares issued as part of the sale transaction


(3
), (16)


756,414























756,414Preferred shares issued as part of the sale transaction


(3
), (16)










541,764















541,764Net loss


















(4,051
)






(4,051
)


(4,051
)Unrealized losses on translation of financial statements of self
    sustaining foreign operations






















(599
)


(599
)


(599
)Balance at December 31, 2007






756,414







541,764



(4,051
)


(599
)


(4,650
)


1,293,528Net loss


















(822,401
)






(822,401
)


(822,401
)Unrealized losses on translation of financial statements of self
    sustaining foreign operations






















(7,143
)


(7,143
)


(7,143
)Stock-based compensation










5,448



















5,448Balance at December 31, 2008






756,414



5,448



541,764



(826,452
)


(7,742
)


(834,194
)


469,432  F-74




---



##### Table of Contents





TELESAT
    HOLDINGS INC.
  CONSOLIDATED
    BALANCE SHEETS
 (In
    thousands of Canadian dollars)
  December 31,


December 31,Notes

2008


2007ASSETSCurrent assetsCash and cash equivalents




98,539



42,203Accounts receivable

(8)


61,933



53,875Current future tax asset

(7)


2,581



2,594Assets held for sale

(9)






4,037Other current assets

(10)


49,187



57,777Total current assets




212,240



160,486Satellites, property and other equipment, net

(4), (11)


1,883,576



1,790,633Other long-term assets

(10)


42,303



27,368Intangible assets, net

(12)


582,035



1,120,338Goodwill

(12)


2,446,603



2,446,603Total assets




5,166,757



5,545,428LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities




48,792



61,599Other current liabilities

(13)


138,095



152,375Debt due within one year

(14)


23,272



18,419Total current liabilities




210,159



232,393Debt financing

(14)


3,513,223



2,775,944Future tax liability

(7)


266,372



439,641Other long-term liabilities

(13)


566,136



662,487Senior preferred shares

(15)


141,435



141,435Total liabilities




4,697,325



4,251,900Shareholders equityCommon shares (74,252,460 common shares issued and outstanding)

(16)


756,414



756,414Preferred shares

(16)


541,764



541,7641,298,178



1,298,178Accumulated deficit




(826,452
)


(4,051
)Accumulated other comprehensive loss




(7,742
)


(599
)(834,194
)


(4,650
)Contributed surplus

(20)


5,448



Total shareholders equity




469,432



1,293,528Total liabilities and shareholders equity




5,166,757



5,545,428  F-75




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOW
 (In
    thousands of Canadian dollars)
  Successor Entity



Predecessor EntityYear Ended


For the Period



For the Period


Year EndedDecember 31,


October 31 to



January 1 to


December 31,For The Period Ended

Notes

2008


December 31, 2007



October 30, 2007


2006Cash flows from operating activitiesNet (loss) earnings




(822,401
)


(4,051
)



81,742



103,985Adjustments to reconcile net earnings (loss) to cash flows from
    operating activities:Gross profit on sales-type lease













(5,881
)


(1,609
)Amortization




235,640



40,046




105,788



120,712Future income taxes




(175,951
)


(60,653
)



24,292



1,205Unrealized foreign exchange loss




695,445



43,066








Unrealized gain on derivatives




(247,931
)











Dividends on preferred shares

(5)


9,855



1,695








Stock-based compensation expense

(20)


5,448












Impairment losses

(11), (12)


485,373












Other




(43,867
)


(317
)



1,874



(18,954
)Customer prepayments on future satellite services




88,587








17,721



12,322Operating assets and liabilities

(17)


48,859



205,490




27,091



11,621279,057



225,276




252,627



229,282Cash flows used in investing activitiesSatellite programs




(263,763
)


(15,496
)



(183,494
)


(189,444
)Property additions




(8,862
)


(14,019
)



(5,830
)


(15,963
)Maturity of short-term investments













2,312



48,997Business acquisitions

(3)






(3,229,194
)



(180
)


(3,942
)Proceeds on disposals of assets




5,120



25




159



178Insurance proceeds




4,006












(263,499
)


(3,258,684
)



(187,033
)


(160,174
)Cash flows from financing activitiesDebt financing and bank loans




186,687



2,767,716




73,000



83,862Repayment of bank loans and debt financing




(91,560
)


(44,899
)



(84,090
)


(15,026
)Capitalized debt issuance costs




(19,131
)


(83,585
)







Note repayment








(129,334
)







(150,000
)Success fee payments













(24,000
)


Common shares issued








311,124








Preferred shares issued (repurchased)








258,833








(50,000
)Capital lease payments




(30,954
)


(1,306
)



(7,713
)


(4,612
)Satellite performance incentive payments




(3,524
)


(4,196
)



(2,022
)


(6,108
)Preferred dividends paid

















(1,936
)41,518



3,074,353




(44,825
)


(143,820
)Effect of changes in exchange rates on cash and cash equivalents




(740
)


1,258




(1,676
)


(132
)Increase (decrease) in cash and cash equivalents




56,336



42,203




19,093



(74,844
)Cash and cash equivalents, beginning of period




42,203








38,661



113,505Cash and cash equivalents, end of period

(17)


98,539



42,203




57,754



38,661Supplemental disclosure of cash flow informationInterest paid




286,784



18,339




18,139



30,661Income taxes paid




8,866



343




21,347



34,032295,650



18,682




39,486



64,693  F-76




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES
    TO THE 2008 CONSOLIDATED FINANCIAL STATEMENTS
 (All amounts in thousands of Canadian dollars, except for
    per share amounts and where otherwise noted)
  1.
    Background
    of the Company and Basis of Presentation    1 3 2 3
      Reorganization
    of Predecessor
      
    Decrease of $185.0 million to contributed surplus
    Decrease of $579.8 million to retained earnings  Regulation
   F-77




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
        2.
    Significant
    Accounting Policies    Use of
    Estimates
    Revenue
    Recognition
       F-78




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    Cash and
    Cash Equivalents
    Inventories
    Satellites,
    Property and Other Equipment
        YearsSatellites


6 to 15Transponders under capital lease


6 to 14Earth stations


5 to 30Office buildings and other


3 to 30          F-79




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    Impairment
    of Long-Lived Assets
    Translation
    of Foreign Currencies
      Financial
    Instruments
         F-80




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
        Goodwill
    and Other Intangible Assets
    YearsRevenue backlog


4 to 17Customer relationships


11 to 21Favourable leases


3 to 4Concession right


15Transponder rights


6 to 14Patents


18     Employee
    Benefit Plans
   F-81




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
        Stock-Based
    Compensation Plans
      Income
    Taxes
    
    the temporary differences between the carrying amounts of assets
    and liabilities for accounting purposes and the amounts used for
    tax purposes
    the benefit of unutilized tax losses that will more likely than
    not be realized and carried forward to future years to reduce
    income taxes.   F-82




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  Recent
    Accounting Pronouncements
                   F-83




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  3.
    Business
    Acquisitions  Fifth
    Dimension Television Acquisition
    Telesat
    Canada Acquisition
  1 3 2 3
    TotalCash paid (net of cash acquired)


3,229,194Shares issued (note 16)


869,656Transaction costs


32,692Purchase price


4,131,542      F-84




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    Current assets


101,317Satellites, property and other equipment


1,797,550Other long term assets


19,219Intangible assets


1,128,462Assumed debt


(171,620
)Current liabilities, less current portion of debt


(285,016
)Future income tax liability


(497,419
)Other long term liabilities


(407,554
)Total net assets acquired


1,684,939Goodwill


2,446,603Purchase price


4,131,542           Predecessor
    Acquisitions
    4.
    Segmented
    Information   F-85




