##### 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 June 30, 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
|Six Months Ended June 30, 2004                                                                                
|CONDENSED CONSOLIDATING BALANCE SHEET                                                                         
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS                                                               
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Six Months Ended June 30, 2005 (In thousands) (Unaudited)     
|CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS                                                               
|CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2004                                                       
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS                                                               
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS                                                               
|CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS                                                               
|PART II. OTHER INFORMATION                                                                                    
|SIGNATURES                                                                                                    
|EXHIBIT INDEX                                                                                                 
|EX-12: COMPUTATION OF DEFICIENCY OF EARNINGS                                                                  
|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)


|                                                               |                                      |                                                               |                                             |            |              |            |           |            |         |            |  
|-------------------------------------------------------------- | ------------------------------------ | ------------------------------------------------------------- | ------------------------------------------- | ---------- | ------------ | ---------- | --------- | ---------- | ------- | ---------- | -
|                                                               |                                      | June 30,                                                      |                                             |            | December 31, |           
|                                                               |                                      | 2005                                                          |                                             |            | 2004         |           
|                                                               |                                      |                                                               |                                             |            |              |           
|ASSETS                                                        
|Current assets:                                                |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Cash and cash equivalents            |                                                               | $                                           | 176,279    |              |            | $         | 147,773    |        
|                                                               | Accounts receivable, net             |                                                               |                                             | 12,039     |              |            |           | 12,132     |        
|                                                               | Contracts-in-process                 |                                                               |                                             | 47,869     |              |            |           | 19,040     |        
|                                                               | Inventories                          |                                                               |                                             | 38,324     |              |            |           | 37,412     |        
|                                                               | Other current assets                 |                                                               |                                             | 25,017     |              |            |           | 21,096     |        
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total current assets                        |            |              | 299,528    |           |            |         | 237,453    |  
|Property, plant and equipment, net                             |                                      |                                                               | 623,535                                     |            |              |            | 798,908   |           
|Long-term receivables                                          |                                      |                                                               | 89,003                                      |            |              |            | 74,851    |           
|Investments in and advances to affiliates                      |                                      |                                                               | 54,978                                      |            |              |            | 49,181    |           
|Deposits                                                       |                                      |                                                               | 9,938                                       |            |              |            | 9,832     |           
|Other assets                                                   |                                      |                                                               | 43,783                                      |            |              |            | 48,508    |           
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total assets                                |            | $            | 1,120,765  |           |            | $       | 1,218,733  |  
|                                                               |                                      |                                                               |                                             |            |              |           
|LIABILITIES AND SHAREHOLDERS DEFICIT                         
|Liabilities not subject to compromise:                         |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Current liabilities:                 |                                                               |                                             |            |              |            |           |            |        
|                                                               |                                      | Accounts payable                                              |                                             | $          | 35,411       |            |           | $          | 33,248  |           
|                                                               |                                      | Accrued employment costs                                      |                                             |            | 30,463       |            |           |            | 34,385  |           
|                                                               |                                      | Customer advances and billings in excess of costs and profits |                                             |            | 100,860      |            |           |            | 164,981 |           
|                                                               |                                      | Deferred gain on sale of assets (Note 4)                      |                                             |            |             |            |           |            | 10,545  |           
|                                                               |                                      | Income taxes payable                                          |                                             |            | 1,042        |            |           |            | 2,359   |           
|                                                               |                                      | Other current liabilities                                     |                                             |            | 17,044       |            |           |            | 16,639  |           
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total current liabilities                   |            |              | 184,820    |           |            |         | 262,157    |  
|                                                               | Pension liabilities (Note 3)         |                                                               |                                             | 1,777      |              |            |           | 942        |        
|                                                               | Long-term liabilities                |                                                               |                                             | 80,961     |              |            |           | 81,355     |        
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total liabilities not subject to compromise |            |              | 267,558    |           |            |         | 344,454    |  
|Liabilities subject to compromise (Note 11)                    |                                      |                                                               | 1,929,224                                   |            |              |            | 1,916,000 |           
|Minority interest                                              |                                      |                                                               | 2,337                                       |            |              |            | 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                |                                                               |                                             | (47        | )            |            |           | (87        | )      
|                                                               | Retained deficit                     |                                                               |                                             | (4,381,857 | )            |            |           | (4,348,231 | )      
|                                                               | Accumulated other comprehensive loss |                                                               |                                             | (90,328    | )            |            |           | (89,661    | )      
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total shareholders deficit                 |            |              | (1,078,354 | )         |            |         | (1,044,101 | )
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total liabilities and shareholders deficit |            | $            | 1,120,765  |           |            | $       | 1,218,733  |  
|                                                               |                                      |                                                               |                                             |            |              |           



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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 |         |         | Six Months Ended |  
|                                                                                                                                                                                                    |                         | June 30,           |         |         | June 30,         |  
|                                                                                                                                                                                                    |                         |                    |         |         |                  |  
|                                                                                                                                                                                                    |                         | 2005               |         |         | 2004             |   |         | 2005    |   |   | 2004    |        
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Revenues from satellite services                                                                                                                                                                    |                         | $                  | 36,256  |         |                  | $ | 38,730  |         |   | $ | 70,827  |         |   | $ | 67,981   |        
|Revenues from satellite manufacturing                                                                                                                                                               |                         |                    | 100,506 |         |                  |   | 74,973  |         |   |   | 198,313 |         |   |   | 149,406  |        
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|                                                                                                                                                                                                    | Total revenues          |                    |         | 136,762 |                  |   |         | 113,703 |   |   |         | 269,140 |   |   |          | 217,387 |  
|Cost of satellite services                                                                                                                                                                          |                         |                    | 30,792  |         |                  |   | 52,611  |         |   |   | 65,963  |         |   |   | 116,192  |        
|Cost of satellite manufacturing                                                                                                                                                                     |                         |                    | 86,713  |         |                  |   | 79,232  |         |   |   | 174,950 |         |   |   | 147,531  |        
|Selling, general and administrative expenses                                                                                                                                                        |                         |                    | 29,015  |         |                  |   | 30,794  |         |   |   | 56,312  |         |   |   | 62,361   |        
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Loss from continuing operations before reorganization expenses
    due to bankruptcy                                                                                                                |                         |                    | (9,758  | )       |                  |   | (48,934 | )       |   |   | (28,085 | )       |   |   | (108,697 | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                           |                         |                    | (6,983  | )       |                  |   | (9,555  | )       |   |   | (12,615 | )       |   |   | (17,870  | )      
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Operating loss from continuing operations                                                                                                                                                           |                         |                    | (16,741 | )       |                  |   | (58,489 | )       |   |   | (40,700 | )       |   |   | (126,567 | )      
|Interest and investment income                                                                                                                                                                      |                         |                    | 2,343   |         |                  |   | 2,473   |         |   |   | 4,131   |         |   |   | 5,034    |        
|Interest expense (contractual interest was $12,346 and $11,269
    for the three months and $24,200 and $21,583 for the six months
    ended June 30, 2005 and 2004, respectively, see
    Note 12) |                         |                    | (1,470  | )       |                  |   | (393    | )       |   |   | (2,448  | )       |   |   | 169      |        
|Other expense                                                                                                                                                                                       |                         |                    | (349    | )       |                  |   | (1,453  | )       |   |   | (966    | )       |   |   | (4,002   | )      
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Loss from continuing operations before income taxes, equity
    income (losses) in affiliates and minority interest                                                                                 |                         |                    | (16,217 | )       |                  |   | (57,862 | )       |   |   | (39,983 | )       |   |   | (125,366 | )      
|Income tax provision                                                                                                                                                                                |                         |                    | (1,770  | )       |                  |   | (11,987 | )       |   |   | (3,500  | )       |   |   | (12,183  | )      
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Loss from continuing operations before equity income (losses) in
    affiliates and minority interest                                                                                               |                         |                    | (17,987 | )       |                  |   | (69,849 | )       |   |   | (43,483 | )       |   |   | (137,549 | )      
|Equity income (losses) in affiliates (Note 9)                                                                                                                                                       |                         |                    | (818    | )       |                  |   | 46,983  |         |   |   | (1,557  | )       |   |   | 46,580   |        
|Minority interest                                                                                                                                                                                   |                         |                    | 29      |         |                  |   | 39      |         |   |   | 43      |         |   |   | 126      |        
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Loss from continuing operations                                                                                                                                                                     |                         |                    | (18,776 | )       |                  |   | (22,827 | )       |   |   | (44,997 | )       |   |   | (90,843  | )      
|Income (loss) from discontinued operations (Note 4)                                                                                                                                                 |                         |                    |        |         |                  |   | 158     |         |   |   |        |         |   |   | (11,462  | )      
|Gain on sale of discontinued operations, net of taxes
    (Note 4)                                                                                                                                  |                         |                    | 11,371  |         |                  |   |        |         |   |   | 11,371  |         |   |   |         |        
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Net loss                                                                                                                                                                                            |                         | $                  | (7,405  | )       |                  | $ | (22,669 | )       |   | $ | (33,626 | )       |   | $ | (102,305 | )      
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Basic and diluted (loss) earnings per share (Note 15):                                                                                                                                              |                         |                    |         |         |                  |   |         |         |   |   |         |         |   |   |          |        
|                                                                                                                                                                                                    | Continuing operations   |                    | $       | (0.43   | )                |   | $       | (0.51   | ) |   | $       | (1.02   | ) |   | $        | (2.06   | )
|                                                                                                                                                                                                    | Discontinued operations |                    |         | 0.26    |                  |   |         |        |   |   |         | 0.26    |   |   |          | (0.26   | )
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|                                                                                                                                                                                                    | Loss per share          |                    | $       | (0.17   | )                |   | $       | (0.51   | ) |   | $       | (0.76   | ) |   | $        | (2.32   | )
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        
|Weighted average shares outstanding:                                                                                                                                                                |                         |                    |         |         |                  |   |         |         |   |   |         |         |   |   |          |        
|                                                                                                                                                                                                    | Basic and diluted       |                    |         | 44,108  |                  |   |         | 44,108  |   |   |         | 44,108  |   |   |          | 44,108  |  
|                                                                                                                                                                                                    |                         |                    |         |         |                  |   |         |         |   |   |         |        



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)


|                                                                                 |                                                                            |                  |         |         |      |   |          |          |  
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------- | ------- | ------- | ---- | - | -------- | -------- | -
|                                                                                 |                                                                            | Six Months Ended |        
|                                                                                 |                                                                            | June 30,         |        
|                                                                                 |                                                                            |                  |        
|                                                                                 |                                                                            | 2005             |         |         | 2004 |  
|                                                                                 |                                                                            |                  |         |         |      |  
|Operating activities:                                                            |                                                                            |                  |         |         |      |   |          |         
|Net loss                                                                         |                                                                            | $                | (33,626 | )       |      | $ | (102,305 | )       
|Non-cash items:                                                                  |                                                                            |                  |         |         |      |   |          |         
|                                                                                 | Gain on sale of discontinued operations, net of taxes
    (Note 4)         |                  |         | (11,371 | )    |   |          |         |  
|                                                                                 | Loss from discontinued operations                                          |                  |         |        |      |   |          | 11,462   |  
|                                                                                 | Equity (income) losses in affiliates                                       |                  |         | 1,557   |      |   |          | (46,580  | )
|                                                                                 | Minority interest                                                          |                  |         | (43     | )    |   |          | (126     | )
|                                                                                 | Deferred taxes                                                             |                  |         | 326     |      |   |          | 11,434   |  
|                                                                                 | Depreciation and amortization                                              |                  |         | 43,580  |      |   |          | 84,121   |  
|                                                                                 | Provisions (recoveries) for bad debts on billed receivables                |                  |         | (553    | )    |   |          | 358      |  
|                                                                                 | Warranty accrual relating to pre-existing contracts                        |                  |         | 6,103   |      |   |          |         |  
|                                                                                 | Impairment charge on satellite and related assets                          |                  |         |        |      |   |          | 11,989   |  
|                                                                                 | Loss on equipment disposals                                                |                  |         | 2,495   |      |   |          |         |  
|                                                                                 | Lease revenue straightline adjustment                                      |                  |         |        |      |   |          | 1,149    |  
|                                                                                 | Non-cash net (gain) loss on foreign currency transactions
    and interest |                  |         | 767     |      |   |          | (2,230   | )
|                                                                                 | Provisions for inventory obsolescence                                      |                  |         |        |      |   |          | 287      |  
|Changes in operating assets and liabilities:                                     |                                                                            |                  |         |         |      |   |          |         
|                                                                                 | Accounts receivable, net                                                   |                  |         | 646     |      |   |          | 8,086    |  
|                                                                                 | Contracts-in-process                                                       |                  |         | (44,218 | )    |   |          | 29,856   |  
|                                                                                 | Inventories                                                                |                  |         | (912    | )    |   |          | 3,240    |  
|                                                                                 | Long-term receivables                                                      |                  |         | (2,628  | )    |   |          | (6,264   | )
|                                                                                 | Deposits                                                                   |                  |         | (106    | )    |   |          |         |  
|                                                                                 | Other current assets and other assets                                      |                  |         | 2,107   |      |   |          | 4,021    |  
|                                                                                 | Accounts payable                                                           |                  |         | 347     |      |   |          | (8,452   | )
|                                                                                 | Accrued expenses and other current liabilities                             |                  |         | (2,273  | )    |   |          | (1,964   | )
|                                                                                 | Customer advances                                                          |                  |         | (67,199 | )    |   |          | 72,220   |  
|                                                                                 | Income taxes payable                                                       |                  |         | 1,648   |      |   |          | (814     | )
|                                                                                 | Pension and other postretirement liabilities                               |                  |         | 9,127   |      |   |          | 9,039    |  
|                                                                                 | Long-term liabilities                                                      |                  |         | 2,103   |      |   |          | (3,362   | )
|                                                                                 | Other                                                                      |                  |         | (149    | )    |   |          | 6        |  
|                                                                                 |                                                                            |                  |         |         |      |  
|Net cash (used in) provided by operating activities of
    continuing operations |                                                                            |                  | (92,272 | )       |      |   | 75,171   |         
|                                                                                 |                                                                            |                  |         |         |      |  
|Net cash provided by discontinued operations                                     |                                                                            |                  |        |         |      |   | 29,445   |         
|                                                                                 |                                                                            |                  |         |         |      |  
|Net cash (used in) provided by operating activities                              |                                                                            |                  | (92,272 | )       |      |   | 104,616  |         
|                                                                                 |                                                                            |                  |         |         |      |  
|Investing activities:                                                            |                                                                            |                  |         |         |      |   |          |         
|                                                                                 | Capital expenditures for continuing operations                             |                  |         | (2,967  | )    |   |          | (23,630  | )
|                                                                                 | Decrease (increase) in restricted cash in escrow                           |                  |         | 1,600   |      |   |          | (6,720   | )
|                                                                                 | Insurance proceeds received (Note 2)                                       |                  |         | 129,355 |      |   |          |         |  
|                                                                                 | Investments in and advances to affiliates                                  |                  |         | (7,354  | )    |   |          | (4,798   | )
|                                                                                 |                                                                            |                  |         |         |      |  
|Net cash provided by (used in) investing activities of
    continuing operations |                                                                            |                  | 120,634 |         |      |   | (35,148  | )       
|                                                                                 |                                                                            |                  |         |         |      |  
|Proceeds from the sales of assets, net of expenses (Note 2)                      |                                                                            |                  | 144     |         |      |   | 953,619  |         
|Capital expenditures for discontinued operations                                 |                                                                            |                  |        |         |      |   | (11,185  | )       
|                                                                                 |                                                                            |                  |         |         |      |  
|Net cash provided by discontinued operations                                     |                                                                            |                  | 144     |         |      |   | 942,434  |         
|                                                                                 |                                                                            |                  |         |         |      |  
|Net cash provided by investing activities                                        |                                                                            |                  | 120,778 |         |      |   | 907,286  |         
|                                                                                 |                                                                            |                  |         |         |      |  
|Financing activities:                                                            |                                                                            |                  |         |         |      |   |          |         
|                                                                                 | Repayments of term loans                                                   |                  |         |        |      |   |          | (576,500 | )
|                                                                                 | Repayments of revolving credit facilities                                  |                  |         |        |      |   |          | (390,387 | )
|                                                                                 |                                                                            |                  |         |         |      |  
|Net cash used in financing activities                                            |                                                                            |                  |        |         |      |   | (966,887 | )       
|                                                                                 |                                                                            |                  |         |         |      |  
|Increase in cash and cash equivalents                                            |                                                                            |                  | 28,506  |         |      |   | 45,015   |         
|                                                                                 | Cash and cash equivalents  beginning of period                            |                  |         | 147,773 |      |   |          | 141,644  |  
|                                                                                 |                                                                            |                  |         |         |      |  
|                                                                                 | Cash and cash equivalents  end of period                                  |                  | $       | 176,279 |      |   | $        | 186,659  |  
|                                                                                 |                                                                            |                  |         |         |      |  



