##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE


SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2005


Commission file number 1-14180


Loral Space & Communications Ltd.


c/o Loral SpaceCom Corporation


600 Third Avenue


New York, New York 10016


Telephone: (212) 697-1105


Jurisdiction of incorporation: Bermuda


IRS identification number: 13-3867424




þ o












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TABLE OF CONTENTS



|                                                                                                               |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATED BALANCE SHEETS               
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|Three Months Ended March 31, 2005                                                                             
|Three Months Ended March 31, 2004                                                                             
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATING BALANCE SHEET               
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS     
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS     
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATING BALANCE SHEET               
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS     
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS     
|PART II. OTHER INFORMATION                                                                                    
|SIGNATURES                                                                                                    
|EXHIBIT INDEX                                                                                                 
|EX-12: COMPUTATION OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES                                           
|EX-31.1: CERTIFICATION                                                                                        
|EX-31.2: CERTIFICATION                                                                                        
|EX-32.1: CERTIFICATION                                                                                        
|EX-32.2: CERTIFICATION                                                                                        



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##### Table of Contents



PART 1.


FINANCIAL INFORMATION




|        |                     
|------- | --------------------
|Item 1. | Financial Statements




LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands, except par value)


(Unaudited)


|                                                               |                                      |                                                               |                                             |            |              |            |           |            |         |            |  
|-------------------------------------------------------------- | ------------------------------------ | ------------------------------------------------------------- | ------------------------------------------- | ---------- | ------------ | ---------- | --------- | ---------- | ------- | ---------- | -
|                                                               |                                      | March 31,                                                     |                                             |            | December 31, |           
|                                                               |                                      | 2005                                                          |                                             |            | 2004         |           
|                                                               |                                      |                                                               |                                             |            |              |           
|ASSETS                                                        
|Current assets:                                                |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Cash and cash equivalents            |                                                               | $                                           | 77,502     |              |            | $         | 147,773    |        
|                                                               | Accounts receivable, net             |                                                               |                                             | 11,370     |              |            |           | 12,132     |        
|                                                               | Contracts-in-process                 |                                                               |                                             | 64,965     |              |            |           | 19,040     |        
|                                                               | Inventories                          |                                                               |                                             | 35,600     |              |            |           | 37,412     |        
|                                                               | Other current assets                 |                                                               |                                             | 19,260     |              |            |           | 21,096     |        
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total current assets                        |            |              | 208,697    |           |            |         | 237,453    |  
|Property, plant and equipment, net                             |                                      |                                                               | 776,730                                     |            |              |            | 798,908   |           
|Long-term receivables                                          |                                      |                                                               | 81,782                                      |            |              |            | 74,851    |           
|Investments in and advances to affiliates                      |                                      |                                                               | 55,795                                      |            |              |            | 49,181    |           
|Deposits                                                       |                                      |                                                               | 9,824                                       |            |              |            | 9,832     |           
|Other assets                                                   |                                      |                                                               | 46,509                                      |            |              |            | 48,508    |           
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total assets                                |            | $            | 1,179,337  |           |            | $       | 1,218,733  |  
|                                                               |                                      |                                                               |                                             |            |              |           
|LIABILITIES AND SHAREHOLDERS DEFICIT                         
|Liabilities not subject to compromise:                         |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Current liabilities:                 |                                                               |                                             |            |              |            |           |            |        
|                                                               |                                      | Accounts payable                                              |                                             | $          | 38,996       |            |           | $          | 33,248  |           
|                                                               |                                      | Accrued employment costs                                      |                                             |            | 28,419       |            |           |            | 34,385  |           
|                                                               |                                      | Customer advances and billings in excess of costs and profits |                                             |            | 144,056      |            |           |            | 164,981 |           
|                                                               |                                      | Deferred gain on sale of assets (Note 4)                      |                                             |            | 10,535       |            |           |            | 10,545  |           
|                                                               |                                      | Income taxes payable                                          |                                             |            | 1,032        |            |           |            | 2,359   |           
|                                                               |                                      | Other current liabilities                                     |                                             |            | 17,089       |            |           |            | 16,639  |           
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total current liabilities                   |            |              | 240,127    |           |            |         | 262,157    |  
|                                                               | Pension liabilities (Note 3)         |                                                               |                                             | 1,777      |              |            |           | 942        |        
|                                                               | Long-term liabilities                |                                                               |                                             | 81,951     |              |            |           | 81,355     |        
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total liabilities not subject to compromise |            |              | 323,855    |           |            |         | 344,454    |  
|Liabilities subject to compromise (Note 11)                    |                                      |                                                               | 1,923,721                                   |            |              |            | 1,916,000 |           
|Minority interest                                              |                                      |                                                               | 2,366                                       |            |              |            | 2,380     |           
|Commitments and contingencies (Notes 2, 9,
    11, 12, and 14) |                                      |                                                               |                                             |            |              |            |           |           
|Shareholders deficit:                                         |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Common stock, $.10 par value         |                                                               |                                             | 4,413      |              |            |           | 4,413      |        
|                                                               | Paid-in capital                      |                                                               |                                             | 3,392,825  |              |            |           | 3,392,825  |        
|                                                               | Treasury stock, at cost              |                                                               |                                             | (3,360     | )            |            |           | (3,360     | )      
|                                                               | Unearned compensation                |                                                               |                                             | (67        | )            |            |           | (87        | )      
|                                                               | Retained deficit                     |                                                               |                                             | (4,374,452 | )            |            |           | (4,348,231 | )      
|                                                               | Accumulated other comprehensive loss |                                                               |                                             | (89,964    | )            |            |           | (89,661    | )      
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total shareholders deficit                 |            |              | (1,070,605 | )         |            |         | (1,044,101 | )
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total liabilities and shareholders deficit |            | $            | 1,179,337  |           |            | $       | 1,218,733  |  
|                                                               |                                      |                                                               |                                             |            |              |           



1



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)


(Unaudited)


|                                                                                                                                                  |                         |                    |         |         |      |   |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------------------ | ------- | ------- | ---- | - | ------- | ------- | -
|                                                                                                                                                  |                         | Three Months Ended |        
|                                                                                                                                                  |                         | March 31,          |        
|                                                                                                                                                  |                         |                    |        
|                                                                                                                                                  |                         | 2005               |         |         | 2004 |  
|                                                                                                                                                  |                         |                    |         |         |      |  
|Revenues from satellite services                                                                                                                  |                         | $                  | 34,571  |         |      | $ | 29,251  |        
|Revenues from satellite manufacturing                                                                                                             |                         |                    | 97,807  |         |      |   | 74,433  |        
|                                                                                                                                                  |                         |                    |         |         |      |  
|                                                                                                                                                  | Total revenues          |                    |         | 132,378 |      |   |         | 103,684 |  
|Cost of satellite services                                                                                                                        |                         |                    | 35,171  |         |      |   | 63,581  |        
|Cost of satellite manufacturing                                                                                                                   |                         |                    | 88,237  |         |      |   | 68,299  |        
|Selling, general and administrative expenses                                                                                                      |                         |                    | 27,296  |         |      |   | 31,567  |        
|                                                                                                                                                  |                         |                    |         |         |      |  
|Loss from continuing operations before reorganization expenses
    due to bankruptcy                                                              |                         |                    | (18,326 | )       |      |   | (59,763 | )      
|Reorganization expenses due to bankruptcy                                                                                                         |                         |                    | (5,633  | )       |      |   | (8,315  | )      
|                                                                                                                                                  |                         |                    |         |         |      |  
|Operating loss from continuing operations                                                                                                         |                         |                    | (23,959 | )       |      |   | (68,078 | )      
|Interest and investment income                                                                                                                    |                         |                    | 1,788   |         |      |   | 2,561   |        
|Interest expense (contractual interest was $11,854 and $10,876
    for the three months ended March 31, 2005 and 2004,
    respectively, Note 12) |                         |                    | (978    | )       |      |   | 562     |        
|Other expense                                                                                                                                     |                         |                    | (617    | )       |      |   | (2,549  | )      
|                                                                                                                                                  |                         |                    |         |         |      |  
|Loss from continuing operations before income taxes, equity
    losses in affiliates and minority interest                                        |                         |                    | (23,766 | )       |      |   | (67,504 | )      
|Income tax provision                                                                                                                              |                         |                    | (1,730  | )       |      |   | (196    | )      
|                                                                                                                                                  |                         |                    |         |         |      |  
|Loss from continuing operations before equity losses in
    affiliates and minority interest                                                      |                         |                    | (25,496 | )       |      |   | (67,700 | )      
|Equity losses in affiliates (Note 9)                                                                                                              |                         |                    | (739    | )       |      |   | (403    | )      
|Minority interest                                                                                                                                 |                         |                    | 14      |         |      |   | 87      |        
|                                                                                                                                                  |                         |                    |         |         |      |  
|Loss from continuing operations                                                                                                                   |                         |                    | (26,221 | )       |      |   | (68,016 | )      
|Loss from discontinued operations (Note 4)                                                                                                        |                         |                    |        |         |      |   | (11,620 | )      
|                                                                                                                                                  |                         |                    |         |         |      |  
|Net loss                                                                                                                                          |                         | $                  | (26,221 | )       |      | $ | (79,636 | )      
|                                                                                                                                                  |                         |                    |         |         |      |  
|Basic and diluted (loss) earnings per share (Note 15):                                                                                            |                         |                    |         |         |      |   |         |        
|                                                                                                                                                  | Continuing operations   |                    | $       | (0.59   | )    |   | $       | (1.54   | )
|                                                                                                                                                  | Discontinued operations |                    |         |        |      |   |         | (0.26   | )
|                                                                                                                                                  |                         |                    |         |         |      |  
|                                                                                                                                                  | Loss per share          |                    | $       | (0.59   | )    |   | $       | (1.80   | )
|                                                                                                                                                  |                         |                    |         |         |      |  
|Weighted average shares outstanding:                                                                                                              |                         |                    |         |         |      |   |         |        
|                                                                                                                                                  | Basic and diluted       |                    |         | 44,108  |      |   |         | 44,108  |  
|                                                                                                                                                  |                         |                    |         |         |      |  



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)


|                                                               |                                                                            |                    |         |         |      |   |          |          |  
|-------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------ | ------- | ------- | ---- | - | -------- | -------- | -
|                                                               |                                                                            | Three Months Ended |        
|                                                               |                                                                            | March 31,          |        
|                                                               |                                                                            |                    |        
|                                                               |                                                                            | 2005               |         |         | 2004 |  
|                                                               |                                                                            |                    |         |         |      |  
|Operating activities:                                          |                                                                            |                    |         |         |      |   |          |         
|Net loss                                                       |                                                                            | $                  | (26,221 | )       |      | $ | (79,636  | )       
|Non-cash items:                                                |                                                                            |                    |         |         |      |   |          |         
|                                                               | Loss from discontinued operations                                          |                    |         |        |      |   |          | 11,620   |  
|                                                               | Equity losses in affiliates                                                |                    |         | 739     |      |   |          | 403      |  
|                                                               | Minority interest                                                          |                    |         | (14     | )    |   |          | (87      | )
|                                                               | Deferred taxes                                                             |                    |         | 188     |      |   |          |         |  
|                                                               | Depreciation and amortization                                              |                    |         | 23,529  |      |   |          | 41,192   |  
|                                                               | Impairment charge on satellite and related assets                          |                    |         |        |      |   |          | 11,989   |  
|                                                               | Provisions for bad debts on billed receivables                             |                    |         | (247    | )    |   |          | 164      |  
|                                                               | Provisions for inventory obsolescence                                      |                    |         |        |      |   |          | 287      |  
|                                                               | Loss on equipment disposals                                                |                    |         | 283     |      |   |          |         |  
|                                                               | Non-cash net (gain) loss on foreign currency transactions
    and interest |                    |         | 349     |      |   |          | (733     | )
|Changes in operating assets and liabilities:                   |                                                                            |                    |         |         |      |   |          |         
|                                                               | Accounts receivable, net                                                   |                    |         | 1,009   |      |   |          | 4,663    |  
|                                                               | Contracts-in-process                                                       |                    |         | (48,545 | )    |   |          | (12,102  | )
|                                                               | Inventories                                                                |                    |         | 1,812   |      |   |          | 914      |  
|                                                               | Long-term receivables                                                      |                    |         | (5,131  | )    |   |          | (5,393   | )
|                                                               | Other current assets and other assets                                      |                    |         | 2,953   |      |   |          | 925      |  
|                                                               | Accounts payable                                                           |                    |         | 8,331   |      |   |          | (9,015   | )
|                                                               | Accrued expenses and other current liabilities                             |                    |         | (5,333  | )    |   |          | 1,277    |  
|                                                               | Customer advances                                                          |                    |         | (21,260 | )    |   |          | 46,095   |  
|                                                               | Income taxes payable                                                       |                    |         | 593     |      |   |          | (278     | )
|                                                               | Pension and other postretirement liabilities                               |                    |         | 5,059   |      |   |          | 6,094    |  
|                                                               | Long-term liabilities                                                      |                    |         | (256    | )    |   |          | 792      |  
|                                                               | Other                                                                      |                    |         | (32     | )    |   |          | (43      | )
|                                                               |                                                                            |                    |         |         |      |  
|Net cash (used in) provided by continuing operating activities |                                                                            |                    | (62,194 | )       |      |   | 19,128   |         
|                                                               |                                                                            |                    |         |         |      |  
|Net cash provided by discontinued operations                   |                                                                            |                    |        |         |      |   | 6,924    |         
|                                                               |                                                                            |                    |         |         |      |  
|Investing activities:                                          |                                                                            |                    |         |         |      |   |          |         
|                                                               | Capital expenditures for continuing operations                             |                    |         | (724    | )    |   |          | (6,210   | )
|                                                               | Capital expenditures for discontinued operations                           |                    |         |        |      |   |          | (11,185  | )
|                                                               | Proceeds from the sales of assets, net of expenses (Note 2)                |                    |         |        |      |   |          | 953,619  |  
|                                                               | Investments in and advances to affiliates                                  |                    |         | (7,353  | )    |   |          | (4,799   | )
|                                                               |                                                                            |                    |         |         |      |  
|Net cash (used in) provided by investing activities            |                                                                            |                    | (8,077  | )       |      |   | 931,425  |         
|                                                               |                                                                            |                    |         |         |      |  
|Financing activities:                                          |                                                                            |                    |         |         |      |   |          |         
|                                                               | Repayments of term loans                                                   |                    |         |        |      |   |          | (576,500 | )
|                                                               | Repayments of revolving credit facilities                                  |                    |         |        |      |   |          | (390,387 | )
|                                                               |                                                                            |                    |         |         |      |  
|Net cash used in financing activities                          |                                                                            |                    |        |         |      |   | (966,887 | )       
|                                                               |                                                                            |                    |         |         |      |  
|Net decrease in cash and cash equivalents                      |                                                                            |                    | (70,271 | )       |      |   | (9,410   | )       
|                                                               | Cash and cash equivalents  beginning of period                            |                    |         | 147,773 |      |   |          | 141,644  |  
|                                                               |                                                                            |                    |         |         |      |  
|                                                               | Cash and cash equivalents  end of period                                  |                    | $       | 77,502  |      |   | $        | 132,234  |  
|                                                               |                                                                            |                    |         |         |      |  