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
      
    Broadcast distribution or collection of
    video and audio signals in the North American and International
    markets which include television transmit and receive services,
    occasional use, bundled Digital Video Compression and radio
    services.
    Enterprise provision of satellite capacity
    and ground network services for voice, data, and image
    transmission and internet access around the world.
    Consulting and other all consulting
    services related to space and earth segments, government
    studies, satellite control services and R&D.    Successor Entity



Predecessor EntityFor the Period



For the PeriodYear Ended


October 31 to



January 1 to


Year EndedDecember 31,


December 31,



October 30,


December 31,Revenues

2008


2007



2007


2006Broadcast


345,382



52,771




254,276



249,692Enterprise


333,834



53,758




178,888



199,617Consulting and other


32,159



4,887




24,623



29,656Total operating revenues


711,375



111,416




457,787



478,965   Geographic
    Information
    Successor Entity



Predecessor EntityFor the Period



For the PeriodYear Ended


October 31 to



January 1 to


Year EndedDecember 31,


December 31,



October 30,


December 31,Revenues

2008


2007



2007


2006Revenues  Canada


357,937



60,085




315,200



329,838Revenues  United States


240,505



34,352




115,993



114,609Revenues  Europe, Middle East & Africa


47,014



6,403




6,549



8,578Revenues  Asia, Australia


33,768



5,940




5,550



2,639Revenues  Latin America & Caribbean


32,151



4,636




14,495



23,301Total operating revenues


711,375



111,416




457,787



478,965      F-86




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    December 31,


December 31,2008


2007Satellites, property and other equipment  Canada


1,431,145



1,345,534Satellites, property and other equipment  United
    States


441,809



434,596Satellites, property and other equipment  all others


10,622



10,503Total satellites, property and other equipment


1,883,576



1,790,633   Major
    Customers
    5.
    Interest
    Expense  Successor Entity



Predecessor EntityFor the Period



For the PeriodYear Ended


October 31 to



January 1 to


Year EndedDecember 31,


December 31,



October 30,


December 31,2008


2007



2007


2006Debt service costs


286,794



47,535




18,060



24,643Dividends on senior preferred shares


9,855



1,695








Capitalized interest


(39,008
)


(5,369
)



(9,512
)


(12,184
)257,641



43,861




8,548



12,459   6.
    Other
    Expense  Successor Entity



Predecessor EntityFor the Period



For the PeriodYear Ended


October 31 to



January 1 to


Year EndedDecember 31,


December 31,



October 30,


December 31,2008


2007



2007


2006Foreign exchange (loss)


(698,056
)


(118,034
)



(935
)


(581
)Gain (loss) on financial
    instruments(a)


251,686



75,098




(6,653
)


Interest income


1,888



301




3,130



4,504Performance incentive payments and milestone interest expense


(4,057
)


(499
)



(4,078
)


(6,018
)Other(b)


456



(835
)



569



(60
)(448,083
)


(43,969
)



(7,967
)


(2,155
)     (a)
    
    The loss on financial instruments
    at October 30, 2007, predecessor entity, includes a net
    loss of $10.2 million related to derivatives not designated
    as hedges, as well as a gain of $3.5 million related to a
    fair value hedge.(b)
    
    In May 2008, Skynet Satellite
    Corporation, a wholly-owned subsidiary of Telesat, sold its
    Hawley facility. Proceeds on this sale were $4.1 million
    and the resulting loss on the sale of $0.1 million is
    included in other expense. In February 2008, Infosat sold its
    security division. Proceeds on this sale were $0.6 million
    and the resulting gain on the sale of $0.4 million is
    included in other expense. F-87




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
   7.
    Income
    Taxes  Successor Entity



Predecessor EntityFor the Period



For the PeriodYear Ended


October 31 to



January 1 to


Year EndedDecember 31,


December 31,



October 30,


December 31,Income tax expense (recovery)

2008


2007



2007


2006Future


(175,951
)


(60,653
)



24,292



1,205Current


11,072



(1,517
)



32,785



20,483(164,879
)


(62,170
)



57,077



21,688     Successor Entity



Predecessor EntityFor the Period



For the PeriodYear Ended


October 31 to



January 1 to


Year EndedDecember 31,


December 31,



October 30,


December 31,2008


2007



2007


2006Statutory income tax rate


33.0
%


35.3
%



35.3
%


35.4
%Permanent differences


(5.9
)%


(22.1
)%



(15.4
)%


2.0
%Adjustment for tax rate changes


(2.5
)%


109.1
%



(2.4
)%


(14.5
)%Impact of acquisition (see note 3)











1.8
%


Valuation allowance


(6.8
)%


(38.3
)%



6.5
%


Future taxes related to other comprehensive income











4.8
%


Charges reflected in equity











7.6
%


Other


(1.1
)%


9.9
%



2.9
%


(5.7
)%Effective income tax rate


16.7
%


93.9
%



41.1
%


17.2
%     December 31,


December 31,2008


2007Future tax assetsCapital assets


8,904



7,912Intangible assets


9,482



5,353Unrealized foreign exchange loss


98,087



13,029Investments


9,355



8,256Loss carry forwards


112,386



12,610Derivative assets






4,866Other


5,415



3,560Less: valuation allowance


(101,175
)


(34,358
)Total future tax assets


142,454



21,228   F-88




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  December 31,


December 31,2008


2007Future tax liabilitiesCapital assets


(208,115
)


(170,276
)Intangibles


(147,916
)


(276,005
)Derivative liabilities


(47,327
)


(7,398
)Other


(2,887
)


(4,596
)Total future tax liabilities


(406,245
)


(458,275
)Net future income tax liability


(263,791
)


(437,047
)Net future income tax liability is comprised of:Net future income tax asset  current portion


2,581



2,594Net future income tax liability  long-term portion


(266,372
)


(439,641
)Net future income tax liability


(263,791
)


(437,047
)   8.
    Accounts
    and Notes Receivable  December 31,


December 31,2008


2007Trade receivables  net of allowance for doubtful
    accounts


63,723



54,114Less: long-term portion of trade receivables


(1,790
)


(239
)61,933



53,875       9.
    Assets
    Held for Sale   F-89




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  10.
    Other
    Assets  December 31, 2008


December 31, 2007Current


Long Term


Current


Long TermPortion


Portion


Portion


PortionNet investment in
    leases(a)


2,217



30



16,747



3,395Income taxes recoverable


3,943







12,847



Accrued pension benefit (see note 21)






13,610







9,911Prepaid expenses and
    deposits(b)


16,006



6,755



15,236



712Deferred
    charges(c)


10,709



6,224



4,808



8,637Derivative
    assets(d)


10,805



8,797



354



Inventories(e)


4,723







7,239



Other
    assets(f)


784



6,887



546



4,71349,187



42,303



57,777



27,368     (a)
    
    The net investment in leases is
    classified on the balance sheet in other current assets and
    other long-term assets, and includes the following:  December 31,


December 31,Net investment in leases as at

2008


2007Total minimum lease payments


2,305



21,383Unearned finance income


(58
)


(1,241
)2,247



20,142Current portion


(2,217
)


(16,747
)Long-term portion


30



3,395   Unearned finance income is
    allocated to income over the term of the lease in a manner that
    produces a constant rate of return on the investment in the
    leases. The investment in the leases for the purposes of income
    recognition is composed of net minimum lease payments and
    unearned finance income. Future minimum lease payments
    receivable under the sales-type leases are $2.3 million in
    2009.(b)
    