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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





| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | New Loral will emerge as a public company under current
    management and will seek listing on a major stock exchange.                                                                    
|
| |  | 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.                                                                                                                                                           

5



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    77 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 were also 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
    was underwritten by certain Loral Orion creditors (the
    Backstop Purchasers) who will receive a $6 million
    fee which is payable in additional New Skynet notes. The rights
    offering expired on July 29, 2005, with creditors
    subscribing for approximately $98.3 million of notes. The
    remaining $21.7 million of notes will be subscribed for by the
    Backstop Purchasers.
|
| |  | Loral bondholders and certain other unsecured creditors will
    receive approximately 23 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      











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



6



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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



7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                   |  |                    |        |   |                  |   |        |                |  |   |                  |   |  |      |        |   |      |   |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|---------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | -------------- |  | - | ---------------- | - |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                   |  | Pension Benefits   |        |   | Other Benefits   |  
|                                   |  |                    |        |   |                  |  
|                                   |  | Three Months Ended |        |   | Six Months Ended |   |        | Three Months   |  |   | Six Months Ended |  
|                                   |  | June 30,           |        |   | June 30,         |   |        | Ended June 30, |  |   | June 30,         |  
|                                   |  |                    |        |   |                  |   |        |                |  |   |                  |  
|                                   |  | 2005               |        |   | 2004             |   |        | 2005           |  |   | 2004             |   |  | 2005 |        |   | 2004 |   |       | 2005 |  |   | 2004  |  
|                                   |  |                    |        |   |                  |   |        |                |  |   |                  |   |  |      |        |   |      |   |       |      |  |   |       |  
|Service cost                       |  | $                  | 2,846  |   |                  | $ | 2,324  |                |  | $ | 5,692            |   |  | $    | 4,648  |   |      | $ | 352   |      |  | $ | 274   |   |  | $ | 704   |   |  | $ | 548   |  
|Interest cost                      |  |                    | 5,778  |   |                  |   | 5,548  |                |  |   | 11,556           |   |  |      | 11,096 |   |      |   | 1,313 |      |  |   | 1,069 |   |  |   | 2,626 |   |  |   | 2,138 |  
|Expected return on plan assets     |  |                    | (5,105 | ) |                  |   | (4,870 | )              |  |   | (10,210          | ) |  |      | (9,740 | ) |      |   | (15   | )    |  |   | (20   | ) |  |   | (30   | ) |  |   | (40   | )
|Amortization of prior service cost |  |                    | (9     | ) |                  |   | (9     | )              |  |   | (18              | ) |  |      | (18    | ) |      |   | (481  | )    |  |   | (483  | ) |  |   | (962  | ) |  |   | (966  | )
|Amortization of net loss           |  |                    | 1,557  |   |                  |   | 1,164  |                |  |   | 3,114            |   |  |      | 2,328  |   |      |   | 693   |      |  |   | 564   |   |  |   | 1,386 |   |  |   | 1,128 |  
|                                   |  |                    |        |   |                  |   |        |                |  |   |                  |   |  |      |        |   |      |   |       |      |  |   |       |  
|                                   |  | $                  | 5,067  |   |                  | $ | 4,157  |                |  | $ | 10,134           |   |  | $    | 8,314  |   |      | $ | 1,862 |      |  | $ | 1,404 |   |  | $ | 3,724 |   |  | $ | 2,808 |  
|                                   |  |                    |        |   |                  |   |        |                |  |   |                  |   |  |      |        |   |      |   |       |      |  |   |       |  



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



|                          |                                                                              |                         |   |       |        |   |   |        |        |  
|------------------------- | ---------------------------------------------------------------------------- | ----------------------- | - | ----- | ------ | - | - | ------ | ------ | -
|                          |                                                                              | Six Months Ended        |  
|                          |                                                                              | June 30,                |  
|                          |                                                                              |                         |  
|                          |                                                                              | 2005                    |   |       | 2004   |  
|                          |                                                                              |                         |   |       |        |  
|Non-cash activities:      |                                                                              |                         |   |       |        |   |   |       
|                          | Unrealized (losses) gains on available-for-sale securities, net
    of taxes |                         | $ | (45   | )      |   | $ | 8,142  |       
|                          |                                                                              |                         |   |       |        |  
|                          | Unrealized net losses on derivatives, net of taxes                           |                         | $ | (473  | )      |   | $ | (1,483 | )     
|                          |                                                                              |                         |   |       |        |  
|Supplemental information: |                                                                              |                         |   |       |        |   |   |       
|                          | Taxes paid, net of refunds                                                   |                         | $ | 1,537 |        |   | $ | 1,793  |       
|                          |                                                                              |                         |   |       |        |  
|                          | Interest paid, net of capitalized interest                                   |                         | $ |      |        |   | $ |       |       
|                          |                                                                              |                         |   |       |        |  
|                          | Cash (paid) received for reorganization items:                               |                         |   |       |        |   |   |        |       
|                          |                                                                              | Professional fees       |   | $     | (8,841 | ) |   | $      | (8,694 | )
|                          |                                                                              |                         |   |       |        |  
|                          |                                                                              | Retention costs         |   | $     |       |   |   | $      | (5,755 | )
|                          |                                                                              |                         |   |       |        |  
|                          |                                                                              | Severance costs         |   | $     |       |   |   | $      | (917   | )
|                          |                                                                              |                         |   |       |        |  
|                          |                                                                              | Vendor settlement gains |   | $     |       |   |   | $      | (36    | )
|                          |                                                                              |                         |   |       |        |  
|                          |                                                                              | Restructuring costs     |   | $     | (55    | ) |   | $      |       |  
|                          |                                                                              |                         |   |       |        |  
|                          |                                                                              | Interest income         |   | $     | 1,277  |   |   | $      | 494    |  
|                          |                                                                              |                         |   |       |        |  



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



8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |  |                |        |  |                  |   |     |         |  |   |        |  |  |   |         |  
|----------------------------------------------------- |  | -------------- | ------ |  | ---------------- | - | --- | ------- |  | - | ------ |  |  | - | ------- | -
|                                                      |  | Three Months   |        |  | Six Months Ended |  
|                                                      |  | Ended June 30, |        |  | June 30,         |  
|                                                      |  |                |        |  |                  |  
|                                                      |  | 2005(a)        |        |  | 2004             |   |     | 2005(a) |  |   | 2004   | 
|                                                      |  |                |        |  |                  |   |     |         |  |   |        | 
|                                                      |  | (In thousands) |       
|Revenues of discontinued operations                   |  | $              |       |  |                  | $ |    |         |  | $ |       |  |  | $ | 29,106  |  
|                                                      |  |                |        |  |                  |   |     |         |  |   |        | 
|Operating income (loss)                               |  | $              |       |  |                  | $ | (25 | )       |  | $ |       |  |  | $ | 13,293  |  
|Interest expense                                      |  |                |       |  |                  |   | 183 |         |  |   |       |  |  |   | (24,755 | )
|                                                      |  |                |        |  |                  |   |     |         |  |   |        | 
|Income (loss) before income taxes                     |  |                |       |  |                  |   | 158 |         |  |   |       |  |  |   | (11,462 | )
|Income tax provision                                  |  |                |       |  |                  |   |    |         |  |   |       |  |  |   |        |  
|                                                      |  |                |        |  |                  |   |     |         |  |   |        | 
|Income (loss) from discontinued operations            |  |                |       |  |                  |   | 158 |         |  |   |       |  |  |   | (11,462 | )
|Gain on sale of discontinued operations, net of taxes |  |                | 11,371 |  |                  |   |    |         |  |   | 11,371 |  |  |   |        |  
|                                                      |  |                |        |  |                  |   |     |         |  |   |        | 
|Income (loss) from discontinued operations            |  | $              | 11,371 |  |                  | $ | 158 |         |  | $ | 11,371 |  |  | $ | (11,462 | )
|                                                      |  |                |        |  |                  |   |     |         |  |   |        | 






|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | There has been no activity related to discontinued operations
    for the first six months of 2005, except for the recognition of
    the previously deferred gain.





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





9



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                      |  |                |       |   |                  |   |       |      |  |   |       |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | - | ---------------- | - | ----- | ---- |  | - | ----- | - |  | - | ------ | -
|                                                                                                                      |  | Three Months   |       |   | Six Months Ended |  
|                                                                                                                      |  | Ended June 30, |       |   | June 30,         |  
|                                                                                                                      |  |                |       |   |                  |  
|                                                                                                                      |  | 2005           |       |   | 2004             |   |       | 2005 |  |   | 2004  |  
|                                                                                                                      |  |                |       |   |                  |   |       |      |  |   |       |  
|Reported loss from continuing operations                                                                              |  | $              | (18.8 | ) |                  | $ | (22.8 | )    |  | $ | (45.0 | ) |  | $ | (90.8  | )
|Add: Total stock based compensation charged to operations 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  | )    |  |   |      |   |  |   | (0.6   | )
|                                                                                                                      |  |                |       |   |                  |   |       |      |  |   |       |  
|Pro forma loss from continuing operations                                                                             |  |                | (18.8 | ) |                  |   | (23.1 | )    |  |   | (45.0 | ) |  |   | (91.4  | )
|Net (loss) income from discontinued operations, net
    of taxes                                                      |  |                |      |   |                  |   | 0.1   |      |  |   |      |   |  |   | (11.5  | )
|Gain on sale of discontinued operations, net of taxes                                                                 |  |                | 11.4  |   |                  |   |      |      |  |   | 11.4  |   |  |   |       |  
|                                                                                                                      |  |                |       |   |                  |   |       |      |  |   |       |  
|Pro forma net loss                                                                                                    |  | $              | (7.4  | ) |                  | $ | (23.0 | )    |  | $ | (33.6 | ) |  | $ | (102.9 | )
|                                                                                                                      |  |                |       |   |                  |   |       |      |  |   |       |  
|Reported basic and diluted loss per share from
    continuing operations                                              |  | $              | (0.43 | ) |                  | $ | (0.51 | )    |  | $ | (1.02 | ) |  | $ | (2.06  | )
|Pro forma basic and diluted loss per share from
    continuing operations                                             |  |                | (0.43 | ) |                  |   | (0.52 | )    |  |   | (1.02 | ) |  |   | (2.07  | )
|Reported basic and diluted loss per share from
    discontinued operations                                            |  |                | 0.26  |   |                  |   |      |      |  |   | 0.26  |   |  |   | (0.26  | )
|Reported basic and diluted loss per share                                                                             |  |                | (0.17 | ) |                  |   | (0.51 | )    |  |   | (0.76 | ) |  |   | (2.32  | )
|Pro forma basic and diluted loss per share                                                                            |  |                | (0.17 | ) |                  |   | (0.52 | )    |  |   | (0.76 | ) |  |   | (2.33  | )



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



|                                                                             |                                                                                                    |                    |        |      |                  |   |         |      |   |   |         |      |   |   |          |        |  
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------ | ------ | ---- | ---------------- | - | ------- | ---- | - | - | ------- | ---- | - | - | -------- | ------ | -
|                                                                             |                                                                                                    | Three Months Ended |        |      | Six Months Ended |  
|                                                                             |                                                                                                    | June 30,           |        |      | June 30,         |  
|                                                                             |                                                                                                    |                    |        |      |                  |  
|                                                                             |                                                                                                    | 2005               |        |      | 2004             |   |         | 2005 |   |   | 2004    |     
|                                                                             |                                                                                                    |                    |        |      |                  |   |         |      |   |   |         |     
|Net loss                                                                     |                                                                                                    | $                  | (7,405 | )    |                  | $ | (22,669 | )    |   | $ | (33,626 | )    |   | $ | (102,305 | )     
|Cumulative translation adjustment                                            |                                                                                                    |                    | (119   | )    |                  |   | 29      |      |   |   | (149    | )    |   |   | (33      | )     
|Unrealized gains (losses) on available-for-sale securities, net
    of taxes |                                                                                                    |                    | (45    | )    |                  |   | 8,594   |      |   |   | (45     | )    |   |   | 8,142    |       
|Foreign currency hedging:                                                    |                                                                                                    |                    |        |      |                  |   |         |      |   |   |         |      |   |   |          |       
|                                                                             | Reclassifications into revenue and cost of sales from other
    comprehensive income, net of taxes |                    |        | (200 | )                |   |         | (234 | ) |   |         | (473 | ) |   |          | (1,483 | )
|                                                                             |                                                                                                    |                    |        |      |                  |   |         |      |   |   |         |     
|Comprehensive loss                                                           |                                                                                                    | $                  | (7,769 | )    |                  | $ | (14,280 | )    |   | $ | (34,293 | )    |   | $ | (95,679  | )     
|                                                                             |                                                                                                    |                    |        |      |                  |   |         |      |   |   |         |     



10



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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

|                     |  |                |        |  |              |   |        | 
|-------------------- |  | -------------- | ------ |  | ------------ | - | ------ | 
|                     |  | June 30,       |        |  | December 31, |  
|                     |  | 2005           |        |  | 2004         |  
|                     |  |                |        |  |              |  
|                     |  | (In thousands) |       
|Amounts billed       |  | $              | 7,125  |  |              | $ | 8,146  | 
|Unbilled receivables |  |                | 40,744 |  |              |   | 10,894 | 
|                     |  |                |        |  |              |  
|                     |  | $              | 47,869 |  |              | $ | 19,040 | 
|                     |  |                |        |  |              |  





|                                                               |  |              |       |   |        |   |      |  
|-------------------------------------------------------------- |  | ------------ | ----- | - | ------ | - | ---- | -
|                                                               |  | Japanese Yen |       |   | U.S. $ |  
|                                                               |  |              |       |   |        |  
|Future revenues                                                |  | ¥            | 819   |   |        | $ | 7.4  |  
|Future expenditures                                            |  |              | 1,240 |   |        |   | 11.2 |  
|Contracts-in-process: unbilled receivables/(customer advances) |  |              | (41   | ) |        |   | (0.4 | )