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




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





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Satellite Services, managed by our Loral Skynet division,
    generates its revenues and cash flows from providing satellite
    capacity and networking infrastructure to customers for video
    and direct to home (DTH) broadcasting, high-speed
    data distribution, Internet access, communications and
    networking services.                                                                                                                                                 
|
| | Satellite Manufacturing, conducted by our subsidiary,
    Space Systems/Loral, Inc. (SS/L), generates its
    revenues and cash flows from designing and manufacturing
    satellites, space systems and space system components for
    commercial and government applications including fixed satellite
    services, DTH broadcasting, broadband data distribution,
    wireless telephony, digital radio, military communications,
    weather monitoring and air traffic management.



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



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









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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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







| |               
| | --------------
| | Reorganization





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our two businesses, Satellite Manufacturing (New
    SS/L) and Satellite Services (New Skynet),
    will emerge intact as separate subsidiaries of reorganized Loral
    (New Loral).                                                                                                                                                                                                                                                                                                                                                       
|
| |  | New SS/L will emerge debt-free.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | New Loral will emerge as a public company under current
    management and will seek listing on a major stock exchange.                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Holders of allowed claims against SS/L and Loral SpaceCom will
    be paid in cash in full, including interest from the petition
    date to the effective date of the Plan of Reorganization.                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Loral Orion unsecured creditors will receive approximately
    80 percent of New Loral common stock and their pro rata
    share of $200 million of preferred stock to be issued by
    New Skynet. These creditors also will be offered the right to
    subscribe to purchase their pro-rata share of $120 million
    in new senior secured notes of New Skynet, which rights offering
    will be underwritten by certain Loral Orion creditors who will
    receive a $6 million fee which may be payable in additional
    New Skynet notes.

5



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | Loral bondholders and certain other unsecured creditors will
    receive approximately 20 percent of the common stock of New
    Loral.
|
| |  | Existing common and preferred stock will be cancelled and no
    distribution will be made to the holders of such stock.               











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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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

Reorganization






7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





| |                                     
| | ------------------------------------
| | Pensions and Other Employee Benefits



|                                   |  |                  |        |   |                |   |        |      |  |   |       |   |  |   |       |  
|---------------------------------- |  | ---------------- | ------ | - | -------------- | - | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                                   |  | Pension Benefits |        |   | Other Benefits |  
|                                   |  |                  |        |   |                |  
|                                   |  | 2005             |        |   | 2004           |   |        | 2005 |  |   | 2004  |  
|                                   |  |                  |        |   |                |   |        |      |  |   |       |  
|Service cost                       |  | $                | 2,846  |   |                | $ | 2,324  |      |  | $ | 352   |   |  | $ | 274   |  
|Interest cost                      |  |                  | 5,778  |   |                |   | 5,548  |      |  |   | 1,313 |   |  |   | 1,069 |  
|Expected return on plan assets     |  |                  | (5,105 | ) |                |   | (4,870 | )    |  |   | (15   | ) |  |   | (20   | )
|Amortization of prior service cost |  |                  | (9     | ) |                |   | (9     | )    |  |   | (481  | ) |  |   | (483  | )
|Amortization of net loss           |  |                  | 1,557  |   |                |   | 1,164  |      |  |   | 693   |   |  |   | 564   |  
|                                   |  |                  |        |   |                |   |        |      |  |   |       |  
|                                   |  | $                | 5,067  |   |                | $ | 4,157  |      |  | $ | 1,862 |   |  | $ | 1,404 |  
|                                   |  |                  |        |   |                |   |        |      |  |   |       |  

8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                          |                                                                  |                    |   |      |        |   |   |        |        |  
|------------------------- | ---------------------------------------------------------------- | ------------------ | - | ---- | ------ | - | - | ------ | ------ | -
|                          |                                                                  | Three Months Ended |  
|                          |                                                                  | March 31,          |  
|                          |                                                                  |                    |  
|                          |                                                                  | 2005               |   |      | 2004   |  
|                          |                                                                  |                    |   |      |        |  
|Non-cash activities:      |                                                                  |                    |   |      |        |   |   |       
|                          | Unrealized losses on available-for-sale securities, net of taxes |                    | $ |     |        |   | $ | (452   | )     
|                          |                                                                  |                    |   |      |        |  
|                          | Unrealized net losses on derivatives, net of taxes               |                    | $ | (273 | )      |   | $ | (1,249 | )     
|                          |                                                                  |                    |   |      |        |  
|Supplemental information: |                                                                  |                    |   |      |        |   |   |       
|                          | Cash (paid) received for reorganization items:                   |                    |   |      |        |   |   |        |       
|                          |                                                                  | Professional fees  |   | $    | (4,620 | ) |   | $      | (3,842 | )
|                          |                                                                  |                    |   |      |        |  
|                          |                                                                  | Retention costs    |   | $    |       |   |   | $      | (3,237 | )
|                          |                                                                  |                    |   |      |        |  
|                          |                                                                  | Interest income    |   | $    | 666    |   |   | $      | 213    |  
|                          |                                                                  |                    |   |      |        |  



|   |                        
|-- | -----------------------
|4. | Discontinued Operations





|                                    |  |                    |   |      |  |   |         |  
|----------------------------------- |  | ------------------ | - | ---- |  | - | ------- | -
|                                    |  | Three Months Ended |  
|                                    |  | March 31,          |  
|                                    |  |                    |  
|                                    |  | 2005(a)            |   | 2004 | 
|                                    |  |                    |   |      | 
|                                    |  | (In thousands)     |  
|Revenues of discontinued operations |  | $                  |  |      |  | $ | 29,106  |  
|                                    |  |                    |   |      |  |  
|Operating income                    |  | $                  |  |      |  | $ | 13,318  |  
|Interest expense                    |  |                    |  |      |  |   | 24,938  |  
|                                    |  |                    |   |      |  |  
|Loss before income taxes            |  |                    |  |      |  |   | (11,620 | )
|Income tax provision                |  |                    |  |      |  |   |        |  
|                                    |  |                    |   |      |  |  
|Loss from discontinued operations   |  | $                  |  |      |  | $ | (11,620 | )
|                                    |  |                    |   |      |  |  






|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(a) | There has been no activity related to discontinued operations
    during the first quarter of 2005.

9



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                        
|-- | ---------------------------------------
|5. | Accounting for Stock Based Compensation





|                                                                                                                      |  |                    |       |   |      |   |       |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | ---- | - | ----- | -
|                                                                                                                      |  | Three Months Ended |      
|                                                                                                                      |  | March 31,          |      
|                                                                                                                      |  |                    |      
|                                                                                                                      |  | 2005               |       |   | 2004 |  
|                                                                                                                      |  |                    |       |   |      |  
|Reported loss from continuing operations                                                                              |  | $                  | (26.2 | ) |      | $ | (68.0 | )
|Add: Total stock based compensation charged to options under the
    intrinsic value method, net of taxes             |  |                    |      |   |      |   |      |  
|Less: Total stock based employee compensation determined under
    the fair value method for all awards, net of taxes |  |                    |      |   |      |   | (0.3  | )
|                                                                                                                      |  |                    |       |   |      |  
|Pro forma loss from continuing operations                                                                             |  |                    | (26.2 | ) |      |   | (68.3 | )
|Net loss from discontinued operations, net of taxes                                                                   |  |                    |      |   |      |   | (11.6 | )
|                                                                                                                      |  |                    |       |   |      |  
|Pro forma net loss applicable to common shareholders                                                                  |  | $                  | (26.2 | ) |      | $ | (79.9 | )
|                                                                                                                      |  |                    |       |   |      |  
|Reported basic and diluted loss per share from continuing
    operations                                              |  | $                  | (0.59 | ) |      | $ | (1.54 | )
|Pro forma basic and diluted loss per share from continuing
    operations                                             |  |                    | (0.59 | ) |      |   | (1.55 | )
|Reported basic and diluted loss (earnings) per share from
    discontinued operations                                 |  |                    |      |   |      |   | (0.26 | )
|Reported basic and diluted loss per share                                                                             |  |                    | (0.59 | ) |      |   | (1.80 | )
|Pro forma basic and diluted loss per share                                                                            |  |                    | (0.59 | ) |      |   | (1.81 | )

10



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                   
|-- | ------------------
|6. | Comprehensive Loss



|                                                                 |                                                                                                    |                    |         |      |      |   |         |        |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------ | ------- | ---- | ---- | - | ------- | ------ | -
|                                                                 |                                                                                                    | Three Months Ended |        
|                                                                 |                                                                                                    | March 31,          |        
|                                                                 |                                                                                                    |                    |        
|                                                                 |                                                                                                    | 2005               |         |      | 2004 |  
|                                                                 |                                                                                                    |                    |         |      |      |  
|Net loss                                                         |                                                                                                    | $                  | (26,221 | )    |      | $ | (79,636 | )     
|Cumulative translation adjustment                                |                                                                                                    |                    | (30     | )    |      |   | (62     | )     
|Unrealized losses on available-for-sale securities, net of taxes |                                                                                                    |                    |        |      |      |   | (452    | )     
|Foreign currency hedging:                                        |                                                                                                    |                    |         |      |      |   |         |       
|                                                                 | Reclassifications into revenue and cost of sales from other
    comprehensive income, net of taxes |                    |         | (273 | )    |   |         | (1,249 | )
|                                                                 |                                                                                                    |                    |         |      |      |  
|Comprehensive loss                                               |                                                                                                    | $                  | (26,524 | )    |      | $ | (81,399 | )     
|                                                                 |                                                                                                    |                    |         |      |      |  



|   |                     
|-- | --------------------
|7. | Contracts-in-Process

|                     |  |                |        |  |              |   |        | 
|-------------------- |  | -------------- | ------ |  | ------------ | - | ------ | 
|                     |  | March 31,      |        |  | December 31, |  
|                     |  | 2005           |        |  | 2004         |  
|                     |  |                |        |  |              |  
|                     |  | (In thousands) |       
|Amounts billed       |  | $              | 34,253 |  |              | $ | 8,146  | 
|Unbilled receivables |  |                | 30,712 |  |              |   | 10,894 | 
|                     |  |                |        |  |              |  
|                     |  | $              | 64,965 |  |              | $ | 19,040 | 
|                     |  |                |        |  |              |  





|                                            |  |              |         |  |        |   |      | 
|------------------------------------------- |  | ------------ | ------- |  | ------ | - | ---- | 
|                                            |  | Japanese Yen |         |  | U.S. $ |  
|                                            |  |              |         |  |        |  
|Future revenues                             |  |              | ¥ 1,248 |  |        | $ | 11.6 | 
|Future expenditures                         |  |              | 421     |  |        |   | 3.9  | 
|Contracts-in-process (unbilled receivables) |  |              | 1,732   |  |        |   | 16.1 | 