    Prepaid expense and deposits
    includes mainly prepaid insurance for in-orbit satellites,
    prepaid interest on bankers acceptances and deposits
    related to foreign taxes.(c)
    
    Deferred charges include deferred
    costs related to deferred revenue, as well as deferred financing
    charges related to the revolving credit facility and the
    Canadian term loan facility (note 14).(d)
    
    Derivative assets, both short and
    long-term, comprise the following:  December 31,


December 31,Derivative asset

Maturity

2007


2008Foreign currency forward contracts

February 2, 2009 to December 1, 2009


10,805



354Cross currency basis swap

October 31, 2014


8,797



19,602



354   (e)
    
    Inventories are valued at lower of
    cost and net realizable value and consist of $3.8 million
    (2007  $5.7 million) of finished goods and
    $0.9 million (2007  $1.5 million) of work
    in process. Cost for substantially all network equipment
    inventories is determined on an average cost basis. Cost for
    work in process and certain one-of-a-kind finished goods is
    determined using specific identification. All of the inventories
    have been pledged as security pursuant to the terms of the
    credit facilities.(f)
    
    Other assets, both short and long
    term components, at December 31, 2008 include: tax
    indemnifications receivable from Loral of $2.9 million
    (note 22), other deposits of $1.1 million, investments
    of $0.6 million, long term trade receivables of
    $1.8 million, and other assets of $1.3 million. The
    breakdown at December 31, 2007 includes: tax
    indemnifications receivable from Loral of $2.3 million,
    other deposits of $2.1 million, investments of
    $0.6 million, and long term trade receivables of
    $0.2 million.Investments are recorded at cost.
    No impairments were recorded as no events or changes in
    circumstances were identified during the period that may have a
    significant adverse effect on the carrying value of the
    investments. Telesat has a portfolio interest in Hellas-Sat
    Consortium F-90




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  Limited. The consortium has one
    satellite which provides regional coverage to Greece, Cyprus and
    the Balkans. Telesat also holds a nominal portfolio interest in
    Anik-Colombia. Telesats wholly-owned subsidiary Infosat
    holds a 22% interest in Pakistans Comstar ISA Ltd., a
    satellite service provider which is recorded using the equity
    method.  11.
    Satellites,
    Property and Other Equipment  Accumulated


Net BookCost


Amortization


ValueDecember 31, 2008Satellites


1,544,396



(177,768
)


1,366,628Earth stations


139,227



(19,012
)


120,215Transponders under capital lease


34,189



(4,943
)


29,246Office buildings and other


36,248



(8,555
)


27,693Construction in progress


339,794







339,7942,093,854



(210,278
)


1,883,576December 31, 2007Satellites


1,285,583



(26,324
)


1,259,259Earth stations


120,210



(4,546
)


115,664Transponders under capital lease


38,588



(893
)


37,695Office buildings and other


32,619



(1,544
)


31,075Construction in progress


346,940







346,9401,823,940



(33,307
)


1,790,633          F-91




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    12.
    Goodwill
    and Intangible Assets    Accumulated


Net BookCost


Amortization


Value2008Finite life intangible assets:Revenue backlog


274,487



(44,988
)


229,499Customer relationships


207,704



(14,500
)


193,204Favourable leases


4,816



(1,987
)


2,829Concession right


1,230







1,230Transponder rights


28,497



(3,626
)


24,871Patents


59



(4
)


55516,793



(65,105
)


451,688Indefinite life intangible assets:Orbital slots


113,347







113,347Trade name


17,000







17,000Total intangible assets


647,140



(65,105
)


582,035Goodwill


2,446,603







2,446,603Goodwill and intangible assets


3,093,743



(65,105
)


3,028,638   Accumulated


Net BookCost


Amortization


Value2007Finite life intangible assets:Revenue backlog


274,487



(5,316
)


269,171Customer relationships


207,704



(2,072
)


205,632Favourable leases


4,368



(218
)


4,150Transponder rights


28,497



(518
)


27,979Patents


59







59515,115



(8,124
)


506,991Indefinite life intangible assets:Orbital slots


596,347







596,347Trade name


17,000







17,000Total intangible assets


1,128,462



(8,124
)


1,120,338Goodwill


2,446,603







2,446,603Goodwill and intangible assets


3,575,065



(8,124
)


3,566,941  F-92




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
        13.
    Other
    Liabilities  December 31, 2008


December 31, 2007Current


Long Term


Current


Long TermPortion


Portion


Portion


PortionDeferred revenues and
    deposits(a)


61,960



323,608



54,652



257,256Derivative
    liabilities(b)






82,255



14,811



271,061Capital lease
    liabilities(c)


15,644



24,213



29,008



44,344Deferred satellites performance incentive
    payments(d)


11,425



60,895



7,533



35,791Interest payable


43,517







40,146



Dividends payable on senior preferred shares (see note 15)






11,550



1,695



Pension and other post retirement liabilities (see note 21)






24,957







24,313Other
    liabilities(e)


5,549



38,658



4,530



29,722138,095



566,136



152,375



662,487     (a)
    
    Deferred revenues represent the
    Companys liability for the provision of future services
    and are classified on the balance sheet in other current
    liabilities and other long-term liabilities. The prepaid amount
    is brought into income over the period of service to which the
    prepayment applies. The net amount outstanding at
    December 31, 2008 will be reflected in the statements of
    loss as follows: $57.5 million in 2009, $34.0 million
    in 2010, $32.6 million in 2011, $32.6 million in 2012
    , $32.2 million in 2013 and $192.2 million thereafter. F-93




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
   (b)
    
    Derivative liabilities, both short
    and long-term, comprise the following:  December 31,


December 31,Derivative liability

Maturity

2008


2007Foreign currency forward contracts

January 1, 2008 to December 1, 2009






17,545Cross currency basis swap

October 31, 2014






261,974Interest rate swaps

January 31, 2010 to November 28, 2011


82,255



6,35382,255



285,872   (c)
    
    The capital lease liabilities are
    classified on the balance sheet in other current liabilities and
    other long-term liabilities.  December 31,


December 31,Capital lease liabilities

2008


2007Total minimum lease payments


48,889



90,025Amount representing interest (9)%


(9,032
)


(16,673
)39,857



73,352Current portion


(15,644
)


(29,008
)Long-term portion


24,213



44,344   Future minimum lease payments
    payable under all capital leases are $18.7 million in 2009,
    $6.0 million in 2010, $6.1 million in 2011,
    $6.0 million in 2012, $6.0 million in 2013 and
    $6.1 million thereafter.(d)
    
    Deferred satellite performance
    incentive payments are payable over the lives of the Nimiq 1,
    Nimiq 4, Anik F1, Anik F2, Anik F3 and Anik F1R satellites.
    The present value of the payments is capitalized as part of the
    cost of the satellite, recorded as a liability, and charged
    against operations as part of the normal amortization of the
    satellite. The present value of the amounts payable on the
    successful operation of the transponders are $11.4 million
    in 2009, $5.2 million in 2010, $4.5 million in 2011,
    $3.8 million in 2012, $4.0 million in 2013 and
    $43.4 million thereafter.(e)
    