11



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

|                                                                                  |  |                |           |   |              |   |           |  
|--------------------------------------------------------------------------------- |  | -------------- | --------- | - | ------------ | - | --------- | -
|                                                                                  |  | June 30,       |           |   | December 31, |  
|                                                                                  |  | 2005           |           |   | 2004         |  
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  | (In thousands) |          
|Land and land improvements                                                        |  | $              | 24,833    |   |              | $ | 24,827    |  
|Buildings                                                                         |  |                | 87,121    |   |              |   | 87,133    |  
|Leasehold improvements                                                            |  |                | 15,529    |   |              |   | 15,638    |  
|Satellites in-orbit, including satellite transponder rights of
    $279.6 million |  |                | 958,834   |   |              |   | 1,093,951 |  
|Earth stations                                                                    |  |                | 78,452    |   |              |   | 82,577    |  
|Equipment, furniture and fixtures                                                 |  |                | 276,819   |   |              |   | 276,948   |  
|Other construction in progress                                                    |  |                | 4,054     |   |              |   | 2,337     |  
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  |                | 1,445,642 |   |              |   | 1,583,411 |  
|Accumulated depreciation and amortization                                         |  |                | (822,107  | ) |              |   | (784,503  | )
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  | $              | 623,535   |   |              | $ | 798,908   |  
|                                                                                  |  |                |           |   |              |  









12



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                        |  |          |        |  |              |   |        | 
|----------------------- |  | -------- | ------ |  | ------------ | - | ------ | 
|                        |  | June 30, |        |  | December 31, |  
|                        |  | 2005     |        |  | 2004         |  
|                        |  |          |        |  |              |  
|XTAR equity investments |  | $        | 54,978 |  |              | $ | 49,181 | 
|                        |  |          |        |  |              |  



|                                                        |  |                    |      |   |                  |   |        |      |  |   |        |   |  |   |        | 
|------------------------------------------------------- |  | ------------------ | ---- | - | ---------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | 
|                                                        |  | Three Months Ended |      |   | Six Months Ended |  
|                                                        |  | June 30,           |      |   | June 30,         |  
|                                                        |  |                    |      |   |                  |  
|                                                        |  | 2005               |      |   | 2004             |   |        | 2005 |  |   | 2004   |  
|                                                        |  |                    |      |   |                  |   |        |      |  |   |        |  
|XTAR                                                    |  | $                  | (818 | ) |                  | $ | 416    |      |  | $ | (1,557 | ) |  | $ | 13     | 
|Globalstar and Globalstar service provider partnerships |  |                    |     |   |                  |   | 46,567 |      |  |   |       |   |  |   | 46,567 | 
|                                                        |  |                    |      |   |                  |   |        |      |  |   |        |  
|                                                        |  | $                  | (818 | ) |                  | $ | 46,983 |      |  | $ | (1,557 | ) |  | $ | 46,580 | 
|                                                        |  |                    |      |   |                  |   |        |      |  |   |        |  



|                                                                                        |  |                    |       |   |                  |   |       |      |  |   |       |   |  |   |       |  
|--------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | ---------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                        |  | Three Months Ended |       |   | Six Months Ended |  
|                                                                                        |  | June 30,           |       |   | June 30,         |  
|                                                                                        |  |                    |       |   |                  |  
|                                                                                        |  | 2005               |       |   | 2004             |   |       | 2005 |  |   | 2004  |  
|                                                                                        |  |                    |       |   |                  |   |       |      |  |   |       |  
|Revenues                                                                                |  | $                  | 1,711 |   |                  | $ | 2,122 |      |  | $ | 4,615 |   |  | $ | 5,210 |  
|Interest expense capitalized on development stage enterprise                            |  |                    |      |   |                  |   |      |      |  |   |      |   |  |   | 478   |  
|Elimination of our proportionate share of losses relating to
    affiliate transactions |  |                    | 46    |   |                  |   | 924   |      |  |   | 347   |   |  |   | 931   |  
|(Losses) relating to affiliate transactions not eliminated                              |  |                    | (36   | ) |                  |   | (726  | )    |  |   | (272  | ) |  |   | (731  | )



| |     
| | ----
| | XTAR







13



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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







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



14



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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



15



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                  |  |               |      |  |                   |   |       |        |  |   |              |  |  |   |       |  
|----------------- |  | ------------- | ---- |  | ----------------- | - | ----- | ------ |  | - | ------------ |  |  | - | ----- | -
|                  |  | June 30, 2005 |      |  | December 31, 2004 |  
|                  |  |               |      |  |                   |  
|                  |  | Gross         |      |  | Accumulated       |   |       | Gross  |  |   | Accumulated  | 
|                  |  | Amount        |      |  | Amortization      |   |       | Amount |  |   | Amortization | 
|                  |  |               |      |  |                   |   |       |        |  |   |              | 
|Regulatory fees   |  | $             | 22.5 |  |                   | $ | (8.4  | )      |  | $ | 22.5         |  |  | $ | (7.7  | )
|Other intangibles |  |               | 13.0 |  |                   |   | (12.9 | )      |  |   | 13.0         |  |  |   | (12.0 | )
|                  |  |               |      |  |                   |   |       |        |  |   |              | 
|                  |  | $             | 35.5 |  |                   | $ | (21.3 | )      |  | $ | 35.5         |  |  | $ | (19.7 | )
|                  |  |               |      |  |                   |   |       |        |  |   |              | 





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



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





16



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                   |  |          |           |  |              |   |           | 
|-------------------------------------------------- |  | -------- | --------- |  | ------------ | - | --------- | 
|                                                   |  | June 30, |           |  | December 31, |  
|                                                   |  | 2005     |           |  | 2004         |  
|                                                   |  |          |           |  |              |  
|Debt obligations (Note 12)                         |  | $        | 1,269,977 |  |              | $ | 1,269,977 | 
|Accounts payable                                   |  |          | 54,724    |  |              |   | 52,728    | 
|Accrued employment costs                           |  |          | 454       |  |              |   | 542       | 
|Customer advances                                  |  |          | 27,759    |  |              |   | 30,837    | 
|Accrued interest and preferred dividends           |  |          | 40,428    |  |              |   | 40,428    | 
|Income taxes payable                               |  |          | 41,899    |  |              |   | 38,934    | 
|Pension and other postretirement liabilities       |  |          | 186,938   |  |              |   | 178,647   | 
|Other liabilities                                  |  |          | 83,064    |  |              |   | 79,926    | 
|6% Series C convertible redeemable preferred stock |  |          | 187,274   |  |              |   | 187,274   | 
|6% Series D convertible redeemable preferred stock |  |          | 36,707    |  |              |   | 36,707    | 
|                                                   |  |          |           |  |              |  
|                                                   |  | $        | 1,929,224 |  |              | $ | 1,916,000 | 
|                                                   |  |          |           |  |              |  



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



17



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

|                                                                                     |                                                                          |                |           |         |              |   |           |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------ | -------------- | --------- | ------- | ------------ | - | --------- | ------- | 
|                                                                                     |                                                                          | June 30,       |           |         | 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   |       |       | Six Months     |  
|                         |                                                 | Ended June 30, |       |       | Ended June 30, |  
|                         |                                                 |                |       |       |                |  
|                         |                                                 | 2005           |       |       | 2004           |   |       | 2005  |  |   | 2004   |       
|                         |                                                 |                |       |       |                |   |       |       |  |   |        |       
|Professional fees        |                                                 | $              | 5,639 |       |                | $ | 5,348 |       |  | $ | 11,127 |        |  | $ | 10,356 |       
|Employee retention costs |                                                 |                | 111   |       |                |   | 3,516 |       |  |   | 293    |        |  |   | 7,036  |       
|Severance costs          |                                                 |                | 177   |       |                |   | 1,008 |       |  |   | 680    |        |  |   | 1,008  |       
|Restructuring costs      |                                                 |                | 1,857 |       |                |   |      |       |  |   | 1,857  |        |  |   |       |       
|Vendor settlement gains  |                                                 |                | (192  | )     |                |   | (36   | )     |  |   | (67    | )      |  |   | (36    | )     
|Interest income          |                                                 |                | (609  | )     |                |   | (281  | )     |  |   | (1,275 | )      |  |   | (494   | )     
|                         |                                                 |                |       |       |                |   |       |       |  |   |        |       
|                         | Total reorganization expenses due to bankruptcy |                | $     | 6,983 |                |   | $     | 9,555 |  |   | $      | 12,615 |  |   | $      | 17,870 | 
|                         |                                                 |                |       |       |                |   |       |       |  |   |        |       

18



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##### Table of Contents



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                           |  |   | 0.9  | 
|Accruals relating to pre-existing contracts (including changes
    in estimates) |  |   | 6.1  | 
|                                                                                 |  |   |     
|Balance of deferred amounts at June 30, 2005                                     |  | $ | 33.0 | 
|                                                                                 |  |   |     









19



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














20



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














21



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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

Beleson




22



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##### Table of Contents



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 ERISA Litigation,




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

In re: Globalstar Securities
Litigation.


23



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##### Table of Contents



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


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


24



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







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



25



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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 |       |         | Six Months Ended |  
|                                                |                                                       | June 30,           |       |         | June 30,         |  
|                                                |                                                       |                    |       |         |                  |  
|                                                |                                                       | 2005               |       |         | 2004             |   |       | 2005    |   |   | 2004  |        
|                                                |                                                       |                    |       |         |                  |   |       |         |   |   |       |        
|Numerator for basic and diluted loss per share: |                                                       |                    |       |         |                  |   |       |         |   |   |       |         |   |   |       |         
|                                                | Loss from continuing operations                       |                    | $     | (18,776 | )                |   | $     | (22,827 | ) |   | $     | (44,997 | ) |   | $     | (90,843  | )
|                                                | Income (loss) from discontinued operations            |                    |       |        |                  |   |       | 158     |   |   |       |        |   |   |       | (11,462  | )
|                                                | Gain on sale of discontinued operations, net of taxes |                    |       | 11,371  |                  |   |       |        |   |   |       | 11,371  |   |   |       |         |  
|                                                |                                                       |                    |       |         |                  |   |       |         |   |   |       |        
|                                                | Net loss                                              |                    | $     | (7,405  | )                |   | $     | (22,669 | ) |   | $     | (33,626 | ) |   | $     | (102,305 | )
|                                                |                                                       |                    |       |         |                  |   |       |         |   |   |       |        
|Denominator:                                    |                                                       |                    |       |         |                  |   |       |         |   |   |       |         |   |   |       |         
|                                                | Weighted average common shares outstanding            |                    |       | 44,108  |                  |   |       | 44,108  |   |   |       | 44,108  |   |   |       | 44,108   |  
|                                                |                                                       |                    |       |         |                  |   |       |         |   |   |       |        
|Basic and diluted (loss) earnings per share:    |                                                       |                    |       |         |                  |   |       |         |   |   |       |         |   |   |       |         
|                                                | Continuing operations                                 |                    | $     | (0.43   | )                |   | $     | (0.51   | ) |   | $     | (1.02   | ) |   | $     | (2.06    | )
|                                                | Discontinued operations                               |                    |       | 0.26    |                  |   |       |        |   |   |       | 0.26    |   |   |       | (0.26    | )
|                                                |                                                       |                    |       |         |                  |   |       |         |   |   |       |        
|Loss per share                                  |                                                       | $                  | (0.17 | )       |                  | $ | (0.51 | )       |   | $ | (0.76 | )       |   | $ | (2.32 | )       
|                                                |                                                       |                    |       |         |                  |   |       |         |   |   |       |        



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







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 June 30, 2005


|                                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |       |  
|----------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ----- | -
|                                                      |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                      |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |       |  
|Revenue(2)                                            |  | $         | 36.4  |   |               | $ | 100.5 |              |  |   |       |   |  | $ | 136.9 |  
|Intersegment revenues                                 |  |           | 1.1   |   |               |   | 6.1   |              |  |   |       |   |  |   | 7.2   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                            |  | $         | 37.5  |   |               | $ | 106.6 |              |  |   |       |   |  |   | 144.1 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (7.3  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                        |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 136.8 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)(5) |  | $         | 11.8  |   |               | $ | 6.2   |              |  | $ | (6.7  | ) |  | $ | 11.3  |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.0  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 10.3  |  
|Depreciation and
    amortization(6)(7)               |  | $         | (15.9 | ) |               | $ | (3.9  | )            |  | $ | (0.2  | ) |  |   | (20.0 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (7.0  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (16.7 | )
|Interest and investment income                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 2.3   |  
|Interest expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.5  | )
|Other expense                                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.3  | )
|Income tax provision                                  |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.8  | )
|Equity income in affiliates                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.8  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                       |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (18.8 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  

27



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Six Months Ended June 30, 2005


|                                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|----------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                      |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                      |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Revenue(2)                                            |  | $         | 71.3  |   |               | $ | 198.3 |              |  |   |       |   |  | $ | 269.6   |  
|Intersegment revenues                                 |  |           | 2.1   |   |               |   | 7.9   |              |  |   |       |   |  |   | 10.0    |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                            |  | $         | 73.4  |   |               | $ | 206.2 |              |  |   |       |   |  |   | 279.6   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (10.5   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                        |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 269.1   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)(5) |  | $         | 20.9  |   |               | $ | 10.5  |              |  | $ | (12.4 | ) |  | $ | 19.0    |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (3.5    | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 15.5    |  
|Depreciation and
    amortization(6)(7)               |  | $         | (35.3 | ) |               | $ | (7.9  | )            |  | $ | (0.4  | ) |  |   | (43.6   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (12.6   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (40.7   | )
|Interest and investment income                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 4.1     |  
|Interest expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (2.4    | )
|Other expense                                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.0    | )
|Income tax provision                                  |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (3.5    | )
|Equity income in affiliates                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.5    | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                       |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (45.0   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Other Data:                                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Total
    assets(7)                                   |  | $         | 625.8 |   |               | $ | 448.9 |              |  | $ | 46.1  |   |  | $ | 1,120.8 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  

28



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Three Months Ended June 30, 2004


|                                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |       |  
|----------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ----- | -
|                                                      |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                      |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |       |  
|Revenue(2)                                            |  | $         | 39.0  |   |               | $ | 75.0  |              |  |   |       |   |  | $ | 114.0 |  
|Intersegment revenues                                 |  |           | 1.2   |   |               |   | 38.8  |              |  |   |       |   |  |   | 40.0  |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                            |  | $         | 40.2  |   |               | $ | 113.8 |              |  |   |       |   |  |   | 154.0 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (40.3 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                        |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 113.7 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)(5) |  | $         | 9.0   |   |               | $ | 2.2   |              |  | $ | (8.9  | ) |  | $ | 2.3   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (8.3  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (6.0  | )
|Depreciation and
    amortization(6)(7)               |  | $         | (35.5 | ) |               | $ | (7.3  | )            |  | $ | (0.1  | ) |  |   | (42.9 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (9.6  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (58.5 | )
|Interest and investment income                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 2.5   |  
|Interest expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.4  | )
|Other expense                                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.4  | )
|Income tax provision                                  |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (12.0 | )
|Equity income in affiliates                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 47.0  |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                       |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (22.8 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  

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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







Six Months Ended June 30, 2004


|                                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|----------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                      |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                      |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Revenue(2)                                            |  | $         | 69.0  |   |               | $ | 149.4 |              |  |   |       |   |  | $ | 218.4   |  
|Intersegment revenues                                 |  |           | 2.3   |   |               |   | 65.4  |              |  |   |       |   |  |   | 67.7    |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                            |  | $         | 71.3  |   |               | $ | 214.8 |              |  |   |       |   |  |   | 286.1   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (68.7   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                        |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 217.4   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)(5) |  | $         | (1.2  | ) |               | $ | 5.8   |              |  | $ | (17.5 | ) |  | $ | (12.9   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (11.7   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (24.6   | )
|Depreciation and
    amortization(6)(7)               |  | $         | (71.5 | ) |               | $ | (12.3 | )            |  | $ | (0.3  | ) |  |   | (84.1   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (17.9   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (126.6  | )
|Interest and investment income                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 5.1     |  
|Interest expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 0.2     |  
|Other expense                                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (4.0    | )
|Income tax provision                                  |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (12.2   | )
|Equity income in affiliates                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 46.6    |  
|Minority interest                                     |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 0.1     |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                       |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (90.8   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Other Data:                                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Total
    assets(7)                                   |  | $         | 920.4 |   |               | $ | 436.3 |              |  | $ | 75.4  |   |  | $ | 1,432.1 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support of our
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) | Includes revenues from affiliates of $1.7 million and
    $2.1 million for the three months ended June 30, 2005
    and 2004, respectively, and $4.6 million and $5.2 million
    for the six months ended June 30, 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 includes a warranty accrual of
    $6 million for the three and six months ended June 30,
    2005. Satellite manufacturing excludes charges of
    $2 million and $22 million for the three and six
    months ended June 30, 2004, respectively, as a result of
    the settlement of all orbital receivables on satellites sold to
    Intelsat. This settlement had the effect of reducing future
    orbital receipts by $25 million, including $15 million
    relating to a satellite that was under construction in 2004.
    Consistent with our internal reporting for satellite
    manufacturing, this decrease in contract value for the satellite
    that was under construction in 2004 was not being reflected as a
    decrease in satellite manufacturing revenues. These charges had
    no effect on our consolidated results in 2004.