11



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|8. | Property, Plant and Equipment

|                                                                                  |  |                |           |   |              |   |           |  
|--------------------------------------------------------------------------------- |  | -------------- | --------- | - | ------------ | - | --------- | -
|                                                                                  |  | March 31,      |           |   | December 31, |  
|                                                                                  |  | 2005           |           |   | 2004         |  
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  | (In thousands) |          
|Land and land improvements                                                        |  | $              | 24,833    |   |              | $ | 24,827    |  
|Buildings                                                                         |  |                | 86,980    |   |              |   | 87,133    |  
|Leasehold improvements                                                            |  |                | 15,945    |   |              |   | 15,638    |  
|Satellites in-orbit, including satellite transponder rights of
    $279.6 million |  |                | 1,092,761 |   |              |   | 1,093,951 |  
|Earth stations                                                                    |  |                | 81,258    |   |              |   | 82,577    |  
|Equipment, furniture and fixtures                                                 |  |                | 277,497   |   |              |   | 276,948   |  
|Other construction in progress                                                    |  |                | 3,419     |   |              |   | 2,337     |  
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  |                | 1,582,693 |   |              |   | 1,583,411 |  
|Accumulated depreciation and amortization                                         |  |                | (805,963  | ) |              |   | (784,503  | )
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  | $              | 776,730   |   |              | $ | 798,908   |  
|                                                                                  |  |                |           |   |              |  









12



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                       |  |           |        |  |              |   |        | 
|---------------------- |  | --------- | ------ |  | ------------ | - | ------ | 
|                       |  | March 31, |        |  | December 31, |  
|                       |  | 2005      |        |  | 2004         |  
|                       |  |           |        |  |              |  
|XTAR equity investment |  | $         | 55,795 |  |              | $ | 49,181 | 
|                       |  |           |        |  |              |  



|     |  |                    |      |   |      |   |      |  
|---- |  | ------------------ | ---- | - | ---- | - | ---- | -
|     |  | Three Months Ended |     
|     |  | March 31,          |     
|     |  |                    |     
|     |  | 2005               |      |   | 2004 |  
|     |  |                    |      |   |      |  
|XTAR |  | $                  | (739 | ) |      | $ | (403 | )
|     |  |                    |      |   |      |  



|                                                                                         |  |                    |       |   |      |   |       |  
|---------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | ---- | - | ----- | -
|                                                                                         |  | Three Months Ended |      
|                                                                                         |  | March 31,          |      
|                                                                                         |  |                    |      
|                                                                                         |  | 2005               |       |   | 2004 |  
|                                                                                         |  |                    |       |   |      |  
|Revenues                                                                                 |  | $                  | 2,904 |   |      | $ | 3,088 |  
|Interest expense capitalized on development stage enterprise                             |  |                    |      |   |      |   | 478   |  
|Elimination of our proportionate share of profits relating to
    affiliate transactions |  |                    | 301   |   |      |   | 300   |  
|Loss relating to affiliate transactions not eliminated                                   |  |                    | (236  | ) |      |   | (264  | )

XTAR








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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












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







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



14



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                                 
|--- | --------------------------------
|10. | Other Acquired Intangible Assets



|                  |  |                |      |  |                   |   |       |        |  |   |              |  |  |   |       |  
|----------------- |  | -------------- | ---- |  | ----------------- | - | ----- | ------ |  | - | ------------ |  |  | - | ----- | -
|                  |  | March 31, 2005 |      |  | December 31, 2004 |  
|                  |  |                |      |  |                   |  
|                  |  | Gross          |      |  | Accumulated       |   |       | Gross  |  |   | Accumulated  | 
|                  |  | Amount         |      |  | Amortization      |   |       | Amount |  |   | Amortization | 
|                  |  |                |      |  |                   |   |       |        |  |   |              | 
|Regulatory fees   |  | $              | 22.5 |  |                   | $ | (8.1  | )      |  | $ | 22.5         |  |  | $ | (7.7  | )
|Other intangibles |  |                | 13.0 |  |                   |   | (12.4 | )      |  |   | 13.0         |  |  |   | (12.0 | )
|                  |  |                |      |  |                   |   |       |        |  |   |              | 
|                  |  | $              | 35.5 |  |                   | $ | (20.5 | )      |  | $ | 35.5         |  |  | $ | (19.7 | )
|                  |  |                |      |  |                   |   |       |        |  |   |              | 





|     |  |   |     | 
|---- |  | - | --- | 
|2005 |  | $ | 2.5 | 
|2006 |  |   | 1.4 | 
|2007 |  |   | 1.4 | 
|2008 |  |   | 1.4 | 
|2009 |  |   | 1.4 | 



|    |                                  
|--- | ---------------------------------
|11. | Liabilities Subject to Compromise





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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                   |  |           |           |  |              |   |           | 
|-------------------------------------------------- |  | --------- | --------- |  | ------------ | - | --------- | 
|                                                   |  | March 31, |           |  | December 31, |  
|                                                   |  | 2005      |           |  | 2004         |  
|                                                   |  |           |           |  |              |  
|Debt obligations (Note 12)                         |  | $         | 1,269,977 |  |              | $ | 1,269,977 | 
|Accounts payable                                   |  |           | 55,311    |  |              |   | 52,728    | 
|Accrued employment costs                           |  |           | 512       |  |              |   | 542       | 
|Customer advances                                  |  |           | 30,502    |  |              |   | 30,837    | 
|Accrued interest and preferred dividends           |  |           | 40,428    |  |              |   | 40,428    | 
|Income taxes payable                               |  |           | 40,854    |  |              |   | 38,934    | 
|Pension and other postretirement liabilities       |  |           | 182,870   |  |              |   | 178,647   | 
|Other liabilities                                  |  |           | 79,286    |  |              |   | 79,926    | 
|6% Series C convertible redeemable preferred stock |  |           | 187,274   |  |              |   | 187,274   | 
|6% Series D convertible redeemable preferred stock |  |           | 36,707    |  |              |   | 36,707    | 
|                                                   |  |           |           |  |              |  
|                                                   |  | $         | 1,923,721 |  |              | $ | 1,916,000 | 
|                                                   |  |           |           |  |              |  



| |                               
| | ------------------------------
| | Series C and D Preferred Stock



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

|                                                                                     |                                                                          |                |           |         |              |   |           |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------ | -------------- | --------- | ------- | ------------ | - | --------- | ------- | 
|                                                                                     |                                                                          | March 31,      |           |         | December 31, |  
|                                                                                     |                                                                          | 2005           |           |         | 2004         |  
|                                                                                     |                                                                          |                |           |         |              |  
|                                                                                     |                                                                          | (In thousands) |          
|Loral Orion 10.00% senior notes due 2006:                                            |                                                                          |                |           |         |              |   |           |        
|                                                                                     | Principal amount                                                         |                | $         | 612,704 |              |   | $         | 612,704 | 
|                                                                                     | Accrued interest (deferred gain on debt exchanges)                       |                |           | 214,446 |              |   |           | 214,446 | 
|Loral 9.50% Senior notes due 2006                                                    |                                                                          |                | 350,000   |         |              |   | 350,000   |        
|Loral Orion debt non-recourse to Loral:                                              |                                                                          |                |           |         |              |   |           |        
|                                                                                     | 11.25% Senior notes due 2007 (principal amount
    $37 million)          |                |           | 39,402  |              |   |           | 39,402  | 
|                                                                                     | 12.50% Senior discount notes due 2007 (principal amount
    $49 million) |                |           | 53,425  |              |   |           | 53,425  | 
|                                                                                     |                                                                          |                |           |         |              |  
|Total debt                                                                           |                                                                          |                | 1,269,977 |         |              |   | 1,269,977 |        
|Less, current maturities included in liabilities subject to
    compromise (Note 11) |                                                                          |                | 1,269,977 |         |              |   | 1,269,977 |        
|                                                                                     |                                                                          |                |           |         |              |  
|                                                                                     |                                                                          | $              |          |         |              | $ |          |        
|                                                                                     |                                                                          |                |           |         |              |  









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



|                         |                                                 |                    |       |       |      |   |       |       | 
|------------------------ | ----------------------------------------------- | ------------------ | ----- | ----- | ---- | - | ----- | ----- | 
|                         |                                                 | Three Months Ended |      
|                         |                                                 | March 31,          |      
|                         |                                                 |                    |      
|                         |                                                 | 2005               |       |       | 2004 |  
|                         |                                                 |                    |       |       |      |  
|Professional fees        |                                                 | $                  | 5,489 |       |      | $ | 5,008 |      
|Employee retention costs |                                                 |                    | 182   |       |      |   | 3,520 |      
|Severance costs          |                                                 |                    | 503   |       |      |   |      |      
|Vendor settlement gains  |                                                 |                    | 125   |       |      |   |      |      
|Interest income          |                                                 |                    | (666  | )     |      |   | (213  | )    
|                         |                                                 |                    |       |       |      |  
|                         | Total reorganization expenses due to bankruptcy |                    | $     | 5,633 |      |   | $     | 8,315 | 
|                         |                                                 |                    |       |       |      |  

17



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                              
|--- | -----------------------------
|14. | Commitments and Contingencies



|                                                                                 |  |   |      | 
|-------------------------------------------------------------------------------- |  | - | ---- | 
|Balance of deferred amounts at January 1, 2005                                   |  | $ | 26.0 | 
|Accruals for deferred amounts issued during the period                           |  |   | 0.8  | 
|Accruals relating to pre-existing contracts (including changes
    in estimates) |  |   | 0.7  | 
|                                                                                 |  |   |     
|Balance of deferred amounts at March 31, 2005                                    |  | $ | 27.5 | 
|                                                                                 |  |   |     







18



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POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














19



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












20



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                            
| | -------------------------------------------
| | Lawsuits against our Directors and Officers

Beleson




In re: Loral Space ERISA
Litigation.


21



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




In re: Loral Space ERISA Litigation




| |      
| | -----
| | Other







| |                           
| | --------------------------
| | Globalstar Related Matters

In re: Globalstar Securities Litigation.


22



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




In re: Loral
Space & Communications Ltd. Securities Litigation.


In re: Loral Space &
Communications Ltd. Securities Litigation


23



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


In re: Loral Space ERISA Litigation In re: Loral Space & Communications Ltd.
Securities Litigation






|    |               
|--- | --------------
|15. | Loss Per Share



|                                                |                                            |                    |       |         |      |   |       |         |  
|----------------------------------------------- | ------------------------------------------ | ------------------ | ----- | ------- | ---- | - | ----- | ------- | -
|                                                |                                            | Three Months Ended |      
|                                                |                                            | March 31,          |      
|                                                |                                            |                    |      
|                                                |                                            | 2005               |       |         | 2004 |  
|                                                |                                            |                    |       |         |      |  
|Numerator for basic and diluted loss per share: |                                            |                    |       |         |      |   |       |        
|                                                | Loss from continuing operations            |                    | $     | (26,221 | )    |   | $     | (68,016 | )
|                                                | Loss from discontinued operations          |                    |       |        |      |   |       | (11,620 | )
|                                                |                                            |                    |       |         |      |  
|                                                | Loss applicable to common stockholders     |                    | $     | (26,221 | )    |   | $     | (79,636 | )
|                                                |                                            |                    |       |         |      |  
|Denominator:                                    |                                            |                    |       |         |      |   |       |        
|                                                | Weighted average common shares outstanding |                    |       | 44,108  |      |   |       | 44,108  |  
|                                                |                                            |                    |       |         |      |  
|Basic and diluted (loss) earnings per share:    |                                            |                    |       |         |      |   |       |        
|                                                | Continuing operations                      |                    | $     | (0.59   | )    |   | $     | (1.54   | )
|                                                | Discontinued operations                    |                    |       |        |      |   |       | (0.26   | )
|                                                |                                            |                    |       |         |      |  
|Loss per share                                  |                                            | $                  | (0.59 | )       |      | $ | (1.80 | )      
|                                                |                                            |                    |       |         |      |  



|    |         
|--- | --------
|16. | Segments





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POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








25



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







Three Months Ended March 31, 2005


|                                                   |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|-------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                   |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                   |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Revenues(2)                                        |  | $         | 34.8  |   |               | $ | 97.8  |              |  |   |       |   |  | $ | 132.6   |  
|Intersegment revenues                              |  |           | 1.1   |   |               |   | 1.8   |              |  |   |       |   |  |   | 2.9     |  
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                         |  | $         | 35.9  |   |               | $ | 99.6  |              |  |   |       |   |  |   | 135.5   |  
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                    |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (3.1    | )
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                     |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 132.4   |  
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(5) |  | $         | 9.1   |   |               | $ | 4.2   |              |  | $ | (5.7  | ) |  | $ | 7.6     |  
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                    |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (2.4    | )
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                    |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 5.2     |  
|Depreciation and
    amortization(6)(7)            |  | $         | (19.4 | ) |               | $ | (4.0  | )            |  | $ | (0.2  | ) |  |   | (23.6   | )
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy          |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (5.6    | )
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations          |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (24.0   | )
|Interest and investment income                     |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 1.8     |  
|Interest expense                                   |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.0    | )
|Other expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.6    | )
|Income tax provision                               |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.7    | )
|Equity losses in affiliates                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.7    | )
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                    |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (26.2   | )
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  
|Other Data:                                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Total
    assets(7)                                |  | $         | 767.0 |   |               | $ | 369.3 |              |  | $ | 43.0  |   |  | $ | 1,179.3 |  
|                                                   |  |           |       |   |               |   |       |              |  |   |       |  

26



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







Three Months Ended March 31, 2004


|                                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|----------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                      |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                      |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Revenue from external
    customers(2)                |  | $         | 30.0  |   |               | $ | 74.4  |              |  |   |       |   |  | $ | 104.4   |  
|Intersegment revenues                                 |  |           | 1.1   |   |               |   | 26.6  |              |  |   |       |   |  |   | 27.7    |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                            |  | $         | 31.1  |   |               | $ | 101.0 |              |  |   |       |   |  |   | 132.1   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (28.4   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                        |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 103.7   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)(5) |  | $         | (10.2 | ) |               | $ | 3.6   |              |  | $ | (8.6  | ) |  | $ | (15.2   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (3.4    | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (18.6   | )
|Depreciation and
    amortization(6)(7)               |  | $         | (36.0 | ) |               | $ | (5.0  | )            |  | $ | (0.2  | ) |  |   | (41.2   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (8.3    | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (68.1   | )
|Interest and investment income                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 2.6     |  
|Interest expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 0.5     |  
|Other expense                                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (2.5    | )
|Income tax provision                                  |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.2    | )
|Equity in net losses of affiliates                    |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.4    | )
|Minority interest                                     |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 0.1     |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                       |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (68.0   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Other Data:                                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Total
    assets(7)                                   |  | $         | 953.9 |   |               | $ | 417.4 |              |  | $ | 103.3 |   |  | $ | 1,474.6 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  






|    |                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support of our
    operations.                                                                                                                                                                     
|   
|(2) | Includes revenues from affiliates of $2.9 million and
    $3.1 million for the three months ended March 31, 2005
    and 2004, respectively.                                                                                                 
|   
|(3) | Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for wholly owned subsidiaries.                                                               
|   
|(4) | Satellite Manufacturing excludes a charge of $10.3 million
    in 2004, as a result of the settlement of all orbital
    receivables on satellites sold to Intelsat. This charge had no
    effect on Lorals condensed consolidated results.