    Other liabilities at
    December 31, 2008 include: tax indemnifications payable to
    Loral (note 22) of $8.5 million (2007 
    $6.9 million),potential income tax liabilities of
    $2.6 million (2007  $1.8 million),
    unfavourable leases of $1.9 million (2007 
    $2.2 million), unfavourable customer revenue backlog of
    $12.8 million (2007  $15.2 million), income
    taxes payable of $0.8 million (2007 
    $0.9 million), promissory note payable to Loral of
    $7.4 million (note 23), and other liabilities of
    $10.2 million (2007  $7.3 million).  14.
    Debt
    Financing  December 31,


December 31,2008


2007Senior secured credit facilities(a):Revolving facility






20,000The Canadian term loan facility


195,000



200,000The U.S. term loan facility


2,087,010



1,687,652The U.S. term loan II facility


179,207



5,842Senior bridge
    loan(b)






667,806Senior
    notes(c)


818,620



Senior subordinated bridge
    loan(d)






209,324Senior subordinated
    notes(e)


256,400



Other debt
    financing(f)


258



3,7393,536,495



2,794,363Current portion


(23,272
)


(18,419
)Long-term portion


3,513,223



2,775,944  F-94




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    (a)
    The senior secured credit facilities are secured by
    substantially all of Telesats assets. Under the terms of
    these facilities, Telesat is required to comply with certain
    covenants including financial reporting, maintenance of certain
    financial covenant ratios for leverage and interest coverage, a
    requirement to maintain minimum levels of satellite insurance,
    restrictions on capital expenditures, a restriction on
    fundamental business changes or the creation of subsidiaries,
    restrictions on investments, restrictions on dividend payments,
    restrictions on the incurrence of additional debt, restrictions
    on asset dispositions, and restrictions on transactions with
    affiliates. The financial covenant ratios include total debt to
    EBITDA for covenant purposes (earnings before interest, taxes,
    depreciation, amortization and other charges) and EBITDA for
    covenant purposes to interest expense. Both financial covenant
    ratios become tighter over the term of the credit facility. At
    December 31, 2008 Telesat was in compliance with all of the
    required covenants.      (i)
    A revolving Canadian dollar denominated credit facility (the
    revolving facility) of up to the Canadian dollar
    equivalent of $153 million (US$124.9 million) is
    available to Telesat. This revolving facility matures on
    October 31, 2012 and is available to be drawn at any time.
    The drawn loans will bear interest at the prime rate or LIBOR or
    Bankers Acceptance plus an applicable margin of 175 to
    275 basis points per annum. Undrawn amounts under the
    facility are subject to a commitment fee. As at
    December 31, 2008, no funds were drawn under this facility.  (ii)
    The Canadian term loan facility is a $200 million loan
    facility denominated in Canadian dollars, bears interest at a
    floating rate of the Bankers Acceptance rate plus an
    applicable margin of 275 basis points per annum, and has a
    maturity of October 31, 2012. The required repayments on
    the Canadian term loan facility were $5 million for the
    year ended December 31, 2008 and will be $10 million
    for the year ended December 31, 2009, $15 million for
    the year ended December 31, 2010, $90 million for the
    year ended December 31, 2011 and $80 million for the
    year ended December 31, 2012. The payments will be made
    quarterly in varying amounts. The average interest rate was
    6.57%for the year ended December 31, 2008,
    and 7.55% for the two months ended December 31, 2007. This
    facility was fully drawn at December 31, 2008 and principal
    repayments are being made as required.  (iii)
    The U.S. term loan facility is a $1,755 million loan
    facility denominated in US dollars ($2,149 million CAD at
    December 31, 2008), bears interest at LIBOR plus an
    applicable margin of 300 basis points per annum, and has a
    maturity of October 31, 2014. The average interest rate was
    6.35% for the year ended December 31, 2008, and 7.92% for
    the two months ended December 31, 2007. This facility was
    fully drawn at December 31, 2008 and principal repayments
    are being made as required.  (iv)
    The U.S. term loan II facility is a $150 million
    delayed draw facility denominated in US dollars
    ($183.7 million CAD at December 31, 2008), bears
    interest at LIBOR plus an applicable margin of 300 basis
    points per annum, and has a maturity of October 31, 2014.
    The average interest rate was F-95




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  6.17% for the year ended December 31, 2008 and 8.0% for the
    two months ended December 31, 2007. The U.S. term
    loan II facility was available to be drawn for
    12 months after the closing of the Telesat Canada
    acquisition to fund capital expenditures. The undrawn amount of
    the U.S. term loan II was subject to a commitment fee.
    This facility was fully drawn at December 31, 2008 and
    principal repayments are being made as required.  (b)
    The Senior bridge loan was a $692.8 million unsecured loan
    facility denominated in US dollars ($684.6 million CAD at
    December 31, 2008), guaranteed by certain Telesat
    subsidiary entities. This facility had a maturity of
    October 31, 2008 and an initial interest rate per annum
    equal to the greater of 9% or three-month LIBOR plus the
    applicable margin. The applicable margin increased over time
    subject to an interest rate cap of 11%. The average interest
    rate was 9.0% for the two months ended December 31, 2007
    and 9.0% for the January 1, 2008 to June 29, 2008
    period.  (c)
    On June 30, 2008, Telesat exchanged the outstanding
    US$692.8 million Senior bridge loan for
    US$692.8 million Senior notes. The Senior notes bear
    interest at an annual rate of 11.0% and are due November 1,
    2015. The Senior notes include covenants or terms that restrict
    Telesats ability to, among other things, (i) incur
    additional indebtedness, (ii) incur liens, (iii) pay
    dividends or make certain other restricted payments, investments
    or acquisitions, (iv) enter into certain transactions with
    affiliates, (v) modify or cancel the Companys
    satellite insurance, (vi) effect mergers with another
    entity, and (vii) redeem the Senior notes prior to
    May 1, 2012, in each case subject to exceptions provided in
    the Senior notes indenture.  (d)
    The Senior subordinated bridge loan was a $217.2 million
    unsecured loan facility denominated in US dollars
    ($214.6 million CAD), guaranteed by certain Telesat
    subsidiary entities. This facility had a maturity of
    October 31, 2008 and an initial interest rate per annum
    equal to the greater of 10.5% or three-month LIBOR plus the
    applicable margin. The applicable margin increased over time
    subject to an interest rate cap of 12.5%. The average interest
    rate was 10.5% for the two months ended December 31, 2007,
    and 10.5% for the January 1, 2008 to June 29, 2008
    period.  (e)
    On June 30, 2008, Telesat also exchanged the outstanding
    US$217.2 million Senior subordinated bridge loan for
    US$217.2 million Senior subordinated notes. The Senior
    subordinated notes bear interest at a rate of 12.5% and are due
    November 1, 2017. The Senior subordinated notes include
    covenants or terms that restrict Telesats ability to,
    among other things, (i) incur additional indebtedness,
    (ii) incur liens, (iii) pay dividends or make certain
    other restricted payments, investments or acquisitions,
    (iv) enter into certain transactions with affiliates,
    (v) modify or cancel the Companys satellite
    insurance, (vi) effect mergers with another entity, and
    (vii) redeem the Senior subordinated notes prior to
    May 1, 2013, in each case subject to exceptions provided in
    the Senior subordinated notes indenture.  (f)
    Other debt financing includes the financing for the
    Companys headquarters building. With respect to the
    headquarters building, the Company shares equally with the
    developer, the ownership, cost and debt of the building. The
    Company has leased the developers share for twenty years
    beginning January 25, 1989 for an annual rent, excluding
    operating costs, of $1.7 million. Total headquarters
    financing of $0.2 million includes the amount owing under
    this capital lease of $0.1 million at December 31,
    2008. The imputed interest rate for the capital lease is 10.69%
    per annum.   F-96