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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    | 
|--- | 
|(5) | 

|                             |                                                                               |                |   |      |                |  |   |      |  |  |      |      |  |  |   |       |  
|---------------------------- | ----------------------------------------------------------------------------- | -------------- | - | ---- | -------------- |  | - | ---- |  |  | ---- | ---- |  |  | - | ----- | -
|                             |                                                                               | Three Months   |   |      | Six Months     | 
|                             |                                                                               | Ended June 30, |   |      | Ended June 30, | 
|                             |                                                                               |                |   |      |                | 
|                             |                                                                               | 2005           |   |      | 2004           |  |   | 2005 |  |  | 2004 |     
|                             |                                                                               |                |   |      |                |  |   |      |  |  |      |     
|Satellite services includes: |                                                                               |                |   |      |                |  |   |      |  |  |      |      |  |  |   |      
|                             | Adjusted EBITDA before specific charges                                       |                | $ | 11.8 |                |  | $ | 9.0  |  |  | $    | 20.9 |  |  | $ | 10.8  |  
|                             | Impairment charge for Telstar 14/ Estrela do Sul-1 satellite
    (see Note 8) |                |   |     |                |  |   |     |  |  |      |     |  |  |   | (12.0 | )
|                             |                                                                               |                |   |      |                |  |   |      |  |  |      |     
|                             | Satellite services segment Adjusted EBITDA before eliminations                |                | $ | 11.8 |                |  | $ | 9.0  |  |  | $    | 20.9 |  |  | $ | (1.2  | )
|                             |                                                                               |                |   |      |                |  |   |      |  |  |      |     



|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes additional depreciation expense of $10 million and
    $24 million for the three and six months ended
    June 30, 2004, respectively, due to accelerating the
    estimated end of depreciable life of our Telstar 11 satellite to
    June 2004 from March 2005.
|   
|(7) | Amounts are presented after the elimination of intercompany
    profit.                                                                                                                                                                                                    

17.     New Accounting
Pronouncements






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





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





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



31



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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



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








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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING BALANCE SHEET


June 30, 2005


(In thousands)


(Unaudited)


|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |            |   |            |           |            |         |            |  
|------------------------------------------ | -------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | ---------- | ---------- | ---------- | --------- | ------------ | ----- | -------- | ------------- | ------ | --- | ------------ | ---------- | ---------- | ------------ | ---------- | --------- | ---------- | - | ---------- | --------- | ---------- | ------- | ---------- | -
|                                           |                                        | Parent                                                        |                                                      |            | Subsidiary |            |           | Guarantor    |       |          | Non-Guarantor |        |     |              |            |           
|                                           |                                        | Company                                                       |                                                      |            | Issuer     |            |           | Subsidiaries |       |          | Subsidiaries  |        |     | Eliminations |            |            | Consolidated |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|Current assets:                            |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |            |   |            |           |           
|                                           | Cash and cash equivalents              |                                                               | $                                                    | 1,069      |            |            | $         | 38,584       |       |          | $             |       |     |              | $          | 136,626    |              |            | $         |           |   |            | $         | 176,279    |        
|                                           | Accounts receivable, net               |                                                               |                                                      |           |            |            |           | 4,569        |       |          |               |       |     |              |            | 7,470      |              |            |           |           |   |            |           | 12,039     |        
|                                           | Contracts-in-process                   |                                                               |                                                      |           |            |            |           |             |       |          |               |       |     |              |            | 47,869     |              |            |           |           |   |            |           | 47,869     |        
|                                           | Inventories                            |                                                               |                                                      |           |            |            |           |             |       |          |               |       |     |              |            | 38,324     |              |            |           |           |   |            |           | 38,324     |        
|                                           | Other current assets                   |                                                               |                                                      | 1,757      |            |            |           | 3,083        |       |          |               | 1,374  |     |              |            | 18,936     |              |            |           | (133       | ) |            |           | 25,017     |        
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total current assets                                 |            |            | 2,826      |           |              |       | 46,236   |               |        |     | 1,374        |            |            |              | 249,225    |           |            |   | (133       | )         |            |         | 299,528    |  
|Property, plant and equipment, net         |                                        |                                                               |                                                     |            |            |            | 245,220   |              |       |          | 152,168       |        |     |              | 248,294    |            |              |            | (22,147   | )          |   |            | 623,535   |           
|Long-term receivables                      |                                        |                                                               |                                                     |            |            |            | 292       |              |       |          |              |        |     |              | 88,711     |            |              |            |          |            |   |            | 89,003    |           
|Due (to) from unconsolidated subsidiaries  |                                        |                                                               | (8,887                                               | )          |            |            | (15,045   | )            |       |          | 33,436        |        |     |              | 42,807     |            |              |            | (52,311   | )          |   |            |          |           
|Investments in unconsolidated subsidiaries |                                        |                                                               | (588,550                                             | )          |            |            | 303,047   |              |       |          | (271,698      | )      |     |              | (1,615,395 | )          |              |            | 2,172,596 |            |   |            |          |           
|Investments in and advances to affiliates  |                                        |                                                               | 20                                                   |            |            |            |          |              |       |          |              |        |     |              | 54,958     |            |              |            |          |            |   |            | 54,978    |           
|Deposits                                   |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |     |              | 9,938      |            |              |            |          |            |   |            | 9,938     |           
|Other assets                               |                                        |                                                               | 4,197                                                |            |            |            | 4,697     |              |       |          | 222           |        |     |              | 34,667     |            |              |            |          |            |   |            | 43,783    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total assets                                         |            | $          | (590,394   | )         |              | $     | 584,447  |               |        | $   | (84,498      | )          |            | $            | (886,795   | )         |            | $ | 2,098,005  |           |            | $       | 1,120,765  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|Liabilities not subject to compromise:     |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |            |   |            |           |           
|                                           | Current liabilities:                   |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |            |           |            |   |            |           |            |        
|                                           |                                        | Accounts payable                                              |                                                      | $          |           |            |           | $            | 281   |          |               | $      | 500 |              |            | $          | 34,630       |            |           | $          |  |            |           | $          | 35,411  |           
|                                           |                                        | Accrued employment costs                                      |                                                      |            |           |            |           |              |      |          |               |        |    |              |            |            | 30,463       |            |           |            |  |            |           |            | 30,463  |           
|                                           |                                        | Customer advances and billings in excess of costs and profits |                                                      |            |           |            |           |              | 3,741 |          |               |        | 10  |              |            |            | 97,109       |            |           |            |  |            |           |            | 100,860 |           
|                                           |                                        | Income taxes payable                                          |                                                      |            |           |            |           |              |      |          |               |        |    |              |            |            | 1,042        |            |           |            |  |            |           |            | 1,042   |           
|                                           |                                        | Other current liabilities                                     |                                                      |            | 1,275      |            |           |              |      |          |               |        |    |              |            |            | 15,769       |            |           |            |  |            |           |            | 17,044  |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total current liabilities                            |            |            | 1,275      |           |              |       | 4,022    |               |        |     | 510          |            |            |              | 179,013    |           |            |   |           |           |            |         | 184,820    |  
|Pension liability                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |     |              | 1,777      |            |              |            |          |            |   |            | 1,777     |           
|Long-term liabilities                      |                                        |                                                               | 52,233                                               |            |            |            | 34,645    |              |       |          | 8,313         |        |     |              | 15,709     |            |              |            | (29,939   | )          |   |            | 80,961    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities not subject to compromise          |            |            | 53,508     |           |              |       | 38,667   |               |        |     | 8,313        |            |            |              | 196,499    |           |            |   | (29,939    | )         |            |         | 267,558    |  
|Liabilities subject to compromise          |                                        |                                                               | 434,452                                              |            |            |            | 1,108,757 |              |       |          | (117,386      | )      |     |              | 507,597    |            |              |            | (4,196    | )          |   |            | 1,929,224 |           
|Minority interest                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |     |              | 2,337      |            |              |            |          |            |   |            | 2,337     |           
|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                  |                                                               |                                                      | (47        | )          |            |           |             |       |          |               |       |     |              |            |           |              |            |           |           |   |            |           | (47        | )      
|                                           | Due from related parties               |                                                               |                                                      |           |            |            |           | (53,996      | )     |          |               |       |     |              |            | 53,996     |              |            |           |           |   |            |           |           |        
|                                           | Retained (deficit) earnings            |                                                               |                                                      | (4,381,857 | )          |            |           | (1,114,064   | )     |          |               | 23,667 |     |              |            | (1,645,909 | )            |            |           | (2,736,306 | ) |            |           | (4,381,857 | )      
|                                           | Accumulated other comprehensive (loss) |                                                               |                                                      | (90,328    | )          |            |           | 917          |       |          |               | 398    |     |              |            | (1,315     | )            |            |           |           |   |            |           | (90,328    | )      
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total shareholders (deficit) equity                 |            |            | (1,078,354 | )         |              |       | (562,977 | )             |        |     | 24,065       |            |            |              | (1,593,228 | )         |            |   | (2,132,140 | )         |            |         | (1,078,354 | )
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities and shareholders (deficit) equity |            | $          | (591,094   | )         |              | $     | 584,447  |               |        | $   | (84,498      | )          |            | $            | (886,795   | )         |            | $ | 2,098,705  |           |            | $       | 1,120,765  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |     |              |            |            |              |           

33



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Three Months Ended June 30, 2005


(In thousands)


(Unaudited)


|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |   |         |         |   |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------ | - | ---------- | - | ------ | ------------ |  | - | ------------- | ----- |  | ------------ | ------- | ------- | ------------ | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                                                                                              |                | Parent  |        |   | Subsidiary |   |        | Guarantor    |  |   | Non-Guarantor |       |  |              |         |        
|                                                                                                                                                                                                              |                | Company |        |   | Issuer     |   |        | Subsidiaries |  |   | Subsidiaries  |       |  | Eliminations |         |         | Consolidated |  
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|Revenues from satellite services                                                                                                                                                                              |                | $       |       |   |            | $ | 21,911 |              |  | $ | 7,954         |       |  | $            | 17,289  |         |              | $ | (10,898 | )       |   | $ | 36,256  |        
|Revenues from satellite manufacturing                                                                                                                                                                         |                |         |       |   |            |   |       |              |  |   |              |       |  |              | 101,479 |         |              |   | (973    | )       |   |   | 100,506 |        
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|                                                                                                                                                                                                              | Total revenues |         |        |  |            |   |        | 21,911       |  |   |               | 7,954 |  |              |         | 118,768 |              |   |         | (11,871 | ) |   |         | 136,762 | 
|Cost of satellite services                                                                                                                                                                                    |                |         |       |   |            |   | 4,474  |              |  |   | 7,639         |       |  |              | 28,906  |         |              |   | (10,227 | )       |   |   | 30,792  |        
|Cost of satellite manufacturing                                                                                                                                                                               |                |         |       |   |            |   |       |              |  |   |              |       |  |              | 87,698  |         |              |   | (985    | )       |   |   | 86,713  |        
|Selling, general and administrative expenses                                                                                                                                                                  |                |         |       |   |            |   | 16,352 |              |  |   | 2,556         |       |  |              | 10,107  |         |              |   |        |         |   |   | 29,015  |        
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations before reorganization
    expenses due to bankruptcy                                                                                                                 |                |         |       |   |            |   | 1,085  |              |  |   | (2,241        | )     |  |              | (7,943  | )       |              |   | (659    | )       |   |   | (9,758  | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                                     |                |         | (963   | ) |            |   |       |              |  |   |              |       |  |              | (6,020  | )       |              |   |        |         |   |   | (6,983  | )      
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                                                                      |                |         | (963   | ) |            |   | 1,085  |              |  |   | (2,241        | )     |  |              | (13,963 | )       |              |   | (659    | )       |   |   | (16,741 | )      
|Interest and investment income                                                                                                                                                                                |                |         | 9      |   |            |   | 60     |              |  |   |              |       |  |              | 2,274   |         |              |   |        |         |   |   | 2,343   |        
|Interest expense                                                                                                                                                                                              |                |         |       |   |            |   | (842   | )            |  |   |              |       |  |              | (1,190  | )       |              |   | 562     |         |   |   | (1,470  | )      
|Other expense                                                                                                                                                                                                 |                |         |       |   |            |   |       |              |  |   |              |       |  |              | (349    | )       |              |   |        |         |   |   | (349    | )      
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations before income taxes,
    equity income (losses) in unconsolidated subsidiaries and
    affiliates, minority interest and gain on sale of discontinued
    operations |                |         | (954   | ) |            |   | 303    |              |  |   | (2,241        | )     |  |              | (13,228 | )       |              |   | (97     | )       |   |   | (16,217 | )      
|Income tax (provision) benefit                                                                                                                                                                                |                |         |       |   |            |   | (25    | )            |  |   | 785           |       |  |              | (2,536  | )       |              |   | 6       |         |   |   | (1,770  | )      
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations before equity income
    (losses) in unconsolidated subsidiaries and affiliates, minority
    interest and gain on sale of discontinued operations                   |                |         | (954   | ) |            |   | 278    |              |  |   | (1,456        | )     |  |              | (15,764 | )       |              |   | (91     | )       |   |   | (17,987 | )      
|Equity income (losses) in unconsolidated subsidiaries                                                                                                                                                         |                |         | (6,451 | ) |            |   | (1,456 | )            |  |   |              |       |  |              |        |         |              |   | 7,907   |         |   |   |        |        
|Equity income (losses) in affiliates                                                                                                                                                                          |                |         |       |   |            |   |       |              |  |   |              |       |  |              | (818    | )       |              |   |        |         |   |   | (818    | )      
|Minority interest                                                                                                                                                                                             |                |         |       |   |            |   |       |              |  |   |              |       |  |              | 29      |         |              |   |        |         |   |   | 29      |        
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                                                                      |                |         | (7,405 | ) |            |   | (1,178 | )            |  |   | (1,456        | )     |  |              | (16,553 | )       |              |   | 7,816   |         |   |   | (18,776 | )      
|Gain on sale of discontinued operations, net of taxes                                                                                                                                                         |                |         |       |   |            |   |       |              |  |   |              |       |  |              | 11,371  |         |              |   |        |         |   |   | 11,371  |        
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|Net (loss) income                                                                                                                                                                                             |                | $       | (7,405 | ) |            | $ | (1,178 | )            |  | $ | (1,456        | )     |  | $            | (5,182  | )       |              | $ | 7,816   |         |   | $ | (7,405  | )      
|                                                                                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  