27



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(5)


|                             |                                                                               |                 |   |     |      |  |   |       |  
|---------------------------- | ----------------------------------------------------------------------------- | --------------- | - | --- | ---- |  | - | ----- | -
|                             |                                                                               | Three Months    |  
|                             |                                                                               | Ended March 31, |  
|                             |                                                                               |                 |  
|                             |                                                                               | 2005            |   |     | 2004 | 
|                             |                                                                               |                 |   |     |      | 
|Satellite Services includes: |                                                                               |                 |   |     |      |  |   |      
|                             | Adjusted EBITDA before specific charges                                       |                 | $ | 9.1 |      |  | $ | 1.8   |  
|                             | Impairment charge for Telstar 14/ Estrela do Sul-1 satellite
    (see Note 8) |                 |   |    |      |  |   | (12.0 | )
|                             |                                                                               |                 |   |     |      | 
|                             | Satellite Services segment Adjusted EBITDA before eliminations                |                 | $ | 9.1 |      |  | $ | (10.2 | )
|                             |                                                                               |                 |   |     |      | 



|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes depreciation expense of $23 million for the three
    months ended March 31, 2004, related to our Telstar 11
    satellite for which depreciation was accelerated due to the
    estimated end of depreciable life to June 2004 from March 2005.
|   
|(7) | Amounts are presented after the elimination of intercompany
    profit.                                                                                                                                                                                  



|    |                              
|--- | -----------------------------
|17. | New Accounting Pronouncements



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





| |          
| | ---------
| | SFAS 123R





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



28



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|18. | Financial Information for Subsidiary Issuer and Guarantor and
    Non-Guarantor Subsidiaries







29



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATING BALANCE SHEET


March 31, 2005


(In thousands)


(Unaudited)


|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |           |   |           |           |            |         |            |  
|------------------------------------------ | -------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | ---------- | ---------- | ---------- | --------- | ------------ | ----- | -------- | ------------- | ------ | --- | ------------ | ---------- | ---------- | ------------ | ---------- | --------- | --------- | - | --------- | --------- | ---------- | ------- | ---------- | -
|                                           |                                        | Parent                                                        |                                                      |            | Subsidiary |            |           | Guarantor    |       |          | Non-Guarantor |        |     |              |            |           
|                                           |                                        | Company                                                       |                                                      |            | Issuer     |            |           | Subsidiaries |       |          | Subsidiaries  |        |     | Eliminations |            |            | Consolidated |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|Current assets:                            |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |           |   |           |           |           
|                                           | Cash and cash equivalents              |                                                               | $                                                    | 1,404      |            |            | $         | 32,066       |       |          | $             |       |     |              | $          | 44,032     |              |            | $         |          |   |           | $         | 77,502     |        
|                                           | Accounts receivable, net               |                                                               |                                                      |           |            |            |           | 5,148        |       |          |               |       |     |              |            | 6,222      |              |            |           |          |   |           |           | 11,370     |        
|                                           | Contracts-in-process                   |                                                               |                                                      |           |            |            |           |             |       |          |               |       |     |              |            | 64,965     |              |            |           |          |   |           |           | 64,965     |        
|                                           | Inventories                            |                                                               |                                                      |           |            |            |           |             |       |          |               |       |     |              |            | 35,600     |              |            |           |          |   |           |           | 35,600     |        
|                                           | Other current assets                   |                                                               |                                                      | 859        |            |            |           | 4,489        |       |          |               | 2,663  |     |              |            | 11,380     |              |            |           | (131      | ) |           |           | 19,260     |        
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total current assets                                 |            |            | 2,263      |           |              |       | 41,703   |               |        |     | 2,663        |            |            |              | 162,199    |           |           |   | (131      | )         |            |         | 208,697    |  
|Property, plant and equipment, net         |                                        |                                                               |                                                     |            |            |            | 251,201   |              |       |          | 157,422       |        |     |              | 390,254    |            |              |            | (22,147   | )         |   |           | 776,730   |           
|Long-term receivables                      |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |     |              | 81,782     |            |              |            |          |           |   |           | 81,782    |           
|Due (to) from unconsolidated subsidiaries  |                                        |                                                               | (6,900                                               | )          |            |            | (14,974   | )            |       |          | 30,167        |        |     |              | 43,920     |            |              |            | (52,213   | )         |   |           |          |           
|Investments in unconsolidated subsidiaries |                                        |                                                               | (581,731                                             | )          |            |            | 305,289   |              |       |          | (271,698      | )      |     |              | (1,616,549 | )          |              |            | 2,164,689 |           |   |           |          |           
|Investments in and advances to affiliates  |                                        |                                                               | 20                                                   |            |            |            |          |              |       |          |              |        |     |              | 55,775     |            |              |            |          |           |   |           | 55,795    |           
|Deposits                                   |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |     |              | 9,824      |            |              |            |          |           |   |           | 9,824     |           
|Other assets                               |                                        |                                                               | 4,197                                                |            |            |            | 5,513     |              |       |          | 252           |        |     |              | 36,547     |            |              |            |          |           |   |           | 46,509    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total assets                                         |            | $          | (582,151   | )         |              | $     | 588,732  |               |        | $   | (81,194      | )          |            | $            | (836,248   | )         |           | $ | 2,090,198 |           |            | $       | 1,179,337  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|Liabilities not subject to compromise:     |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |           |   |           |           |           
|                                           | Current liabilities:                   |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |           |   |           |           |            |        
|                                           |                                        | Accounts payable                                              |                                                      | $          | 499        |            |           | $            | 274   |          |               | $      |    |              |            | $          | 38,223       |            |           | $         |  |           |           | $          | 38,996  |           
|                                           |                                        | Accrued employment costs                                      |                                                      |            |           |            |           |              |      |          |               |        |    |              |            |            | 28,419       |            |           |           |  |           |           |            | 28,419  |           
|                                           |                                        | Customer advances and billings in excess of costs and profits |                                                      |            |           |            |           |              | 4,013 |          |               |        | 250 |              |            |            | 139,793      |            |           |           |  |           |           |            | 144,056 |           
|                                           |                                        | Deferred gain on sales of assets                              |                                                      |            |           |            |           |              |      |          |               |        |    |              |            |            | 10,535       |            |           |           |  |           |           |            | 10,535  |           
|                                           |                                        | Income taxes payable                                          |                                                      |            |           |            |           |              |      |          |               |        |    |              |            |            | 1,032        |            |           |           |  |           |           |            | 1,032   |           
|                                           |                                        | Other current liabilities                                     |                                                      |            | 1,270      |            |           |              |      |          |               |        |    |              |            |            | 15,819       |            |           |           |  |           |           |            | 17,089  |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total current liabilities                            |            |            | 1,769      |           |              |       | 4,287    |               |        |     | 250          |            |            |              | 233,821    |           |           |   |          |           |            |         | 240,127    |  
|Pension liability                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |     |              | 1,777      |            |              |            |          |           |   |           | 1,777     |           
|Long-term liabilities                      |                                        |                                                               | 52,233                                               |            |            |            | 34,730    |              |       |          | 9,095         |        |     |              | 16,614     |            |              |            | (30,721   | )         |   |           | 81,951    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities not subject to compromise          |            |            | 54,002     |           |              |       | 39,017   |               |        |     | 9,345        |            |            |              | 252,212    |           |           |   | (30,721   | )         |            |         | 323,855    |  
|Liabilities subject to compromise          |                                        |                                                               | 434,452                                              |            |            |            | 1,108,931 |              |       |          | (117,386      | )      |     |              | 501,920    |            |              |            | (4,196    | )         |   |           | 1,923,721 |           
|Minority interest                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |     |              | 2,366      |            |              |            |          |           |   |           | 2,366     |           
|Shareholders (deficit) equity:            |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |           |   |           |           |           
|                                           | Common stock                           |                                                               |                                                      | 4,413      |            |            |           |             |       |          |               |       |     |              |            |           |              |            |           |          |   |           |           | 4,413      |        
|                                           | Paid-in capital                        |                                                               |                                                      | 3,392,825  |            |            |           | 604,166      |       |          |               |       |     |              |            |           |              |            |           | (604,166  | ) |           |           | 3,392,825  |        
|                                           | Treasury stock, at cost                |                                                               |                                                      | (3,360     | )          |            |           |             |       |          |               |       |     |              |            |           |              |            |           |          |   |           |           | (3,360     | )      
|                                           | Unearned compensation                  |                                                               |                                                      | (67        | )          |            |           |             |       |          |               |       |     |              |            |           |              |            |           |          |   |           |           | (67        | )      
|                                           | Due from related parties               |                                                               |                                                      |           |            |            |           | (53,996      | )     |          |               |       |     |              |            | 53,996     |              |            |           |          |   |           |           |           |        
|                                           | Retained (deficit) earnings            |                                                               |                                                      | (4,374,452 | )          |            |           | (1,109,386   | )     |          |               | 26,847 |     |              |            | (1,646,742 | )            |            |           | 2,729,281 |   |           |           | (4,374,452 | )      
|                                           | Accumulated other comprehensive (loss) |                                                               |                                                      | (89,964    | )          |            |           |             |       |          |               |       |     |              |            |           |              |            |           |          |   |           |           | (89,964    | )      
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total shareholders (deficit) equity                 |            |            | (1,070,605 | )         |              |       | (559,216 | )             |        |     | 26,847       |            |            |              | (1,592,746 | )         |           |   | 2,125,115 |           |            |         | (1,070,605 | )
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities and shareholders (deficit) equity |            | $          | (582,151   | )         |              | $     | 588,732  |               |        | $   | (81,194      | )          |            | $            | (836,248   | )         |           | $ | 2,090,198 |           |            | $       | 1,179,337  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           

30



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Three Months Ended March 31, 2005


(In thousands)