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    2009

2010

2011

2012

2013

Thereafter

Total33.6

38.3

113.3

103.3

23.3

3,308.2

3,620.0   15.
    Senior
    Preferred Shares  winding-up,
      16.
    Capital
    Stock    Common
    Shares
  winding-up
 F-97




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
      Common SharesNumber


Value ($)Opening balance, October 31, 2007


1



Issued for cash (notes 1 and 3)


35,172,218



311,124Issued in exchange for contributed assets (notes 1 and 3)


39,080,241



445,290Ending balances, December 31, 2008 and 2007


74,252,460



756,414   Voting
    Participating Preferred Shares
    
    The holders of Voting Participating Preferred Shares are not
    entitled to vote at meetings of the shareholders of the Company
    on resolutions electing directors.
    For all other meetings of the shareholders of the Company, the
    holders of Voting Participating Preferred Shares are entitled to
    a variable number of votes per Voting Participating Preferred
    Share based on the number of Voting Participating Preferred
    Shares, Non-Voting Participating Preferred Shares and Redeemable
    Non-Voting Participating Preferred Shares outstanding on the
    record date of the given meeting of the shareholders of the
    Company.
    The Voting Participating Preferred Shares are convertible, at
    any time, at the holders option into Common Shares or
    Non-Voting Participating Preferred Shares on a one-for-one basis
    as long as the result of such conversion does not cause the
    Company to cease to be a qualified corporation
    within the meaning of the Canadian Telecommunication Common
    Carrier Ownership and Control Regulations pursuant to the
    Telecommunications Act (Canada).  Non-Voting
    Participating Preferred Shares
    
    The holders of Non-Voting Participating Preferred Shares are not
    entitled to vote on any matter at meetings of the shareholders
    of the Company, except in respect of a class vote applicable
    only to the Non-Voting Participating Preferred Shares.
    The Non-Voting Participating Preferred Shares are convertible,
    at any time, at the holders option into Common Shares or
    Voting Participating Preferred Shares on a one-for-one basis as
    long as the result of such conversion does not cause the Company
    to cease to be a qualified corporation within the
    meaning of the Canadian Telecommunication Common Carrier
    Ownership and Control Regulations pursuant to the
    Telecommunications Act (Canada). F-98




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
   Director
    Voting Preferred Shares
    
    The holders of Director Voting Preferred Shares are entitled to
    receive notice of and to attend all meetings of the shareholders
    of the Company at which directors of the Company are to be
    elected. The holders of the Director Voting Preferred Shares are
    not entitled to attend meetings of the shareholders of the
    Company and have no right to vote on any matter other than the
    election of directors of the Company.
    The holders of Director Voting Preferred Shares are entitled to
    receive annual non-cumulative dividends of $10 per share if
    declared by the Board of Directors of the Company, in priority
    to the payment of dividends on the Common Shares, Voting
    Participating Preferred Shares, Non-Voting Participating
    Preferred Shares, Redeemable Common Shares, and Redeemable
    Non-Voting Participating Preferred Shares, but after payment of
    any accrued dividends on the Senior Preferred Shares.
    In the event of liquidation,
    wind-up or
    dissolution, the holders of Director Voting Preferred Shares are
    entitled to receive $10 per share in priority to the payment of
    dividends on the Common Shares, Voting Participating Preferred
    Shares, Non-Voting Participating Preferred Shares, Redeemable
    Common Shares, and Redeemable Non-Voting Participating Preferred
    Shares, but after payment of any accrued dividends on the Senior
    Preferred Shares.
    The Director Voting Preferred Shares are redeemable at the
    option of the Company, at any time, at a redemption price of $10
    per share.    Non-VotingVoting Participating


Participating


Director Voting


TotalValue





Value





Value





ValueNumber


($)


Number


($)


Number


($)


Number


($)Opening balance, October 31, 2007






























Issued for cash


7,034,444



117,388











1,000



10



7,035,444



117,398Issued in exchange for contributed assets










25,794,025



304,449











25,794,025



304,449Issued in exchange for the novation of forward contracts from
    Loral Skynet










10,159,799



119,917











10,159,799



119,917Ending balance, December 31, 2008 and 2007


7,034,444



117,388



35,953,824



424,366



1,000



10



42,989,268



541,764  F-99




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  17.
    Cash Flow
    Information  December 31,


December 31,2008


2007Cash and cash equivalents is comprised of:Cash


26,584



32,737Short term investments, original maturity 90 days or less


71,955



9,46698,539



42,203Changes in operating assets and liabilities are comprised of:Receivables


(3,303
)


(4,718
)Other assets


(34,885
)


132,768Accounts payable and accrued liabilities


(12,947
)


72,380Income taxes payable


960



(749
)Other liabilities


99,034



5,80948,859



205,490   December 31,


December 31,2008


2007Non-cash investing and financing activities are comprised of:Purchase of satellites, property and other equipment


3,595



4,767Purchase of concession right


1,230



Shares issued in exchange for assets contributed (note 3)






869,656   18.
    Capital
    Disclosures      December 31,


December 31,2008


2007Shareholders equity, excluding accumulated other
    comprehensive loss


477,174



1,294,127Debt financing


3,536,495



2,794,363Cash and cash equivalents


98,539



42,203    F-100




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
        19.
    Financial
    Instruments  Fair
    Value
       F-101




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    December 31,
    2008
  Carrying valueLoans &HFT


AFS


Receivables


Total


Fair valueFinancial assetsCash and cash equivalents


98,539











98,539



98,539Accounts and notes receivable










61,933



61,933



61,933Derivative financial instruments


19,602











19,602



19,602Other assets


14,936



637



2,202



17,775



17,775133,077



637



64,135



197,849



197,849   December 31,
    2008
  Carrying valueHFT


Other


Total


Fair valueFinancial liabilitiesAccounts payable and accrued liabilities






48,764



48,764



48,764Debt






3,536,237



3,536,237



2,371,014Derivative financial instruments


82,255







82,255



82,255Other liabilities






288,236



288,236



191,83782,255



3,873,237



3,955,492



2,693,870   December 31,
    2007
  Carrying valueLoans &HFT


AFS


Receivables


Total


Fair valueFinancial assetsCash and cash equivalents


42,203











42,203



42,203Accounts and notes receivable










55,299



55,299



55,299Derivative financial instruments


354











354



354Other assets


7,203











7,203



7,20349,760







55,299



105,059



105,059  F-102




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  December 31,
    2007
  Carrying valueHFT


Other


Total


Fair valueFinancial liabilitiesAccounts payable and accrued liabilities






81,221



81,221



81,221Debt






2,792,575



2,792,575



2,865,116Derivative financial instruments


285,872







285,872



285,872Other liabilities






228,654



228,654



230,258285,872



3,102,450



3,388,322



3,462,467     Measurement
    of Risks
  Credit
    Risk
        Allowance for Doubtful Accounts

2008


2007Balance at January 1 and October 31, respectively


4.3



4.2Provision for receivables impairment


1.6



0.2Receivables written off during the period as uncollectible


(0.5
)


(0.1
)Balance at December 31


5.4



4.3  F-103




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  Foreign
    Exchange Risk
  $
          Interest
    Rate Risk
     F-104




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  Liquidity
    Risk
    Carrying