34



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Six Months Ended June 30, 2005


(In thousands)


(Unaudited)


|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |   |         |         |   |   |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | - | ---------- | - | ------ | ------------ |  | - | ------------- | ------ |  | ------------ | ------- | ------- | ------------ | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                                                                                     |                | Parent  |         |   | Subsidiary |   |        | Guarantor    |  |   | Non-Guarantor |        |  |              |         |        
|                                                                                                                                                                                                     |                | Company |         |   | Issuer     |   |        | Subsidiaries |  |   | Subsidiaries  |        |  | Eliminations |         |         | Consolidated |  
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|Revenues from satellite services                                                                                                                                                                     |                | $       |        |   |            | $ | 42,816 |              |  | $ | 15,629        |        |  | $            | 33,912  |         |              | $ | (21,530 | )       |   | $ | 70,827  |        
|Revenues from satellite manufacturing                                                                                                                                                                |                |         |        |   |            |   |       |              |  |   |              |        |  |              | 199,412 |         |              |   | (1,099  | )       |   |   | 198,313 |        
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|                                                                                                                                                                                                     | Total revenues |         |         |  |            |   |        | 42,816       |  |   |               | 15,629 |  |              |         | 233,324 |              |   |         | (22,629 | ) |   |         | 269,140 | 
|Cost of satellite services                                                                                                                                                                           |                |         |        |   |            |   | 20,319 |              |  |   | 15,237        |        |  |              | 50,594  |         |              |   | (20,187 | )       |   |   | 65,963  |        
|Cost of satellite manufacturing                                                                                                                                                                      |                |         |        |   |            |   |       |              |  |   |              |        |  |              | 176,027 |         |              |   | (1,077  | )       |   |   | 174,950 |        
|Selling, general and administrative expenses                                                                                                                                                         |                |         |        |   |            |   | 20,873 |              |  |   | 5,317         |        |  |              | 30,122  |         |              |   |        |         |   |   | 56,312  |        
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|(Loss) income from continuing operations before reorganization
    expenses due to bankruptcy                                                                                                        |                |         |        |   |            |   | 1,624  |              |  |   | (4,925        | )      |  |              | (23,419 | )       |              |   | (1,365  | )       |   |   | (28,085 | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                            |                |         | (1,905  | ) |            |   | (3,544 | )            |  |   |              |        |  |              | (7,166  | )       |              |   |        |         |   |   | (12,615 | )      
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations                                                                                                                                                                      |                |         | (1,905  | ) |            |   | (1,920 | )            |  |   | (4,925        | )      |  |              | (30,585 | )       |              |   | (1,365  | )       |   |   | (40,700 | )      
|Interest and investment income                                                                                                                                                                       |                |         | 12      |   |            |   | 60     |              |  |   |              |        |  |              | 4,059   |         |              |   |        |         |   |   | 4,131   |        
|Interest expense                                                                                                                                                                                     |                |         |        |   |            |   | (1,618 | )            |  |   |              |        |  |              | (1,956  | )       |              |   | 1,126   |         |   |   | (2,448  | )      
|Other expense                                                                                                                                                                                        |                |         |        |   |            |   |       |              |  |   |              |        |  |              | (966    | )       |              |   |        |         |   |   | (966    | )      
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations before income taxes, equity
    income (losses) in unconsolidated subsidiaries and
    affiliates, minority interest and gain on sale of discontinued
    operations |                |         | (1,893  | ) |            |   | (3,478 | )            |  |   | (4,925        | )      |  |              | (29,448 | )       |              |   | (239    | )       |   |   | (39,983 | )      
|Income tax (provision) benefit                                                                                                                                                                       |                |         |        |   |            |   | (70    | )            |  |   | 1,724         |        |  |              | (3,430  | )       |              |   | (1,724  | )       |   |   | (3,500  | )      
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations before equity income (losses) in
    unconsolidated subsidiaries and affiliates, minority interest
    and gain on sale of discontinued operations                   |                |         | (1,893  | ) |            |   | (3,548 | )            |  |   | (3,201        | )      |  |              | (32,878 | )       |              |   | (1,963  | )       |   |   | (43,483 | )      
|Equity income (losses) in unconsolidated subsidiaries                                                                                                                                                |                |         | (31,733 | ) |            |   | (3,201 | )            |  |   |              |        |  |              |        |         |              |   | 34,934  |         |   |   |        |        
|Equity income (losses) in affiliates                                                                                                                                                                 |                |         |        |   |            |   |       |              |  |   |              |        |  |              | (1,557  | )       |              |   |        |         |   |   | (1,557  | )      
|Minority interest                                                                                                                                                                                    |                |         |        |   |            |   |       |              |  |   |              |        |  |              | 43      |         |              |   |        |         |   |   | 43      |        
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                                                             |                |         | (33,626 | ) |            |   | (6,749 | )            |  |   | (3,201        | )      |  |              | (34,392 | )       |              |   | 32,971  |         |   |   | (44,997 | )      
|Gain on sale of discontinued operations, net of taxes                                                                                                                                                |                |         |        |   |            |   |       |              |  |   |              |        |  |              | 11,371  |         |              |   |        |         |   |   | 11,371  |        
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  
|Net (loss) income                                                                                                                                                                                    |                | $       | (33,626 | ) |            | $ | (6,749 | )            |  | $ | (3,201        | )      |  | $            | (23,021 | )       |              | $ | 32,971  |         |   | $ | (33,626 | )      
|                                                                                                                                                                                                     |                |         |         |   |            |   |        |              |  |   |               |        |  |              |         |         |              |  

35



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Six Months Ended June 30, 2005


(In thousands)


(Unaudited)


|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |   |   |        |         |   |         |         |         |  
|-------------------------------------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------------------- | ----- | ------- | ---------- | - | ------ | ------------ | ------ | - | ------------- | ------ | ------ | ------------ | -------- | ------- | ------------ | - | - | ------ | ------- | - | ------- | ------- | ------- | -
|                                                                                 |                                                | Parent                                                          |       |         | Subsidiary |   |        | Guarantor    |        |   | Non-Guarantor |        |        |              |          |        
|                                                                                 |                                                | Company                                                         |       |         | Issuer     |   |        | Subsidiaries |        |   | Subsidiaries  |        |        | Eliminations |          |         | Consolidated |  
|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |  
|Operating activities:                                                            |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |   |   |        |         |   |         |        
|                                                                                 | Net (loss) income                              |                                                                 | $     | (33,626 | )          |   | $      | (6,749       | )      |   | $             | (3,201 | )      |              | $        | (23,021 | )            |   | $ | 32,971 |         |   | $       | (33,626 | )      
|                                                                                 | Non-cash items:                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |   |   |        |         |   |         |         |        
|                                                                                 |                                                | Gain on sale of discontinued operations, net of taxes           |       |         |           |   |        |              |       |   |               |        |       |              |          |         | (11,371      | ) |   |        |        |   |         |         | (11,371 | )
|                                                                                 |                                                | Equity income in affiliates                                     |       |         |           |   |        |              |       |   |               |        |       |              |          |         | 1,557        |   |   |        |        |   |         |         | 1,557   |  
|                                                                                 |                                                | Minority interest                                               |       |         |           |   |        |              |       |   |               |        |       |              |          |         | (43          | ) |   |        |        |   |         |         | (43     | )
|                                                                                 |                                                | Equity losses in unconsolidated subsidiaries                    |       |         | 31,733     |   |        |              | 3,201  |   |               |        |       |              |          |         |             |   |   |        | (34,934 | ) |         |         |        |  
|                                                                                 |                                                | Deferred taxes                                                  |       |         |           |   |        |              |       |   |               |        | (1,724 | )            |          |         | 326          |   |   |        | 1,724   |   |         |         | 326     |  
|                                                                                 |                                                | Depreciation and amortization                                   |       |         | 40         |   |        |              | 11,520 |   |               |        | 10,507 |              |          |         | 21,513       |   |   |        |        |   |         |         | 43,580  |  
|                                                                                 |                                                | (Recovery of) provisions for bad debts                          |       |         |           |   |        |              | 180    |   |               |        |       |              |          |         | (733         | ) |   |        |        |   |         |         | (553    | )
|                                                                                 |                                                | Warranty accruals relating to pre-existing contracts            |       |         |           |   |        |              |       |   |               |        |       |              |          |         | 6,103        |   |   |        |        |   |         |         | 6,103   |  
|                                                                                 |                                                | Loss on equipment disposals                                     |       |         |           |   |        |              |       |   |               |        |       |              |          |         | 2,495        |   |   |        |        |   |         |         | 2,495   |  
|                                                                                 |                                                | Non cash net loss of foreign currency transactions and interest |       |         |           |   |        |              |       |   |               |        |       |              |          |         | 767          |   |   |        |        |   |         |         | 767     |  
|Changes in operating assets and liabilities:                                     |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |   |   |        |         |   |         |        
|                                                                                 | Accounts receivable, net                       |                                                                 |       |        |            |   |        | 438          |        |   |               | 121    |        |              |          | 87      |              |   |   |       |         |   |         | 646     |        
|                                                                                 | Contracts-in-process                           |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | (44,218 | )            |   |   |       |         |   |         | (44,218 | )      
|                                                                                 | Inventories                                    |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | (912    | )            |   |   |       |         |   |         | (912    | )      
|                                                                                 | Long-term receivables                          |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | (2,628  | )            |   |   |       |         |   |         | (2,628  | )      
|                                                                                 | Due (to) from unconsolidated subsidiaries      |                                                                 |       | 1,267   |            |   |        | (1,009       | )      |   |               | (8,602 | )      |              |          | 8,105   |              |   |   | 239    |         |   |         |        |        
|                                                                                 | Deposits                                       |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | (106    | )            |   |   |       |         |   |         | (106    | )      
|                                                                                 | Other current assets and other assets          |                                                                 |       | 574     |            |   |        | 2,664        |        |   |               | 2,531  |        |              |          | (3,662  | )            |   |   |       |         |   |         | 2,107   |        
|                                                                                 | Accounts payable                               |                                                                 |       | (499    | )          |   |        | 302          |        |   |               | 212    |        |              |          | 332     |              |   |   |       |         |   |         | 347     |        
|                                                                                 | Accrued expenses and other current liabilities |                                                                 |       | 55      |            |   |        |             |        |   |               |       |        |              |          | (2,328  | )            |   |   |       |         |   |         | (2,273  | )      
|                                                                                 | Customer advances                              |                                                                 |       |        |            |   |        | (223         | )      |   |               | (241   | )      |              |          | (66,735 | )            |   |   |       |         |   |         | (67,199 | )      
|                                                                                 | Income taxes payable                           |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | 1,648   |              |   |   |       |         |   |         | 1,648   |        
|                                                                                 | Pension and other postretirement liabilities   |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | 9,127   |              |   |   |       |         |   |         | 9,127   |        
|                                                                                 | Long-term liabilities                          |                                                                 |       |        |            |   |        | 375          |        |   |               |       |        |              |          | 1,728   |              |   |   |       |         |   |         | 2,103   |        
|                                                                                 | Other                                          |                                                                 |       |        |            |   |        | 918          |        |   |               | 397    |        |              |          | (1,464  | )            |   |   |       |         |   |         | (149    | )      
|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |  
|Net cash provided by (used in) continuing operating activities                   |                                                |                                                                 | (456  | )       |            |   | 11,617 |              |        |   |              |        |        |              | (103,433 | )       |              |   |  |        |         |   | (92,272 | )      
|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |  
|Investing activities:                                                            |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |   |   |        |         |   |         |        
|                                                                                 | Capital expenditures for continuing operations |                                                                 |       |        |            |   |        | (263         | )      |   |               |       |        |              |          | (2,704  | )            |   |   |       |         |   |         | (2,967  | )      
|                                                                                 | Decrease in restricted cash in escrow          |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | 1,600   |              |   |   |       |         |   |         | 1,600   |        
|                                                                                 | Insurance proceeds receivable                  |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | 129,355 |              |   |   |       |         |   |         | 129,355 |        
|                                                                                 | Proceeds from sale of assets                   |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | 144     |              |   |   |       |         |   |         | 144     |        
|                                                                                 | Investments in and advances to affiliates      |                                                                 |       |        |            |   |        |             |        |   |               |       |        |              |          | (7,354  | )            |   |   |       |         |   |         | (7,354  | )      
|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |  
|Net cash provided by (used in) investing activities of
    continuing operations |                                                |                                                                 |      |         |            |   | (263   | )            |        |   |              |        |        |              | 121,041  |         |              |   |  |        |         |   | 120,778 |        
|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |  
|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                             |                                                |                                                                 | (456  | )       |            |   | 11,354 |              |        |   |              |        |        |              | 17,608   |         |              |   |  |        |         |   | 28,506  |        
|Cash and cash equivalents  beginning of period                                  |                                                |                                                                 | 1,525 |         |            |   | 27,230 |              |        |   |              |        |        |              | 119,018  |         |              |   |  |        |         |   | 147,773 |        
|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |  
|Cash and cash equivalents  end of period                                        |                                                | $                                                               | 1,069 |         |            | $ | 38,584 |              |        | $ |              |        |        | $            | 136,626  |         |              | $ |  |        |         | $ | 176,279 |        
|                                                                                 |                                                |                                                                 |       |         |            |   |        |              |        |   |               |        |        |              |          |         |              |  

36



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







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  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           

37



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Three Months Ended June 30, 2004


(In thousands)