(Unaudited)


|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |   |         |      |         |   |         |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------- | ------- | - | ---------- | - | ------ | ------------ | ------ | - | ------------- | ------ | ----- | ------------ | ------- | ------- | ------------ | - | ------- | ---- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                                                                 |                                                                                      | Parent         |         |   | Subsidiary |   |        | Guarantor    |        |   | Non-Guarantor |        |       |              |         |        
|                                                                                                                                                                 |                                                                                      | Company        |         |   | Issuer     |   |        | Subsidiaries |        |   | Subsidiaries  |        |       | Eliminations |         |         | Consolidated |  
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|Revenues from satellite services                                                                                                                                 |                                                                                      | $              |        |   |            | $ | 20,905 |              |        | $ | 7,675         |        |       | $            | 16,623  |         |              | $ | (10,632 | )    |         | $ | 34,571  |        
|Revenues from satellite manufacturing                                                                                                                            |                                                                                      |                |        |   |            |   |       |              |        |   |              |        |       |              | 97,933  |         |              |   | (126    | )    |         |   | 97,807  |        
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|                                                                                                                                                                 |                                                                                      | Total revenues |         |   |           |   |        |              | 20,905 |   |               |        | 7,675 |              |         |         | 114,556      |   |         |      | (10,758 | ) |         |         | 132,378 | 
|Cost of satellite services                                                                                                                                       |                                                                                      |                |        |   |            |   | 15,845 |              |        |   | 7,598         |        |       |              | 21,688  |         |              |   | (9,960  | )    |         |   | 35,171  |        
|Cost of sales-type lease arrangement  satellite
    services                                                                                                    |                                                                                      |                |        |   |            |   |       |              |        |   |              |        |       |              |        |         |              |   |        |      |         |   |        |        
|Cost of satellite manufacturing                                                                                                                                  |                                                                                      |                |        |   |            |   |       |              |        |   |              |        |       |              | 88,329  |         |              |   | (92     | )    |         |   | 88,237  |        
|Selling, general and administrative expenses                                                                                                                     |                                                                                      |                |        |   |            |   | 4,521  |              |        |   | 2,761         |        |       |              | 20,014  |         |              |   |        |      |         |   | 27,296  |        
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|                                                                                                                                                                 | Loss from continuing operations before reorganization expenses
    due to bankruptcy |                |         |  |            |   |        | 539          |        |   |               | (2,684 | )     |              |         | (15,475 | )            |   |         | (706 | )       |   |         | (18,326 | )      
|Reorganization expenses due to bankruptcy                                                                                                                        |                                                                                      |                | (942    | ) |            |   | (1,768 | )            |        |   |              |        |       |              | (2,923  | )       |              |   |        |      |         |   | (5,633  | )      
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|Loss income from continuing operations                                                                                                                           |                                                                                      |                | (942    | ) |            |   | (1,229 | )            |        |   | (2,684        | )      |       |              | (18,398 | )       |              |   | (706    | )    |         |   | (23,959 | )      
|Interest and investment income                                                                                                                                   |                                                                                      |                | 3       |   |            |   |       |              |        |   |              |        |       |              | 1,785   |         |              |   |        |      |         |   | 1,788   |        
|Interest expense                                                                                                                                                 |                                                                                      |                |        |   |            |   | (776   | )            |        |   |              |        |       |              | (766    | )       |              |   | 564     |      |         |   | (978    | )      
|Other expense                                                                                                                                                    |                                                                                      |                |        |   |            |   |       |              |        |   |              |        |       |              | (617    | )       |              |   |        |      |         |   | (617    | )      
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|(Loss) income from continuing operations before income taxes,
    equity income (losses) in unconsolidated subsidiaries and
    affiliates and minority interest |                                                                                      |                | (939    | ) |            |   | (2,005 | )            |        |   | (2,684        | )      |       |              | (17,996 | )       |              |   | (142    | )    |         |   | (23,766 | )      
|Income tax (provision) benefit                                                                                                                                   |                                                                                      |                |        |   |            |   | (45    | )            |        |   | 939           |        |       |              | (1,685  | )       |              |   | (939    | )    |         |   | (1,730  | )      
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|(Loss) income from continuing operations before equity income
    (losses) in unconsolidated subsidiaries and affiliates and
    minority interest               |                                                                                      |                | (939    | ) |            |   | (2,050 | )            |        |   | (1,745        | )      |       |              | (19,681 | )       |              |   | (1,081  | )    |         |   | (25,496 | )      
|Equity income (losses) in unconsolidated subsidiaries                                                                                                            |                                                                                      |                | (25,282 | ) |            |   | (1,745 | )            |        |   |              |        |       |              |        |         |              |   | 27,027  |      |         |   |        |        
|Equity income (losses) in affiliates                                                                                                                             |                                                                                      |                |        |   |            |   |       |              |        |   |              |        |       |              | (739    | )       |              |   |        |      |         |   | (739    | )      
|Minority interest                                                                                                                                                |                                                                                      |                |        |   |            |   |       |              |        |   |              |        |       |              | 14      |         |              |   |        |      |         |   | 14      |        
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                         |                                                                                      |                | (26,221 | ) |            |   | (3,795 | )            |        |   | (1,745        | )      |       |              | (20,406 | )       |              |   | 25,946  |      |         |   | (26,221 | )      
|Loss from discontinued operations                                                                                                                                |                                                                                      |                |        |   |            |   |       |              |        |   |              |        |       |              |        |         |              |   |        |      |         |   |        |        
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  
|Net (loss) income                                                                                                                                                |                                                                                      | $              | (26,221 | ) |            | $ | (3,795 | )            |        | $ | (1,745        | )      |       | $            | (20,406 | )       |              | $ | 25,946  |      |         | $ | (26,221 | )      
|                                                                                                                                                                 |                                                                                      |                |         |   |            |   |        |              |        |   |               |        |       |              |         |         |              |  

31



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Three Months Ended March 31, 2005


(In thousands)


(Unaudited)


|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |   |   |        |         |   |         |         |        |  
|---------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------------------------- | ----- | ------- | ---------- | - | ------ | ------------ | ----- | - | ------------- | ------ | ----- | ------------ | ------- | ------- | ------------ | - | - | ------ | ------- | - | ------- | ------- | ------ | -
|                                                     |                                                | Parent                                                                 |       |         | Subsidiary |   |        | Guarantor    |       |   | Non-Guarantor |        |       |              |         |        
|                                                     |                                                | Company                                                                |       |         | Issuer     |   |        | Subsidiaries |       |   | Subsidiaries  |        |       | Eliminations |         |         | Consolidated |  
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Operating activities:                                |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |   |   |        |         |   |         |        
|                                                     | Net (loss) income                              |                                                                        | $     | (26,221 | )          |   | $      | (3,795       | )     |   | $             | (1,745 | )     |              | $       | (20,406 | )            |   | $ | 25,946 |         |   | $       | (26,221 | )     
|                                                     | Non-cash items:                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |   |   |        |         |   |         |         |       
|                                                     |                                                | Equity income in affiliates                                            |       |         |           |   |        |              |      |   |               |        |      |              |         |         | 739          |   |   |        |        |   |         |         | 739    |  
|                                                     |                                                | Minority interest                                                      |       |         |           |   |        |              |      |   |               |        |      |              |         |         | (14          | ) |   |        |        |   |         |         | (14    | )
|                                                     |                                                | Equity losses in unconsolidated subsidiaries                           |       |         | 25,282     |   |        |              | 1,745 |   |               |        |      |              |         |         |             |   |   |        | (27,027 | ) |         |         |       |  
|                                                     |                                                | Deferred taxes                                                         |       |         |           |   |        |              |      |   |               |        | (939  | )            |         |         | 188          |   |   |        | 939     |   |         |         | 188    |  
|                                                     |                                                | Depreciation and amortization                                          |       |         | 20         |   |        |              | 5,761 |   |               |        | 5,253 |              |         |         | 12,495       |   |   |        |        |   |         |         | 23,529 |  
|                                                     |                                                | Provisions for bad debts                                               |       |         |           |   |        |              | 180   |   |               |        |      |              |         |         | (427         | ) |   |        |        |   |         |         | (247   | )
|                                                     |                                                | Loss on equipment disposals                                            |       |         |           |   |        |              |      |   |               |        |      |              |         |         | 283          |   |   |        |        |   |         |         | 283    |  
|                                                     |                                                | Non cash (gain) loss of foreign currency transactions and
    interest |       |         |           |   |        |              |      |   |               |        |      |              |         |         | 349          |   |   |        |        |   |         |         | 349    |  
|Changes in operating assets and liabilities:         |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |   |   |        |         |   |         |        
|                                                     | Accounts receivable, net                       |                                                                        |       |        |            |   |        | 65           |       |   |               |       |       |              |         | 944     |              |   |   |       |         |   |         | 1,009   |       
|                                                     | Contracts-in-process                           |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         | (48,545 | )            |   |   |       |         |   |         | (48,545 | )     
|                                                     | Inventories                                    |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         | 1,812   |              |   |   |       |         |   |         | 1,812   |       
|                                                     | Long-term receivables                          |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         | (5,131  | )            |   |   |       |         |   |         | (5,131  | )     
|                                                     | Due (to) from unconsolidated subsidiaries      |                                                                        |       |        |            |   |        | (511         | )     |   |               | (4,267 | )     |              |         | 4,636   |              |   |   | 142    |         |   |         |        |       
|                                                     | Other current assets and other assets          |                                                                        |       | 1,472   |            |   |        | 1,087        |       |   |               | 1,458  |       |              |         | (1,064  | )            |   |   |       |         |   |         | 2,953   |       
|                                                     | Accounts payable                               |                                                                        |       |        |            |   |        | 6            |       |   |               | 250    |       |              |         | 8,075   |              |   |   |       |         |   |         | 8,331   |       
|                                                     | Accrued expenses and other current liabilities |                                                                        |       | 48      |            |   |        |             |       |   |               |       |       |              |         | (5,381  | )            |   |   |       |         |   |         | (5,333  | )     
|                                                     | Customer advances                              |                                                                        |       |        |            |   |        | (77          | )     |   |               | (10    | )     |              |         | (21,173 | )            |   |   |       |         |   |         | (21,260 | )     
|                                                     | Income taxes payable                           |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         | 593     |              |   |   |       |         |   |         | 593     |       
|                                                     | Pension and other postretirement liabilities   |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         | 5,059   |              |   |   |       |         |   |         | 5,059   |       
|                                                     | Long-term liabilities                          |                                                                        |       |        |            |   |        | 375          |       |   |               |       |       |              |         | (631    | )            |   |   |       |         |   |         | (256    | )     
|                                                     | Other                                          |                                                                        |       | (2      | )          |   |        |             |       |   |               |       |       |              |         | (30     | )            |   |   |       |         |   |         | (32     | )     
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Net cash provided by continuing operating activities |                                                |                                                                        | 599   |         |            |   | 4,836  |              |       |   |              |        |       |              | (67,629 | )       |              |   |  |        |         |   | (62,194 | )      
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Net cash provided by discontinued operations         |                                                |                                                                        |      |         |            |   |       |              |       |   |              |        |       |              |        |         |              |   |  |        |         |   |        |        
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Investing activities:                                |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |   |   |        |         |   |         |        
|                                                     | Capital expenditures for continuing operations |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         | (724    | )            |   |   |       |         |   |         | (724    | )     
|                                                     | Investments in and advances to affiliates      |                                                                        |       | (720    | )          |   |        |             |       |   |               |       |       |              |         | (6,633  | )            |   |   |       |         |   |         | (7,353  | )     
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Net cash provided by investing activities            |                                                |                                                                        | (720  | )       |            |   |       |              |       |   |              |        |       |              | (7,357  | )       |              |   |  |        |         |   | (8,077  | )      
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Financing activities:                                |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |   |   |        |         |   |         |        
|                                                     | Repayments of term loans                       |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         |        |              |   |   |       |         |   |         |        |       
|                                                     | Repayments of revolving credit facilities      |                                                                        |       |        |            |   |        |             |       |   |               |       |       |              |         |        |              |   |   |       |         |   |         |        |       
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Net cash provided by (used in) financing activities  |                                                |                                                                        |      |         |            |   |       |              |       |   |              |        |       |              |        |         |              |   |  |        |         |   |        |        
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Net increase (decrease) in cash and cash equivalents |                                                |                                                                        | (121  | )       |            |   | 4,836  |              |       |   |              |        |       |              | (74,986 | )       |              |   |  |        |         |   | (70,271 | )      
|Cash and cash equivalents  beginning of period      |                                                |                                                                        | 1,525 |         |            |   | 27,230 |              |       |   |              |        |       |              | 119,018 |         |              |   |  |        |         |   | 147,773 |        
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  
|Cash and cash equivalents  end of period            |                                                | $                                                                      | 1,404 |         |            | $ | 32,066 |              |       | $ |              |        |       | $            | 44,032  |         |              | $ |  |        |         | $ | 77,502  |        
|                                                     |                                                |                                                                        |       |         |            |   |        |              |       |   |               |        |       |              |         |         |              |  

32



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATING BALANCE SHEET


December 31, 2004


(In thousands)