ContractualIn Millions of Canadian Dollars

Amount


Cash Flows


2009


2010


2011


2012


2013


After 2012Accounts payable and accrued liabilities


48.8



48.8



48.8



















Customer and other deposits


10.7



10.7



8.6



2.1















Other liabilities


136.6



136.6



59.6



21.3



4.5



3.8



4.0



43.4Derivative financial instruments


82.3



82.3







18.5



63.8











Long term debt


3,536.2



3,620.0



33.6



38.3



113.3



103.3



23.3



3,308.23,814.6



3,898.4



150.6



80.2



181.6



107.1



27.3



3,351.6   20.
    Stock-Based
    Compensation Plans  Employee
    Savings Plans (ESPs)
    BCE Stock
    Options
     F-105




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    December 31, 2008


December 31, 2007Weighted-





Weighted-Average





AverageNumber


Exercise


Number


Exerciseof Shares


Price ($)


of Shares


Price ($)Outstanding, beginning of period


406,908



34



411,047



34Granted














Exercised


(264,853
)


30







Expired/forfeited


(142,055
)


41



(4,139
)


30Outstanding, end of period










406,908



34Exercisable, end of period










406,908



34   December 31,
    2007
  Options outstanding


Options ExercisableWeighted-


Weighted-





Weighted-Average


Average





AverageRemaining


Exercise





ExerciseRange of Exercise Price

Number


Life


Price ($)


Number


Price ($)Below $20


375



0.33



15.15



375



15.15$20 to $29


101,972



0.33



29.42



101,972



29.42$30 to $39


162,506



0.33



30.79



162,506



30.79$40 and over


142,055



1.22



40.95



142,055



40.95406,908



0.64



33.98



406,908



33.98     October 30,

December 31,2007

2006Compensation cost


617



170Number of stock options granted


159,506



101,972Weighted-average fair value per option granted($)


3.4



2.3Assumptions:Dividend yield


4.5
%


4.4
%Expected volatility


20
%


17
%Risk-free interest rate


4.0
%


4.0
%Expected life (years)


3.5



3.5   Restricted
    Share Units (RSUs)
   F-106




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
        Number of RSUsOctober 30,


December 31,2007


2006Outstanding, beginning of period


136,523



76,237Granted






136,523Dividends credited


5,460



883Payments


(141,983
)


(77,120
)Expired/forfeited






Outstanding, end of period






136,523     Special
    Compensation Payments (SCPs)
      Deferred
    Share Units (DSUs)
   F-107




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    December 31,


December 31,


October 30,


December 31,2008


2007


2007


2006Outstanding, beginning of period


6,772



6,772



6,512



4,399Granted














1,846Dividends credited


65







260



267Exercised


(6,837
)










Outstanding, end of period






6,772



6,772



6,512     Telesat
    Holdings Stock Options
      Options Outstanding


Options ExercisableWeighted-AverageAt December 31, 2008

Number


Remaining Life


NumberExercise price $11.07


7,740,476



9 years



1,538,623     December 31,2008Compensation cost (credited to contributed surplus)


5,448Number of stock options granted


7,740,476Weighted-average fair value per option granted($)


8.52Assumptions:Dividend yield



%Expected volatility


31.5
%Risk-free interest rate


3.78
%Expected life (years)


10  F-108




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##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  21.
    Employee
    Benefit Plans  Telesat
    Canada
    Skynet
    Satellite Corporation
      December 31, 2008Telesat Canada


SkynetPension and other benefits

Pension


Other


Other


TotalChange in benefit obligationsBenefit obligation, January 1, 2008


163,546



16,224



8,089



187,859Current service cost


3,926



433







4,359Interest cost


9,271



862



883



11,016Actuarial (gains) losses


(40,426
)


(4,396
)


(129
)


(44,951
)Benefit payments


(10,884
)


(596
)


(155
)


(11,635
)Employee contributions


1,321







37



1,358Benefit obligation, December 31, 2008


126,754



12,527



8,725



148,006   December 31, 2008Telesat Canada


SkynetPension and other benefits

Pension


Other


Other


TotalChange in fair value of plan assetsFair value of plan assets, January 1, 2008


173,457











173,457Return on plan assets


(29,811
)










(29,811
)Benefit payments


(10,884
)


(596
)


(155
)


(11,635
)Employee contributions


1,321







37



1,358Employer contributions


4,210



596



118



4,924Fair value of plan assets, December 31, 2008


138,293











138,293Funded statusPlan surplus (deficit)


11,539



(12,527
)


(8,725
)


(9,713
)Unamortized net actuarial (gain) loss


2,071



(3,705
)






(1,634
)Accrued benefit asset (liability)


13,610



(16,232
)


(8,725
)


(11,347
)  F-109




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  December 31, 2007Telesat Canada


SkynetPension and other benefits

Pension


Other


Other


TotalChange in benefit obligationsBenefit obligation, October 31, 2007


159,392



16,631



8,079



184,102Current service cost


774



79







853Interest cost


1,513



146







1,659Benefit payments


(722
)


(70
)


(24
)


(816
)Plan amendment (early retirement program)


5,703







5



5,708Employee contributions


145







87



232Restructuring


(3,259
)


(562
)


(58
)


(3,879
)Benefit obligation, December 31, 2007


163,546



16,224



8,089



187,859   December 31, 2007Telesat Canada


SkynetPension and other benefits

Pension


Other


Other


TotalChange in fair value of plan assetsFair value of plan assets, October 31, 2007


176,595











176,595Return on plan assets


(2,596
)










(2,596
)Benefit payments


(722
)


(70
)


(24
)


(816
)Employee contributions


145







5



150Employer contributions


35



70



19



124Fair value of plan assets, December 31, 2007


173,457











173,457Funded (deficiency) status


9,911



(16,224
)


(8,089
)


(14,402
)     December 31,


December 31,2008


2007Equity securities


59
%


60
%Fixed income instruments


39
%


38
%Short-term investments


2
%


2
%Total


100
%


100
%    F-110




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    December 31, 2008


December 31, 2007Telesat Canada


Skynet


Telesat Canada


SkynetPension


Other


Other


Pension


Other


OtherAccrued benefit obligationDiscount rate


7.5
%


7.5
%


6.5
%


5.5
%


5.5
%


6.5
%Rate of compensation increase


3.5
%


3.5
%


4.3
%


3.5
%


3.5
%


4.3
%Benefit costs for the periods ended Discount rate


5.5
%


5.5
%


6.5
%


5.5
%


5.5
%


6.5
%Expected long-term rate of return on plan assets


7.5
%










7.5
%






Rate of compensation increase


3.5
%


3.5
%


4.3
%


3.5
%


3.5
%


4.3
%       Successor EntityFor the Period October 31 toYear Ended December 31, 2008


December 31, 2007Telesat Canada


Skynet





Telesat Canada


SkynetPension


Other


Other


Total


Pension


Other


Other


TotalCurrent service cost


3,926



433







4,359



774



79







853Interest cost


9,271



862



883



11,016



1,513



146







1,659Expected return on plan assets


(12,686
)










(12,686
)


(2,206
)










(2,206
)Net benefit expense


511



1,295



883



2,689



81



225







306   Predecessor EntityFor the Period January 1 toOctober 30, 2007


Year Ended December 31, 2006Pension


Other


Total


Pension


Other


TotalCurrent service cost


3,612



396



4,008



4,315



465



4,780Interest cost


7,149



681



7,830



8,212



767



8,979Expected return on plan assets


(10,610
)






(10,610
)


(11,271
)






(11,271
)Amortization of past service cost














900







900Amortization of net actuarial loss


34







34



1,780







1,780Amortization of transitional (asset) obligation


(1,288
)


515



(773
)


(1,273
)


618



(655
)Additional expense


169







169











Net benefit expense (income)


(934
)