(Unaudited)


|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |   |         |         |   |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | - | ---------- | - | ------- | ------------ |  | - | ------------- | ----- |  | ------------ | ------- | ------- | ------------ | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                                               |                | Parent  |         |   | Subsidiary |   |         | Guarantor    |  |   | Non-Guarantor |       |  |              |         |        
|                                                                                                                                                               |                | Company |         |   | Issuer     |   |         | Subsidiaries |  |   | Subsidiaries  |       |  | Eliminations |         |         | Consolidated |  
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|Revenues from satellite services                                                                                                                               |                | $       |        |   |            | $ | 21,507  |              |  | $ | 9,635         |       |  | $            | 19,011  |         |              | $ | (11,423 | )       |   | $ | 38,730  |        
|Revenues from satellite manufacturing                                                                                                                          |                |         |        |   |            |   |        |              |  |   |              |       |  |              | 81,452  |         |              |   | (6,479  | )       |   |   | 74,973  |        
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|                                                                                                                                                               | Total revenues |         |         |  |            |   |         | 21,507       |  |   |               | 9,635 |  |              |         | 100,463 |              |   |         | (17,902 | ) |   |         | 113,703 | 
|Cost of satellite services                                                                                                                                     |                |         |        |   |            |   | 32,625  |              |  |   | 9,696         |       |  |              | 20,914  |         |              |   | (10,624 | )       |   |   | 52,611  |        
|Cost of satellite manufacturing                                                                                                                                |                |         |        |   |            |   |        |              |  |   |              |       |  |              | 84,985  |         |              |   | (5,753  | )       |   |   | 79,232  |        
|Selling, general and administrative expenses                                                                                                                   |                |         | 2,045   |   |            |   | 6,340   |              |  |   | 3,429         |       |  |              | 18,980  |         |              |   |        |         |   |   | 30,794  |        
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|Operating loss before reorganization expenses due to bankruptcy                                                                                                |                |         | (2,045  | ) |            |   | (17,458 | )            |  |   | (3,490        | )     |  |              | (24,416 | )       |              |   | (1,525  | )       |   |   | (48,934 | )      
|Reorganization expenses due to bankruptcy                                                                                                                      |                |         | (1,021  | ) |            |   | (1,973  | )            |  |   |              |       |  |              | (6,561  | )       |              |   |        |         |   |   | (9,555  | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|Operating loss from continuing operations                                                                                                                      |                |         | (3,066  | ) |            |   | (19,431 | )            |  |   | (3,490        | )     |  |              | (30,977 | )       |              |   | (1,525  | )       |   |   | (58,489 | )      
|Interest and investment income                                                                                                                                 |                |         |        |   |            |   |        |              |  |   |              |       |  |              | 2,473   |         |              |   |        |         |   |   | 2,473   |        
|Interest expense                                                                                                                                               |                |         |        |   |            |   | (220    | )            |  |   |              |       |  |              | (782    | )       |              |   | 609     |         |   |   | (393    | )      
|Other expense                                                                                                                                                  |                |         |        |   |            |   |        |              |  |   |              |       |  |              | (1,453  | )       |              |   |        |         |   |   | (1,453  | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|Loss from continuing operations before income taxes, equity in
    net income (losses) of unconsolidated subsidiaries and
    affiliates and minority interest |                |         | (3,066  | ) |            |   | (19,651 | )            |  |   | (3,490        | )     |  |              | (30,739 | )       |              |   | (916    | )       |   |   | (57,862 | )      
|Income tax (provision) benefit                                                                                                                                 |                |         |        |   |            |   | (1,409  | )            |  |   | 1,222         |       |  |              | (12,613 | )       |              |   | 813     |         |   |   | (11,987 | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|Loss from continuing operations before equity in net income
    (losses) of unconsolidated subsidiaries and affiliates and
    minority interest               |                |         | (3,066  | ) |            |   | (21,060 | )            |  |   | (2,268        | )     |  |              | (43,352 | )       |              |   | (103    | )       |   |   | (69,849 | )      
|Equity in net losses of unconsolidated subsidiaries                                                                                                            |                |         | (19,603 | ) |            |   | (2,268  | )            |  |   |              |       |  |              |        |         |              |   | 21,871  |         |   |   |        |        
|Equity in net income of affiliates                                                                                                                             |                |         |        |   |            |   |        |              |  |   |              |       |  |              | 46,983  |         |              |   |        |         |   |   | 46,983  |        
|Minority interest                                                                                                                                              |                |         |        |   |            |   |        |              |  |   |              |       |  |              | 39      |         |              |   |        |         |   |   | 39      |        
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                       |                |         | (22,669 | ) |            |   | (23,328 | )            |  |   | (2,268        | )     |  |              | 3,670   |         |              |   | 21,768  |         |   |   | (22,827 | )      
|Income from discontinued operations                                                                                                                            |                |         |        |   |            |   |        |              |  |   |              |       |  |              | 158     |         |              |   |        |         |   |   | 158     |        
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  
|Net (loss) income                                                                                                                                              |                | $       | (22,669 | ) |            | $ | (23,328 | )            |  | $ | (2,268        | )     |  | $            | 3,828   |         |              | $ | 21,768  |         |   | $ | (22,669 | )      
|                                                                                                                                                               |                |         |         |   |            |   |         |              |  |   |               |       |  |              |         |         |              |  

38



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Six Months Ended June 30, 2004


(In thousands)


(Unaudited)


|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |   |         |         |   |   |          |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------- | - | ---------- | - | ------- | ------------ |  | - | ------------- | ------ |  | ------------ | ------- | ------- | ------------ | - | ------- | ------- | - | - | -------- | ------- | 
|                                                                                                                                                               |                | Parent  |          |   | Subsidiary |   |         | Guarantor    |  |   | Non-Guarantor |        |  |              |         |        
|                                                                                                                                                               |                | Company |          |   | Issuer     |   |         | Subsidiaries |  |   | Subsidiaries  |        |  | Eliminations |         |         | Consolidated |  
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Revenues from satellite services                                                                                                                               |                | $       |         |   |            | $ | 40,422  |              |  | $ | 17,061        |        |  | $            | 30,724  |         |              | $ | (20,226 | )       |   | $ | 67,981   |        
|Revenues from satellite manufacturing                                                                                                                          |                |         |         |   |            |   |        |              |  |   |              |        |  |              | 155,804 |         |              |   | (6,398  | )       |   |   | 149,406  |        
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|                                                                                                                                                               | Total revenues |         |          |  |            |   |         | 40,422       |  |   |               | 17,061 |  |              |         | 186,528 |              |   |         | (26,624 | ) |   |          | 217,387 | 
|Cost of satellite services                                                                                                                                     |                |         |         |   |            |   | 68,529  |              |  |   | 16,777        |        |  |              | 49,642  |         |              |   | (18,756 | )       |   |   | 116,192  |        
|Cost of satellite manufacturing                                                                                                                                |                |         |         |   |            |   |        |              |  |   |              |        |  |              | 153,244 |         |              |   | (5,713  | )       |   |   | 147,531  |        
|Selling, general and administrative expenses                                                                                                                   |                |         | 4,279    |   |            |   | 10,684  |              |  |   | 3,814         |        |  |              | 43,584  |         |              |   |        |         |   |   | 62,361   |        
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Operating loss before reorganization expenses due to bankruptcy                                                                                                |                |         | (4,279   | ) |            |   | (38,791 | )            |  |   | (3,530        | )      |  |              | (59,942 | )       |              |   | (2,155  | )       |   |   | (108,697 | )      
|Reorganization expenses due to bankruptcy                                                                                                                      |                |         | (1,977   | ) |            |   | (3,851  | )            |  |   |              |        |  |              | (12,042 | )       |              |   |        |         |   |   | (17,870  | )      
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Operating loss from continuing operations                                                                                                                      |                |         | (6,256   | ) |            |   | (42,642 | )            |  |   | (3,530        | )      |  |              | (71,984 | )       |              |   | (2,155  | )       |   |   | (126,567 | )      
|Interest and investment income                                                                                                                                 |                |         |         |   |            |   |        |              |  |   |              |        |  |              | 5,034   |         |              |   |        |         |   |   | 5,034    |        
|Interest expense                                                                                                                                               |                |         |         |   |            |   | (220    | )            |  |   |              |        |  |              | (829    | )       |              |   | 1,218   |         |   |   | 169      |        
|Other expense                                                                                                                                                  |                |         |         |   |            |   |        |              |  |   |              |        |  |              | (4,002  | )       |              |   |        |         |   |   | (4,002   | )      
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations before income taxes, equity in
    net income (losses) of unconsolidated subsidiaries and
    affiliates and minority interest |                |         | (6,256   | ) |            |   | (42,862 | )            |  |   | (3,530        | )      |  |              | (71,781 | )       |              |   | (937    | )       |   |   | (125,366 | )      
|Income tax (provision) benefit                                                                                                                                 |                |         |         |   |            |   | (2,116  | )            |  |   | 1,236         |        |  |              | (12,116 | )       |              |   | 813     |         |   |   | (12,183  | )      
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations before equity in net income
    (losses) of unconsolidated subsidiaries and affiliates and
    minority interest               |                |         | (6,256   | ) |            |   | (44,978 | )            |  |   | (2,294        | )      |  |              | (83,897 | )       |              |   | (124    | )       |   |   | (137,549 | )      
|Equity in net losses of unconsolidated subsidiaries                                                                                                            |                |         | (96,049  | ) |            |   | (2,294  | )            |  |   |              |        |  |              |        |         |              |   | 98,343  |         |   |   |         |        
|Equity in net income of affiliates                                                                                                                             |                |         |         |   |            |   |        |              |  |   |              |        |  |              | 46,580  |         |              |   |        |         |   |   | 46,580   |        
|Minority interest                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |              |        |  |              | 126     |         |              |   |        |         |   |   | 126      |        
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                       |                |         | (102,305 | ) |            |   | (47,272 | )            |  |   | (2,294        | )      |  |              | (37,191 | )       |              |   | 98,219  |         |   |   | (90,843  | )      
|Loss from discontinued operations                                                                                                                              |                |         |         |   |            |   |        |              |  |   |              |        |  |              | (11,462 | )       |              |   |        |         |   |   | (11,462  | )      
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Net (loss) income                                                                                                                                              |                | $       | (102,305 | ) |            | $ | (47,272 | )            |  | $ | (2,294        | )      |  | $            | (48,653 | )       |              | $ | 98,219  |         |   | $ | (102,305 | )      
|                                                                                                                                                               |                |         |          |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  

39



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Six Months Ended June 30, 2004


(In thousands)


(Unaudited)


|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |   |         |         |         |   |          |          |         |  
|-------------------------------------------------------------------------------- | ------------------------------------------------- | --------------------------------------------------------------- | ----- | -------- | ---------- | - | ------- | ------------ | ------ | - | ------------- | ------- | ------ | ------------ | -------- | -------- | ------------ | - | ------- | ------- | ------- | - | -------- | -------- | ------- | -
|                                                                                 |                                                   | Parent                                                          |       |          | Subsidiary |   |         | Guarantor    |        |   | Non-Guarantor |         |        |              |          |         
|                                                                                 |                                                   | Company                                                         |       |          | Issuer     |   |         | Subsidiaries |        |   | Subsidiaries  |         |        | Eliminations |          |          | Consolidated |  
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Operating activities:                                                            |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |   |         |         |         |   |          |         
|                                                                                 | Net loss                                          |                                                                 | $     | (102,305 | )          |   | $       | (47,272      | )      |   | $             | (2,294  | )      |              | $        | (48,653  | )            |   | $       | 98,219  |         |   | $        | (102,305 | )      
|                                                                                 | Non-cash items:                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |   |         |         |         |   |          |          |        
|                                                                                 |                                                   | Loss from discontinued operations                               |       |          |           |   |         |              |       |   |               |         |       |              |          |          | 11,462       |   |         |         |        |   |          |          | 11,462  |  
|                                                                                 |                                                   | Equity in net income of affiliates                              |       |          |           |   |         |              |       |   |               |         |       |              |          |          | (46,580      | ) |         |         |        |   |          |          | (46,580 | )
|                                                                                 |                                                   | Minority interest                                               |       |          |           |   |         |              |       |   |               |         |       |              |          |          | (126         | ) |         |         |        |   |          |          | (126    | )
|                                                                                 |                                                   | Equity in net losses of unconsolidated subsidiaries             |       |          | 96,049     |   |         |              | 2,294  |   |               |         |       |              |          |          |             |   |         |         | (98,343 | ) |          |          |        |  
|                                                                                 |                                                   | Deferred taxes                                                  |       |          |           |   |         |              |       |   |               |         | 1,597  |              |          |          | 11,434       |   |         |         | (1,597  | ) |          |          | 11,434  |  
|                                                                                 |                                                   | Depreciation and amortization                                   |       |          |           |   |         |              | 50,825 |   |               |         | 10,506 |              |          |          | 22,790       |   |         |         |        |   |          |          | 84,121  |  
|                                                                                 |                                                   | Provisions (recoveries) for bad debts                           |       |          |           |   |         |              | 965    |   |               |         | (257   | )            |          |          | (350         | ) |         |         |        |   |          |          | 358     |  
|                                                                                 |                                                   | Impairment charge on satellite and related assets               |       |          |           |   |         |              |       |   |               |         |       |              |          |          | 11,989       |   |         |         |        |   |          |          | 11,989  |  
|                                                                                 |                                                   | Provisions for inventory obsolescence                           |       |          |           |   |         |              |       |   |               |         |       |              |          |          | 287          |   |         |         |        |   |          |          | 287     |  
|                                                                                 |                                                   | Lease revenue straightline adjustment                           |       |          |           |   |         |              | 105    |   |               |         |       |              |          |          | 1,044        |   |         |         |        |   |          |          | 1,149   |  
|                                                                                 |                                                   | Non cash net gain on foreign currency transactions and interest |       |          |           |   |         |              |       |   |               |         |       |              |          |          | (2,230       | ) |         |         |        |   |          |          | (2,230  | )
|Changes in operating assets and liabilities:                                     |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |   |         |         |         |   |          |         
|                                                                                 | Accounts receivable, net                          |                                                                 |       |         |            |   |         | 155          |        |   |               | 953     |        |              |          | 6,978    |              |   |         |        |         |   |          | 8,086    |        
|                                                                                 | Contracts-in-process                              |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | 29,856   |              |   |         |        |         |   |          | 29,856   |        
|                                                                                 | Inventories                                       |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | 3,240    |              |   |         |        |         |   |          | 3,240    |        
|                                                                                 | Long-term receivables                             |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | (6,264   | )            |   |         |        |         |   |          | (6,264   | )      
|                                                                                 | Due (to) from unconsolidated subsidiaries         |                                                                 |       | 8,070    |            |   |         | 3,192        |        |   |               | (13,729 | )      |              |          | (13,484  | )            |   |         | 15,951  |         |   |          |         |        
|                                                                                 | Other current assets and other assets             |                                                                 |       | (2,701   | )          |   |         | (2,714       | )      |   |               | 3,058   |        |              |          | 6,378    |              |   |         |        |         |   |          | 4,021    |        
|                                                                                 | Accounts payable                                  |                                                                 |       |         |            |   |         | 1,183        |        |   |               | 250     |        |              |          | (9,885   | )            |   |         |        |         |   |          | (8,452   | )      
|                                                                                 | Accrued expenses and other current liabilities    |                                                                 |       | 325      |            |   |         | 107          |        |   |               |        |        |              |          | (2,396   | )            |   |         |        |         |   |          | (1,964   | )      
|                                                                                 | Customer advances                                 |                                                                 |       |         |            |   |         | 3,882        |        |   |               | (84     | )      |              |          | 68,422   |              |   |         |        |         |   |          | 72,220   |        
|                                                                                 | Income taxes payable                              |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | (814     | )            |   |         |        |         |   |          | (814     | )      
|                                                                                 | Pension and other postretirement liabilities      |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | 9,039    |              |   |         |        |         |   |          | 9,039    |        
|                                                                                 | Long-term liabilities                             |                                                                 |       |         |            |   |         | (951         | )      |   |               |        |        |              |          | (2,411   | )            |   |         |        |         |   |          | (3,362   | )      
|                                                                                 | Other                                             |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | 6        |              |   |         |        |         |   |          | 6        |        
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Net cash (used in) provided by operating activities of
    continuing operations |                                                   |                                                                 | (562  | )        |            |   | 11,771  |              |        |   |              |         |        |              | 49,732   |          |              |   | 14,230  |         |         |   | 75,171   |         
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Net cash provided by discontinued operations                                     |                                                   |                                                                 |      |          |            |   |        |              |        |   |              |         |        |              | 29,445   |          |              |   |        |         |         |   | 29,445   |         
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Net cash (used in) provided by operating activities                              |                                                   |                                                                 | (562  | )        |            |   | 11,771  |              |        |   |              |         |        |              | 79,177   |          |              |   | 14,230  |         |         |   | 104,616  |         
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Investing activities:                                                            |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |   |         |         |         |   |          |         
|                                                                                 | Capital expenditures for continuing operations    |                                                                 |       |         |            |   |         | (10,981      | )      |   |               |        |        |              |          | 1,581    |              |   |         | (14,230 | )       |   |          | (23,630  | )      
|                                                                                 | Increase in restricted cash in escrow             |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | (6,720   | )            |   |         |        |         |   |          | (6,720   | )      
|                                                                                 | Investments in and advances to affiliates         |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | (4,798   | )            |   |         |        |         |   |          | (4,798   | )      
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Net cash used in investing activities of continuing operations                   |                                                   |                                                                 |      |          |            |   | (10,981 | )            |        |   |              |         |        |              | (9,937   | )        |              |   | (14,230 | )       |         |   | (35,148  | )       
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|                                                                                 | Proceeds from the sale of assets, net of expenses |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | 953,619  |              |   |         |        |         |   |          | 953,619  |        
|                                                                                 | Capital expenditures for discontinued operations  |                                                                 |       |         |            |   |         |             |        |   |               |        |        |              |          | (11,185  | )            |   |         |        |         |   |          | (11,185  | )      
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Net cash provided by discontinued operations                                     |                                                   |                                                                 |      |          |            |   |        |              |        |   |              |         |        |              | 942,434  |          |              |   |        |         |         |   | 942,434  |         
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Net cash provided by (used in) investing activities                              |                                                   |                                                                 |      |          |            |   | (10,981 | )            |        |   |              |         |        |              | 932,497  |          |              |   | (14,230 | )       |         |   | 907,286  |         
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|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                                 |                                                   |                                                                 | (562  | )        |            |   | 790     |              |        |   |              |         |        |              | 44,787   |          |              |   |        |         |         |   | 45,015   |         
|Cash and cash equivalentsbeginning of period                                    |                                                   |                                                                 | 4,481 |          |            |   | 46,831  |              |        |   |              |         |        |              | 90,332   |          |              |   |        |         |         |   | 141,644  |         
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  
|Cash and cash equivalentsend of period                                          |                                                   | $                                                               | 3,919 |          |            | $ | 47,621  |              |        | $ |              |         |        | $            | 135,119  |          |              | $ |        |         |         | $ | 186,659  |         
|                                                                                 |                                                   |                                                                 |       |          |            |   |         |              |        |   |               |         |        |              |          |          |              |  