|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |            |         |            |  
|------------------------------------------ | -------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | ---------- | ---------- | ---------- | --------- | ------------ | ----- | -------- | ------------- | ------ | -- | ------------ | ---------- | ---------- | ------------ | ---------- | --------- | --------- | - | --------- | --------- | ---------- | ------- | ---------- | -
|                                           |                                        | Parent                                                        |                                                      |            | Subsidiary |            |           | Guarantor    |       |          | Non-Guarantor |        |    |              |            |           
|                                           |                                        | Company                                                       |                                                      |            | Issuer     |            |           | Subsidiaries |       |          | Subsidiaries  |        |    | Eliminations |            |            | Consolidated |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|Current assets:                            |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |           
|                                           | Cash and cash equivalents              |                                                               | $                                                    | 1,525      |            |            | $         | 27,230       |       |          | $             |       |    |              | $          | 119,018    |              |            | $         |          |   |           | $         | 147,773    |        
|                                           | Accounts receivable, net               |                                                               |                                                      |           |            |            |           | 5,186        |       |          |               | 10     |    |              |            | 6,936      |              |            |           |          |   |           |           | 12,132     |        
|                                           | Contracts-in-process                   |                                                               |                                                      |           |            |            |           |             |       |          |               |       |    |              |            | 19,040     |              |            |           |          |   |           |           | 19,040     |        
|                                           | Inventories                            |                                                               |                                                      |           |            |            |           |             |       |          |               |       |    |              |            | 37,412     |              |            |           |          |   |           |           | 37,412     |        
|                                           | Other current assets                   |                                                               |                                                      | 2,331      |            |            |           | 5,899        |       |          |               | 3,861  |    |              |            | 9,138      |              |            |           | (133      | ) |           |           | 21,096     |        
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total current assets                                 |            |            | 3,856      |           |              |       | 38,315   |               |        |    | 3,871        |            |            |              | 191,544    |           |           |   | (133      | )         |            |         | 237,453    |  
|Property, plant and equipment, net         |                                        |                                                               |                                                     |            |            |            | 255,772   |              |       |          | 162,675       |        |    |              | 402,608    |            |              |            | (22,147   | )         |   |           | 798,908   |           
|Long-term receivables                      |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              | 74,851     |            |              |            |          |           |   |           | 74,851    |           
|Due (to) from unconsolidated subsidiaries  |                                        |                                                               | 8,123                                                |            |            |            | (15,820   | )            |       |          | 26,028        |        |    |              | 33,741     |            |              |            | (52,072   | )         |   |           |          |           
|Investments in unconsolidated subsidiaries |                                        |                                                               | (563,750                                             | )          |            |            | 307,972   |              |       |          | (271,698      | )      |    |              | (1,610,186 | )          |              |            | 2,137,662 |           |   |           |          |           
|Investments in and advances to affiliates  |                                        |                                                               |                                                      |            |            |            |          |              |       |          |              |        |    |              | 49,181     |            |              |            |          |           |   |           | 49,181    |           
|Deposits                                   |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              | 9,832      |            |              |            |          |           |   |           | 9,832     |           
|Other assets                               |                                        |                                                               | 4,197                                                |            |            |            | 5,839     |              |       |          | 377           |        |    |              | 38,095     |            |              |            |          |           |   |           | 48,508    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total assets                                         |            | $          | (547,574   | )         |              | $     | 592,078  |               |        | $  | (78,747      | )          |            | $            | (810,334   | )         |           | $ | 2,063,310 |           |            | $       | 1,218,733  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|Liabilities not subject to compromise:     |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |           
|                                           | Current liabilities:                   |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |            |        
|                                           |                                        | Accounts payable                                              |                                                      | $          | 499        |            |           | $            | 267   |          |               | $      |   |              |            | $          | 32,482       |            |           | $         |  |           |           | $          | 33,248  |           
|                                           |                                        | Accrued employment costs                                      |                                                      |            |           |            |           |              |      |          |               |        |   |              |            |            | 34,385       |            |           |           |  |           |           |            | 34,385  |           
|                                           |                                        | Customer advances and billings in excess of costs and profits |                                                      |            |           |            |           |              | 3,591 |          |               |        | 10 |              |            |            | 161,380      |            |           |           |  |           |           |            | 164,981 |           
|                                           |                                        | Deferred gain on sale of assets                               |                                                      |            |           |            |           |              |      |          |               |        |   |              |            |            | 10,545       |            |           |           |  |           |           |            | 10,545  |           
|                                           |                                        | Income taxes payable                                          |                                                      |            |           |            |           |              |      |          |               |        |   |              |            |            | 2,359        |            |           |           |  |           |           |            | 2,359   |           
|                                           |                                        | Other current liabilities                                     |                                                      |            | 1,220      |            |           |              |      |          |               |        |   |              |            |            | 15,419       |            |           |           |  |           |           |            | 16,639  |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total current liabilities                            |            |            | 1,719      |           |              |       | 3,858    |               |        |    | 10           |            |            |              | 256,570    |           |           |   |          |           |            |         | 262,157    |  
|Pension liability                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              | 942        |            |              |            |          |           |   |           | 942       |           
|Long-term liabilities                      |                                        |                                                               | 52,233                                               |            |            |            | 34,802    |              |       |          | 10,037        |        |    |              | 15,946     |            |              |            | (31,663   | )         |   |           | 81,355    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities not subject to compromise          |            |            | 53,952     |           |              |       | 38,660   |               |        |    | 10,047       |            |            |              | 273,458    |           |           |   | (31,663   | )         |            |         | 344,454    |  
|Liabilities subject to compromise          |                                        |                                                               | 442,575                                              |            |            |            | 1,108,839 |              |       |          | (117,386      | )      |    |              | 486,168    |            |              |            | (4,196    | )         |   |           | 1,916,000 |           
|Minority interest                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              | 2,380      |            |              |            |          |           |   |           | 2,380     |           
|Shareholders (deficit) equity:            |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |           
|                                           | Common stock                           |                                                               |                                                      | 4,413      |            |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | 4,413      |        
|                                           | Paid-in capital                        |                                                               |                                                      | 3,392,825  |            |            |           | 604,166      |       |          |               |       |    |              |            |           |              |            |           | (604,166  | ) |           |           | 3,392,825  |        
|                                           | Treasury stock, at cost                |                                                               |                                                      | (3,360     | )          |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | (3,360     | )      
|                                           | Unearned compensation                  |                                                               |                                                      | (87        | )          |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | (87        | )      
|                                           | Due (from) to related parties          |                                                               |                                                      |           |            |            |           | (53,996      | )     |          |               |       |    |              |            | 53,996     |              |            |           |          |   |           |           |           |        
|                                           | Retained (deficit) earnings            |                                                               |                                                      | (4,348,231 | )          |            |           | (1,105,591   | )     |          |               | 28,592 |    |              |            | (1,626,336 | )            |            |           | 2,703,335 |   |           |           | (4,348,231 | )      
|                                           | Accumulated other comprehensive (loss) |                                                               |                                                      | (89,661    | )          |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | (89,661    | )      
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total shareholders (deficit) equity                 |            |            | (1,044,101 | )         |              |       | (555,421 | )             |        |    | 28,592       |            |            |              | (1,572,340 | )         |           |   | 2,099,169 |           |            |         | (1,044,101 | )
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities and shareholders (deficit) equity |            | $          | (547,574   | )         |              | $     | 592,078  |               |        | $  | (78,747      | )          |            | $            | (810,334   | )         |           | $ | 2,063,310 |           |            | $       | 1,218,733  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           

33



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Three Months Ended March 31, 2004


(In thousands)


|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |   |        |        |   |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | - | ---------- | - | ------- | ---------- |  | - | ------------- | ----- |  | ------------ | ------- | ------ | ------------ | - | ------ | ------ | - | - | ------- | ------- | 
|                                                                                                                                                               |                | Parent  |         |   | Subsidiary |   |         | Guarantor  |  |   | Non-Guarantor |       |  |              |         |       
|                                                                                                                                                               |                | Company |         |   | Issuer     |   |         | Subsidiary |  |   | Subsidiaries  |       |  | Eliminations |         |        | Consolidated |  
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|Revenues from satellite services                                                                                                                               |                | $       |        |   |            | $ | 18,915  |            |  | $ | 7,426         |       |  | $            | 11,713  |        |              | $ | (8,803 | )      |   | $ | 29,251  |        
|Revenues from satellite manufacturing                                                                                                                          |                |         |        |   |            |   |        |            |  |   |              |       |  |              | 74,352  |        |              |   | 81     |        |   |   | 74,433  |        
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|                                                                                                                                                               | Total revenues |         |         |  |            |   |         | 18,915     |  |   |               | 7,426 |  |              |         | 86,065 |              |   |        | (8,722 | ) |   |         | 103,684 | 
|Cost of satellite services                                                                                                                                     |                |         |        |   |            |   | 35,904  |            |  |   | 7,081         |       |  |              | 28,728  |        |              |   | (8,132 | )      |   |   | 63,581  |        
|Cost of satellite manufacturing                                                                                                                                |                |         |        |   |            |   |        |            |  |   |              |       |  |              | 68,259  |        |              |   | 40     |        |   |   | 68,299  |        
|Selling, general and administrative expenses                                                                                                                   |                |         | 2,234   |   |            |   | 4,344   |            |  |   | 385           |       |  |              | 24,604  |        |              |   |       |        |   |   | 31,567  |        
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|Operating (loss) income from continuing operations before
    reorganization expenses due to bankruptcy                                                        |                |         | (2,234  | ) |            |   | (21,333 | )          |  |   | (40           | )     |  |              | (35,526 | )      |              |   | (630   | )      |   |   | (59,763 | )      
|Reorganization expenses due to bankruptcy                                                                                                                      |                |         | (956    | ) |            |   | (1,878  | )          |  |   |              |       |  |              | (5,481  | )      |              |   |       |        |   |   | (8,315  | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|Operating (loss) income from continuing operations                                                                                                             |                |         | (3,190  | ) |            |   | (23,211 | )          |  |   | (40           | )     |  |              | (41,007 | )      |              |   | (630   | )      |   |   | (68,078 | )      
|Interest and investment income                                                                                                                                 |                |         |        |   |            |   |        |            |  |   |              |       |  |              | 2,561   |        |              |   |       |        |   |   | 2,561   |        
|Interest expense                                                                                                                                               |                |         |        |   |            |   |        |            |  |   |              |       |  |              | (47     | )      |              |   | 609    |        |   |   | 562     |        
|Other expense                                                                                                                                                  |                |         |        |   |            |   |        |            |  |   |              |       |  |              | (2,549  | )      |              |   |       |        |   |   | (2,549  | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|(Loss) income from continuing operations before income taxes,
    equity in net losses of unconsolidated subsidiaries and
    affiliates and minority interest |                |         | (3,190  | ) |            |   | (23,211 | )          |  |   | (40           | )     |  |              | (41,042 | )      |              |   | (21    | )      |   |   | (67,504 | )      
|Income tax (provision) benefit                                                                                                                                 |                |         |        |   |            |   | (707    | )          |  |   | 14            |       |  |              | 497     |        |              |   |       |        |   |   | (196    | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|(Loss) income from continuing operations before equity in net
    losses of unconsolidated subsidiaries and affiliates and
    minority interest               |                |         | (3,190  | ) |            |   | (23,918 | )          |  |   | (26           | )     |  |              | (40,545 | )      |              |   | (21    | )      |   |   | (67,700 | )      
|Equity in net income (losses) of unconsolidated subsidiaries                                                                                                   |                |         | (76,446 | ) |            |   | (26     | )          |  |   |              |       |  |              |        |        |              |   | 76,472 |        |   |   |        |        
|Equity in net income (losses) of affiliates                                                                                                                    |                |         |        |   |            |   |        |            |  |   |              |       |  |              | (403    | )      |              |   |       |        |   |   | (403    | )      
|Minority interest                                                                                                                                              |                |         |        |   |            |   |        |            |  |   |              |       |  |              | 87      |        |              |   |       |        |   |   | 87      |        
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|(Loss) income from continuing operations                                                                                                                       |                |         | (79,636 | ) |            |   | (23,944 | )          |  |   | (26           | )     |  |              | (40,861 | )      |              |   | 76,451 |        |   |   | (68,016 | )      
|Loss from discontinued operations                                                                                                                              |                |         |        |   |            |   |        |            |  |   |              |       |  |              | (11,620 | )      |              |   |       |        |   |   | (11,620 | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  
|Net loss (income)                                                                                                                                              |                | $       | (79,636 | ) |            | $ | (23,944 | )          |  | $ | (26           | )     |  | $            | (52,481 | )      |              | $ | 76,451 |        |   | $ | (79,636 | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |            |  |   |               |       |  |              |         |        |              |  

34



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Three Months Ended March 31, 2004


(In thousands)