1,592



658



2,663



1,850



4,513  F-111




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  Sensitivity
    of assumptions
    Aggregate ofservice andBenefit Obligation


interest costAs reported


21,252



2,178Impact of increase of 1% point


1,817



198Impact of decrease of 1% point


(1,587
)


(166
)     22.
    Commitments
    and Contingent Liabilities    2009


2010


2011


2012


2013


Thereafter


TotalOff balance sheet commitments

$
218,313


$
36,513


$
20,949


$
15,002


$
12,672


$
40,584


$
344,033     ,
       F-112




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
         F-113




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  23.
    Related
    Party Transactions      Successor Entity



Predecessor EntityFor the Period



For the PeriodOctober 31



January 1Year Ended


to



to


Year EndedDecember 31,


December 31,



October 30,


December 31,2008


2007



2007


2006Service revenues


3,560



440




139,706



139,335Operations and administration expenses


6,295



825




5,340



7,340Capital expenditures  satellites


83,203



12,318








     December 31,


December 31,2008


2007Receivables at end of period


3,200



3,389Payables at end of period


13,770



9,682Note and interest payable at end of period


7,380



     24.
    Comparative
    Figures   F-114




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  25.
    Reconciliation
    of Canadian GAAP to United States GAAP    Reconciliation
    of Net (Loss) Earnings
  Successor Entity



Predecessor EntityFor the Period



For the PeriodOctober 31



January 1Year Ended


to



to


Year EndedDecember 31,


December 31,



October 30,


December 31,2008


2007



2007


2006Canadian GAAP  Net (loss) earnings


(822,401
)


(4,051
)



81,742



103,985Gains (losses) on embedded
    derivatives(a)


20,118



774




(5,051
)


(998
)Losses on derivatives designated as cash flow hedges under
    Canadian
    GAAP(a)











(10,361
)


Sales type lease  operating lease for U.S.
    GAAP(b)


18,808



2,748




(23,617
)


Capital lease  operating lease for U.S.
    GAAP(b)


(7,584
)


(78
)



9,436



Lease
    amendments(c)


(1,233
)











Dividends on senior preferred
    shares(d)


9,855



1,695








Tax effect of above
    adjustments(e)


(8,761
)


275




9,606



1,568Uncertainty in income
    taxes(f)


(6,875
)


(2,648
)



3,234



U.S. GAAP  Net (loss) earnings


(798,073
)


(1,285
)



64,989



104,555Dividends on preferred shares















(1,487
)Other comprehensive (loss) earnings items:Change in currency translation adjustment


(7,143
)


(599
)



1,715



(448
)Loss on derivatives designated as cash flow
    hedges(a)











(7,168
)


Net actuarial plans
    cost(g)Net actuarial losses


(1,169
)







(314
)


Net transitional assets











(525
)


U.S. GAAP  Comprehensive (loss) earnings


(806,385
)


(1,884
)



58,697



102,620  F-115




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  Accumulated
    Other Comprehensive Loss
  Successor Entity



Predecessor EntityFor the Period



For the PeriodOctober 31



January 1Year Ended


to



to


Year EndedDecember 31,


December 31,



October 30,


December 31,2008


2007



2007


2006Cumulative translation adjustment, net of tax


(7,742
)


(599
)



(568
)


(2,283
)Loss on derivatives designated as cash flow
    hedges(a)











(7,168
)


Net benefit plans
    cost(g)Net actuarial losses


(1,169
)







(7,448
)


(7,080
)Net transitional assets











3,980



4,471Accumulated other comprehensive loss


(8,911
)


(599
)



(11,204
)


(4,892
)   Reconciliation
    of Total Shareholders Equity
  December 31,


December 31,2008


2007Canadian GAAP


469,432



1,293,528AdjustmentsGains on embedded
    derivatives(a)


20,892



774Net actuarial
    losses(g)


(1,169
)


Sales type lease  operating lease for U.S.
    GAAP(b)


21,556



2,748Capital lease  operating lease for U.S.
    GAAP(b)


(7,662
)


(78
)Lease
    amendment(c)


(1,233
)


Tax effect of above
    adjustments(e)


(8,486
)


275Uncertainty in income
    taxes(f)


(9,523
)


(2,648
)U.S. GAAP


483,807



1,294,599     (a)
    Derivatives
    and embedded derivatives    F-116




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
             (b) Sales-type
    and capital leases
    (c) Lease
    amendments
   F-117




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
   (d) Senior
    preferred shares
    (e) Income
    taxes
      (f)
    Uncertainty
    in income taxes    (g)
    Net
    benefit plans cost       F-118




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
  Transaction
    costs on long-term debt
    Statement
    of cash flows
    Recent
    Accounting Pronouncements
  Written Loan Commitments Recorded at Fair Value
    Through Earnings
  Business
    Combinations
  No. FAS 142-3, Determination of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets FAS 142-3
  Fair Value
    Measurement
  FAS 157-3, Determining Fair Value of a Financial Asset When the Market
    for that Asset is not Active FAS 157-3
  The Fair
    Value Option for Financial Assets and Liabilities
 F-119




---



##### Table of Contents



TELESAT
    HOLDINGS INC.
  NOTES TO
    THE 2008 CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (All amounts in thousands of Canadian dollars, except for per
    share amounts and where otherwise noted)
    Non-controlling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  Disclosures
    about Derivative Instruments and Hedging Activities
  The Hierarchy of
    Generally Accepted Accounting Principles
 F-120




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   F-121




---



##### Table of Contents



XTAR,
    L.L.C.CONSOLIDATED BALANCE SHEETSAS OF DECEMBER 31, 2008 AND 2007
    (In thousands)
  2008


2007ASSETSCURRENT ASSETS:Cash and cash equivalents

$
3,547


$
1,810Accounts receivable  net


4,963



6,624Other current assets


597



465Total current assets


9,107



8,899PROPERTY, PLANT AND EQUIPMENT  NET


105,922



115,538OTHER ASSETS  NET


408



461TOTAL

$
115,437


$
124,898LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIES:Accounts payable

$
162


$
177Accrued liabilities


8,584



2,191Payable to related parties


39,854



27,286Total current liabilities


48,600



29,654Term loan-related party


14,744



13,632Other long term liabilities


16,042



21,154Total liabilities


79,386



64,440Members Equity:Loral Skynet Corporation


17,905



33,919Hisdesat


18,146



26,539Total members equity


36,051



60,458TOTAL

$
115,437


$
124,898    F-122




---



##### Table of Contents



XTAR,
    L.L.C.CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
    (In thousands)
  2008


2007


2006REVENUES:Revenues from satellite services

$
13,226


$
12,999


$
8,416Related party revenues from satellite services


7,179



6,340



6,918Total revenues


20,405



19,339



15,334COST OF SATELLITE SERVICES


39,963



29,689



20,735SELLING, GENERAL AND ADMINISTRATIVE EXPENSES


4,193



4,072



3,232OPERATING LOSS


(23,751
)


(14,422
)


(8,633
)INTEREST AND INVESTMENT INCOME


125



182



150INTEREST EXPENSE


4,495



3,308



3,496OTHER INCOME (EXPENSE)  Net


157



(313
)


(134
)LOSS BEFORE TAXES


(27,964
)


(17,861
)


(12,113
)INCOME TAX PROVISION


633



560



516NET LOSS

$
(28,597
)

$
(18,421
)

$
(12,629
)    F-123




---



##### Table of Contents



XTAR,
    L.L.C.CONSOLIDATED STATEMENTS OF MEMBERS EQUITYFOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
    (In thousands)
  HisdesatLoral


Loral


ServiciosSkynet


Skynet


Estrategicos,International LLC


Corporation


S.A.