40



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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, including in other parts of this report. 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 implementation of a Plan of
Reorganization as confirmed 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





41



---



##### Table of Contents







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





Cash and Available Credit






| |                 
| | ----------------
| | Chapter 11 Cases





42



---



##### Table of Contents





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





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











Consolidated Operating Results








43



---



##### Table of Contents





Revenues:


|                        |                             |                |       |       |                |   |       |       |  |   |       |       |  |   |       |       | 
|----------------------- | --------------------------- | -------------- | ----- | ----- | -------------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                        |                             | Three Months   |       |       | Six Months     |  
|                        |                             | Ended June 30, |       |       | Ended June 30, |  
|                        |                             |                |       |       |                |  
|                        |                             | 2005           |       |       | 2004           |   |       | 2005  |  |   | 2004  |      
|                        |                             |                |       |       |                |   |       |       |  |   |       |      
|                        |                             | (In millions)  |      
|Satellite services      |                             | $              | 37.5  |       |                | $ | 40.2  |       |  | $ | 73.4  |       |  | $ | 71.3  |      
|Satellite manufacturing |                             |                | 106.6 |       |                |   | 113.8 |       |  |   | 206.2 |       |  |   | 214.8 |      
|                        |                             |                |       |       |                |   |       |       |  |   |       |      
|Segment revenues        |                             |                | 144.1 |       |                |   | 154.0 |       |  |   | 279.6 |       |  |   | 286.1 |      
|Eliminations(1)         |                             |                | (7.3  | )     |                |   | (40.3 | )     |  |   | (10.5 | )     |  |   | (68.7 | )    
|                        |                             |                |       |       |                |   |       |       |  |   |       |      
|                        | Revenues as
    reported(2) |                | $     | 136.8 |                |   | $     | 113.7 |  |   | $     | 269.1 |  |   | $     | 217.4 | 
|                        |                             |                |       |       |                |   |       |       |  |   |       |      

Adjusted EBITDA:


|                               |                                             |                |      |      |                  |   |      |      |   |   |       |      |  |   |       |       |  
|------------------------------ | ------------------------------------------- | -------------- | ---- | ---- | ---------------- | - | ---- | ---- | - | - | ----- | ---- |  | - | ----- | ----- | -
|                               |                                             | Three Months   |      |      | Six Months Ended |  
|                               |                                             | Ended June 30, |      |      | June 30,         |  
|                               |                                             |                |      |      |                  |  
|                               |                                             | 2005           |      |      | 2004             |   |      | 2005 |   |   | 2004  |     
|                               |                                             |                |      |      |                  |   |      |      |   |   |       |     
|                               |                                             | (In millions)  |     
|Satellite
    services(4)      |                                             | $              | 11.8 |      |                  | $ | 9.0  |      |   | $ | 20.9  |      |  | $ | (1.2  | )    
|Satellite
    manufacturing(3) |                                             |                | 6.2  |      |                  |   | 2.2  |      |   |   | 10.5  |      |  |   | 5.8   |      
|Corporate
    expenses(5)      |                                             |                | (6.7 | )    |                  |   | (8.9 | )    |   |   | (12.4 | )    |  |   | (17.5 | )    
|                               |                                             |                |      |      |                  |   |      |      |   |   |       |     
|                               | Segment Adjusted EBITDA before eliminations |                |      | 11.3 |                  |   |      | 2.3  |   |   |       | 19.0 |  |   |       | (12.9 | )
|Eliminations(1)                |                                             |                | (1.0 | )    |                  |   | (8.3 | )    |   |   | (3.5  | )    |  |   | (11.7 | )    
|                               |                                             |                |      |      |                  |   |      |      |   |   |       |     
|                               | Adjusted EBITDA                             |                | $    | 10.3 |                  |   | $    | (6.0 | ) |   | $     | 15.5 |  |   | $     | (24.6 | )
|                               |                                             |                |      |      |                  |   |      |      |   |   |       |     

Reconciliation of Adjusted EBITDA to Net Loss:


|                                                      |                                           |                |       |       |                |   |       |       |   |   |       |       |   |   |        |        |  
|----------------------------------------------------- | ----------------------------------------- | -------------- | ----- | ----- | -------------- | - | ----- | ----- | - | - | ----- | ----- | - | - | ------ | ------ | -
|                                                      |                                           | Three Months   |       |       | Six Months     |  
|                                                      |                                           | Ended June 30, |       |       | Ended June 30, |  
|                                                      |                                           |                |       |       |                |  
|                                                      |                                           | 2005           |       |       | 2004           |   |       | 2005  |   |   | 2004  |      
|                                                      |                                           |                |       |       |                |   |       |       |   |   |       |      
|                                                      |                                           | (In millions)  |      
|Adjusted EBITDA                                       |                                           | $              | 10.3  |       |                | $ | (6.0  | )     |   | $ | 15.5  |       |   | $ | (24.6  | )     
|Depreciation and
    amortization(6)                  |                                           |                | (20.0 | )     |                |   | (42.9 | )     |   |   | (43.6 | )     |   |   | (84.1  | )     
|Reorganization expenses due to bankruptcy             |                                           |                | (7.0  | )     |                |   | (9.6  | )     |   |   | (12.6 | )     |   |   | (17.9  | )     
|                                                      |                                           |                |       |       |                |   |       |       |   |   |       |      
|                                                      | Operating loss from continuing operations |                |       | (16.7 | )              |   |       | (58.5 | ) |   |       | (40.7 | ) |   |        | (126.6 | )
|Interest and investment income                        |                                           |                | 2.3   |       |                |   | 2.5   |       |   |   | 4.1   |       |   |   | 5.1    |       
|Interest expense                                      |                                           |                | (1.5  | )     |                |   | (0.4  | )     |   |   | (2.4  | )     |   |   | 0.2    |       
|Other income (expense)                                |                                           |                | (0.3  | )     |                |   | (1.4  | )     |   |   | (1.0  | )     |   |   | (4.0   | )     
|Income tax provision                                  |                                           |                | (1.8  | )     |                |   | (12.0 | )     |   |   | (3.5  | )     |   |   | (12.2  | )     
|Equity income (losses) in affiliates                  |                                           |                | (0.8  | )     |                |   | 47.0  |       |   |   | (1.5  | )     |   |   | 46.6   |       
|Minority interest                                     |                                           |                |      |       |                |   |      |       |   |   |      |       |   |   | 0.1    |       
|                                                      |                                           |                |       |       |                |   |       |       |   |   |       |      
|Loss from continuing operations                       |                                           |                | (18.8 | )     |                |   | (22.8 | )     |   |   | (45.0 | )     |   |   | (90.8  | )     
|Income (loss) from discontinued operations            |                                           |                |      |       |                |   | 0.1   |       |   |   |      |       |   |   | (11.5  | )     
|Gain on sale of discontinued operations, net of taxes |                                           |                | 11.4  |       |                |   |      |       |   |   | 11.4  |       |   |   |       |       
|                                                      |                                           |                |       |       |                |   |       |       |   |   |       |      
|Net loss                                              |                                           | $              | (7.4  | )     |                | $ | (22.7 | )     |   | $ | (33.6 | )     |   | $ | (102.3 | )     
|                                                      |                                           |                |       |       |                |   |       |       |   |   |       |      






|    |                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for wholly owned subsidiaries.

44



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes revenues from affiliates of $1.7 million and
    $2.1 million for the three months ended June 30, 2005
    and 2004, respectively, and $4.6 million and $5.2 million
    for the six months ended June 30, 2005 and 2004,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(3) | Satellite manufacturing includes a warranty accrual of
    $6 million for the three and six months ended June 30,
    2005. Satellite manufacturing excludes charges of
    $2 million and $22 million for the three and six
    months ended June 30, 2004, respectively, as a result of
    the settlement of all orbital receivables on satellites sold to
    Intelsat. This settlement had the effect of reducing future
    orbital receipts by $25 million, including $15 million
    relating to a satellite that was under construction in 2004.
    Consistent with our internal reporting for satellite
    manufacturing, this decrease in contract value for the satellite
    that was under construction in 2004 was not being reflected as a
    decrease in satellite manufacturing revenues. These charges had
    no effect on our consolidated results in 2004.
|   
|(4) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                             |                                                                                                           |                |   |      |                |  |   |      |  |  |      |      |  |  |   |       |  
|---------------------------- | --------------------------------------------------------------------------------------------------------- | -------------- | - | ---- | -------------- |  | - | ---- |  |  | ---- | ---- |  |  | - | ----- | -
|                             |                                                                                                           | Three Months   |   |      | Six Months     | 
|                             |                                                                                                           | Ended June 30, |   |      | Ended June 30, | 
|                             |                                                                                                           |                |   |      |                | 
|                             |                                                                                                           | 2005           |   |      | 2004           |  |   | 2005 |  |  | 2004 |     
|                             |                                                                                                           |                |   |      |                |  |   |      |  |  |      |     
|                             |                                                                                                           | (In millions)  |  
|Satellite Services includes: |                                                                                                           |                |   |      |                |  |   |      |  |  |      |      |  |  |   |      
|                             | Adjusted EBITDA before specific charges                                                                   |                | $ | 11.8 |                |  | $ | 9.0  |  |  | $    | 20.9 |  |  | $ | 10.8  |  
|                             | 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                                            |                | $ | 11.8 |                |  | $ | 9.0  |  |  | $    | 20.9 |  |  | $ | (1.2  | )
|                             |                                                                                                           |                |   |      |                |  |   |      |  |  |      |     



|    |                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Represents corporate expenses incurred in support of our
    operations.                                                                                                                                                                                                                                       
|(6) | Includes additional depreciation expense of $10 million and
    $24 million for the three and six months ended
    June 30, 2004, respectively, relating to our Telstar 11
    satellite for which depreciation was accelerating due to the
    estimated end of depreciable life to June 2004 from March 2005.

Three Months Ended June 30, 2005 Compared With 2004




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

|                                             |  |               |    |   |             |   |    |            |  |  |    |   
|-------------------------------------------- |  | ------------- | -- | - | ----------- | - | -- | ---------- |  |  | -- | --
|                                             |  | Three Months  |    |   |            
|                                             |  | Ended         |    |   |            
|                                             |  | June 30,      |    |   |            
|                                             |  |               |    |   | % Increase/ |  
|                                             |  | 2005          |    |   | 2004        |   |    | (Decrease) | 
|                                             |  |               |    |   |             |   |    |            | 
|                                             |  | (In millions) |    |   |            
|Revenues from Satellite Services             |  | $             | 37 |   |             | $ | 40 |            |  |  | (7 | )%
|Eliminations                                 |  |               | (1 | ) |             |   | (1 | )          |  |  | 14 | % 
|                                             |  |               |    |   |             |   |    |            | 
|Revenues from Satellite Services as reported |  | $             | 36 |   |             | $ | 39 |            |  |  | (7 | )%
|                                             |  |               |    |   |             |   |    |            | 



45



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

|                                                  |  |                |     |   |             |   |     |            |  |  |    |   
|------------------------------------------------- |  | -------------- | --- | - | ----------- | - | --- | ---------- |  |  | -- | --
|                                                  |  | Three Months   |     |   |            
|                                                  |  | Ended June 30, |     |   |            
|                                                  |  |                |     |   | % Increase/ |  
|                                                  |  | 2005           |     |   | 2004        |   |     | (Decrease) | 
|                                                  |  |                |     |   |             |   |     |            | 
|                                                  |  | (In millions)  |     |   |            
|Revenues from Satellite Manufacturing             |  | $              | 107 |   |             | $ | 114 |            |  |  | (6 | )%
|Eliminations                                      |  |                | (6  | ) |             |   | (39 | )          |  |  | 84 | % 
|                                                  |  |                |     |   |             |   |     |            | 
|Revenues from Satellite Manufacturing as reported |  | $              | 101 |   |             | $ | 75  |            |  |  | 34 | % 
|                                                  |  |                |     |   |             |   |     |            | 





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

|                                                                                 |                                        |                |    |    |             |  |     |            |  |  |  |     |   
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | -- | -- | ----------- |  | --- | ---------- |  |  |  | --- | --
|                                                                                 |                                        | Three Months   |    |    |            
|                                                                                 |                                        | Ended June 30, |    |    |            
|                                                                                 |                                        |                |    |    | % Increase/ | 
|                                                                                 |                                        | 2005           |    |    | 2004        |  |     | (Decrease) | 
|                                                                                 |                                        |                |    |    |             |  |     |            | 
|                                                                                 |                                        | (In millions)  |    |    |            
|Cost of Satellite Services includes:                                             |                                        |                |    |    |             |  |     |            |  |  |  |    
|                                                                                 | Other cost of Satellite Services       |                | $  | 15 |             |  | $   | 18         |  |  |  | (13 | )%
|                                                                                 | Depreciation and amortization          |                |    | 16 |             |  |     | 35         |  |  |  | (55 | )%
|                                                                                 |                                        |                |    |    |             |  |     |            | 
|                                                                                 | Cost of Satellite Services as reported |                | $  | 31 |             |  | $   | 53         |  |  |  | (41 | )%
|                                                                                 |                                        |                |    |    |             |  |     |            | 
|Cost of Satellite Services as a % of Satellite Services revenues
    as reported |                                        |                | 85 | %  |             |  | 135 | %          |  |  |  |    