|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |   |         |        |         |   |          |         |          |  
|--------------------------------------------------- | ----------------- | -------------------------------------------------------------------------- | ----- | ------- | ---------- | - | ------ | ---------- | ------ | - | ------------- | --- | ------ | ------------ | -------- | ------- | ------------ | - | ------- | ------ | ------- | - | -------- | ------- | -------- | -
|                                                    |                   | Parent                                                                     |       |         | Subsidiary |   |        | Guarantor  |        |   | Non-Guarantor |     |        |              |          |        
|                                                    |                   | Company                                                                    |       |         | Issuer     |   |        | Subsidiary |        |   | Subsidiaries  |     |        | Eliminations |          |         | Consolidated |  
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Operating activities:                               |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |   |         |        |         |   |          |        
|                                                    | Net (loss) income |                                                                            | $     | (79,636 | )          |   | $      | (23,944    | )      |   | $             | (26 | )      |              | $        | (52,481 | )            |   | $       | 76,451 |         |   | $        | (79,636 | )       
|                                                    | Non-cash items:   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |   |         |        |         |   |          |         |         
|                                                    |                   | Loss from discontinued operations                                          |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 11,620       |   |         |        |        |   |          |         | 11,620   |  
|                                                    |                   | Equity in net losses of affiliates                                         |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 403          |   |         |        |        |   |          |         | 403      |  
|                                                    |                   | Minority interest                                                          |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (87          | ) |         |        |        |   |          |         | (87      | )
|                                                    |                   | Equity in net losses of unconsolidated subsidiaries                        |       |         | 76,446     |   |        |            |       |   |               |     |       |              |          |         | 93           |   |         |        | (76,539 | ) |          |         |         |  
|                                                    |                   | Deferred taxes                                                             |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 1,166        |   |         |        | (1,166  | ) |          |         |         |  
|                                                    |                   | Depreciation and amortization                                              |       |         |           |   |        |            | 27,317 |   |               |     | 5,253  |              |          |         | 8,622        |   |         |        |        |   |          |         | 41,192   |  
|                                                    |                   | Provisions for bad debts on billed receivables                             |       |         |           |   |        |            | (104   | ) |               |     | (46    | )            |          |         | 314          |   |         |        |        |   |          |         | 164      |  
|                                                    |                   | Provision for inventory obsolescence                                       |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 287          |   |         |        |        |   |          |         | 287      |  
|                                                    |                   | Impairment charge on satellite and related assets                          |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 11,989       |   |         |        |        |   |          |         | 11,989   |  
|                                                    |                   | Non-cash net (gain) loss on foreign currency transactions
    and interest |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (733         | ) |         |        |        |   |          |         | (733     | )
|Changes in operating assets and liabilities:        |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |   |         |        |         |   |          |        
|                                                    |                   | Accounts receivable, net                                                   |       |         |           |   |        |            | 372    |   |               |     | (326   | )            |          |         | 4,617        |   |         |        |        |   |          |         | 4,663    |  
|                                                    |                   | Contracts-in-process                                                       |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (12,102      | ) |         |        |        |   |          |         | (12,102  | )
|                                                    |                   | Inventories                                                                |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 914          |   |         |        |        |   |          |         | 914      |  
|                                                    |                   | Long-term receivables                                                      |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (5,393       | ) |         |        |        |   |          |         | (5,393   | )
|                                                    |                   | Due (to) from unconsolidated subsidiaries                                  |       |         | 813        |   |        |            | (1,616 | ) |               |     | (6,650 | )            |          |         | (8,757       | ) |         |        | 16,210  |   |          |         |         |  
|                                                    |                   | Other current assets and other assets                                      |       |         | 1,857      |   |        |            | 789    |   |               |     | 1,530  |              |          |         | (3,251       | ) |         |        |        |   |          |         | 925      |  
|                                                    |                   | Accounts payable                                                           |       |         |           |   |        |            | 590    |   |               |     | 250    |              |          |         | (9,855       | ) |         |        |        |   |          |         | (9,015   | )
|                                                    |                   | Accrued expenses and other current liabilities                             |       |         | 164        |   |        |            | 52     |   |               |     |       |              |          |         | 1,061        |   |         |        |        |   |          |         | 1,277    |  
|                                                    |                   | Customer advances and billing in excess of cost                            |       |         |           |   |        |            | 30     |   |               |     | 15     |              |          |         | 46,050       |   |         |        |        |   |          |         | 46,095   |  
|                                                    |                   | Income taxes payable                                                       |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (278         | ) |         |        |        |   |          |         | (278     | )
|                                                    |                   | Pension and other postretirement liabilities                               |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 6,094        |   |         |        |        |   |          |         | 6,094    |  
|                                                    |                   | Long-term liabilities                                                      |       |         |           |   |        |            | (469   | ) |               |     |       |              |          |         | 1,261        |   |         |        |        |   |          |         | 792      |  
|                                                    |                   | Other                                                                      |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (43          | ) |         |        |        |   |          |         | (43      | )
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Net cash (used in) provided by operating activities |                   |                                                                            | (356  | )       |            |   | 3,017  |            |        |   |              |     |        |              | 1,511    |         |              |   | 14,956  |        |         |   | 19,128   |        
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Net cash provided by discontinued operations        |                   |                                                                            |      |         |            |   |       |            |        |   |              |     |        |              | 6,924    |         |              |   |        |        |         |   | 6,924    |        
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Investing activities:                               |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |   |         |        |         |   |          |        
|                                                    |                   | Capital expenditures for continuing operations                             |       |         |           |   |        |            | (178   | ) |               |     |       |              |          |         | 8,924        |   |         |        | (14,956 | ) |          |         | (6,210   | )
|                                                    |                   | Capital expenditures for discontinued operations                           |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (11,185      | ) |         |        |        |   |          |         | (11,185  | )
|                                                    |                   | Proceeds from the sale of assets, net of expenses                          |       |         |           |   |        |            |       |   |               |     |       |              |          |         | 953,619      |   |         |        |        |   |          |         | 953,619  |  
|                                                    |                   | Investments in and advances to affiliates                                  |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (4,799       | ) |         |        |        |   |          |         | (4,799   | )
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Net cash provided by (used in) investing activities |                   |                                                                            |      |         |            |   | (178   | )          |        |   |              |     |        |              | 946,559  |         |              |   | (14,956 | )      |         |   | 931,425  |        
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Financing activities:                               |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |   |         |        |         |   |          |        
|                                                    |                   | Repayments of term loans                                                   |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (576,500     | ) |         |        |        |   |          |         | (576,500 | )
|                                                    |                   | Repayments of revolving credit facilities                                  |       |         |           |   |        |            |       |   |               |     |       |              |          |         | (390,387     | ) |         |        |        |   |          |         | (390,387 | )
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Net cash used in financing activities               |                   |                                                                            |      |         |            |   |       |            |        |   |              |     |        |              | (966,887 | )       |              |   |        |        |         |   | (966,887 | )      
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Increase (decrease) in cash and cash equivalents    |                   |                                                                            | (356  | )       |            |   | 2,839  |            |        |   |              |     |        |              | (11,893  | )       |              |   |        |        |         |   | (9,410   | )      
|Cash and cash equivalents  beginning of period     |                   |                                                                            | 4,481 |         |            |   | 46,831 |            |        |   |              |     |        |              | 90,332   |         |              |   |        |        |         |   | 141,644  |        
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  
|Cash and cash equivalents  end of period           |                   | $                                                                          | 4,125 |         |            | $ | 49,670 |            |        | $ |              |     |        | $            | 78,439   |         |              | $ |        |        |         | $ | 132,234  |        
|                                                    |                   |                                                                            |       |         |            |   |        |            |        |   |               |     |        |              |          |         |              |  

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

The following discussion and analysis should be read in
conjunction with our unaudited condensed consolidated financial
statements (the financial statements) included in
Item 1 and our latest Annual Report on Form 10-K.


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


Disclosure Regarding Forward-Looking Statements


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


Overview




| |           
| | ----------
| | Businesses





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





36



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





Cash and Available Credit






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



37



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##### Table of Contents







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





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











Consolidated Operating Results








38



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Revenues:


|                        |                             |                 |       |       |      |   |       |       | 
|----------------------- | --------------------------- | --------------- | ----- | ----- | ---- | - | ----- | ----- | 
|                        |                             | Three Months    |      
|                        |                             | Ended March 31, |      
|                        |                             |                 |      
|                        |                             | 2005            |       |       | 2004 |  
|                        |                             |                 |       |       |      |  
|                        |                             | (In millions)   |      
|Satellite Services      |                             | $               | 35.9  |       |      | $ | 31.1  |      
|Satellite Manufacturing |                             |                 | 99.6  |       |      |   | 101.0 |      
|                        |                             |                 |       |       |      |  
|Segment revenues        |                             |                 | 135.5 |       |      |   | 132.1 |      
|Eliminations(1)         |                             |                 | (3.1  | )     |      |   | (28.4 | )    
|                        |                             |                 |       |       |      |  
|                        | Revenues as
    reported(2) |                 | $     | 132.4 |      |   | $     | 103.7 | 
|                        |                             |                 |       |       |      |  

Adjusted EBITDA:


|                               |                                             |                 |      |     |      |   |       |       |  
|------------------------------ | ------------------------------------------- | --------------- | ---- | --- | ---- | - | ----- | ----- | -
|                               |                                             | Three Months    |     
|                               |                                             | Ended March 31, |     
|                               |                                             |                 |     
|                               |                                             | 2005            |      |     | 2004 |  
|                               |                                             |                 |      |     |      |  
|                               |                                             | (In millions)   |     
|Satellite
    Services(3)      |                                             | $               | 9.1  |     |      | $ | (10.2 | )    
|Satellite
    Manufacturing(4) |                                             |                 | 4.2  |     |      |   | 3.6   |      
|Corporate
    expenses(5)      |                                             |                 | (5.7 | )   |      |   | (8.6  | )    
|                               |                                             |                 |      |     |      |  
|                               | Segment Adjusted EBITDA before eliminations |                 |      | 7.6 |      |   |       | (15.2 | )
|Eliminations(1)                |                                             |                 | (2.4 | )   |      |   | (3.4  | )    
|                               |                                             |                 |      |     |      |  
|                               | Adjusted EBITDA                             |                 | $    | 5.2 |      |   | $     | (18.6 | )
|                               |                                             |                 |      |     |      |  

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Reconciliation of Adjusted EBITDA to Net Loss:


|                                                |                                           |                 |       |       |      |   |       |       |  
|----------------------------------------------- | ----------------------------------------- | --------------- | ----- | ----- | ---- | - | ----- | ----- | -
|                                                |                                           | Three Months    |      
|                                                |                                           | Ended March 31, |      
|                                                |                                           |                 |      
|                                                |                                           | 2005            |       |       | 2004 |  
|                                                |                                           |                 |       |       |      |  
|                                                |                                           | (In millions)   |      
|Adjusted EBITDA                                 |                                           | $               | 5.2   |       |      | $ | (18.6 | )    
|Depreciation and
    amortization(6)            |                                           |                 | (23.6 | )     |      |   | (41.2 | )    
|Reorganization expenses due to bankruptcy       |                                           |                 | (5.6  | )     |      |   | (8.3  | )    
|                                                |                                           |                 |       |       |      |  
|                                                | Operating loss from continuing operations |                 |       | (24.0 | )    |   |       | (68.1 | )
|Interest and investment income                  |                                           |                 | 1.8   |       |      |   | 2.6   |      
|Interest expense                                |                                           |                 | (1.0  | )     |      |   | 0.5   |      
|Other income (expense)                          |                                           |                 | (0.6  | )     |      |   | (2.5  | )    
|Income tax provision                            |                                           |                 | (1.7  | )     |      |   | (0.2  | )    
|Equity in net losses of affiliates              |                                           |                 | (0.7  | )     |      |   | (0.4  | )    
|Minority interest                               |                                           |                 |      |       |      |   | 0.1   |      
|                                                |                                           |                 |       |       |      |  
|Loss from continuing operations                 |                                           |                 | (26.2 | )     |      |   | (68.0 | )    
|Loss from discontinued operations, net of taxes |                                           |                 |      |       |      |   | (11.6 | )    
|                                                |                                           |                 |       |       |      |  
|                                                | Net loss                                  |                 | $     | (26.2 | )    |   | $     | (79.6 | )
|                                                |                                           |                 |       |       |      |  






|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for Satellite Services and for Satellite
    Services leasing transponder capacity to SS/ L.
|   
|(2) | Includes revenues from affiliates of $2.9 million and
    $3.1 million for the three months ended March 31, 2005
    and 2004, respectively.                                                                                                
|   
|(3) |                                                                                                                                                                                                                                             

|                             |                                                                                                           |                 |   |     |      |  |   |       |  
|---------------------------- | --------------------------------------------------------------------------------------------------------- | --------------- | - | --- | ---- |  | - | ----- | -
|                             |                                                                                                           | Three Months    |  
|                             |                                                                                                           | Ended March 31, |  
|                             |                                                                                                           |                 |  
|                             |                                                                                                           | 2005            |   |     | 2004 | 
|                             |                                                                                                           |                 |   |     |      | 
|Satellite Services includes: |                                                                                                           |                 |   |     |      |  |   |      
|                             | Adjusted EBITDA before specific charges                                                                   |                 | $ | 9.1 |      |  | $ | 1.8   |  
|                             | Impairment charge for Telstar 14/ Estrela do Sul-1 satellite
    (see Note 8 to the financial statements) |                 |   |    |      |  |   | (12.0 | )
|                             |                                                                                                           |                 |   |     |      | 
|                             | Satellite Services segment Adjusted EBITDA before eliminations                                            |                 | $ | 9.1 |      |  | $ | (10.2 | )
|                             |                                                                                                           |                 |   |     |      | 



|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Excludes charges of $10.3 million in 2004, as a result of
    the settlement of all orbital receivables on satellites sold to
    Intelsat. These charges had no effect on our consolidated
    results.                                                 
|   
|(5) | Represents corporate expenses incurred in support of our
    operations.                                                                                                                                                                                 
|   
|(6) | Includes depreciation expense of $23 million for the three
    months ended March 31, 2004 related to our Telstar 11
    satellite for which depreciation was accelerating due to the
    estimated end of depreciable life to June 2004 from March 2005.