TotalBALANCE  January 1, 2006

$
51,307


$



$
40,201


$
91,508Net loss


(7,072
)






(5,557
)


(12,629
)BALANCE  December 31, 2006


44,235







34,644



78,879Net loss  January 1, 2007 to October 31,
    2007


(7,577
)






(5,954
)


(13,531
)(Sale) purchase of membership interests


(36,658
)


36,658







Net loss  November 1, 2007 to December 31,
    2007






(2,739
)


(2,151
)


(4,890
)BALANCE  December 31, 2007






33,919



26,539



60,458Interest payable converted to equity










4,190



4,190Net loss






(16,014
)


(12,583
)


(28,597
)BALANCE  December 31, 2008

$



$
17,905


$
18,146


$
36,051    F-124




---



##### Table of Contents



XTAR,
    L.L.C.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
    (In thousands)
  2008


2007


2006OPERATING ACTIVITIES:Net loss

$
(28,597
)

$
(18,421
)

$
(12,629
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation and amortization


9,651



9,747



9,693Non cash interest expense


3,893



2,464



1,950Other  accretion to launch consideration payable to
    Arianespace


630



695



1,525Adjustment to revenue straight lining assessment


18



(25
)Changes in operating assets and liabilities:Accounts receivable and other current assets


1,529



(3,779
)


(1,646
)Accounts payable and other accrued liabilities


(78
)


(2,826
)


625Deferred revenue










(2,191
)Long term liabilities


2,258



1,511



605Payable to related parties


13,977



12,695



8,432Net cash provided by operating activities


3,281



2,061



6,364INVESTING ACTIVITIES  Capital expenditures






(2
)FINANCING ACTIVITIES:Arianespace Incentive Cap (Note 10) repayments


(1,544
)Notes payable repayments






(3,340
)


(8,960
)Net cash used in financing activities


(1,544
)


(3,340
)


(8,960
)NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS


1,737



(1,281
)


(2,596
)CASH AND CASH EQUIVALENTS  Beginning of year


1,810



3,091



5,687CASH AND CASH EQUIVALENTS  End of year

$
3,547


$
1,810


$
3,091    F-125




---



##### Table of Contents



XTAR,
    L.L.C.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2008 AND 2007, AND FOR THE YEARS ENDED
    DECEMBER 31, 2008, 2007, AND 2006
    (Dollar amounts in thousands, unless otherwise noted)
  1.
    Organization
    and Principal Business    XTAR-LANT) XTAR-LANT
    2.
    Basis of
    Presentation    3.
    Summary
    of Significant Accounting Policies  Use of Estimates in Preparation of Financial
    Statements
  Cash and Cash Equivalents
  Property, Plant and Equipment
 F-126




---



##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
    YearsSatellite-in-orbit

15Earthstations

7-15Equipment, furniture and fixtures

3Leasehold improvement on Spainsat Transponders

15   Valuation of Satellite, Long-Lived Assets Accounting for the Impairment or Disposal of Long-Lived
    Assets
  
    Changes in estimates of the useful life of the satellite
    Changes in estimates of our ability to operate the satellite at
    expected levels
    Changes in the manner in which the satellite is to be used
    The loss of one or several significant customer contracts on the
    satellite    Fair
    Value of Financial Instruments
    Revenue Recognition and/or
  Income Taxes
 F-127




---



##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
  Taxes Collected from Customers and Remitted to Governmental
    Authorities No. 06-3, How Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement (That Is, Gross versus Net Presentation)
  Additional Cash Flow Information
  2008


2007


2006Supplemental information:Capital expenditure incurred and unpaid  related
    parties

$



$



$
2Interest payable converted to equity

$
4,190


$



$
Interest paid

$



$
2,546


$
Foreign taxes paid  net of refunds

$
533


$
524


$
522   Foreign Currency
  Comprehensive Income
  Prospective Method of Valuing/Accreting Arianespace Incentive
    Obligation 99-20,
  4.
    New
    Accounting Pronouncements  FIN 48 Accounting for Uncertainty in Income
    Taxes an Interpretation of FASB Statement
    No. 109 Effective Date of FASB Interpretation
    No. 48 for Certain Nonpublic Enterprises
  SFAS 157 Fair Value Measurements
 F-128




---



##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
    FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2) FSP 157-2 FSP 157-2
  SFAS 159 The Fair Value Option for
    Financial Assets and Financial Liabilities instrument-by-instrument
  SFAS 141R Business Combinations
  5.
    Property,
    Plant and Equipment    2008


2007Satellite in-orbit

$
130,436


$
130,436Earth stations


9,177



9,177Equipment, furniture and fixtures


387



387Leasehold improvement on transponders


2,100



2,100142,100



142,100Accumulated depreciation and amortization


(36,178
)


(26,562
)Property, plant and equipment  net

$
105,922


$
115,538    F-129




---



##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
    December 312009

$
8,3032010


1,2162011


1,199   6.
    Other
    Assets    2008


2007Intangible assets:Regulatory and orbital slot

$
518


$
518Accumulated amortization


(130
)


(95
)Intangible assets  net


388



423Other assets


20



38Total other assets

$
408


$
461       Years Ending December 312009

$
352010


352011


352012


352013


35Thereafter


213Total

$
388   7.
    Income
    Taxes     F-130




---



##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
    8.
    Related
    Party Transactions    Lease of Capacity to Hisdesat on XTAR-EUR
  back-up back-up
    2008


2007Lease obligation To Hisdesat

$
32,308


$
17,348Operations Services Agreements With Hisdesat


2,093



3,454Hisdesat Management Agreement With XTAR


1,153



1,175Loral Skynet/Telesat Canada/Space Systems Loral Services
    Agreement


2,972



3,646Loral SpaceCom Corporation Management Agreement With XTAR


1,296



1,632Other


32



31Total

$
39,854


$
27,286   Lease Obligation to Hisdesat (XTAR-LANT) XTAR-LANT XTAR-LANT take-up
 F-131




---



##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
    Years Ending December 312009

$
23,4202010


23,7942011


24,1752012


24,5622013


24,955Thereafter


195,114Total

$
316,020   Operations Services Agreements With Hisdesat
  Hisdesat Management Agreement With XTAR
  Loral Skynet Corporation/Telesat Canada Service/Space Systems
    Loral Agreements and Arrangements With XTAR
     F-132




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##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
    Loral Space & Communications Inc. Management
    Agreement With XTAR
  Deferment Arrangement With Hisdesat, Loral and Telesat
    Canada
  9.
    Term
    Loan  Hisdesat Term Loan
  2008


2007Principal amount

$
10,787


$
10,787Interest accrued


3,957



2,845Total

$
14,744


$
13,632   10.
    Other
    Long Term Liabilities  paid-in-kind
 F-133




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##### Table of Contents



XTAR,
    L.L.C.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollar
    amounts in thousands, unless otherwise noted)
        2008


2007Long term liabilities:Straight lining of Spainsat lease

$
4,373


$
2,116Arianespace Incentive Cap


19,669



20,582Less current portion of Arianespace Incentive Cap


(8,000
)


(1,544
)Total long term liabilities

$
16,042


$
21,154     11.
    Revenue
    Information  Revenue by Customer Location
  2008


2007


2006United States

$
13,226


$
12,999


$
8,416Spain


7,179



6,340



6,918$
20,405


$
19,339


$
15,334   12.
    Subsequent
    Event     F-134