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

|                                                                                          |                                       |                |    |    |             |   |     |            |  |  |   |     |   
|----------------------------------------------------------------------------------------- | ------------------------------------- | -------------- | -- | -- | ----------- | - | --- | ---------- |  |  | - | --- | --
|                                                                                          |                                       | Three Months   |    |    |            
|                                                                                          |                                       | Ended June 30, |    |    |            
|                                                                                          |                                       |                |    |    | % Increase/ |  
|                                                                                          |                                       | 2005           |    |    | 2004        |   |     | (Decrease) | 
|                                                                                          |                                       |                |    |    |             |   |     |            | 
|                                                                                          |                                       | (In millions)  |    |    |            
|Cost of Satellite Manufacturing includes:                                                 |                                       |                |    |    |             |   |     |            |  |  |   |    
|                                                                                          | Other cost of Satellite Manufacturing |                | $  | 83 |             |   | $   | 72         |  |  |   | 15  | % 
|                                                                                          | Depreciation and amortization         |                |    | 4  |             |   |     | 7          |  |  |   | (46 | )%
|                                                                                          |                                       |                |    |    |             |   |     |            | 
|Cost of Satellite Manufacturing as reported                                               |                                       | $              | 87 |    |             | $ | 79  |            |  |  | 9 | %  
|                                                                                          |                                       |                |    |    |             |   |     |            | 
|Cost of Satellite Manufacturing as a % of Satellite
    Manufacturing revenue as reported |                                       |                | 86 | %  |             |   | 106 | %          |  |  |   |    



46



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

|                                             |  |                |    |   |             |   |    |            |  |  |    |   
|-------------------------------------------- |  | -------------- | -- | - | ----------- | - | -- | ---------- |  |  | -- | --
|                                             |  | Three Months   |    |   |            
|                                             |  | Ended June 30, |    |   |            
|                                             |  |                |    |   | % Increase/ |  
|                                             |  | 2005           |    |   | 2004        |   |    | (Decrease) | 
|                                             |  |                |    |   |             |   |    |            | 
|                                             |  | (In millions)  |    |   |            
|Selling, general and administrative expenses |  | $              | 29 |   |             | $ | 31 |            |  |  | (6 | )%
|% of revenues as reported                    |  |                | 21 | % |             |   | 27 | %          |  |  |    |   





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

|                                          |  |                |   |  |             |   |    |            |  |  |     |   
|----------------------------------------- |  | -------------- | - |  | ----------- | - | -- | ---------- |  |  | --- | --
|                                          |  | Three Months   |   |  |            
|                                          |  | Ended June 30, |   |  |            
|                                          |  |                |   |  | % Increase/ |  
|                                          |  | 2005           |   |  | 2004        |   |    | (Decrease) | 
|                                          |  |                |   |  |             |   |    |            | 
|                                          |  | (In millions)  |   |  |            
|Reorganization expenses due to bankruptcy |  | $              | 7 |  |             | $ | 10 |            |  |  | (27 | )%





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

|                               |  |                |   |  |             |   |   |            |  |  |   |  
|------------------------------ |  | -------------- | - |  | ----------- | - | - | ---------- |  |  | - | -
|                               |  | Three Months   |   |  |            
|                               |  | Ended June 30, |   |  |            
|                               |  |                |   |  | % Increase/ |  
|                               |  | 2005           |   |  | 2004        |   |   | (Decrease) | 
|                               |  |                |   |  |             |   |   |            | 
|                               |  | (In millions)  |   |  |            
|Interest and investment income |  | $              | 2 |  |             | $ | 2 |            |  |  | 6 | %





| |              
| | -------------
| | Other Expense





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



47



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##### Table of Contents





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

|                                                        |  |                |    |   |      |   |    | 
|------------------------------------------------------- |  | -------------- | -- | - | ---- | - | -- | 
|                                                        |  | Three Months   |   
|                                                        |  | Ended June 30, |   
|                                                        |  |                |   
|                                                        |  | 2005           |    |   | 2004 |  
|                                                        |  |                |    |   |      |  
|                                                        |  | (In millions)  |   
|XTAR                                                    |  | $              | (1 | ) |      | $ |   | 
|Globalstar and Globalstar service provider partnerships |  |                |   |   |      |   | 47 | 
|                                                        |  |                |    |   |      |  
|                                                        |  | $              | (1 | ) |      | $ | 47 | 
|                                                        |  |                |    |   |      |  





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





Six Months Ended June 30, 2005 Compared With 2004




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

|                                             |  |                |    |   |             |   |    |            |  |  |    |  
|-------------------------------------------- |  | -------------- | -- | - | ----------- | - | -- | ---------- |  |  | -- | -
|                                             |  | Six Months     |    |   |            
|                                             |  | Ended June 30, |    |   |            
|                                             |  |                |    |   | % Increase/ |  
|                                             |  | 2005           |    |   | 2004        |   |    | (Decrease) | 
|                                             |  |                |    |   |             |   |    |            | 
|                                             |  | (In millions)  |    |   |            
|Revenues from Satellite Services             |  | $              | 73 |   |             | $ | 71 |            |  |  | 3  | %
|Eliminations                                 |  |                | (2 | ) |             |   | (3 | )          |  |  | 22 | %
|                                             |  |                |    |   |             |   |    |            | 
|Revenues from Satellite Services as reported |  | $              | 71 |   |             | $ | 68 |            |  |  | 4  | %
|                                             |  |                |    |   |             |   |    |            | 





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

|                                                  |  |                |     |   |             |   |     |            |  |  |    |   
|------------------------------------------------- |  | -------------- | --- | - | ----------- | - | --- | ---------- |  |  | -- | --
|                                                  |  | Six Months     |     |   |            
|                                                  |  | Ended June 30, |     |   |            
|                                                  |  |                |     |   | % Increase/ |  
|                                                  |  | 2005           |     |   | 2004        |   |     | (Decrease) | 
|                                                  |  |                |     |   |             |   |     |            | 
|                                                  |  | (In millions)  |     |   |            
|Revenues from Satellite Manufacturing             |  | $              | 206 |   |             | $ | 215 |            |  |  | (4 | )%
|Eliminations                                      |  |                | (8  | ) |             |   | (66 | )          |  |  | 88 | % 
|                                                  |  |                |     |   |             |   |     |            | 
|Revenues from Satellite Manufacturing as reported |  | $              | 198 |   |             | $ | 149 |            |  |  | 33 | % 
|                                                  |  |                |     |   |             |   |     |            | 

48



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

|                                                                                 |                                  |                |    |    |             |   |     |            |  |  |     |     |   
|-------------------------------------------------------------------------------- | -------------------------------- | -------------- | -- | -- | ----------- | - | --- | ---------- |  |  | --- | --- | --
|                                                                                 |                                  | Six Months     |    |    |            
|                                                                                 |                                  | Ended June 30, |    |    |            
|                                                                                 |                                  |                |    |    | % Increase/ |  
|                                                                                 |                                  | 2005           |    |    | 2004        |   |     | (Decrease) | 
|                                                                                 |                                  |                |    |    |             |   |     |            | 
|                                                                                 |                                  | (In millions)  |    |    |            
|Cost of Satellite Services includes:                                             |                                  |                |    |    |             |   |     |            |  |  |     |    
|                                                                                 | Other cost of Satellite Services |                | $  | 31 |             |   | $   | 33         |  |  |     | (6  | )%
|                                                                                 | Impairment T14/ EDS              |                |    |   |             |   |     | 12         |  |  |     |     |   
|                                                                                 | Depreciation and amortization    |                |    | 35 |             |   |     | 71         |  |  |     | (51 | )%
|                                                                                 |                                  |                |    |    |             |   |     |            | 
|Cost of Satellite Services as reported                                           |                                  | $              | 66 |    |             | $ | 116 |            |  |  | (43 | )% 
|                                                                                 |                                  |                |    |    |             |   |     |            | 
|Cost of Satellite Services as a % of Satellite Services revenues
    as reported |                                  |                | 93 | %  |             |   | 171 | %          |  |  |     |    





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

|                                                                                          |                                       |                |     |     |             |   |     |            |  |  |    |     |   
|----------------------------------------------------------------------------------------- | ------------------------------------- | -------------- | --- | --- | ----------- | - | --- | ---------- |  |  | -- | --- | --
|                                                                                          |                                       | Six Months     |     |     |            
|                                                                                          |                                       | Ended June 30, |     |     |            
|                                                                                          |                                       |                |     |     | % Increase/ |  
|                                                                                          |                                       | 2005           |     |     | 2004        |   |     | (Decrease) | 
|                                                                                          |                                       |                |     |     |             |   |     |            | 
|                                                                                          |                                       | (In millions)  |     |     |            
|Cost of Satellite Manufacturing includes:                                                 |                                       |                |     |     |             |   |     |            |  |  |    |    
|                                                                                          | Other cost of Satellite Manufacturing |                | $   | 167 |             |   | $   | 135        |  |  |    | 24  | % 
|                                                                                          | Depreciation and amortization         |                |     | 8   |             |   |     | 12         |  |  |    | (36 | )%
|                                                                                          |                                       |                |     |     |             |   |     |            | 
|Cost of Satellite Manufacturing as reported                                               |                                       | $              | 175 |     |             | $ | 147 |            |  |  | 19 | %  
|                                                                                          |                                       |                |     |     |             |   |     |            | 
|Cost of Satellite Manufacturing as a % of Satellite
    Manufacturing revenue as reported |                                       |                | 88  | %   |             |   | 99  | %          |  |  |    |    



49



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##### Table of Contents





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

|                                             |  |                |    |   |           |   |    |            |  |  |     |   
|-------------------------------------------- |  | -------------- | -- | - | --------- | - | -- | ---------- |  |  | --- | --
|                                             |  | Six Months     |    |   |          
|                                             |  | Ended June 30, |    |   | %         |  
|                                             |  |                |    |   | Increase/ |  
|                                             |  | 2005           |    |   | 2004      |   |    | (Decrease) | 
|                                             |  |                |    |   |           |   |    |            | 
|                                             |  | (In millions)  |    |   |          
|Selling, general and administrative expenses |  | $              | 56 |   |           | $ | 62 |            |  |  | (10 | )%
|% of revenues as reported                    |  |                | 21 | % |           |   | 29 | %          |  |  |     |   





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

|                                          |  |                |    |  |             |   |    |            |  |  |     |   
|----------------------------------------- |  | -------------- | -- |  | ----------- | - | -- | ---------- |  |  | --- | --
|                                          |  | Six Months     |    |  |            
|                                          |  | Ended June 30, |    |  |            
|                                          |  |                |    |  | % Increase/ |  
|                                          |  | 2005           |    |  | 2004        |   |    | (Decrease) | 
|                                          |  |                |    |  |             |   |    |            | 
|                                          |  | (In millions)  |    |  |            
|Reorganization expenses due to bankruptcy |  | $              | 13 |  |             | $ | 18 |            |  |  | (29 | )%





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

|                               |  |                |   |  |             |   |   |            |  |  |     |   
|------------------------------ |  | -------------- | - |  | ----------- | - | - | ---------- |  |  | --- | --
|                               |  | Six Months     |   |  |            
|                               |  | Ended June 30, |   |  |            
|                               |  |                |   |  | % Increase/ |  
|                               |  | 2005           |   |  | 2004        |   |   | (Decrease) | 
|                               |  |                |   |  |             |   |   |            | 
|                               |  | (In millions)  |   |  |            
|Interest and investment income |  | $              | 4 |  |             | $ | 5 |            |  |  | (18 | )%





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

|                                          |  |                |   |  |      |   |    |  
|----------------------------------------- |  | -------------- | - |  | ---- | - | -- | -
|                                          |  | Six Months     |  
|                                          |  | Ended June 30, |  
|                                          |  |                |  
|                                          |  | 2005           |   |  | 2004 |  
|                                          |  |                |   |  |      |  
|                                          |  | (In millions)  |  
|Interest cost before capitalized interest |  | $              | 2 |  |      | $ | 1  |  
|Capitalized interest                      |  |                |  |  |      |   | (1 | )
|                                          |  |                |   |  |      |  
|Interest expense                          |  | $              | 2 |  |      | $ |   |  
|                                          |  |                |   |  |      |  



50



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##### Table of Contents





| |              
| | -------------
| | Other Expense





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





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

|                                                        |  |                |    |   |      |   |    | 
|------------------------------------------------------- |  | -------------- | -- | - | ---- | - | -- | 
|                                                        |  | Six Months     |   
|                                                        |  | Ended June 30, |   
|                                                        |  |                |   
|                                                        |  | 2005           |    |   | 2004 |  
|                                                        |  |                |    |   |      |  
|                                                        |  | (In millions)  |   
|XTAR                                                    |  | $              | (1 | ) |      | $ |   | 
|Globalstar and Globalstar service provider partnerships |  |                |   |   |      |   | 47 | 
|                                                        |  |                |    |   |      |  
|                                                        |  | $              | (1 | ) |      | $ | 47 | 
|                                                        |  |                |    |   |      |  





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







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



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





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



51



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##### Table of Contents





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



Liquidity and Capital Resources




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











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





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



52



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##### Table of Contents







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





| |                                          
| | -----------------------------------------
| | Net Cash Provided by Investing Activities







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





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



Commitments and Contingencies




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



Other Matters




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



Item 3.     Quantitative and
Qualitative Disclosures About Market Risk




53



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##### Table of Contents





|                                                                |  |              |       |   |        |   |      |  
|--------------------------------------------------------------- |  | ------------ | ----- | - | ------ | - | ---- | -
|                                                                |  | Japanese Yen |       |   | U.S. $ |  
|                                                                |  |              |       |   |        |  
|Future revenues                                                 |  | ¥            | 819   |   |        | $ | 7.4  |  
|Future expenditures                                             |  |              | 1,240 |   |        |   | 11.2 |  
|Contracts-in-process: unbilled receivables/ (customer advances) |  |              | (41   | ) |        |   | (0.4 | )



Item 4.     Disclosure
Controls and Procedures


Disclosure controls and procedures.


Internal control over financial reporting.





PART II.


OTHER INFORMATION




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









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##### Table of Contents



Item 3.Defaults Upon
Senior Securities








Item 6.     Exhibits and
Reports on Form 8-K
















55



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##### Table of Contents





|               |  |                                                      |  |                                                                                                                                                                                                                             
|-------------- |  | ---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report |  |                                                      |  | Description                                                                                                                                                                                                                 
|               |  |                                                      |  |                                                                                                                                                                                                                             
|April 6, 2005  |  | Item 7.01. Regulation FD Disclosure                  |  | Monthly Operating report for the period of January 29, 2005
    through February 25, 2005 as filed with the U.S. Bankruptcy
    Court for the Southern District of New York.                                                
|              
|May 11, 2005   |  | Item 7.01. Regulation FD Disclosure                  |  | Monthly Operating report for the period of February 25,
    2005 through March 31, 2005 as filed with the U.S.
    Bankruptcy Court for the Southern District of New York.                                                  
|              
|May 16, 2005   |  | Item 8.01. Other Events                              |  | The Bankruptcy Court approved the settlement that Space Systems/
    Loral, Inc. (SS/L) reached with certain of its
    insurers to settle its claim for a constructive total loss of
    the Telstar 14/Estrela do Sul-1.
|              
|June 8, 2005   |  | Item 7.01. Regulation FD Disclosure                  |  | Monthly Operating report for the period of March 31, 2005
    through April 22, 2005 as filed with the U.S. Bankruptcy
    Court for the Southern District of New York.                                                     
|              
|June 30, 2005  |  | Item 1.01 Entry into a Material Definitive Agreement |  | The Compensation Committee approved the Management Incentive
    Bonus Program for corporate office participants, for the fiscal
    year ending December 31, 2005.                                                         
|               |  | Item 8.01 Other Events                               |  | Filed with the Bankruptcy Court a supplement to the previously
    filed Fourth Amended Joint Plan of Reorganization Under
    Chapter 11 of the Bankruptcy Code dated June 3, 2005.                                        

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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  



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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