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Three Months Ended March 31, 2005 Compared With 2004




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

|                                             |  |               |    |   |             |   |    |            |  |  |    |  
|-------------------------------------------- |  | ------------- | -- | - | ----------- | - | -- | ---------- |  |  | -- | -
|                                             |  | Three Months  |    |   |            
|                                             |  | Ended         |    |   |            
|                                             |  | March 31,     |    |   |            
|                                             |  |               |    |   | % Increase/ |  
|                                             |  | 2005          |    |   | 2004        |   |    | (Decrease) | 
|                                             |  |               |    |   |             |   |    |            | 
|                                             |  | (In millions) |    |   |            
|Revenues from Satellite Services             |  | $             | 36 |   |             | $ | 31 |            |  |  | 15 | %
|Eliminations                                 |  |               | (1 | ) |             |   | (2 | )          |  |  | 28 | %
|                                             |  |               |    |   |             |   |    |            | 
|Revenues from Satellite Services as reported |  | $             | 35 |   |             | $ | 29 |            |  |  | 18 | %
|                                             |  |               |    |   |             |   |    |            | 





| |                                      
| | -------------------------------------
| | Revenues from Satellite Manufacturing

|                                                  |  |               |     |   |             |   |     |            |  |  |    |   
|------------------------------------------------- |  | ------------- | --- | - | ----------- | - | --- | ---------- |  |  | -- | --
|                                                  |  | Three Months  |     |   |            
|                                                  |  | Ended         |     |   |            
|                                                  |  | March 31,     |     |   |            
|                                                  |  |               |     |   | % Increase/ |  
|                                                  |  | 2005          |     |   | 2004        |   |     | (Decrease) | 
|                                                  |  |               |     |   |             |   |     |            | 
|                                                  |  | (In millions) |     |   |            
|Revenues from Satellite Manufacturing             |  | $             | 100 |   |             | $ | 101 |            |  |  | (1 | )%
|Eliminations                                      |  |               | (2  | ) |             |   | (27 | )          |  |  | 93 | % 
|                                                  |  |               |     |   |             |   |     |            | 
|Revenues from Satellite Manufacturing as reported |  | $             | 98  |   |             | $ | 74  |            |  |  | 31 | % 
|                                                  |  |               |     |   |             |   |     |            | 





| |                           
| | --------------------------
| | Cost of Satellite Services

|                                                                                 |                                                               |               |     |    |             |   |     |            |  |  |     |     |   
|-------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------- | --- | -- | ----------- | - | --- | ---------- |  |  | --- | --- | --
|                                                                                 |                                                               | Three Months  |     |    |            
|                                                                                 |                                                               | Ended         |     |    |            
|                                                                                 |                                                               | March 31,     |     |    |            
|                                                                                 |                                                               |               |     |    | % Increase/ |  
|                                                                                 |                                                               | 2005          |     |    | 2004        |   |     | (Decrease) | 
|                                                                                 |                                                               |               |     |    |             |   |     |            | 
|                                                                                 |                                                               | (In millions) |     |    |            
|Cost of Satellite Services includes:                                             |                                                               |               |     |    |             |   |     |            |  |  |     |    
|                                                                                 | Cost of Satellite Services before specific identified charges |               | $   | 16 |             |   | $   | 16         |  |  |     | 1   | % 
|                                                                                 | Impairment charge for Telstar 14/ Estrela do Sul-1 satellite  |               |     |   |             |   |     | 12         |  |  |     |     |   
|                                                                                 | Depreciation and amortization                                 |               |     | 19 |             |   |     | 36         |  |  |     | (46 | )%
|                                                                                 |                                                               |               |     |    |             |   |     |            | 
|Total cost of Satellite Services as reported                                     |                                                               | $             | 35  |    |             | $ | 64  |            |  |  | (45 | )% 
|                                                                                 |                                                               |               |     |    |             |   |     |            | 
|Cost of Satellite Services as a % of Satellite Services revenues
    as reported |                                                               |               | 102 | %  |             |   | 217 | %          |  |  |     |    



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| |                                
| | -------------------------------
| | Cost of Satellite Manufacturing

|                                                                                           |                                 |               |    |    |             |   |    |            |  |  |    |     |   
|------------------------------------------------------------------------------------------ | ------------------------------- | ------------- | -- | -- | ----------- | - | -- | ---------- |  |  | -- | --- | --
|                                                                                           |                                 | Three Months  |    |    |            
|                                                                                           |                                 | Ended         |    |    |            
|                                                                                           |                                 | March 31,     |    |    |            
|                                                                                           |                                 |               |    |    | % Increase/ |  
|                                                                                           |                                 | 2005          |    |    | 2004        |   |    | (Decrease) | 
|                                                                                           |                                 |               |    |    |             |   |    |            | 
|                                                                                           |                                 | (In millions) |    |    |            
|Cost of Satellite Manufacturing includes:                                                  |                                 |               |    |    |             |   |    |            |  |  |    |    
|                                                                                           | Cost of Satellite Manufacturing |               | $  | 84 |             |   | $  | 63         |  |  |    | 33  | % 
|                                                                                           | Depreciation and amortization   |               |    | 4  |             |   |    | 5          |  |  |    | (21 | )%
|                                                                                           |                                 |               |    |    |             |   |    |            | 
|Total cost of Satellite Manufacturing as reported                                          |                                 | $             | 88 |    |             | $ | 68 |            |  |  | 29 | %  
|                                                                                           |                                 |               |    |    |             |   |    |            | 
|Cost of Satellite Manufacturing as a % of Satellite
    Manufacturing revenues as reported |                                 |               | 90 | %  |             |   | 92 | %          |  |  |    |    





| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses

|                                             |  |               |    |   |             |   |    |            |  |  |     |   
|-------------------------------------------- |  | ------------- | -- | - | ----------- | - | -- | ---------- |  |  | --- | --
|                                             |  | Three Months  |    |   |            
|                                             |  | Ended         |    |   |            
|                                             |  | March 31,     |    |   |            
|                                             |  |               |    |   | % Increase/ |  
|                                             |  | 2005          |    |   | 2004        |   |    | (Decrease) | 
|                                             |  |               |    |   |             |   |    |            | 
|                                             |  | (In millions) |    |   |            
|Selling, general and administrative expenses |  | $             | 27 |   |             | $ | 32 |            |  |  | (14 | )%
|% of revenues as reported                    |  |               | 21 | % |             |   | 30 | %          |  |  |     |   





| |                                          
| | -----------------------------------------
| | Reorganization Expenses Due to Bankruptcy

|                                          |  |               |   |  |             |   |   |            |  |  |     |   
|----------------------------------------- |  | ------------- | - |  | ----------- | - | - | ---------- |  |  | --- | --
|                                          |  | Three Months  |   |  |            
|                                          |  | Ended         |   |  |            
|                                          |  | March 31,     |   |  |            
|                                          |  |               |   |  | % Increase/ |  
|                                          |  | 2005          |   |  | 2004        |   |   | (Decrease) | 
|                                          |  |               |   |  |             |   |   |            | 
|                                          |  | (In millions) |   |  |            
|Reorganization expenses due to bankruptcy |  | $             | 6 |  |             | $ | 8 |            |  |  | (32 | )%





| |                               
| | ------------------------------
| | Interest and Investment Income

|                               |  |               |   |  |             |   |   |            |  |  |     |   
|------------------------------ |  | ------------- | - |  | ----------- | - | - | ---------- |  |  | --- | --
|                               |  | Three Months  |   |  |            
|                               |  | Ended         |   |  |            
|                               |  | March 31,     |   |  |            
|                               |  |               |   |  | % Increase/ |  
|                               |  | 2005          |   |  | 2004        |   |   | (Decrease) | 
|                               |  |               |   |  |             |   |   |            | 
|                               |  | (In millions) |   |  |            
|Interest and investment income |  | $             | 2 |  |             | $ | 3 |            |  |  | (30 | )%

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##### Table of Contents







| |                 
| | ----------------
| | Interest Expense

|                                          |  |               |   |  |      |   |    |  
|----------------------------------------- |  | ------------- | - |  | ---- | - | -- | -
|                                          |  | Three Months  |  
|                                          |  | Ended         |  
|                                          |  | March 31,     |  
|                                          |  |               |  
|                                          |  | 2005          |   |  | 2004 |  
|                                          |  |               |   |  |      |  
|                                          |  | (In millions) |  
|Interest cost before capitalized interest |  | $             | 1 |  |      | $ |   |  
|Capitalized interest                      |  |               |  |  |      |   | (1 | )
|                                          |  |               |   |  |      |  
|Interest expense                          |  | $             | 1 |  |      | $ | (1 | )
|                                          |  |               |   |  |      |  





| |                       
| | ----------------------
| | Other Income (Expense)





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





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

|     |  |                 |      |   |      |   |      |  
|---- |  | --------------- | ---- | - | ---- | - | ---- | -
|     |  | Three Months    |     
|     |  | Ended March 31, |     
|     |  |                 |     
|     |  | 2005            |      |   | 2004 |  
|     |  |                 |      |   |      |  
|     |  | (In millions)   |     
|XTAR |  | $               | (0.7 | ) |      | $ | (0.4 | )
|     |  |                 |      |   |      |  





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

Interest Expense


43



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##### Table of Contents





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



| |             
| | ------------
| | Consolidated





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





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



Liquidity and Capital Resources




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









44



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##### Table of Contents











| |                        
| | -----------------------
| | Contractual Obligations





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







| |                                             
| | --------------------------------------------
| | Net Cash Provided by Discontinued Operations



45



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##### Table of Contents





| |                                                    
| | ---------------------------------------------------
| | Net Cash (Used in) Provided by Investing Activities







| |                                      
| | -------------------------------------
| | Net Cash Used in Financing Activities





| |                  
| | -----------------
| | Affiliate Matters



Commitments and Contingencies




| |             
| | ------------
| | Risk Factors



Other Matters




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





|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk



|                                            |  |              |       |  |        |   |      | 
|------------------------------------------- |  | ------------ | ----- |  | ------ | - | ---- | 
|                                            |  | Japanese Yen |       |  | U.S. $ |  
|                                            |  |              |       |  |        |  
|Future revenues                             |  | ¥            | 1,248 |  |        | $ | 11.6 | 
|Future expenditures                         |  |              | 421   |  |        |   | 3.9  | 
|Contracts-in-process (unbilled receivables) |  |              | 1,732 |  |        |   | 16.1 | 



46



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##### Table of Contents





|        |                                   
|------- | ----------------------------------
|Item 4. | Disclosure Controls and Procedures

Disclosure controls and procedures.


Internal control over financial reporting.





PART II.


OTHER INFORMATION




|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings











|        |                                
|------- | -------------------------------
|Item 3. | Defaults Upon Senior Securities





47



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##### Table of Contents









|        |                                 
|------- | --------------------------------
|Item 6. | Exhibits and Reports on Form 8-K

















|                  |  |                                     |  |                                                                                                                                                                              
|----------------- |  | ----------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report    |  |                                     |  | Description                                                                                                                                                                  
|                  |  |                                     |  |                                                                                                                                                                              
|January 7, 2005   |  | Item 7.01. Regulation FD Disclosure |  | Monthly Operating report for the period of October 23, 2004
    through November 19, 2004 as filed with the
    U.S. Bankruptcy Court for the Southern District of New York. 
|                 
|February 4, 2005  |  | Item 7.01. Regulation FD Disclosure |  | Monthly Operating report for the period of November 20,
    2004 through December 31, 2004 as filed with the
    U.S. Bankruptcy Court for the Southern District of New York.
|                 
|February 23, 2005 |  | Item 8.01 Other Events              |  | Approved 2004 cash bonus payments for the employees of the
    Company and its subsidiaries.                                                                                 
|                 
|February 28, 2005 |  | Item 8.01. Other Events             |  | The Company has been selected to build Galaxy 18, a new
    Fixed Satellite Service (FSS) satellite.                                                                         
|                  |  |                                     |  | The Company agreed to sell its BTV product line.                                                                                                                             

48



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##### Table of Contents



|               |  |                                              |  |                                                                                                                                                                                                                                            
|-------------- |  | -------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report |  |                                              |  | Description                                                                                                                                                                                                                                
|               |  |                                              |  |                                                                                                                                                                                                                                            
|               |  | Item 9.01. Financial Statements and Exhibits |  | Press Release re: Galaxy 18 FSS satellite                                                                                                                                                                                                  
|               |  |                                              |  | Press Release re: sale of BTV product line                                                                                                                                                                                                 
|              
|March 9, 2005  |  | Item 7.01. Regulation FD Disclosure          |  | Monthly Operating report for the period of January 1, 2005
    through January 28, 2005 as filed with the
    U.S. Bankruptcy Court for the Southern District of New York.                                                                 
|              
|March 16, 2005 |  | Item 8.01. Other Events                      |  | The examiner appointed in the chapter 11 cases, filed his
    report with the U.S. Bankruptcy Court for the Southern
    District of New York.                                                                                             
|              
|March 28, 2005 |  | Item 8.01. Other Events                      |  | The Company filed its third amended plan of reorganization with
    the U.S. Bankruptcy Court for the Southern District of New
    York.                                                                                                   
|               |  | Item 9.01. Financial Statements and Exhibits |  | Third Amended Joint Plan of Reorganization.                                                                                                                                                                                                
|              
|March 28, 2005 |  | Item 7.01. Regulation FD Disclosure          |  | Amended Monthly Operating reports for the period of
    November 20, 2004 through December 31, 2004 and
    January 1, 2005 through January 28, 2005 as filed with
    the U.S. Bankruptcy Court for the Southern District of New
    York.
|              
|March 30, 2005 |  | Item 7.01 Regulation FD Disclosure           |  | Disclosure statement for the third amended joint plan of
    reorganization as filed with the U.S. Bankruptcy Court for
    the Southern District of New York.                                                                             
|               |  |                                              |  | Annual report for the fiscal year ended December 31, 2004
    with the Bankruptcy Court.                                                                                                                                                   

49



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##### Table of Contents






SIGNATURES






| |                                      
| | -------------------------------------
| | Registrant                           
|
| | Loral Space &
    Communications Ltd.
|
| | /s/ Richard J. Townsend              
| |                                      
| | Richard J. Townsend                  
| | Executive Vice President and         
| | Chief Financial Officer              
| | (Principal Financial Officer)        
| | and Registrants Authorized Officer  



50



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##### Table of Contents






EXHIBIT INDEX


|             |  |   |  |                                                                                                                                              
|------------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  |   |  | Description                                                                                                                                  
|             |  |   |  |                                                                                                                                              
|Exhibit 12   |  |  |  | Computation of Deficiency of Earnings to Cover Fixed Charges                                                                                 
|Exhibit 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
|Exhibit 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
|Exhibit 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
|Exhibit 32.2 |  |  |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002